Q3 2023 Pacific Biosciences of California Inc Earnings Call
Good afternoon, everyone and welcome to the pack bio third quarter 2023 earnings conference call.
Speaker 1: transcript
Speaker 1: Good afternoon, everyone, and welcome to the PACbio third quarter 2023 earnings conference call.
Speaker 1: transcript
Speaker 2: All participants will be in a listen only mode. Should you need assistance please see no conference specialist by pressing the star key followed by zero.
All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
Speaker 1: transcript
Speaker 3: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one. Withdraw your questions, you may press star and two.
After todays presentation, there will be an opportunity to ask questions.
To ask a question you May press Star and then one.
Withdraw your question you May press Star two.
Please also note.
Today's event is being recorded.
Speaker 1: transcript
Speaker 4: time I'd like to turn the four over to Todd Freeman, Senior Director of Investor Relations. Sir, please go ahead.
At this time I'd like to turn the floor over to Tom Friedman Senior director of Investor Relations. Sir. Please go ahead.
Thank you Jamie good afternoon, and welcome to <unk> third quarter 2023 earnings Conference call.
Speaker 2: transcript
Speaker 5: Thank you, Jamie. Good afternoon and welcome to Pac Dio's third quarter, 2023, earning a conference call.
Speaker 2: transcript
Speaker 6: 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 Investor section of our website at www.pacd.com or is furnished on form 8K available on the Securities and Exchange Commission website at www.scc.gov.
Earlier today, we issued a press release outlining the natural adult 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.
Furnished on form 8-K available on the Securities and Exchange Commission website at Www Dot SEC Docker.
Speaker 2: transcript
Speaker 7: With me today, our Christian Henry President and Chief Executive Officer, and Susan Kim, Chief Financial Officer.
With me today are Christian Henry President and Chief Executive Officer, and Susan Kim Chief Financial Officer.
Speaker 2: transcript
Speaker 8: On today's call, we will be making forward-looking statements, including statements regarding predictions, progress, estimates, plans, intentions, guidance, and others, including expectations with respect to our gross potential, instrument and consumable sales, and gap and non-gap gross guidance.
On today's call, we will be making forward looking statements, including statements regarding predictions progress estimates plans intentions guidance, others, including expectations with respect to our growth potential instrument and consumable sales and GAAP and non-GAAP gross guidance you.
Speaker 2: transcript
Speaker 9: You should not place undue reliance on forward looking statements because they are subject to risks and uncertainties that could cause our factual results to differ materially from those projected or discussed.
You should not place undue reliance on forward looking statements because they are subject to risks and uncertainties that could cause our actual results to differ materially from those projected or discussed.
Speaker 2: transcript
Speaker 10: We refer you to the documents that we file with the SEC, including our most recent forms 10Q and 10K, and our recent press releases to better understand the risks and uncertainties that could cause actual results to differ. We display any obligation to update or revise these forward looking statements, except as required by law.
We refer you to the documents, we file with the SEC, including our most recent forms 10-Q, and 10-K and our recent press releases to better understand the risks and uncertainties that could cause actual results to differ.
Disclaim any obligation to update or revise these forward looking statements except as required by law.
Speaker 2: transcript
Speaker 11: 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 supplement an understanding of the company's operating results as reported under US GAAP.
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 supplement an understanding of the company's operating results as reported under U S. GAAP.
Speaker 2: transcript
Speaker 12: 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.
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.
Speaker 2: transcript
Speaker 13: Reconciliation between historical US gap and non-gap results are presented in the tables within our earnings release.
Reconciliations between historical U S GAAP and non-GAAP results are presented in the tables within our earnings release.
Speaker 2: transcript
In addition, please note that today's call is being recorded and will be available for 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.
Speaker 2: transcript
Speaker 14: 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 only so we can accommodate everybody in the queue. I will now turn the call over to Christian.
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 only so we can accommodate everybody in the queue I would now.
Now I'll turn the call over to Christian.
Thank you everyone for joining the call today.
Speaker 3: transcript
Speaker 15: Thank you, everyone, for joining the call today. Pac-FiO achieved another milestone in the third quarter as we grew revenue by 72%. Year over year to 55.7 million. Exceeding 50 million in quarterly revenue for the first time in Pac-FiO's history.
Pac bio achieved another milestone in the third quarter as we grew revenue by 72% year over year to $55 7 million exceeding 50 million in quarterly revenue for the first time impact Bio's history.
Speaker 3: transcript
Speaker 16: All three regions, again, posted record quarterly revenue. In the third quarter, we shipped 52 Revio instruments for revenue, which is a record number of instrument shipments in one quarter. This brings our installed base as of September 30 to 129 Reviosis.
All three regions again posted record quarterly revenue in the third quarter, we shipped 52 ready Oh instruments for revenue, which is a record number of instrument shipments in one quarter. This brings our installed base as of September 30th two 129 Red Yeah assistance.
Speaker 3: transcript
Speaker 17: We also shipped our first OnSSA units in the third quarter. I'm pleased with our order momentum and broad customer interest in this new platform. We've received orders from 10 countries across various customer and application types and expect to continue ramping up shipments in the fourth quarter. I look forward to sharing the install base for the OnSSA system at a later date as the platform matures and we further scale manufacturing.
We also shipped our first answer units in the third quarter I'm pleased with our order momentum and broad customer interest in this new platform. We have received orders from 10 countries across various customer and application types and expect to continue ramping up shipments in the fourth quarter.
I look forward to sharing the installed base for their answer system at a later date as the platform matures and we further scale manufacturing.
Speaker 3: transcript
Speaker 18: We also recorded consumable revenue of 16.9 million in Q3. Injusted second full quarter on the market, radio consumables of approximately 9.3 million, surpassed equal to and 2-E consume.
We also recorded consumable revenue of $16 9 million in Q3 in just its second full quarter on the market radio consumables of approximately $9 3 million surpass equal to and TUI consumables. This ramp was faster than we had originally expected we shipped well over.
Speaker 3: transcript
Speaker 19: This ramp was faster than we had originally expected. We shipped well over 9,000 revios smart cells in the quarter. For context, it took SQL 2.2e 11 quarters to surpass 9,000 cells, which further underscores customers rapid adoption and the elasticity of the new platform.
9000 radios smart cells in the quarter for context. It took sequel to TUI 11 quarters to surpassed 9000 cells, which further underscores customers rapid adoption and the elasticity of the new platform.
Speaker 3: transcript
Speaker 20: In Q3, radio utilization increased compared to the second quarter. Our customers use more cells per installed system as they began their ramp into production. In fact, the total data output for the radio fleet in the third quarter already surpassed the output from the total 500 plus sequel to WE fleet at its peak.
In Q3 radio utilization increased compared to the second quarter. Our customers. He has more cells per installed system as they began their ramp into production in fact, the total data output for the radio fleet in the third quarter already surpassed the output from the total 500 plus seat.
Well two two we sleep at its peak.
Speaker 3: transcript
Speaker 21: The increased instrument utilization resulted in an annualized consumable pull-through of 483,000.
The increased instrument utilization resulted in an annualized consumable pull through a 483000.
Speaker 3: transcript
Speaker 22: Although it is exciting to see our customers generating more data than ever before, I would also say that we are still early in our launch cycle and we do not know if this level of consumable pull-through will represent the long-term pull-through of the Revio platform.
Although it is exciting to see our customers generating more data than ever before I would also say that we are still early in our launch cycle and we do not know if this level of consumable pull through will represent the long term pull through of the radio platform.
The continued uptake and adoption of Rab is allowing us to increase our 2023 revenue guidance again this year.
Speaker 3: transcript
Speaker 23: The continued uptake and adoption of REVEO is allowing us to increase our 2023 revenue guidance again this year.
Speaker 3: transcript
Speaker 24: We now expect full year revenue to be between 195 and 200 million, representing 52 to 56 percent growth over 2022. And above the long-term targets we set out at our investor day, last November .
We now expect full year revenue to be between 195, and 200 million, representing 52% to 56% growth over 2022 and above the long term targets, we set out at our Investor Day last November.
Speaker 3: transcript
Speaker 25: One of the most important metrics we're tracking for ReVio adoption is new customer uptake, as it shows how the platform enables more and more users to migrate from other sequencing technologies onto PacBio. Again, we're pleased to report that over 40% of our ReVio system orders in the third quarter were from new PacBio instruments.
One of the most important metrics for tracking for radio adoption as new customer uptake as it shows how the platform enables more and more users to migrate from other sequencing technologies onto Pac bio again, where.
We're pleased to report that over 40% of our radio system orders in the third quarter were from new Pac bio instrument customers additions.
Speaker 3: transcript
Speaker 26: Additionally, we continue to expect a multi-year opportunity for existing SQL 2 customers to migrate over to ReVIO. As less than 30% of the approximate 300 SQL 2 and 2 E customers have ordered a ReVIO today.
Additionally, we continue to expect a multiyear opportunity for existing sequel to customers to migrate over to Ravi L as less than 30% of the approximate 300 sequel due in two weeks customers have ordered a radio today.
Speaker 3: transcript
Speaker 27: Our new customers include Helix, who ordered a radio system to strengthen its offering by incorporating native and accurate long reads into its population genomics business, which currently provides an end-to-end sequencing platform for several large-scale programs across the United States.
Our new customers include helix, who ordered a radio system to strengthen its offering by incorporating native and accurate long reads into its population genomics business, which currently provides an end to end sequencing platform for several large scale programs across the United States.
In addition to new customers purchasing the platform some of our existing customers are already expanding their rad Yale capacity like children's Mercy Hospital in Kansas City, which has recently shared how radio has enabled them to consolidate tests increase efficiency and improve solve right.
Speaker 3: transcript
Speaker 28: In addition to new customers purchasing the platform, some of our existing customers are already expanding their radio capacity, like Children's Mercy Hospital in Kansas City, which has recently shared how radio has enabled them to consolidate tests, increase efficiency, and improve solve rates while accelerating turnaround time.
It's while accelerating turnaround time.
Speaker 3: transcript
Speaker 29: Further, the hospital shared that they can achieve results in just two weeks with five base HiFi sequencing compared to months using multiple legacy tests.
Further the hospital shared that they can achieve results in just two weeks with five beta hifi sequencing compared to months using multiple legacy tests.
Similarly, we are also collaborating with <unk> and the University of Washington, The study of the capabilities of Hi, Fi long read whole genome sequencing to improve our ability to understand genetic conditions in pediatric patients.
Speaker 3: transcript
Speaker 30: Similarly, we are also collaborating with GeneDX and the University of Washington to study the capabilities of HiFi long read whole genome sequencing to improve our ability to understand genetic conditions in pediatric patients.
Speaker 3: transcript
Speaker 31: We believe that with high-fi and revio, our customers may be able to consolidate a menu of different tests onto one integrated, complete, long-read Geno.
We believe that with hi, Fi and red yellow or customers may be able to consolidate a menu of different tests onto one integrated complete long read genome.
Speaker 3: transcript
Speaker 32: We continue to see strong momentum in the genetic disease segment for HiFi sequencing, as other children's hospitals implemented Revio during the quarter. This includes another leading institution in the Midwest that upgraded from SQL2E to scale whole genome sequencing for its rare disease cohorts and to implement ISO-Seq to further its research in pediatric and adolescent cancer patients.
We continue to see strong momentum in the genetic disease segment for hifi sequencing as other children's hospitals implemented rather you know during the quarter.
This includes another leading institution in the Midwest that upgraded from sequel to we the scale of whole genome sequencing for rare disease cohorts and to implement Isa seek to further its research in pediatric and adolescent cancer patients.
In large-scale genomics projects, we were pleased to see initial data from researchers at Mohamed bin Rashid University of Medicine and Health Sciences, or MBRU, in developing an Arab Pangeenom reference, which uncovered over 100 million base pairs of novel sequence compared to other recent Pangeenom reference.
A large scale genomics projects, we were pleased to see initial data from researchers at Mohammed bin Rashid University of Medicine, and Health Sciences or M. D. R U in.
In developing an Arab pan genome reference, which uncovered over 100 million base pairs of novel sequence compared to other recent pan genome references.
Speaker 3: transcript
Pac-Fi-O-Hi-Fi was a key contributor to unlocking this new data, which is why the team decided to ramp on radio to begin a larger multi-thousand genome sequencing project this year.
Pac Bio Hi Fi was a key contributor to unlocking this new data, which is why the team decided to ramp on radio to begin a larger multi thousand genome sequencing project this year.
Speaker 3: transcript
One of the hallmarks of Pack Bio has been our ability to create additional value for our customers by adding new features to our sequencing platforms. With Revio, we are continuing this tradition by improving the performance of our systems in the field and adding valuable new features to the platform later this year. I'd like to spend a few minutes discussing some of these enhanced
One of the hallmarks of Pac bio has been our ability to create additional value for our customers by adding new features to our sequencing platforms with <unk>. We are continuing this tradition by improving the performance of our systems in the field and adding valuable new features to the platform later this.
Year.
I'd like to spend a few minutes discussing some of these enhancements.
Speaker 3: transcript
In Q3, we rolled out a software update that optimizes the preload feature on Revio. The preload feature enables customers to load their next run onto the instrument while a sequencing run is underway. This gives Revio the potential to always be running and truly enables production scale long-read sequence.
Q3, we rolled out a software update that optimizes the preload feature on Rev. Yet so.
Preload feature enables customers to load their next run onto the instrument, while our sequencing. Ron is underway. This gives ravioli the potential to always be running and truly enables production scale long read sequencing over.
Speaker 3: transcript
Over the past few months, we learned that some of our highest throughput, most industrialized customers, we're having some challenges using this.
Over the past few months, we learned that some of our highest throughput most industrialized customers were having some challenges using this feature and as a result, we made some changes to improve the preload function, which was included in this recent software released now customers can preload as expected.
Speaker 3: transcript
And as a result, we made some changes to improve the pre-load function, which was included in this recent software release. Now, customers can pre-load as expected, allowing high-volume customers to potentially further increase radio utilization.
Wowing high volume customers to potentially further increase red yellow utilization.
In the fourth quarter, we plan to add several new enhancements to the radio platform first we will incorporate the highly anticipated adaptive loading feature popular on our sequel to eat platform Adele.
Speaker 3: transcript
In the fourth quarter, we plan to add several new enhancements to the Ravio platform. First, we will incorporate the highly anticipated adaptive loading feature popular on our SQL 2E platform.
Speaker 3: transcript
Adaptive loading tailors the DNA loading to better fit the customer's sample, providing a backstop to prevent smart cell overload.
Adaptive loading tailors, the DNA loading to better fit the customer sample, providing a backstop to prevent smart cell overload.
Speaker 3: transcript
This can enable customers to load more DNA, more confidently, and ultimately achieve higher and more consistent yields.
This can enable customers to love more DNA more confidently and ultimately achieve higher and more consistent yields.
Speaker 3: transcript
We will also enable support for libraries that are less than 3 kilobases long, which will position more radio, more favorably in applications like AAD, ISO SEQ, and 16S microbial SEQ.
We will also enable support for libraries that are less than three kilobase as long, which will position more radio more favorably in applications like a D. ISO seek and 16 as microbial sequencing.
Speaker 3: transcript
Further, it will enable 12 hour and 30 hour run times. So users can optimize their runs for shorter and longer DNA in-
Further it will enable 12 hour and 30 hour run time, so users can optimize their runs for shorter and longer DNA inserts.
Speaker 3: transcript
Finally, the update will also include a run preview feature, allowing users to see their run statistics after the first four hours during this sequencing process, and enabling customers to better plan for future sequencing runs.
Finally, the update will also include a rent preview feature allowing users to see their run statistics. After the first four hours during the sequencing process and enabling customers to better plan for future sequencing runs.
We're not just focused on enhancing the sequencing platform, but we're also improving the end to end workflow, we believe that by improving the workflow from sample preparation through data analysis, we will enable our customers to truly leverage the power of hifi sequencing.
Speaker 3: transcript
We're not just focused on enhancing the sequencing platform, but we are also improving the end-to-end work.
Speaker 3: transcript
We believe that by improving the workflow from sample preparation through data analysis, we will enable our customers to truly leverage the power of high-five C.
Speaker 3: transcript
In the sample preparation process, next year, we plan to release improvements that leverage the technology acquired from circulomics to improve size selection on the smart.
In the sample preparation process next year, we plan to release improvements that leverage the technology acquired from circular mix to improve site selection on the smart cell.
Speaker 3: transcript
This will improve our customer's ability to achieve higher sequencing output with each smart cell and consistently achieve longer reads.
This will improve our customers' ability to achieve higher sequencing output with each smart cell and consistently achieve longer read lengths.
Speaker 3: transcript
Additionally, in order to enable our customers to take full advantage of the throughput of Revio, we have collaborated with leading automation providers including Hamilton, Integra, Revity, and TCAN to fully automate sample preparation protocols for both Revio and the SQL 2.0 2.0e system.
Additionally, in order to enable our customers to take full advantage of the throughput of radio we have collaborated with leading automation providers, including Hamilton Integra, rather the anti cancer to fully automate sample preparation protocols for both Rabat O and the sequel to TUI systems.
Speaker 3: transcript
On the analysis front, earlier this month, we launched the PAC Bio whole GNOME sequencing variant pipeline, or WGS variant pipeline.
On the analysis front earlier this month, we launched the pack bio whole genome sequencing variant pipeline or WGS variant pipeline.
Speaker 3: transcript
This standardized computational method can solidate over 10 separate secondary and tertiary analysis tools into a single user-friendly workflow, enabling users with all levels of bioinformatics experience to access high-fi whole genome sequence.
This standardized computational methods consolidates over 10 separate secondary and tertiary analysis tools into a single user friendly workflow, enabling users with all levels of bioinformatics experience to access hi Fi whole genome sequencing.
Speaker 3: transcript
Over the past few years, I've often discussed our goal to make pack bio more multi-omic.
Over the past few years I've, often discussed our goal to make pack by a more multi all my company.
Speaker 3: transcript
This is important as multi-omic approaches allow us to better understand the underlying connections from the genome and the epigenome to the transcriptome and the proteome, and ultimately gain greater insights into biology and disease.
This is important as multi omics approaches allow us to better understand the underlying connections from the genome in the epigenome to the transcript to them in the proteome and ultimately glean greater insights into biology and disease.
Speaker 3: transcript
With the flexibility and increase throughput of radio, combined with high-fives single molecule detection capabilities, we're starting to see how radio can be a multi-elmic Swiss Army knife.
With the flexibility and increased throughput of radio combined with high five single molecule detection capabilities, we're starting to see how radio can be a multi omics Swiss army knife of sorts.
Speaker 3: transcript
For example, in a pre-print last month, researchers from the University of Washington and other institutions showed our radio could produce data on four separate high quality ohms on just one radio smart cell, the genome, the methanol, chromatin epigenome, and the transcript.
For example in a pre print last month researchers from the University of Washington, and other institutions showed how radio could produce data on four separate high quality ohms on just one radio smart cells. The genome the mirth alone chromatin epigenome and the transcriptome.
Speaker 3: transcript
In analyzing a participant in the Undiagnosed Disease Network, the researchers reported how data from each of the four ohms explained one or more of the participant's phenotype.
In analyzing a participant in the undiagnosed disease network. The researcher the researchers reported how data from each of the four ohms explained one or more of the participants phenotypes.
Speaker 3: transcript
This study has yet another example of how a synchronized single long read multi-omic test can more effectively uncover unexplained rare conditions than multiple one-off tests.
This study is yet another example of how a synchronized single long read multi you'll make test and more effectively uncover unexplained rare conditions than multiple one off test.
Speaker 3: transcript
In another study, scientists at the University of Dresden and Max Planck Institute used Pac Bio-ISOS-C to look deeper into the transcriptome to understand the impact of alternative splicing on isoform diversity and protein structure and showed that isoforms have a critical role in determining protein structures and biological functions in brain development.
In another study scientists at the University of Dresden, and Max Planck Institute use Pac bio ICSC to look deeper into the transcriptome to understand the impact of alternative splicing isoforms diversity and protein structure and showed that isoforms have a critical role in determining.
Turning protein structures and biological functions in brain development and concluded that alternative splicing has greater potential to impact protein diversity and function than previously thought independently from changes in gene expression.
Speaker 3: transcript
and concluded that alternative splicing has greater potential to impact protein diversity and function than previously thought independently from changes in gene expression.
Speaker 3: transcript
To address this growing transcriptomics market, we're excited to launch our new Kinex Kits enabling scalable, cost-effective, full-length RNA sequencing on PAC BioRevio and SQL2E.
To address this growing transcript telmex market, we're excited to launch our new <unk> kits, enabling scalable cost effective full length RNA sequencing on Pac bio Rabat O N sequel to Lee.
Speaker 3: transcript
With the mass sequencing method introduced late last year, customers can concatenate smaller inserts into one long insert to dramatically increase output in single cell RNA experiments.
With the mass sequencing method introduced late last year customers can concatenate smaller inserts into one long insert to dramatically increase output in single cell RNA experiments.
Speaker 3: transcript
Now, with the expanded and rebranded Kinex kits, we can better address bulk RNA applications, allowing scientists to reveal the role of isoforms for the biology of health and disease. In addition to obtaining the gene expression information.
Now with the expanded and rebranded Kinect kits, we can better address bulk RNA applications, allowing scientists to reveal the role of isoforms for the biology of health and disease. In addition to Jean obtaining the gene expression information.
Speaker 3: transcript
This truly enables this application on radio, allowing customers to perform large studies, thousands of samples per year on a single radio system. Therefore, they're by providing access to projects in neurology, rare disease, and cancer research, as well as other markets.
This is truly enables this application on radio, allowing customers to perform large studies.
The samples per year on a single radio system their boy, there, thereby providing access to projects in neurology rare disease and cancer research as well as other markets.
Speaker 3: transcript
The kin X line of kits also includes the 16S kits. The 16S gene is found in bacterial genomes and has long been used to identify, classify, and quantify species and strains in a microbial community sample.
The <unk> line of kits also includes the 16 S Kids. The 16 S. Gene is found in bacterial genomes and has long been used to identify classify and quantify species and strains in our microbial communities sample at.
Speaker 3: transcript
At about 1,500 base pairs long, short-read sequencing has difficulty reading the whole gene, while long-read sequencing would leave unused capacity on the sequencer. With Kinex, customers can concatenate the 16S gene into long libraries for high-fi sequencer.
At about 1500 base pairs long short read sequencing has difficulty reading the whole gene while long read sequencing would leave unused capacity on the sequencer with Kinect customers can concatenate. The 16 S gene into long libraries for Hifi sequencing.
Speaker 3: transcript
This puts Revio and sequel to On-PAR with short-re sequencing regarding cost, positioning Revio to better address the $300 million microbial genomics mark.
This puts ravioli and sequel to on par with short read sequencing regarding cost positioning radio to better address the multi hundred million dollar microbial genomics market.
These kits further expand our competitive offerings in human genetics oncology and Micra micro biology, and we look forward to discussing them more with researchers at S. H G. Later this week.
Speaker 3: transcript
These kits further expand our competitive offerings in human genetics, oncology, and microbiology. And we look forward to discussing them more with researchers at ASHG later this week.
Speaker 3: transcript
Before I pass the call over to Susan, I'd like to welcome David Maline to our Board of Direction.
Before I pass the call over to Susan I'd like to welcome welcome David Meline to our board of directors.
Speaker 3: transcript
David brings extensive experience to our board as a finance leader in various life science and healthcare companies. Most recently Moderna incorporated the innovation in delivery of the new Arbit sheepilow Lives project in the United States and the Giants team.
David brings extensive experience to our board as a finance leader in various life Science and health care companies. Most recently Madonna incorporate.
Speaker 3: transcript
And with that, I'll pass the call to Susan to discuss the financials. Susan?
And with that I'll pass the call to Susan to discuss the financials Susan.
Speaker 4: transcript
Thank you, Christian. As discussed, we are pleased to have reported 55.7 million in product service and other revenue in the third quarter of 2023, which represented an increase of 72% from 32.3 million in the third quarter of 2022.
Christian.
This guidance, we are pleased to have reported $55 7 million in product service and other revenue in the third quarter of 2023 which represented an increase of 72% from $32 3 million in the third quarter of 2022.
Speaker 4: transcript
Enter a revenue in the third quarter with 34.7 million, an increase of 203% from 11.4 million in the third quarter of 2022. The continued momentum of Rebo primarily drove the increase in revenue as we shipped 52 instruments for revenue in the quarter. We ended the quarter with an install base of 129 Rebo system.
<unk> revenue in the third quarter was $34 7 million an increase of 203% from 11 4 million in the third quarter of 2022 the kantar.
Momentum Arabia, primarily drove the increase in revenue as we shipped 52 instruments for revenue in the quarter. We ended the quarter with an installed base of 129 radio system.
Speaker 4: transcript
Turning to consumables, revenue of 16.9 million in the third quarter increased 5% from 16.1 million in the third quarter of last year. It was a record for Pac Bio with approximately 55% of consumable revenue coming from radio systems and the remainder from other systems and other consumables.
Turning to consumables revenue of $16 9 million in the third quarter increased 5% from $16 1 million in the third quarter of last year. It was a record for Pac bio with approximately 55% of consumable revenue coming from radio system and the remainder from other systems and other consumables.
Speaker 4: transcript
We expect equal to and 2 E as a percent of total consumables to continue declining as we ship radio and customer transition to the new system.
We expect equal to and TUI as a percent of total consumables.
To continue declining as we ship ravioli and customers transition to the new system.
Speaker 4: transcript
Finally, service and other revenue was 4.1 million in the third quarter compared to 4.8 million in the third quarter of 2022.
Finally service and other revenue was $4 1 million in the third quarter compared to $4 8 million in the third quarter of 2022.
From a regional perspective, as Christian mentioned earlier, all three regions posted record revenue in the third quarter.
Speaker 4: transcript
From a regional perspective, as Krishan mentioned earlier, all three regions posted record revenue in the third quarter. America's revenue of 29.0 million grew 73% compared to the third quarter of 2022 with sequential and year-to-year growth across instruments and consumables.
Americas revenue of 29.1 million grew 73% compared to the third quarter of 2022 with sequential and year over year growth across instruments and consumables.
Speaker 4: transcript
For Asia Pacific revenue of $15 7 million grew 64% over the prior year.
China recorded year over year growth, but was lower from the second quarter at customers in the region slowed their capex purchases, though we were encouraged to see sequential consumable as customers ramp up their radio usage in the country with healthy levels of utilization.
Speaker 4: transcript
Finally, a near revenue of about 11 million grew 83% over the prior year period driven by both instrument and consumable growth as customers like MBRU ramped up its large scale genome project and the Welcome Singer Institute reached this milestone of a thousand species sequence as part of the Darwin Tree of Life project.
Finally, EMEA revenue of about 11 million grew eight 3% over the prior year period, driven by both instrument and consumable growth as customers like M. P. R. You ramped up its large scale genome project and the welcome Sanger Institute reached this milestone of 1000 species sequence, that's part of the Darwin tree.
<unk> project.
Moving down the P&L.
Speaker 4: transcript
Gap Gross Profit of 17.9 million in the third quarter of 2023 represented a gross margin of 32% compared to a gap gross profit of 13.5 million in the third quarter of 2022, which represented a gross margin of 42%.
GAAP gross profit of $17 9 million in the third quarter of 2023 represented a gross margin of 32% compared to a GAAP gross profit of $13 5 million in the third quarter of 2022, which represented a gross margin of 42%.
Speaker 4: transcript
Third quarter, 2023 non-GAP gross profit of 18.1 million represented a non-GAP gross margin of 32% compared to a non-GAP gross profit of 13.7 million or 42% in the third quarter of last year.
Third quarter 2023, non-GAAP gross profit of $18 1 million represented a non-GAAP gross margin of 32% compared to a non-GAAP gross profit of $13 7 million or 42% in the third quarter of last year.
Speaker 4: transcript
The year-to-year decrease in growth margin was due to product mix as instrument revenue accounted for a higher proportion of overall revenue in the third quarter of 2023 compared to the third quarter of 2022. And due to instrument mix as Revio Instruments sold in the third quarter of 2023, had a lower growth margin than SQL2E systems sold in the third quarter of last year.
The year over year decrease in gross margin was due to product mix as internet revenue accounted for a higher proportion of overall revenue in the third quarter of 2023 compared to the third quarter of 2022 and due to Internet makes as ravioli instruments sold in the third quarter of 2023 had a lower gross margin than sequel TUI system.
So then the third quarter of last year.
Speaker 4: transcript
Additionally, we realize inventory scrap and reserve charges, as well as additional warranty related material expenses on the Revio platform in the third quarter of 2023.
Additionally, we realized inventory scrap and rework reserve charges as well as the additional warranty related material expenses on the radio platform in the third quarter of 2023.
Speaker 4: transcript
Gap operating expenses were 100 and 0.4 million in the third quarter of 2023 compared to 88.2 million in the third quarter of 2022.
GAAP operating expenses were a $100.4 million in the third quarter of 2023 compared to $88 2 million in the third quarter of 2022.
non-GAAP operating expenses were $90 9 million in the third quarter of 2023, representing an 8% increase from non-GAAP operating expenses of $83 8 million in the third quarter of 2022, and excluding merger related expenses of approximately 9 million related to our acquisition of.
Speaker 4: transcript
Non-GAP operating expenses were 90.9 million in the third quarter of 2023, representing an 8% increase from non-GAP operating expenses of 83.8 million in the third quarter of 2022, and excluded merger-related expenses of approximately 9 million related to our acquisition of Afton in the third quarter of 2023.
<unk> in the third quarter of 2023.
The increase in operating expenses, primarily reflects expenses related to the apt on acquisition in the third quarter of 2023 and increased sales and marketing expenses, primarily related to increased investment in the commercial organization.
Speaker 4: transcript
The increase in operating expenses primarily reflects expenses related to the Abton acquisition in the third quarter of 2023. And increased sales and marketing expenses primarily related to increase investment in the commercial organization partially offset by lower engineering and lab related expenses resulting from the transition of radio from development to commercialization.
Really offset by lower engineering elaborate related expenses, resulting from the transition of radio from development to commercialization.
Speaker 4: transcript
Regarding headcount, we ended the quarter with 844 employees compared to 818 at the end of Q2 2023 and 771 at the end of the third quarter of 2022.
Regarding head count we ended the quarter with 844 employees compared to 818 at the end of Q2 2023 and 771 at the end of the third quarter of 2022.
Operating expenses in the third quarter included noncash share based compensation of $18 6 million compared to 18.0 million in the third quarter of last year.
Speaker 4: transcript
Operating expenses in the third quarter included non-cash share-based compensation of 18.6 million compared to 18.0 million in the third quarter of last year.
Speaker 4: transcript
Gap Net Loss in the third quarter of 2023 was 66.9 million or 26 cents per share, compared to Gap Net Loss of 77.0 million in the third quarter of 2022 or 34 cents per share.
GAAP net loss in the third quarter of 2023 was $66 9 million or 26 cents per share compared to GAAP net loss of 77.1 million in the third quarter of 2022 or 34 cents per share.
Speaker 4: transcript
In Q3, we booked a discrete income tax benefit related to the acquisition of AppTon. The acquisition was considered a business combination for tax purposes, and therefore the acquired and tangible are disallowed for book tax purposes, which resulted in a one-time discrete non-cash income tax benefit on the Gap PNL of 10.7 million in the quarter.
In Q3, we booked a discrete income tax benefit related to the acquisition of <unk>. The acquisition was considered a business combination for tax purposes, and therefore, the acquired intangibles are disallowed for book tax purposes, which resulted in a one time discrete noncash income tax benefit on the GAAP.
P&L of $10 7 million in the quarter.
Speaker 4: transcript
Non-GAP net loss was 67.9 million representing 27 cents per share in the third quarter of 2023 compared to a non-GAP net loss of 72.5 million representing 32 cents per share in the third quarter of 2022.
non-GAAP net loss was $67 9 million, representing 27 cents per share in the third quarter of 2023 compared to a non-GAAP net loss of $72 5 million, representing 32 cents per share in the third quarter of 2022.
Onto our balance sheet, we ended the third quarter with 767 8 million in unrestricted cash and investments compared with $829 9 million at the end of the second quarter of 2023.
Speaker 4: transcript
On to our balance sheet. We ended the third quarter with 767.8 million in unrestricted cash and investments compared with 829.9 million at the end of the second quarter of 2023.
Speaker 4: transcript
The ending cash balance on September 30 does not reflect the milestone payment to the on the home shareholders, including approximately 96.2 million in cash and 9.0 million shares of common stock, which was paid and distributed on or about October 4, 2023.
The ending cash balance on September 30 does not reflect the milestone payment to the omnium shareholders, including approximately $96 2 million in cash and 9.0 million shares of common stock, which was paid and distributed on or about October four 2023.
Speaker 4: transcript
Inventory balances increased in the third quarter to 68.3 million, representing 2.2 inventory turns, compared with 67.6 million at the end of the second quarter of 2023, representing 2.0 inventory turns.
Inventory balances increased in the third quarter to $68 3 million, representing 2.2 inventory turns compared with $67 6 million at the end of the second quarter of 2023, representing 2.0 inventory turns.
Speaker 4: transcript
Accounts receivable increase in the third quarter to 30.5 million compared with 24.0 million at the end of the second quarter of 2023.
Accounts receivable increased in the third quarter to $30 5 million compared with 24.0 million at the end of the second quarter of 2023.
To expand a bit on our guidance as Christian indicated our strong performance in the third quarter leaves us to believe that revenue for the year will be 195 million to 200 million, representing a growth rate of approximately 52% to 56% compared to 2022 states.
Speaker 4: transcript
To expand a bid on our guidance, as Krishnam indicated, our strong performance in the third quarter leads us to believe that revenue for the year will be 195 million to 200 million, representing a growth rate of approximately 52% to 56% compared to 2022. This represents an increase of 10 million over our guidance last quarter, and we have now raised our guidance every quarter this year.
This represents an increase of 10 million over our guidance last quarter and we have now raised our guidance every quarter this year.
Around the midpoint, our guidance assumes fourth quarter revenue was approximately flat sequentially compared to the third quarter with the 5 million range, reflecting macro factors that are lengthening sales cycles for our customers globally and affecting the timing of customer capex purchase it.
Speaker 4: transcript
Around the midpoint, our guidance assumes fourth quarter revenue is approximately flat sequentially compared to the third quarter with the 5 million range reflecting macro factors that are lengthening sales cycles for our customers globally and affecting the timing of customer cap ex purchases.
Speaker 4: transcript
Moving down the P&O, we expect the 2023 non-GAP gross margin to be around the low end of the previously guided 32% to 34% range due to higher than expected inventory scrap and reserves in the third quarter and higher warranty costs associated with the Rebio Instruments.
Moving down the P&L, we expect the 'twenty two 'twenty three non-GAAP gross margin to be around the low end of the previously guided 32% to 34% range due to higher than expected inventory scrap and reserves in the third quarter and higher warranty costs associated with the <unk> instrument.
Speaker 4: transcript
We continue to expect margin expansion beyond 2023 as Reveal Places will help drive a mixed shift toward higher margin consumables and higher volume and optimization drive lower manufacturing unit costs.
We continue to expect margin expansion beyond 2023, as revenue places will help drive a mix shift toward higher margin consumables and higher volume and optimization drive lower manufacturing unit costs.
Speaker 4: transcript
Specifically, we've made good progress this year in reducing costs by lowering the manufacturing labor time for the radio system production, which we expect to continue into 2024. And we have now commenced consolidating our San Diego manufacturing operations into Menlo Park, which will give us the benefit of running our manufacturing operations more efficiently.
But typically we've made good progress this year in reducing costs by lowering the manufacturing labor time for the radio system production, which we expect to continue into 2024.
And we have now commenced consolidating our San Diego manufacturing operations into Menlo Park, which will give us the benefit of running our manufacturing operations more efficiently.
Speaker 4: transcript
We now also expect non-GAP operating expenses to grow by 2% to 3% compared to 2022. This is lower than our previously guided growth rate as Patbyle continues to focus on spending discipline.
We now also expect non-GAAP operating expenses to grow by two 3% compared to 2022.
This is lower than our previously guided growth rate as Pac bio continues to focus on spending discipline.
Speaker 4: transcript
We expect interest income to more than offset interest expense for the remainder of the year, and the weighted average share count for EPS for the full year to be approximately 254 million due to the timing of the issuance of the omnium milestone shares.
We expect interest income to more than offset interest expense for the remainder of the year and the weighted average share count for EPS for the full year to be approximately 254 million due to the timing of the issuance of the omnium milestone sure I'll hand, it back to Christian for some final remarks Christian Thank you season with it.
Speaker 4: transcript
I'll hand it back to Christian for some final remarks. Christian.
Speaker 5: transcript
Thank you, Susan. With a couple of months left, 2023 is on track to be the most successful year in packed bios history. And when looking back, I can believe it, I believe it can mark an inflection point on our strategic journey.
Couple of months left 2023 is on track to be the most successful year impact bio's history, and when looking back I can believe it I believe it can mark an inflection point on our strategic journey for.
Speaker 5: transcript
For the year, Pac Bio is on track to ship more systems than any other point in it.
For the year Pac bio is on track to ship more systems than any other point in its history.
Speaker 5: transcript
What is perhaps more encouraging is that we now expect to achieve record-consumable revenue in spite of the fact that 2023 has been a product transition year.
What is perhaps more encouraging is that we now expect to achieve record consumable revenue in spite of the fact that 2023 has been a product transition year.
Speaker 5: transcript
I believe that this is an indication of the fundamental demand for long-read sequencing in the market and that highly accurate high-cruel put systems such as ReVO are enabling that demand.
I believe that this is an indication of the fundamental demand for long read sequencing in the market and at highly accurate high throughput systems, such as radio are enabling that demand.
Speaker 5: transcript
Our projected revenue growth for this year is well above our 40 to 50% compound annual growth target established at our investor day last year. When I look back and compare where we are now, versus our internal expectations 12 months ago, what really stands out is the pace of review adoption as it is well above where we had envisioned it last November .
Our projected revenue growth for this year is well above our 40% to 50% compound annual growth target established at our Investor day last year.
When I look back and compare where we are now versus our internal expectations 12 months ago. What really stands out is the pace of revenue adoption as it is well above where we had envisioned it last November.
Speaker 5: transcript
However, as we looked toward 2024, we see an economic backdrop that is substantially more challenging than a year.
However, as we look toward 2024, we see an economic backdrop that is substantially more challenging than a year ago.
Speaker 5: transcript
On that topic, I wanted to zoom out a bit and provide some high level commentary on 2024. While we're not providing specific 2024 guidance today, I wanted to give you a rough framework of how we're thinking about the years we build out our 2024 budget.
On that topic I wanted to zoom out a bit and provide some high level commentary on 2024.
While we're not providing specific 'twenty 'twenty four guidance today I wanted to give you a rough framework of how we're thinking about the year as we build out our 2020 for budget.
Speaker 5: transcript
First, we continue to focus our R&D efforts on the creation of a multi-product, multi-platform portfolio, then includes both leading long and short-read sequencing sets.
First we continue to focus our R&D efforts on the creation of a multi product multi platform portfolio that includes both leading long and short read sequencing systems we.
Speaker 5: transcript
We are deep into the development of several new sequencing platforms, which we believe will enable us to reach more of the sequencing market and drive long-term revenue growth.
We are deep into the development of several new sequencing platforms, which we believe will enable us to reach more of the sequencing market and drive long term revenue growth.
Speaker 5: transcript
But even with this focus in R&D, we still believe that total expenses in 2024 will be within the range of the long-term guidance that we provided an investor.
But even with this focus in R&D, we still believe that total expenses in 'twenty 'twenty four will be within the range of the long term guidance that we provided at Investor day.
Speaker 5: transcript
Additionally, our sales funnel for Rebio continues to be robust as potential new-packed bio-customers remain enthusiastic about implementing the power of native long-range into their research. And existing customers are eager to upgrade their sequel to flea.
Additionally, our sales funnel for radio continues to be robust as potential new Pac bio customers remain enthusiastic about implementing the power of native long reads into their research and existing customers are eager to upgrade their sequel to fleets. However, due to broader global macro economic issues.
Speaker 5: transcript
However, due to broader global macroeconomic issues, customers have lengthened their capital purchasing timelines, which will likely have some impact on our growth trajectory in 2024.
As far as have length in their capital purchasing timelines, which will likely have some impact on our growth trajectory in 2024.
Speaker 5: transcript
So while we still expect to achieve significant revenue growth in 2024, the current challenges in the global macroeconomic environment are likely to have an impact on our growth rate. As we complete our 2024 forecast and continue to monitor market conditions, we plan to provide more detailed guidance on our Q4 earnings call in early 2024.
So while we still expect to achieve significant revenue growth in 2024. The current challenges in the global macroeconomic environment are likely to have an impact on our growth rate.
As we complete our 'twenty 'twenty four forecast and continue to monitor market conditions, we plan to provide more detailed guidance on our Q4 earnings call in early 2024.
Operator: Good afternoon, everyone, and welcome to the PAC Bio, 3rd quarter, 2023, Earnings Conference call. All participants will be in a listen only mode. Should you need assistance, please say no conference specialist by pressing the star key, followed by zero.
As we close the call I want to reiterate how pleased I am with the team's execution since we announced the revenue and also platforms just over one year ago, especially in this environment, where we've seen prolonged inflation and worsening macroeconomic conditions. Thank you for your time today, operator, let's start the Q&A.
Speaker 5: transcript
As we close the call, I want to reiterate how pleased I am with the team's execution.
Speaker 5: transcript
Since we announced the Revio and Onso platforms just over one year ago, especially in this environment where we've seen prolonged inflation and worsening macroeconomic conditions. Thank you for your time today. Operator, let's start the Q&A session.
Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one. Withdraw your questions, you may press star and two. Please also note, today's event is being recorded.
Sure.
Okay.
Todd Friedman: At this time, I'd like to turn the floor over to Todd Friedman, Senior Director of Investor Relations. Sir, please go ahead. Thank you, Jamie.
Ladies and gentlemen at this time well begin the question and answer session.
Speaker 1: transcript
Please in general, and at this time, we'll begin the question and answer session. Once again, to ask a question, you may press star and one.
Once again to ask a question you May press star one if.
Speaker 1: transcript
If you are using a speaker phone, would you ask me please pick up your hands instead prior to pressing the keys to ensure the rest down quality? So, withdraw your question. You may press star and two.
If you are using a speaker phone with USB. Please pick up your handset prior to pressing the keys to ensure the best sound quality.
Todd Friedman: Good afternoon, and welcome to PAC Bio, 3rd quarter, 2023, 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 Investor section of our website at www.pacd.com or is furnished on form 8K available on the Securities and Exchange Commission website at www.scc.gov.
So withdraw your question you May Press Star then two.
Once again that is star one to join the question queue.
Speaker 1: transcript
Our first question today comes from Peas Savant from Morgan Stanley . Please go ahead with your question. Hey guys, good evening.
Our first question today comes from payoffs Savant from Morgan Stanley. Please go ahead with your question.
Hey, guys good evening and thanks for the time here.
Speaker 6: transcript
Christian, a couple of questions for you here. First, I mean, in terms of the backlog growth has, has order backlog essentially trended in line with your expectations.
Christian a.
Couple of questions for you here first I mean in terms of the backlog growth has order backlog essentially trended in line with your expectations.
Todd Friedman: With me today, our Christian Henry, President and Chief Executive Officer and Susan Kim, Chief Financial Officer. On today's call, we will be making forward-looking statements, including statements regarding predictions, progress, estimates, plans, intentions, guidance, and others, including expectations with respect to our gross potential, instrument, and consumable sales, and gap and non-gap gross guidance. You should not place undue reliance on forward-looking statements because they are subject to risks and uncertainties that could cause our factual results to differ materially from those projected or discussed.
Speaker 6: transcript
And as you think about, you know, just supposing your placements for next year, I know you mentioned some moderation for the macro impact, but how should we think about sort of backlog, how that's trended over the last four weeks or so in the context of 24 placements.
And as you think about juxtaposing youre placements for next year I know you mentioned some moderation from the macro impact, but how should we think about sort of backlog how that trended over the last four weeks or so in.
In the context of a 24, a policeman and then my second part of the question was on consumables.
Speaker 6: transcript
And then my second part of the question was on consumer boat.
Speaker 6: transcript
Anyway, for you to parse out how much of the strength that your seniors related to new customers talking versus that first cohort of radio adopters ramping usage, I mean, if you can just...
Any way for you to parse out how much of the strength that youre seeing errors related to a new customer to stocking versus that first cohort of rebel adopters ramping usage I mean, if you can just.
Todd Friedman: We refer you to the documents that we file with the SEC, including our most recent forms, 10Q and 10K, and our recent press releases to better understand the risks and uncertainties that could cause actual results to differ. We just claim any obligation to update or revise these forward-looking statements except as required by law.
Speaker 6: transcript
Break out or circumscribe that the trends you see in that earlier optical heart that would be super helpful. Thank you
Breakout or circumscribe the trends you've seen that early adopter cohort that would be super helpful. Thank you.
Speaker 5: transcript
Sure, I'm just writing down the question. So first of all, I'm not gonna comment specifically on backlog, but we are continuing to ship more and more every quarter and we see, it's certainly meeting my expectations. When I,
Sure I'm, just I'm, just writing down the question so.
First of all I'm not going to comment specifically on on backlog.
Todd Friedman: During the call, we will also present certain financial information on a non-gap basis. Non-gap information is not prepared under a comprehensive set of accounting rules and should only be used to supplement and understanding of the company's operating results as reported under U.S. Gap. Management believes that non-gap financial measures, combined with U.S. Gap's financial measures, provide useful information to compare our performance from the relevant tips to forecast and strategic plans, and benchmark our performance externally against competitors. Reconciliation between historical U.S. Gap and non-gap results are presented in the tables within our earnings release.
But we are you know we are continuing to ship more and more every quarter and we see you know it's it's certainly meeting my expectations are when I think about you know next year I do think that we have you know we have the technology and capabilities and the excite.
Speaker 5: transcript
you know, next year, I do think that we have, you know, we have the technology and capabilities and the enthusiasm in the market to continue growing.
Hasn't been the market to continue growing.
Speaker 5: transcript
and growing with respect to Reveo. But of course, right now in this near term window, we are seeing some macroeconomic challenges like others. But as I said in my prepared remarks, we expect to significantly grow our revenue in 2024. I'm not gonna be any more specific than that, because quite frankly, this is in the 2024 guidance call.
And growing you know growing with respect to red yellow, but of course right now in this in this in this near term window. You know we are seeing some macroeconomic challenges like others, but as I said in my prepared remarks, we expect to significantly grow our revenue in 2024.
Todd Friedman: In addition, please note that today's call is being recorded and will be available for replay on the investor's section of our website shortly after the call. Investors electing to use the audio replay are caution that forward-looking statements made on today's call may differ or change from it purely after the completion of the live call.
I'm not going to be any more specific than that because quite frankly, this isn't a 'twenty 'twenty four guidance call.
Speaker 5: transcript
With respect to consumables, you know, we lived carefully at the Q3 numbers and there really wasn't a lot of stocking going on, relative to what we had in Q2. And what we're seeing is our customers are fundamentally starting to really use their radio systems and that's why we had such a strong performance in consumables.
With respect to consumables you know we looked carefully at the Q3 numbers and there really wasn't a lot of stocking going on relative to what we had in Q2 and what we're seeing is our customers are fundamentally starting to really use their radio systems and that's why we had such a strong performance in consumables.
Todd Friedman: Finally, we will be hosting a question-and-answer session after our prepared remarks. We ask that analysts please limit themselves to one question only so we could accommodate everybody in the queue.
Christian Henry: Are we now turn the call over to Christian?
Christian Henry: Thank you, everyone, for joining the call today. Pack Bio achieved another milestone in the third quarter as we grew revenue by 72 percent, year-over-year, to 55.7 million, exceeding 50 million in quarterly revenue for the first time in Pack Bio's history. History. All three regions, again, posted record quarterly revenue. In the third quarter, we shipped 52 radio instruments for revenue, which is a record number of instrument shipments in one quarter. This brings our install base as of September 30th to 129 radio systems.
Speaker 3: transcript
And I do think that that was certainly one of the highlights of the quarter. And certainly my expectation going forward is that you're going to see, you're going to continue to see very strong, consumable performance.
And I do think that that was certainly one of the highlights of the quarter and certainly my expectation going forward is that youre going to see you're going to continue to see very strong consumable performance. Ah you know we went through more than 9000 smart cells in the core in the third quarter.
Speaker 5: transcript
You know, we went through more than 9,000 smart cells in the core in the third quarter.
Speaker 5: transcript
People are using the systems and they're generating great data. So that is very, very encouraging for me. You know, we're still really early in this product cycle and to see that kind of, you know, to see us number one, in 2023, you have the product transition year and yet still grow total consumables is really a pretty significant milestone for the company. And number two, now you're starting to see, you know, our ravios.
People are using the systems and they're generating great data. So that that is very very encouraging for me.
We're still really early in this product cycle and to see that kind of you know to see us number one.
Christian Henry: We also shipped our first on-site units in the third quarter. I'm pleased with our order momentum and broad customer interest in this new platform. We've received orders from 10 countries across various customer and application types and expect to continue ramping up shipments in the fourth quarter. I look forward to sharing the install base for their on-site system at a later date as the platform matures and we further scale manufacturing. We also recorded considerable revenue of 16.9 million in Q3.
In in 2020 three you have a product transition year and yet still grow total consumables is is really a pretty significant milestone for the company and number two now you're starting to see you know Ravi OS completely overtake the sequel. The sequel platform. Those are both very encouraging sign.
Speaker 5: transcript
completely overtake the SQL platform. Those are both very encouraging signs that I think are gonna persist into 2024. Now you can relate to the whole lot cheaper as is available for the quantum affiliate
Is that are you know that I think are going to persist into 2024.
Next question Jamie.
Our next question comes from Tayo mixing from Canaccord. Please go ahead with your question.
Speaker 1: transcript
Our next question comes from Kyle Nixon from Canapour. Please go ahead with your question.
Speaker 7: transcript
Hey guys, thanks for taking the questions. Congrats on the great quarter. First, on the fourth quarter, I guess, guidance or outlook. So flat sequential revenue due to the macro environment lengthening until cycles, timing of cataclysm purchases, like not as a price. But where's that happening? Is that only China or is that occurring in Western Europe , Russia, North America, et cetera? And since revenues can be flat in the fourth quarter, because that happened again in 1Q as well in 24. It's one to understand maybe like early 24.
Hey, guys. Thanks for taking my questions. Congrats on the great corner first on the the fourth quarter and kind of I guess guidance for like outlooks, So flat sequential revenue.
Christian Henry: Injusted second full quarter on the market, radio consumables of approximately 9.3 million surpassed equal to and 2-E consumables. This ramp was faster than we had originally expected. We shipped well over 9,000 radio smart cells in the quarter. For context, it took 2-2-E 11 quarters to surpass 9,000 cells, which further underscores customers' rapid adoption and the elasticity of the new platform. In Q3, radio utilization increased compared to the second quarter. Our customers used more cells per installed system as they began their ramp into production.
Due to the macro environment lengthening selling cycle timing of kind of purchases like that I'm surprised but where is that happening it's not only china or is that occurring in western Europe, Russia, North America et cetera, and since revenues can be flat in the fourth quarter because it happened again in the <unk> as well in 'twenty four I just want to understand maybe like early 'twenty four.
Speaker 7: transcript
Commentary and then just quickly on on so like a person you just talk about the sales funnel and back all like how that's progressing and maybe the composition of customer types And how that roll out could progression extra you didn't mention that is like a 24 growth driver But it's you know, it's it's all kind of inorganic revenue growth as well. So that could be good to hear thanks Yeah
Commentary and then just quickly on answer Chris can you just talk about the sales funnel and backlog, how that's progressing and maybe the composition of customer types and how that rollout could progression extra you didn't mention that as Buck 24 growth driver, but it's you know, it's it's all kind of inorganic revenue growth as well so that could be good to hear thanks.
Yeah.
Christian Henry: In fact, the total data output for the radio fleet in the third quarter already surpassed the output from the total 500 plus equal to 2-E fleet at its peak. The increased instrument utilization resulted in an annualized consumable pull through of 483,000. Although it is exciting to see our customers generating more data than ever before, I would also say that we are still early in our launch cycle and we do not know if this level of consumable pull-through will represent the long-term pull-through of the radio platform.
Okay, we'll start with.
We will start generally with with Q4 and you know we did guide we did guide and increase our increase the range of guidance, you know, which means we've we've actually increased our guidance in every quarter. This year, which is great news. We are you know having a we are we do have a oh.
Speaker 5: transcript
You know, we'll start generally with Q4 and, you know, we did guide, we did guide and increase, increase the range of guidance, you know, which means we've, we've actually increased our guidance in every quarter this year, which is great news.
Speaker 5: transcript
We are having, we do have a reasonably conservative outlook going into the fourth quarter, and that's really driven by the fact that there are several macroeconomic factors at play, and we've heard a lot of our peers reporting that to recently. And so we're definitely sitting more on the conservative side.
Reasonably conservative outlook going into the fourth quarter, and that's really driven by the fact that there are several macroeconomic factors at play and we've heard a lot of our peers reporting reporting that two recently and so you know, we're we're definitely I'm sitting.
Christian Henry: The continued uptake in adoption of radio is allowing us to increase our 2023 revenue guidance again this year. We now expect full-year revenue to be between 195 and 200 million, representing 52 to 56 percent growth over 2022, and above the long-term targets we set out at our investor day last November. One of the most important metrics we're tracking for radio adoption is new customer uptake as it shows how the platform enables more and more users to migrate from other sequencing technologies on to pack bio.
Sitting more on the conservative side of the fence.
Speaker 5: transcript
The other thing is that the fourth quarter is typically, it can be a very strong order quarter, but it's also a short shipping quarter with holidays and other things to think about. And so those are some of the factors that we just put into our modeling as we kind of think about heading towards your end and in the next year. Now...
The other thing is that the fourth quarter is typically it can be a very strong order quarter, but it's also a short shipping quarter with holidays and other things to think about and so those are those are some of the factors that we are just put into our modeling as we kind of think about heading towards year end and into next year now.
<unk>.
Speaker 5: transcript
When you think about next year, I'm not going to comment today on Q1 or any thoughts. So I'm going to skip that one, Kyle, for today. But when you think about the economic.
When you when you think about next year I'm not going to comment today on Q1 or or any any thoughts so I'm going to skip that one Kyle for today, but but when you think about the economic challenges. It's interesting we're at a point where each region has its own unique challenges. So you have a you know you have.
Christian Henry: Again, we're pleased to report that over 40 percent of our radio system orders in the third quarter were from new pack bio instrument customers. Additionally, we continue to expect a multi-year opportunity for existing SQL 2 customers to migrate over to radio as less than 30 percent of the approximate 300 SQL 2 and 2 e customers have ordered a radio today. Our new customers include Helix, who ordered a radio system to strengthen its offering by incorporating native and accurate long reads into its population genomics business, which currently provides an end-and-sequencing platform for several large-scale programs across the United States.
Speaker 5: transcript
Challenges, it's interesting. We're at a point where each region has its own unique challenges. So you have you know, you have in China several factors that are impacting
In China. Several factors that are impacting you know impacting revenue and as I said last quarter and I continue to say, we've been a little more insulated than our than our peers in China because of our customer base is small and concentrated on.
Speaker 5: transcript
you know, impacting revenue. And as I said last quarter and I continue to say, we've been a little more insulated than our peers.
Speaker 3: transcript
in China because our customer base is small and concentrated. In fact, what's interesting is we were doing some analysis.
In fact, what's interesting is we were doing some some analysis and believe it or not our service providers in China have bigger sales forces than our entire sales force. So.
Speaker 3: transcript
And believe it or not, our service providers in China have bigger sales forces than our entire sales force.
Speaker 5: transcript
So even though we're small and concentrated, our reach has actually been pretty good. And so that's pretty darn encouraging. But there are some macro and economic issues in China that I'm sure have some impact on our business.
Even though we're small and concentrated our reach has actually been pretty good and so that's that's that's pretty darn encouraging them, but there are you know there are there are some macro and economic issues in China that I'm sure have some impact on our business. The rest of Asia. If you know if you make a comment there.
Christian Henry: In addition to new customers purchasing the platform, some of our existing customers are already expanding their radio capacity, like Children's Mercy Hospital in Kansas City, which has recently shared how radio has enabled them to consolidate tests, increase efficiency, and improve solve rates while accelerating turnaround time. Further, the hospital shared that they can achieve results in just two weeks with five-based high-five sequencing compared to months using multiple legacy tests. Similarly, we are also collaborating with Gene DX and the University of Washington to study the capabilities of high-five long-read, whole genome sequencing to improve our ability to understand genetic conditions in pediatric patients.
Speaker 5: transcript
The rest of Asia, if you make a comment there, I think the strong dollar and inflation have had some impact.
I think the strong dollar and inflation have had some impacts and and we think have some impacts Europe Ah you know higher energy costs as well as as well as the continuing conflicts you know generally create uncertainty, but we are seeing a you know signs of larger projects being taught.
Speaker 5: transcript
And we think have some impacts. Europe , you know, higher energy costs as well as as well as the continuing conflict.
Speaker 5: transcript
you know, generally create uncertainty, but we are seeing signs of larger projects being talked about across the climate, not just one project or two, but several. And then the United States.
About across the across the continent, not just one project or two but several and then the United States.
Speaker 5: transcript
You know, one thing that was interesting is that the fourth quarter, we really didn't see a significant end of year money, end of year push, so to speak, end of government year push. And I think some of that's probably attributed the fact that there was a lot of angst about potential government shutdowns and there continues to be that. And so I think that, you know, we're trying to think about, you're trying to be thoughtful about how we guide and what thinking about those.
You know one thing that was interesting is that the fourth the third quarter, we really didn't see a significant end of year money end of year push so to speak and up government year push and I think some of that is probably attributed to the fact that there was a lot of.
Christian Henry: We believe that with high-five and radio, our customers may be able to consolidate a menu of different tests onto one integrated, complete, long-read genome. We continue to see strong momentum in the genetic disease segment for high-five sequencing, as other Children's Hospital's implemented radio during the quarter. This includes another leading institution in the Midwest that upgraded from SQL2E to scale-hold genome sequencing for its rare disease cohorts and to implement ISA-SEC to further its research in pediatric and adolescent cancer patients.
Angst about got potential government shut downs and there continues to be that and so I think that you know we're trying to think about you tried to be thoughtful about how we guide and we're thinking about those things if I moved to answer though you know this the sales funnels has been quite strong actually and we we continue to.
Speaker 5: transcript
If I move to Onso, the sales bundles has been quite strong actually. And we continue to see bundled orders, we continue to see individual orders. We're not giving specifics because principally for competitive reasons to be honest. It is a very competitive market.
See bundled orders, we continue to see individual orders, where we're not giving specifics because you.
You know principally for competitive reasons to be honest. We you know we it is a very competitive market. We are scaling up our manufacturing and that will be a.
Christian Henry: In large-scale genomics projects, we were pleased to see initial data from researchers at Mohamed bin Rashid University of Medicine and Health Sciences, or MBRU, in developing an Arab Pangeum reference, which uncovered over 100 million base pairs of novel sequence, compared to other recent Pangeum references. Pack bio-high-five was a key contributor to unlocking this new data, which is why the team decided to ramp on radio to begin a larger multi-thousand genome sequencing project this year.
Speaker 5: transcript
We are scaling up our manufacturing and that will be manufacturing scaling is probably more of a rate limiter than demand right now. And I suspect that will work its way through the system by the early part of next year. And so we should end with a decent backlog in going into 2024 of the ANSSA system. We'll continue to scale.
<unk> scaling is probably more of a rate limiter than demand right now and I suspect that will work its way through the system in the early part by the early part of next year and so we you know we should end with a decent backlog in going into 2024 of the answer system will continue.
To scale manufacturing, what what's exciting is that our customers are using the product and.
Speaker 5: transcript
manufacturing and what what's exciting is that our customers are using the product and
Speaker 5: transcript
Doing some amazing science already, some of which will likely be discussed at ASHG.
Doing some amazing science already some of which will likely be discussed at a S. H G.
Christian Henry: One of the hallmarks of Pack Bio has been our ability to create additional value for our customers by adding new features to our sequencing platforms. With Revio, we are continuing this tradition by improving the performance of our systems in the field and adding valuable new features to the platform later this year. I'd like to spend a few minutes discussing some of these enhancements. In Q3, we rolled out a software update that optimizes the pre-load feature on Revio.
Next question Jamie.
Our next question comes from Jack Meehan from Nephron Research. Please go ahead with your question.
Speaker 1: transcript
Our next question comes from Jack Mehan from Neffron Research. Please go ahead with your question.
Thank you good afternoon.
Speaker 1: transcript
Wanted to ask about the Revio consumables. Could you comment on the range of utilization you're seeing on instruments in the field. And I understand there's caution on capital equipment, but just any color on the rate at which you think the Revio consumables can kind of grow from here.
Wanted to ask about the revenue consumables could you comment on the range of utilization Youre seeing on instruments in the field and I understand theres caution on capital equipment, but just any color on the rate at which you think the revenue consumables and kind of grow from here.
Christian Henry: The pre-load feature enables customers to load their next run on to the instrument while a sequencing run is underway. This gives Revio the potential to always be running and truly enables production scale long-read sequencing. Over the past few months, we learned that some of our highest throughput, most industrialized customers, were having some challenges using this feature. As a result, we made some changes to improve the pre-load function, which was included in this recent software release.
Speaker 5: transcript
Well, I think Jack, sure, the absolute absolute
Well I think Jack sure the actually the absolute.
Speaker 5: transcript
Consumable revenue we expect to keep growing and growing at a pretty good clip. So I think that's a good, that is a good sign. The consumable, you know, will the consumable pull through increase or, or stay the same or decrease, you know, it was 483 K this past quarter, which kind of represents roughly 37% utilization give or take of the systems, which is a great number.
Consumable revenue, we expect to keep growing and growing at a pretty good clip. So I think that's a good that is a good sign that consume a little you know will the consumable pull through increase or or stay the same or decrease you know it was 483.
M. K this past quarter, which kind of represents roughly 37% utilization give or take of the systems, which is a great number I. My my belief is you've got a few factors impacting us over the next few quarters first of all some of the highest throughput customers.
Christian Henry: Now, customers can pre-load as expected, allowing high-volume customers to potentially further increase Revio In the fourth quarter, we plan to add several new enhancements to the radio platform. First, we will incorporate the highly anticipated adaptive loading feature popular on our SQL 2E platform. Adaptive loading tailors to DNA loading to better fit the customer's sample, providing a backstop to prevent smart cell overload. This can enable customers to load more DNA, more confidently, and ultimately achieve higher and more consistent yields.
Speaker 5: transcript
My belief is you've got a few factors impacting us over the next few quarters. First of all, some of the highest throughput customers.
Speaker 5: transcript
are really starting to go, are get into production, which helps the utilization, which perhaps could help the pull-through number. Some of the newer customers are getting up to speed, and it was part of the reason why we wanted to accelerate shipment.
Are really starting to go or get into production, which helps the utilization, which perhaps perhaps could help the pull through number some of the newer customers. You know are getting up to speed and you know it was part of the reasons why we wanted to accelerate shipments so much and we shipped 52.
Speaker 5: transcript
so much and we shipped 52 systems in the quarter.
Systems in the quarter.
Speaker 3: transcript
You know, what we want to do is make sure that all of those customers can scale up and ramp. And so, you know, the fourth quarter, call through might be lower because you, then the third quarter, because you ship so many systems that go into the denominator.
No. We what we want to do is make sure that all of those customers can scale up and ramp and so you know the fourth quarter pull through might be lower because you are there in the third quarter because you shipped so many systems that go into the denominator, but the opportunity to grow that into the first half of next year I think it's quite significant.
Christian Henry: We will also enable support for libraries that are less than 3 kilobases long, which will position more radio, more favorably in applications like AAD, ISO-SEC, and 16S microbial sequencing. Further, it will enable 12 hour and 30 hour runtime, so users can optimize their runs for shorter and longer DNA inserts. Finally, the update will also include a run preview feature, allowing users to see their run statistics after the first four hours during the sequencing process and enabling customers to better plan for future sequencing runs.
Speaker 5: transcript
But the opportunity to grow that into the first half of next year, I think it's quite significant.
Speaker 5: transcript
And so that's really what we're playing here for is to...
And and so that's you know that's really what we're playing here for us to to build a consistently grow consistently fast growing consumables business, which will help.
Speaker 5: transcript
to build a consistently fast growing consumables business, which will help buoy growth margins, drive absolute revenue growth, and also create the flywheel. And this is really important.
Buoy gross margins drive absolute revenue growth and also create the flywheel and this is really important more and more Ravi O data getting into the world will drive deeper insights into the biology, which will drive a flywheel to drive more demand. So.
Speaker 3: transcript
more and more radio data getting into the world will drive deeper insights into the biology, which will drive a flywheel to drive more demand. So, very exciting what we saw happening in the third quarter and continuing to happen, you know, quite frankly, you know, as far out as we can see right now.
Christian Henry: We're not just focused on enhancing the sequencing platform, but we are also improving the end-to-end workflow. We believe that by improving the workflow from sample preparation through data analysis, we will enable our customers to truly leverage the power of high-fi sequencing. In the sample preparation process, next year, we plan to release improvements that leverage the technology acquired from Circulomics to improve size selection on the smart cell. This will improve our customer's ability to achieve higher sequencing output with each smart cell and consistently achieve longer read lengths.
Very exciting what we saw happening in the third quarter and continuing to happen you know quite frankly.
As far out as we can see right now.
Next our next question comes from Eve Burstein from Bernstein Research. Please go ahead with your question.
Speaker 1: transcript
Next question comes from Eve Burstein from Burstein Research. Please go ahead with your question.
Speaker 8: transcript
Hi there. Thanks a lot for the question. So going back to Rebio Instruments, you said that less than 30% of SQL 2 into a customer is subordered or Rebio to date. Why do you think that is and what's holding them back?
Hi, there. Thanks, a lot for the question so going back to Raphael instrument, you said that less than 30% a sequel to until the customer support Erica for IPO to date why do you think that is and what's holding them back.
Speaker 8: transcript
And maybe just on a broader note, looking at the radio placements as a whole, you said a month ago that you expect orders to go up every quarter through 2024, and then, or excuse me to go up every quarter through 23, and then into 24, is that guidance or that color still in place given the changes in the macro, or should we assume that that's maybe no longer?
And maybe just on a broader note looking at the radial placements as a whole and you said a month ago that you expect orders to go up every quarter through 2024, and then Oh excuse me to to go up every quarter through 'twenty, three and then into 'twenty or is that guidance or that colors still.
Christian Henry: Additionally, in order to enable our customers to take full advantage of the throughput of ReVO, we have collaborated with leading automation providers, including Hamilton, Integra, ReVity, and Tecan, to fully automate sample preparation protocols for both ReVO and the SQL2E systems. On the analysis front, earlier this month, we launched the PAC Bio whole GNOME sequencing variant pipeline, or WGS variant pipeline. This standardized computational method can solidate over 10 separate secondary and tertiary analysis tools into a single user-friendly workflow, enabling users with all levels of bioinformatics experience to access high-fi whole GNOME sequencing.
Oh in place given the changes in the macro or should we and should we assume that that's maybe no longer the case.
Speaker 3: transcript
Yeah, Eve, thank you for the questions. And we'll start with the SQL 2 customers. You know, there's a lot of reasons why a customer won't won't upgrade straight away. I think the first right now is the time to get budgets in place in order to buy the
Yeah Ive.
Thank you for the questions I will start with the with the sequel to customers you know Theres a lot of reasons why a customer won't.
Won't upgrade straight away I think the first right now is is the.
It is the time to get budgets in place in order to buy the system. So some kind of you know the biggest customers have a lot easier access to getting you know to getting budgets than than other customers and so those are the those are the first places you go the second is that a lot of.
Christian Henry: Over the past few years, I've often discussed our goal to make PAC Bio more multi-omic company. This is important as multi-omic approaches allow us to better understand the underlying connections from the GNOME and the Epigenome to the transcriptome and the proteome, and ultimately glean greater insights into biology and disease. With the flexibility and increased throughput of ReVO, combined with high-fi single molecule detection capabilities, we're starting to see how ReVO can be a multi-omic Swiss Army night, of Swords.
Speaker 3: transcript
So some, you know, the biggest customers have a lot easier access to getting, you know, to getting budgets than other customers. And so those were the first place.
Speaker 3: transcript
The second is that a lot of customers that bought in 2022 want to use their system for a while before they drive into the Revio platform.
Customers that bought in 2022 you know.
I want to use their system for a while.
Before they adopt before they drive it into the radio platform.
Speaker 3: transcript
And then I think the third is really thinking about, you know, what kinds of projects and applications that am I working on? If I'm working on AAV or microbial genomics, perhaps I don't need that much throughput. And one of the things that I think will be helpful there is we just launched, you know, we're launching the kinetics kit.
And then I think the third is a is really thinking about you know what what kinds of projects and applications at my working on if I'm working on a V or a microbial genomics, perhaps I don't need that much throughput in and one of the things that I think will be helpful. There is we just launched.
Christian Henry: For example, in a pre-print last month, researchers from the University of Washington and other institutions showed how radio could produce data on four separate high-quality ohms on just one radio smart cell, the genome, the methanol, chromatin, epigenome, and the transcriptome. In analyzing a participant in the Undiagnosed Disease Network, the researchers reported how data from each of the four ohms explained one or more of the participant's phenotypes. This study has yet another example of how a synchronized single-long read, multi-omic test, can more effectively uncover unexplained rare conditions than multiple one-off tests.
You know, we're launching the kinect kits that allow allow you to you know put more samples onto a rabbi O more economically and that might drive some of that and some of those conversions more quickly than otherwise would we will see I think that I do believe that over time.
Speaker 3: transcript
that allow you to put more samples onto a radio, more economically, and that might drive some of that.
Speaker 5: transcript
and some of those conversions more quickly than otherwise would.
Speaker 3: transcript
We'll see, I think that I do believe that over time, the vast majority of those systems will convert to Revio. And over time.
The vast majority of those systems will convert.
Convert to Ravi O and overtime.
Speaker 3: transcript
You know, I believe very strongly that the install base for radio will be significantly larger than the install base for the sequel to family at its peak.
Now there is I believe very strongly that the installed base for radio will be significantly larger than than the install base for sequel to the sequel to family at its peak.
Christian Henry: In another study, scientists at the University of Dresden and Max Planck Institute used Pac-Bioisoc to look deeper into the transcriptome to understand the impact of alternative splicing on isoform diversity and protein structure and showed that isoforms have a critical role in determining protein structures and biological functions in brain development and concluded that alternative splicing has greater potential to impact protein diversity and function than previously thought independently from changes in gene expression. To address this growing transcriptomics market, we're excited to launch our new Kinex kits enabling scalable, cost-effective, full-length RNA sequencing on Pac-Bio-Revio and SQL-2E.
Speaker 3: transcript
When you think about, you know, moving on to your question about orders and
When you think about you know moving onto your question about our orders and.
Speaker 5: transcript
Reveal orders and and what what is the pace?
Rev you orders and and what what is the pace you know what I really want to focus on is on on driving shipments from quarter to quarter. We're gonna have we we are going to have a variability in our orders are we're gonna be trying to whittle backlog down at times and and then.
Speaker 5: transcript
You know, what I really want to focus on is on driving shipments from quarter to quarter. We're going to have, we are going to have variability in our orders. We're going to be trying to whittle backlog down at times and then, you know, at other times perhaps, expanding backlog. But my belief is that, you know, on balance shipments are going to grow.
And you know at other times, perhaps expanding backlog, but my belief is that Oh, oh on balance shipments are going to grow a in any given quarter. So they may in fact be a b slightly lower or slightly above kind of trend line, but if you look out over many quarters.
Speaker 3: transcript
In any given quarter, though they may in fact be slightly lower or slightly above kind of trend line. But if you look out over many quarters, I think NetNet, you're going to see us growing. So that's something that we are managing.
Others, I think net net you're going to you're going to see us growing. So that's something you know that we are we are managing.
Christian Henry: With the MOS sequencing method introduced late last year, customers can concatenate smaller inserts into one long insert to dramatically increase output in single-cell RNA experiments. Now, with the expanded and rebranded Kinex kits, we can better address bulk RNA applications, allowing scientists to reveal the role of isoforms for the biology of health and disease in addition to obtaining the gene expression information. This truly enables this application on Revio allowing customers to perform large studies thousands of samples per year on a single-Revio system.
Speaker 3: transcript
The macro environment is making it tougher right now and so you know, perhaps
The macro environment is making it tougher right now and so you know, perhaps perhaps that changes the curve a little bit in the very near term, but you know I was just with a group of customers a significant group of customers last week and the number of applications the excitement the new ideas.
Speaker 5: transcript
Perhaps that changes the curve a little bit in the very near term.
Speaker 5: transcript
But, you know, I was just with a group of customers, a significant group of customers last week and...
Speaker 9: transcript
The number of applications, the excitement, the new ideas, really was quite remarkable. We're super excited to be going to ASHG later this week to interact with our customers and share, you know, share the energy associated with the platform. And, you know, ultimately that drives demand. So I think it's a good news story. There could be some variability though here in the near term with the macroeconomic and branch.
Really it was quite remarkable we're super excited to be going to a S. H G. Later this week to to interact with our customers and share our share of the energy associated with the platform and and you know ultimately that drives demand. So I think it's a good news story there could be some variability though.
Christian Henry: Therefore, thereby providing access to projects in neurology, rare disease, and cancer research as well as other markets. The Kinex line of kits also includes the 16S kits. The 16S gene is found in bacterial genomes and has long been used to identify, classify, and quantify species and strains in a microbial community sample. At about 1,500 base pairs long, short-read sequencing has difficulty reading the whole gene, while long-read sequencing would leave unused capacity on the sequencer.
Here in the near term with you know with with the macroeconomic environment.
Next question Jamie.
Speaker 1: transcript
Our next question comes from Matt Sykes from Goldman Sachs. Please go with your question.
Our next question comes from Mac Sykes from Goldman Sachs. Please go with your question.
Speaker 10: transcript
Hey, good afternoon. Thanks for taking my questions. Just two, part, or one, just in the product pipeline, just given the macro issues that you've highlighted next year, how are you thinking about Benchtop High-Throughput, the overall product pipeline as you move into a more difficult macro environment? Have you reprioritized any of those projects? I know you talked about R&D spend.
Hey, good afternoon, Thanks, taking my questions just.
Two partner one.
From a product pipeline just given the macro issues that you've highlighted next year. How are you thinking about bench top high throughput the overall product pipeline.
Christian Henry: With Kinex, customers can concatenate the 16S gene into long libraries for high-fi sequencing. This puts Revio and SQL-2 on par with short-read sequencing regarding cost, positioning Revio to better address the $300 million microbial genomics market. These kits further expand our competitive offerings in human genetics, oncology, and microbiology, and we look forward to discussing them more with researchers at ASHG later this week.
You move into a more difficult macro environment have you re prioritized any of those projects I know you talked about R&D spend.
Maintaining consistency, but I just wanted to find out if you've re prioritize any of those projects and then secondly, Susan just on the gross margins.
Speaker 10: transcript
reprioritize any of those projects and then secondly Susan just on the gross mark.
Speaker 10: transcript
understand the product, the mixed shift in the products, but in terms of the inventory charges and scraps, like how should we be thinking about that in terms of one off or anything that could linger into?
Understand the products that the mix shift in the products, but in terms of the inventory charges and scraps like how should we be thinking about that in terms of a one off or anything that could linger into next quarter or beyond thanks.
Speaker 5: transcript
Great, I'll go first. So, fundamentally, we set out on a course to build a multi-product, multi-platform.
Great. Okay. I'll go first so you you know fundamentally we set out on a on a course to build a multi product multi platform.
Christian Henry: Before I pass the call over to Susan, I'd like to welcome David Maline to our Board of Directors. David brings extensive experience to our board as a finance leader in various life science and healthcare companies, most recently, Moderna Incorporated.
Company that I think is going to serve the genomics company or to serve the genomics industry in
Company that I think it's going to serve the genomics company deserve the genomics industry in in unique ways and create incredible value for all of our stakeholders and I'm still absolutely convinced of that of that vision.
Speaker 5: transcript
in unique ways and create incredible value for all of our stakeholders. And I'm still absolutely convinced of that vision.
Susan Kim: And with that, I'll pass the call to Susan to discuss the financials.
Susan Kim: Susan? Thank you, Christian. As discussed, we are pleased to have reported 55.7 million in product service and other revenue in the third quarter of 2023, which represented an increase of 72% from 32.3 million in the third quarter of 2022.
Speaker 5: transcript
and I think our customers are responding to it as we build out our business. Radios, just the beginning, clearly. And it's my belief that, you know, we need to continue accelerating, getting platforms into the market, into the market to drive.
And of that and I think our customers are responding to it as we build out our business. Randy is just the beginning clearly and it's my belief that we need to we need to continue accelerating getting platforms into market into the market to drive.
Susan Kim: Enter a revenue in the third quarter with 34.7 million an increase of 203% from 11.4 million in the third quarter of 2022. The continued momentum of revenue primarily drove the increase in revenue as we shipped 52 instruments for revenue in the quarter. We ended the quarter with an install base of 129 revenue systems. Turning to consumables, revenue of 16.9 million in the third quarter increased 5% from 16.1 million in the third quarter of last year.
Speaker 9: transcript
to continue driving long-term revenue growth, but also to drive the ability for us to have different relationships with customers and others. In other words, be able to meet the customers with asking questions rather than selling them technology.
To continue driving long term revenue growth, but also to drive the ability for us to have different relationships with customers and others in other words be able to meet the customers with with asking questions rather than selling them technologies and so we still have we are still working hard on <unk>.
Speaker 9: transcript
And so we still have, we are still working hard on developing lower throughput and higher throughput long read systems. And with the acquisition of AppTon, we've jump started.
Eloping, a lower throughput and higher throughput.
Long read systems and with the acquisition of Athlon, We've jumpstarted.
Susan Kim: It was a record for Pac-File with approximately 55% of consumable revenue coming from radio systems and the remainder from other systems and other consumables. We expect equal to and to E as a percent of total consumables to continue declining as we ship radio and customer transition to the new system. Finally, service and other revenue was 4.1 million in the third quarter compared to 4.8 million in the third quarter of 2022. From a regional perspective, as Christian mentioned earlier, all three regions posted record revenue in the third quarter.
Speaker 9: transcript
the project to work on a very, very high throughput short retéquencing system.
The project to work on a high through very very high throughput on a short read sequencing system. The good news is that you know if I just spend a second on the apt on acquisition.
Speaker 5: transcript
The good news is that, you know, if I just spend a second on the Ahton acquisition.
Speaker 9: transcript
That we've already integrated that team. We shut down their men, their pleasant to offices and move the entire team to Menlo Park. Their, their alpha sequencers are in our labs, already sequencing with SBB chemistry. We've got the industrial design going and so.
That we've already integrated that team, we shut down their men there pleasanton offices and moved the entire team to Menlo Park there their alpha sequences are in our labs already sequencing with S. P. D chemistry, we've got the industrial design going and so you know that.
Speaker 9: transcript
You know, that acquisition accelerated our ability to launch that product perhaps by years. You know, we'll see how we do.
<unk> accelerated our ability to launch that product, perhaps by years, you know, we'll see how we do.
Susan Kim: America's revenue of 29.0 million grew 73% compared to the third quarter of 2022 with sequential and year-over-year growth across instruments and consumables. For Asia Pacific, revenue of 15.7 million grew 64% over the prior year. China recorded year-over-year growth but was lower from the second quarter as customers in the region slowed their CAPX purchases. So we were encouraged to see sequential consumables as customers ramp up their radio usage in the country with healthy levels of utilization.
Speaker 9: transcript
But my philosophy right now is to continue building out that portfolio while we continue to grow our revenues, but also be disciplined about how we manage our spend envelope, consistent with what we talked about at our analyst day last year. In fact, we look back to our analyst day and here we are a year later. We have met or exceeded the majority of our goals for 2023. So Susan, you can talk about Bruce Marshall.
But my my philosophy right. Now is you know to continue building out that portfolio, while we continue to grow our revenues, but also be disciplined about how we manage our our spend envelope consistent with what we talked about you know at our analyst day last year. In fact, we look back to our analyst day in <unk>.
We are a year later and we have met or exceeded the majority of our goals for 2023. So Susan you can talk about gross margins great. Thank you Matt for the question. So in terms of gross margins in my prepared remarks, we talked about the fact that in Q3, we you're right that we had some excess inventory scrap in reserve.
Speaker 4: transcript
Great, thank you Matt for the question. So in terms of gross margins, in my prepared remarks, we talked about the fact that in Q3, we're right that we had some excess inventory scrap and reserve charges. This is related to previous generation products, but most notably the decline in the SQL2 consumables demand drove some of those scrap charges that we took in the quarter. There were some also warranty related expenses on the radio platform.
Susan Kim: Finally, a near revenue of 11 million grew 83% over the prior year period driven by both instrument and consumable growth as customers like NDRU ramped up its large scale genome project and the Welcome Singer Institute reached this milestone of a thousand species sequence as part of the Darwin Tree of Life project. Moving down the panel, gap growth profit of 17.9 million in the third quarter of 2023 represented a growth margin of 32% compared to a gap growth profit of 13.5 million in the third quarter of 2022, which represented a growth margin of 42%.
Jess this is related to a previous generation products, but most notably the decline in the sequel II consumables demand drove some of those scrap charges that we took in the quarter. There were some also warranty related expenses on the radio platform. Your question about Q4 as we go through the budget.
Speaker 4: transcript
Your question about Q4, as we go through the budget for 2024, there may be some additional cleanup, but for the most part, the transition between SQL 2 to Reveo, we are through that. And for 2024, I do expect our gross margins to continue to expand. We talked about this previously. As revenue continues to grow, you get the benefit of higher volumes, but you also get the benefit of higher consumable revenue, which of course is higher gross margin.
For 2024, there may be some additional clean up but for the most part the transition between sequel, two to read the other where we are through that and for 'twenty 'twenty four I do expect our gross margins to continue to expand we've talked about this previously as revenue continues to grow you get the benefit of higher volume, but you also get the.
Susan Kim: Third quarter 2023 non-gap growth profit of 18.1 million represented a non-gap growth margin of 32% compared to a non-gap growth profit of 13.7 million or 42% in the third quarter of last year. The year we are decreasing growth margin was due to product mix as Incident revenue accounted for a higher proportion of overall revenue in the third quarter of 2023, compared to the third quarter of 2022, and due to Incident mix as Revio Instruments sold in the third quarter of 2023, had a lower growth margin than sequel to eSystems sold in the third quarter of last year.
Benefit of higher consumable revenue, which of course has higher gross margins and a Christian alluded to it too that we do have gross margin improvement initiatives that we have already started and some of which we've shared on the prepared remarks, but also some of which are still that are underway that we havent yet shared but we'll continue to disclose that as we get closer to realizing that.
Speaker 4: transcript
And a Christian alluded to it too, that we do have gross margin improvement initiatives that we have already started, and some of which we've shared on the prepared remarks, but also some of which are still that are underway that we haven't yet shared, but we'll continue to disclose that as we get closer to realizing those benefits.
Benefits.
Thanks, Matt next one Jamie.
Speaker 1: transcript
Next question comes from Dan Brunnen from PDCowen. Please go ahead with your question.
Last question comes from Dan Brennan from TD Cowen. Please go ahead with your question.
Speaker 11: transcript
Great, thanks, thanks, Pagan, questions. Maybe two-potter, just on pull through the first one. I know Christian in the past, you've talked about maybe by the first quarter of next year, you'd be at a point at which you could talk about what seems like adorable pull through to kind of model off of it. Sounds like you've had now.
Great. Thanks.
Thanks for taking the questions maybe two parter just on pull through the first one.
Susan Kim: Additionally, we realized inventory scrap and reserve charges, as well as additional warranty related material expenses on the Revio platform in the third quarter of 2023. Gap operating expenses were 100 and 0.4 million in the third quarter of 2023, compared to 88.2 million in the third quarter of 2022. Non-Gap operating expenses were 90.9 million in the third quarter of 2023, representing an 8% increase from non-Gap operating expenses of 83.8 million in the third quarter of 2022, and excluded merger related expenses of approximately 9 million related to our acquisition of Afton in the third quarter of 2023.
No question in the past you've talked about maybe by the first quarter of next year you'd be at a point at which you could talk about what seems like a durable pull through to kind of model off of it sounds like you've had now.
Speaker 11: transcript
last three quarters in the low 400s, you know, last two, four, 15, time like you were pretty constructive, just wondering. You think it's fair to be thinking 400 plus at this point on Polteroo from here. And then secondly, you know, stocks traded off a little bit here, despite a really good quarter, I think, on the comments on 24, just wondering, could you just speak to a little bit about like the types of customers maybe where you're seeing?
The last three quarters in the low four hundreds last two for 15. It sounded like you were pretty constructive I'm. Just wondering do you think it's fair to be thinking 400, plus at this point on pull through from here and then secondly socs.
Stocks traded off a little bit here. Despite a really good quarter I think on the comments on 24, just wondering could you just speak to a little bit about like the types of customers, maybe what are you seeing.
Speaker 11: transcript
You know, a little bit of elongated cycles. Is it in academia? Is it across a small mix in bioforma? You know, you talked over to Ruta China just a little bit more color there. Thank you.
A little bit of a elongated cycles is it in academia is it across the small mixing biopharma I know you've talked over China, just a little bit more color there. Thank you.
Susan Kim: The increase in operating expenses primarily reflects expenses related to the Afton acquisition in the third quarter of 2023, and increased sales and marketing expenses primarily related to increase investment in the commercial organization partially offset by lower engineering and lab related expenses, resulting from the transition of Revio from development to commercialization. Regarding headcount, we ended the quarter with 844 employees, compared to 818 at the end of Q2 2023, and 771 at the end of the third quarter of 2022.
Sure. So first of all for next year, you know, we're not going to comment on the pull through numbers, yet I'm still going to stand by the fact that it's still early early in our launch you know the pull through figures for Q3 were derived from the installed base of of what was it 77 units are in the <unk>.
Speaker 9: transcript
So first of all, for next year, you know, we're not going to comment on the pull-through numbers yet. I'm still going to stand by the fact that it's still early in our launch. You know, the pull-through figures for Q3 were derived from the install base of what was at 77 units in the denominator.
Denominator will see how we get another quarter under our belt here in Q4 with 129 systems, but by by the first quarter you know perhaps on the on the you know the call in April.
Speaker 5: transcript
We'll see how we get another quarter under our belt here in Q4 with 129 systems. But by the first quarter, you know, perhaps on the...
Speaker 9: transcript
you know, the call in April or May, I don't know if it's late April or early May, you know, we should, I think have a view at that point. It'll vary, but I do think the numbers are above, you know, there's certainly above where my long-term model and thinking have been and so that's encouraging, but I don't want to declare victory yet until we get a little more under our bill.
Or maybe I don't know if it whenever it's getting late April early may we should I think have a view at that point.
Susan Kim: Operating expenses in the third quarter included non-cash share-based compensation of 18.6 million, compared to 18.0 million in the third quarter of last year. Gap net loss in the third quarter of 2023 was 66.9 million or 26 cents per share, compared to Gap net loss of 77.0 million in the third quarter of 2022 or 34 cents per share. In Q3, we booked a discrete income tax benefit related to the acquisition of Afton.
It'll vary but I do think the numbers are above you know, there's certainly above where my long term model and thinking have been and so that's encouraging but I don't I don't want to declare victory yet until we get a little more you know a little more under our belt.
Speaker 9: transcript
When you think about the commentary, I mean, the first thing I want to reemphasize is we continue to, we believe we're going to significantly grow next.
When you think about you know the the commentary I mean, we the first thing I want to reemphasize as we continue to we believe we're going to significantly grow next year period end of story.
Susan Kim: The acquisition was considered a business combination for tax purposes, and therefore the acquired and tangible are disallowed for book tax purposes, which resulted in a one-time discrete non-cash income tax benefit on the Gap PNL of 10.7 million in the quarter. Non-gap net loss was 67.9 million representing 27 cents per share in the third quarter of 2023, compared to a non-gap net loss of 72.5 million representing 32 cents per share in the third quarter of 2022. On to our balance sheet, we ended the third quarter with 767.8 million in unrestricted cash and investments, compared with 829.9 million at the end of the second quarter of 2023.
Speaker 9: transcript
period and a story. You know, we are having a fan, you know, so far this year we raised guidance every single quarter and we, you know, we've had a very strong result in Q3. And I, Q4, you know, we're looking to have another strong quarter in Q4. And so, you know, from my perspective, the business is operating on all cylinders and really, you know, from a revenue and customer.
You know we have we are having a fan you know so far this year. We've raised guidance every single quarter and we you know we've had a very strong result in Q3.
Q4, you know we're looking to have another strong quarter in Q4, and so you know from my perspective, the business is operating on all cylinders and and really you know from a from a revenue and customer perspective, but it would be it would be remiss, if I didn't acknowledge and rack.
Speaker 9: transcript
But it would be remiss if I didn't acknowledge and recognize that the environment out there is certainly more challenging than it's been in the past. Certainly more challenging than it was when we put together, when we had our investor day last year.
Ignite is that the environment out there is certainly more challenging than it's been in the past certainly more challenging than it was when we put together when we had our investor day last year.
Speaker 5: transcript
But and the impact, you know, the impact of customers or customers that are, you know, smaller, smaller, one to two Z type of Revio purchasers that would be in the buy in small biotack for you.
Susan Kim: The ending cash balance on September 30 does not reflect the milestone payment to the on-the-home shareholders, including approximately 96.2 million in cash and 9.0 million shares of common stock, which was paid and distributed on or about October 4, 2023. Inventory bounces increased in the third quarter to 68.3 million representing 2.2 inventory turns compared with 67.6 million at the end of the second quarter of 2023 representing 2.0 inventory turns. Our strong performance in the third quarter leads us to believe that revenue for the year will be 195 million to 200 million representing a growth rate of approximately 52% to 56% compared to 2022.
And and then and the impact you know the impacted.
Customers are customers that are you know.
Smaller smaller onesie Twosies type Rev. Yo purchasers that would be in the buy in small biotech for example, some of the academic funding in the United States. You know I think the funding hasn't gone away or alright, and is still there, but you know the anxiety with the government shut down.
Speaker 9: transcript
Some of the academic funding in the United States, you know, I think the funding hasn't gone away and is still there, but, you know, the anxiety with the government shutdown that we saw at the end of the quarter, the continued rhetoric that's going on.
We saw at the end of the quarter are the continued rhetoric. That's going on you know does does give us pause to be you know to be appropriately conservative.
Speaker 9: transcript
you know, does give us pause to be, you know, to be appropriately conservative. Outside the United States, you know, we did spend a second or two talking about, you know, China in particular, China is actually, as we continue to grow, China is going to become less of a percent, percentage of our revenues. And I think that's already starting to transpire. So that, you know, on balance, that's good for us.
Outside the United States, you know, we did spend a second or two talking about China in particular, China is actually as we continue to grow China's going to become less of a percent percentage of our revenues and I think that's already starting to transpire.
So that you know on balance that's good for US Europe. You know we had we had several new customers and we have great opportunities in the funnel in Europe, but.
Speaker 9: transcript
Europe , we had several new customers and we have great opportunities in the funnel in Europe , but it is a tough, with high inflation, it is a tough, tougher environment.
Susan Kim: This represents an increase of 10 million over our guidance last quarter and we have now raised our guidance every quarter this year. Around the midpoint our guidance assumes fourth quarter revenue is approximately flat sequentially compared to the third quarter with the 5 million range reflecting macro factors that are lengthening sales cycles for our customers globally and affecting the timing of customer capex purchases. Moving down the piano we expect the 2023 non-gap growth margin to be around the low end of the previously guided 32% to 34% range due to higher than expected inventory scrap and reserves in the third quarter and higher warranty costs associated with the revenue instrument.
It is a tough match with high inflation it is a tough tougher environment and so.
Speaker 9: transcript
You know, what we're doing is we're just trying to take a responsible view here and if we outperform, you know, we outperform.
You know what we're doing is we're just trying to take a responsible view here and if we outperform we outperform them.
Great next question Jamie.
Speaker 1: transcript
Our nice question comes from John Sauerbeer from UBS. Please go ahead with your question.
Our next question comes from John Sour beer from UBS. Please go ahead with your question.
Speaker 12: transcript
I think we're taking the questions and congrats on the quarter. Maybe just clarification here just on that extension of order cycles. I guess, you know, I've seen any increase in cancellations. And then I guess also, you know, you're not providing, you know, color on next year. But when you look at, I guess, the announcement of the Act Biocapital last month, I guess any just way to frame how you see maybe is there potentially more leasing next year versus capital purchases? How do you see kind of that shipment place out over 24?
Hi, Thanks for taking the questions and congrats on the quarter.
Maybe just a clarification here just on that extension of motorcycles I guess have you seen any increase in.
And cancellations and then I guess also you know.
Not providing color on next year, but.
Susan Kim: We continue to expect margin expansion beyond 2023 as revenue placements will help drive a mixed shift toward higher margin consumables and higher volume and optimization drive lower manufacturing unit costs. Specifically we've made good progress this year in reducing costs by lowering the manufacturing labor time for the radio system production which we expect to continue into 2024. And we have now commenced consolidating our San Diego manufacturing operations into Menlo Park which will give us the benefit of running our manufacturing operations more efficiently.
When you look at I guess, the announcement with the pack bio capital last month, I guess any way to frame. How you see maybe is there potentially more leasing next year versus capital purchases. How do you see kind of that shipment plays out over 24.
Speaker 9: transcript
Yeah, thank you for the congratulations. We're proud of the quarter.
Yeah. Thank you for thank you for the congratulations and we're proud of the quarter.
Speaker 9: transcript
to be sure. You know, we haven't seen any cancellations. We haven't, you know, the competitive environment we've been doing very, very well against our competitors as evidenced by the shipments in the quarter. We continue to make progress there. So we haven't seen cancellations. We, when we see this, we see orders push out across a quarter or maybe perhaps three to six months a quarter
To be sure you know I I, we haven't seen any cancellations. We haven't you know the competitive environment, we've been doing very very well against our competitors as evidenced by by the shipments in the quarter. We continued to make progress there. So we haven't seen cancellations if when we see this we see.
Susan Kim: We now also expect non-gap operating expenses to grow by 2 to 3% compared to 2022. This is lower than our previously guided growth rate as Pat bio continues to focus on spending discipline. We expect interesting come to more than offset interest expense for the remainder of the year and the weighted average share count for EPS for the full year to be approximately 254 million due to the timing of the issuance of beyond the own milestone share.
Orders push out across a quarter or maybe perhaps three to six months or a quarter or two and so when we we don't feel like the business is going away. We don't feel like the business is is being taken by competitors and we and we don't feel like there's any waning.
Speaker 3: transcript
And so when we don't feel like the business is going away, we don't feel like the business is...
Speaker 9: transcript
is being taken by competitors. And we don't feel like there's any waning desire.
Desired to do sequencing. So all of those things are very strong you know for us, but we but we do see other conversations or take particularly where you see it as the early conversations are taking longer. So it may not have it extremely with the most near term impact, but you do.
Speaker 9: transcript
So all of those things are very strong for us, but we do see the conversations, particularly where you see it, is the early conversations are taking.
Christian Henry: I'll hand it back to Christian for some final remarks.
Christian Henry: Christian. Thank you season with a couple of months left 2023 is on track to be the most successful year impact bios history and when looking back I can believe it I believe it can mark an inflection point on our strategic journey. For the year pack bios on track to ship more systems than any other point in its history. What is perhaps more encouraging is that we now expect to achieve record consumable revenue in spite of the fact that 2023 has been a product transition year.
Speaker 3: transcript
So it may not have an extreme, the most near-term impact, but you don't know, when you're actually in the sale, you don't know, are you gonna get it done in the next six weeks or is it gonna take 12 weeks? And it's really, that's one way to think about it.
No you know when you're in actually in the sale. You don't know are you going to get it done in the next six weeks or is it going to take 12 weeks and it's really that's you know that's one way to think about it Pac bio.
Speaker 9: transcript
Packed bio, you know, I think there's still confusion with investors perhaps about the Packed Bio Capital Program. We've always had leasing programs in place. We just rebranded this program Packed Bio and we have a new leasing partner, which we believe will give us more flexibility and more access. But when I look at revenue for next year,
There is still confusion with investors, perhaps about the pack bio capital program. We've always had leasing programs in place. We just rebranded this program.
Christian Henry: I believe that this is an indication of the fundamental demand for long-read sequencing in the market and that highly accurate high throughput systems such as Revio are enabling that demand. Our projected revenue growth for this year is well above our 40-50% compound annual growth target established at our investor day last year. When I look back and compare where we are now, versus our internal expectations 12 months ago, what really stands out is the pace of review adoption, as it is well above where we had envisioned it last November. It was a little bit more challenging than a year ago.
Packed by it and we have a new leasing partner, which we believe will give us more flexibility and more axis, but when I look at revenue for next year.
Speaker 9: transcript
You know, it doesn't immediately strike me that we're going to do more leasing next year, versus this year. And when we do the leasing, we still get all of the revenue upfront. And that's, and that's a really important, you know, aspect of this.
You know it doesn't immediately strike me that we're gonna do more leasing next year versus this year and when we do the leasing we still get all of the revenue upfront and that's and that's a really important aspect.
Aspect of this is the way these leasing programs work is that we work with a financial partner.
Speaker 9: transcript
The way these leasing programs work is that we work with a financial partner and that takes the, that actually...
And that takes the that actually bias the system in and and then takes payment from from the end customer and we can work with that leasing partner to do to create incentive programs or other things. If we so chose but but right now we don't see.
Speaker 9: transcript
buys the system and then takes payment from the end customer. And we can work with that leasing partner to do to create incentive programs or other things if we so chose. But right now, we don't see leasing as being any bigger than it was this year per se. It might naturally grow because our whole business is growing, but I don't think a greater proportion, but I also haven't done the math through the data premac silly ad we showed Rs 500,000 years ago both of them discussed the data minted, 85,000 so sat
Christian Henry: On that topic, I wanted to zoom out a bit and provide some high-level commentary on 2024. While we're not providing specific 2024 guidance today, I wanted to give you a rough framework of how we're thinking about the years we build out our 2024 budget. First, we continue to focus our R&D efforts on the creation of a multi-product, multi-platform portfolio that includes both leading long and short-read sequencing systems. We are deep into the development of several new sequencing platforms which we believe will enable us to reach more of the sequencing market and drive long-term revenue growth.
Leasing is being you know any bigger than it was this year per se it might naturally grow because our whole business is growing but I don't think a greater proportion, but I also haven't done the math to to know explicitly to be clear.
Speaker 13: transcript
Clear.
Next question.
Speaker 1: transcript
Our next question comes from Shenzhen Nam, from Scotia Bank. Please go ahead with your question.
Our next question comes from Shinji Nam from Scotiabank. Please go ahead with your question.
Christian Henry: But even with this focus in R&D, we still believe that total expenses in 2024 will be within the range of the long-term guidance that we provided at an investor day. Additionally, our sales funnel for Revio continues to be robust as potential new-packed bio-customers remain enthusiastic about implementing the power of native long-reads into their research, and existing customers are eager to upgrade their sequel to fleets. However, due to broader global macroeconomic issues, customers have lengthened their capital purchasing timelines, which will likely have some impact on our growth trajectory in 2024.
Speaker 14: transcript
Hi, thanks for taking the question and congrats on the quarter. Christian, would love to get your thoughts on the long re-sequencing market over the longer term? Let's say the next five years. You laid out the key drivers at the analyst day, you know, and the growth potential there, but given the strong with the expected adoption of READ-VO so far, do you think the long re-sequencing might, the market could have a bigger impact over the longer.
Hi, Thanks for taking the question and congrats on the quarter, a Christian would love to get your thoughts on the long read sequencing market over the longer term, let's say the next five years are you laid out the key driver is at the analyst day, you know and the growth potential there, but given the stronger than expected adoption of red deal so far.
Or do you think the long read sequencing might could the market could have a bigger impact over the longer term.
Yeah. Thank you that's a great question and you know when you look out over the next five years I think what Randy I was showing is that the thesis that germ line driven genomics needs. The comprehensiveness of long reads and if if you know.
Speaker 9: transcript
Yeah, thank you. That's a great question. And when you look out over the next five years, I think what Revia was showing is that the thesis that germline driven genomics needs the comprehensiveness of long reads. And if we can create platforms that give you the economics and
Christian Henry: So while we still expect to achieve significant revenue growth in 2024, the current challenges in the global macroeconomic environment are likely to have an impact on our growth rate. As we complete our 2024 forecast and continue to monitor market conditions, we plan to provide more detailed guidance on our Q4 earnings call in early 2024.
If we can create platforms that give you the economics.
And the throughput.
Speaker 9: transcript
And all of the capabilities of the multi-ohms, like we talked about in the prepared remarks, it really does plan, it really will serve a large part of that market. I think our 2026 market estimates were somewhere in the range of the sequencing market being $12 to $14 billion.
And the all the all of the capabilities of the multi owns like we talked about in the prepared remarks, you know it really does planned it really will serve a large part of that market I think our 'twenty 'twenty six market estimates were somewhere in the range of the sequencing market being $12 billion to $14 billion.
Christian Henry: As we close the call, I want to reiterate how pleased I am with the team's execution since we announced the Revio and ANSO platforms just over one year ago, especially in this environment where we've seen prolonged inflation and worsening macroeconomic conditions. Thank you for your time today.
And you know realistically probably half of that at least is could be served by by long read sequencing if not more.
Speaker 9: transcript
And realistically, probably half of that at least could be served by long-read sequencing if not more. And I think this year's proven that that's exactly on track.
Operator: Operator, let's start the Q&A session. Ladies and gentlemen, at this time, we'll begin the question and answer session. Once again, to ask a question, you may press star in one. If you are using a speaker phone, would you ask me please pick up your hand instead, prior to pressing the keys to ensure the best sound quality. To withdraw your question, you may press star in two. Once again, that is star in the one to join the question queue.
And I think this year has proven that that's exactly on track you know another another area, where maybe people don't realize but it's really important is that plant and animal plant and animal genetics really a benefit from long read sequencing oftentimes.
Speaker 3: transcript
You know, another area where maybe people don't realize, but it's really important is that plant and animal genetics.
Speaker 9: transcript
really benefit from long-resequent things. Oftentimes those genomes have are multiplied, they're not just diploid genomes, they have more chromosomes, they also have longer, bigger genomes, some of smaller genomes, and having the ability to have highly accurate sequencing in that space is actually, we're significantly outperforming in 2023, and I think if you look out over five years,
Tejas Savant: Our first question today comes from Tayas Savant from Morgan Stanley. Please go ahead with your question. Hey guys, good evening and thanks for the time here. Question, a couple of questions for you here. First, I mean, in terms of the backlog growth, has order backlog essentially trended in line with your expectations. And as you think about juxtaposing your placements for next year, I know you mentioned some moderation for the macro impact.
Those genomes have our multi floyd, they're not just deployed genomes. They have a more chromosomes. They also have lot bigger genomes some of smaller genomes and having a you know having the ability to have highly accurate sequencing in that space is actually where we're see we're significantly outperforming.
Tejas Savant: But how should we think about sort of backlog, how that's trended over the last four weeks or so in the context of 24 placements. And then my second part of the question was on consumables. Any way for you to parse out how much of the strength that your seniors related to new customer stocking versus that first cohort of review adopters ramping usage. I mean, if you can just break out or circumscribe the trends you see in that early adopter cohort, that would be super helpful. Thank you. Sure, I'm just writing down the question.
Forming in 2020, three and I think if you look out over five years, that's another area, where you're going to see a strong performance. It's not we focus a lot to be honest on germ line human genetics, because you know.
Speaker 3: transcript
That's another area where you're going to see strong performance. We focus a lot, to be honest, on germline human genetics, because those are very, very significant markets, but we can't leave the plant and animal world behind. That's a multi-hundred million dollar plus business as well.
Those are very very significant markets, but we can't leave the plant and animal world behind.
That's a multi hundred million dollar plus business as well.
Hey, Jamie how 'bout our last question.
Speaker 1: transcript
Our final question today comes from Luke, Sir Gott from Barclays. Please go ahead with your question.
Our final question today comes from Luke Sorry got from Barclays. Please go ahead with your question.
Speaker 15: transcript
Great, thanks for squeezing me in. So on the 4Q implied guide, can you break out like the assumptions that you guys are having from consumables?
Great. Thanks for squeezing me in so on the <unk> implied guide can you break out the assumptions that you guys are having from a consumables.
Speaker 15: transcript
versus the instrument ramp that we should be getting to hit your guidance and then as you guys continue to launch all these new applications I mean clearly all these questions are on consumables and how that's gonna pay next year but in the pushback we get for not pushback but commentary we get from your customers is that you need to there will be even more adoption here if you bring down price
Christian Henry: So first of all, I'm not going to comment specifically on backlog, but we are continuing to ship more and more every quarter and we see, it's certainly meeting my expectations. When I think about next year, I do think that we have the technology and capabilities and the enthusiasm in the market to continue growing and growing with respect to Revio, but of course right now in this near term window, we are seeing some macroeconomic challenges like others.
Versus the instrument ramp that we should be getting to your guidance and then as you guys continue to launch all these new applications I mean, clearly all of these questions are on consumables and how that's going to pace next year, but in the pushback, we get for not pushback, but commentary we get from your customers is that.
You need the there'll be even more adoption here, if you bring down price.
Speaker 15: transcript
Per sample and if you increase the application. So how do you guys weigh that investment as you think about going forward the next couple of years?
Per sample and if you increase the application. So how do you guys weigh that investment as you think about going forward. The next couple of years.
Yeah, Thanks, Luke and I appreciate you for hanging in there too.
Speaker 9: transcript
Yeah, thanks, Luke, and appreciate you for hanging in there too. So, you know, when I think about Q4, we didn't break out the specifics, but we do think consumable revenue will continue to grow from here a little bit. And, you know, and I think that instruments, you know, we'll see how we do, we'll see how we do on the instruments. When you start to think about,
So you know when I think about Q4, we didn't break out the specifics, but but we do think consumable revenue will continue to grow from here a little bit and you know and I and I think that instruments are you know we will see how we do what we will see how we do on the instruments.
Christian Henry: But as I said in my prepared remarks, we expect to significantly grow our revenue in 2024. I'm not going to be any more specific than that because, quite frankly, this is in the 2024 guidance call. With respect to consumables, we looked carefully at the Q3 numbers and there really wasn't a lot of stocking going on relative to what we had in Q2. And what we're seeing as our customers are fundamentally starting to really use their Revio systems and that's why we had such a strong performance in consumables.
When you start to think about.
Speaker 9: transcript
Consumables bring it down the price. I don't think I've ever heard a customer
Consumables, bringing down the price I don't think I've ever heard a customer.
Speaker 9: transcript
I don't think I've ever heard a customer say that they wouldn't do more if the price was lower. So that's not a revelatory comment, but I do think that...
I don't think I've ever heard a customer say that they wouldn't do more if the price was lower so that's not a a rebel of dori comment, but but I do think that [laughter], but I, but I do think that there is this elasticity in the market. We're just at the beginning of that elasticity.
Speaker 9: transcript
But I do think that, right, there is this elasticity in the market. We are just at the beginning of that elasticity. Revio gives us the ability to start testing that. And I think we started in a great spot this year. What you'll see from us is actually Revio will, over time, be able to deliver more throughput per smart cell. And as we do that, we'll have opportunities to either,
Christian Henry: And I do think that that was certainly one of the highlights of the quarter and certainly my expectation going forward is that you're going to see, you're going to continue to see very strong consumable performance. We went through more than 9,000 smart cells in the third quarter. People are using the systems and they're generating great data. So that is very, very encouraging for me. We're still really early in this product cycle and to see that kind of, to see us number one in 2023, you have the product transition year and yet still grow total consumables is really a pretty significant milestone for the company. And number two, now you're starting to see Revios completely overtake the SQL platform. Those are both very encouraging signs that, you know, that I think are going to persist into 2024.
It gives us the ability to start testing that and I think we started in a great spot. This year, what you'll see from US is actually Rabat L will over time be able to deliver more throughput.
First smart cell and as we do that we'll have opportunities to either either you know well, we'll be able to effectively lower the price per per per base or per gig per G. So to speak and so you'll you'll get to see that from that perspective, and then the applications are.
Speaker 9: transcript
either, you know, we'll be able to effectively lower the price per
Speaker 9: transcript
per base or per gig per G, so to speak. And so you'll get to see that from that perspective. And then the applications are critical. Some of these things that we're launching right now, we've had in the works for a while. And next year, you're going to continue to see in the first half of the year, more applications being launched on the system. And all of this is geared towards
Critical some of these things that we're launching right now you know we've had in the works for a while and and next year, you're going to continue to see in the first half of the year more applications being launched on the system and all of this is geared towards you.
Operator: Next question, Jamie.
Speaker 3: transcript
driving more utilization of the systems. I spent a lot of time with my prepared remarks today talking about the end-to-end workflow and improving the sample preparation, talking about next year using circulomics to improve our workflow as well. And so we're doing all of these things to drive that consumable process.
Kyle Nixon: Our next question comes from Kyle Nixon from Canacorn. Please go ahead with your question. Hey guys, thanks for taking the questions.
You know driving more utilization of the systems I talk for I spent a lot of time in my prepared remarks today talking about the end to end workflow and in improving the sample preparation talking about next year using circular all mix to improve our workflow as well and so we're doing all.
Christian Henry: Congrats on the great quarter. First on the fourth quarter, kind of, I guess, guidance or like outlook, so flat sequential revenue due to the macro environment, lengthening sales cycles, timing of cadets, purchases, like not as a price. But where's that happening? Is that only China or is that occurring in Western Europe, Russia, North America, et cetera. And since revenues can be flat in the fourth quarter, because that happened again in one queue as well in 24.
All of these things to drive that consumable pull through but.
Speaker 9: transcript
The sample prep revenue will grow as well, but it's really all about driving that considerable pull through and then selling new systems.
The sample prep revenue will grow.
As well, but but it's really all about driving that consumable pull through and then selling new systems and so you know when we were looking forward to you know talking about 'twenty 'twenty four when we get there we still have to wrap up 2023 strong, but you know right now.
Christian Henry: It's one to understand maybe like early 24 commentary. And then just quickly on on so like a person, you just talk about the sales funnel and back all like how that's progressing and maybe the composition of customer types and how that roll out could progress next year. I didn't mention that as like a 24 growth driver, but it's, you know, it's all kind of an organic revenue growth as well, so that can be good to hear.
Speaker 9: transcript
So, you know, when we, we're looking forward to, you know, talking about 2024, when we get there, we still have to, you know, wrap up 2023 strong.
Speaker 9: transcript
But right now, we're very proud of what we've done in the first three quarters. We're looking towards growth that's above our long-term guidance.
We're very proud of what we've done in the first three quarters and we're looking towards growth that's above our long term guidance are north of 50% or perhaps one of the fastest growing companies in our in our peer group, a which is exciting competitively all the products are very competitive we've been able to.
Christian Henry: Thanks. Yeah, yeah. Okay, we'll start with, you know, we'll start generally with with Q4 and, you know, we did guide, we did guide and increased, increased the range of guidance, you know, which means we've, we've actually increased our guidance in every quarter this year, which is great news. We are, you know, having, we, we do have a reasonably conservative outlook going into the fourth quarter and that's really driven by the fact that there are several macro economic factors at play and we've heard a lot of our peers reporting reporting that to recently.
Speaker 9: transcript
North of 50% or perhaps one of the fastest growing companies in our in our
Speaker 9: transcript
which is exciting competitively. The products are very competitive. We've been able to execute on delivering those products.
Execute on on delivering those products and as we kind of you know moved forward to close out this year strong and we're really looking.
Speaker 9: transcript
And as we kind of move forward to close out this year strong, we're really looking forward to another great year for the company.
Looking forward do you know another great year for the company.
So we appreciate everyone's support.
Speaker 2: transcript
All right, that wraps it up. Thank you everybody for all the questions today, and thanks for joining us. We look forward to connecting with many of you this quarter at the various conferences and fitting you as we move into 2024. Thank you.
Alright that wraps it up thank you everybody for all the questions today and thanks for joining us.
Christian Henry: And so, you know, we're definitely sitting more on the conservative side of the fence. The other thing is that the fourth quarter is typically, it can be a very strong order quarter, but it's also a short shipping quarter with holidays and other things to think about. And so those are, those are some of the factors that we just put into our modeling as we kind of think about heading towards your end and in the next year. Now.
We look forward to connecting with many of you this quarter at the various conferences and updating you as we move into 'twenty 'twenty four.
Thank you.
Speaker 1: transcript
Ladies, gentlemen, the conference has now concluded. We thank you for joining today's presentation. You may now disconnect your month.
Ladies and gentlemen, the conference has now concluded we thank you for joining today's presentation. You may now disconnect your lines.
Christian Henry: Now, when you think about next year, I'm not going to comment today on Q1 or any thoughts, so I'm going to skip that one, Kyle, for today. But when you think about the economic challenges, it's interesting. We're at a point where each region has its own unique challenges. So you have, you know, you have in China several factors that are impacting, you know, impacting revenue. And as I said last quarter and I continue to say, we've been a little more insulated than our peers in China because our customer base is small and concentrated.
Christian Henry: In fact, what's interesting is we were doing some analysis. And believe it or not, our service providers in China have bigger sales forces than our entire sales force. So even though we're small and concentrated, our reach has actually been pretty good. And so that's pretty darn encouraging. But there are some macro and economic issues in China that I'm sure have some impact on our business. The rest of Asia, if you make a comment there, I think the strong dollar and inflation have had some impacts.
Christian Henry: And we think have some impacts. Europe, you know, higher energy costs as well as as well as the continuing conflicts, you know, generally create uncertainty. But we are seeing, you know, signs of larger projects being talked about across the, across the climate, not just one project or two, but several. And then the United States, you know, one thing that was interesting is that the fourth quarter, the third quarter, we really didn't see a significant end of year money, end of year push, so to speak, end of government year push.
Christian Henry: And I think some of that's probably attributed to the fact that there was a lot of angst about potential government shutdowns. And there continues to be that. And so I think that, you know, we're trying to think about trying to be thoughtful about how we guide and what thinking about those things. If I move to on so, you know, the sales bundles has been quite strong actually and we continue to see bundled orders, we continue to see individual orders, we're, we're not giving specifics because, you know, principally for competitive reasons to be honest, we, you know, we, it is a very competitive market.
Christian Henry: We are scaling up our manufacturing and that will be, you know, manufacturing scaling is probably more of a rate limiter than demand right now. And I suspect that will work its way through the system in the early part by the early part of next year. And so we, you know, we should end with a decent backlog in going into 2024 of the on so system will continue to scale manufacturing and what, what's exciting is that our customers are using the product and doing some amazing science already some of which will likely be discussed at ASHG.
Operator: Next question, Jamie.
Jack Meehan: Our next question comes from Jack Mehan from Neffron Research. Please go ahead with your question. Thank you.
Christian Henry: Good afternoon. I wanted to ask about the radio consumables. Could you comment on the range of utilization you're seeing on instrument in the field and I understand there's caution on capital equipment but just any color on the rate at which you think the radio consumables can kind of grow from here? Well, I think Jack, sure. The absolute consumable revenue we expect to keep growing and growing at a pretty good clip. So I think that's a good, that is a good sign.
Christian Henry: The consumable, you know, will the consumable pull through increase or stay the same or decrease? You know, it was 483 K this past quarter, which kind of represents roughly 37% utilization give or take of the systems, which is a great number. I, my, my belief is you've got a few factors impacting us over the next few quarters. First of all, some of the highest throughput customers are really starting to go are get into production, which helps the utilization, which perhaps perhaps could help the pull through number.
Christian Henry: Some of the newer customers, you know, are getting up to speed and, you know, it was part of the reason why we wanted to accelerate shipments so much and we shipped 52 systems. In the quarter, you know, what we want to do is make sure that all of those customers can scale up and ramp. And so, you know, the fourth quarter, call through might be lower because you then the third quarter because you ship so many systems that go into the denominator, but the opportunity to grow that into the first half of next year, I think it's quite significant.
Christian Henry: And so that's, you know, that's really what we're playing here for is to build a consistently grow consistently fast growing consumables business, which will help buoy growth margins drive absolute revenue growth and also create the flywheel. And this is really important. More and more radio data getting into the world will drive deeper insights into the biology, which will drive a flywheel to drive more demand. So very exciting what we saw happening in the third quarter and continuing to happen, you know, quite frankly, you know, as far out as we can see right now.
Eve Burstein: Next question comes from Eve Burstein from Burstein Research. Please go ahead with your question.
Christian Henry: Hi there. Thanks a lot for the question. So going back to Reveo Instruments, you said that less than 30% of SQL to into a customer subordered a review to date. Why do you think that is and what's holding them back?
Christian Henry: And maybe just on a broader note, looking at the the radio placements as a whole, you said a month ago that you expect orders to go up every quarter through 2024 and then or excuse me to go up every quarter through 23 and then into 24. Is that guidance or that color still in place given the changes in the macro or should we should we assume that that's maybe no longer.
Christian Henry: Thank you for the questions. We'll start with the SQL 2 customers. There's a lot of reasons why a customer won't upgrade straight away. I think the first right now is the time to get budgets in place in order to buy the system. Some of the biggest customers have a lot easier access to getting budgets than other customers. Those are the first places you go. The second is that a lot of customers that bought in 2022 want to use their system for a while before they drive into the radio platform.
Christian Henry: Then I think the third is really thinking about what kinds of projects and applications am I working on? If I'm working on AAV or microbial genomics, perhaps I don't need that much throughput. One of the things that I think will be helpful there is we just launched, we're launching the Kinnex kits that allow you to put more samples onto a radio more economically. That might drive some of those conversions more quickly than otherwise would.
Christian Henry: We'll see I think that I do believe that over time the vast majority of those systems will convert to radio and over time I believe very strongly that the install base for radio will be significantly larger than the install base for the SQL 2 family at its peak.
Christian Henry: When you think about moving on to your question about orders and review orders and what is the pace, what I really want to focus on is on driving shipments from quarter to quarter. We are going to have variability in our orders, we're going to be trying to whittle backlog down at times and then at other times perhaps expanding backlog. But my belief is that on balance shipments are going to grow in any given quarter though they may in fact be slightly lower or slightly above trend line.
Christian Henry: But if you look out over many quarters I think net net you're going to see us growing. So that's something that we are managing. The macro environment is making it tougher right now and so perhaps that changes the curve a little bit in the very near term. But I was just with a group of customers, a significant group of customers last week and the number of applications, the excitement, the new ideas really was quite remarkable.
Christian Henry: So we're super excited to be going to ASHG later this week to interact with our customers and share the energy associated with the platform and ultimately that drives demand. So I think it's a good news story. There could be some variability though here in the near term with you know with with the macro economic, for Environment.
Operator: Next question, Danny.
Matthew Sykes: Our next question comes from Matt Sykes, from Goldman Sachs, please go with your question. Hey, good afternoon. Thanks for taking my questions.
Christian Henry: Just two part, one, just on the product pipeline, just given the macro issues that you've highlighted next year, how are you thinking about Benchtop high throughput, the overall product pipeline as you move into a more difficult macro environment? Have you reprioritized any of those projects I know you talked about R&D spend or maintaining consistency, but I just wanted to find out if you've reprioritized any of those projects, and then secondly, Susan, just on the gross margins, understand the product, the mixed shift in the products, but in terms of the inventory charges and scraps, how should we be thinking about that in terms of one-off or anything that they could linger into the next quarter or beyond? Thanks.
Susan Kim: Great. I'll go first. Fundamentally, we set out on a course to build a multi-product, multi-platform company that I think is going to serve the genomics industry in unique ways and create incredible value for all of our stakeholders. I'm still absolutely convinced of that vision, and I think our customers are responding to it as we build out our business. Radios, just the beginning, clearly, and it's my belief that we need to continue accelerating, getting platforms into the market to continue driving long-term revenue growth, but also to drive the ability for us to have different relationships with customers and others.
Susan Kim: In other words, be able to meet the customers with asking questions rather than selling them technologies. We are still working hard on developing lower throughput and higher throughput long-read systems, and with the acquisition of Apton, we've jump-started the project to work on a very, very high throughput short-read sequencing system. The good news is that if I just spend a second on the Apton acquisition, we've already integrated that team. We shut down their Pleasanton offices and moved the entire team to Menlo Park.
Susan Kim: Their alpha sequencers are in our labs already sequencing with SBB chemistry. We've got the industrial design going, and so that acquisition accelerated our ability to launch that product perhaps by years. We'll see how we do, but my philosophy right now is to continue building out that portfolio while we continue to grow our revenues, but also be disciplined about how we manage our spend envelope consistent with what we talked about at our analyst day last year. In fact, we look back to our analyst day, and here we are a year later, and we have met or exceeded the majority of our goals for 2023.
Susan Kim: So, Susan, you can talk about those marks. Great. Thank you, Matt, for the question. So in terms of gross margins, in my prepared remarks, we talked about the fact that in Q3, you're right that we had some excess inventory scrap and reserve charges. This is related to previous generation products, but most notably the decline in the sequel to consumables demand, drove some of those scrap charges that we took in the quarter.
Susan Kim: There were some also warranty related expenses on the radio platform. Your question about Q4, as we go through the budget for 2024, there may be some additional cleanup, but for the most part, the transition between sequel to to radio, we are through that. And for 2024, I do expect our gross margins to continue to expand. We talked about this previously, as revenue continues to grow, you get the benefit of higher volumes, but you also get the benefit of higher consumable revenue, which of course is higher gross margins.
Susan Kim: And Christian alluded to it too, that we do have gross margin improvement initiatives that we have already started. And some of which we've shared on the prepared remarks, but also some of which are still that are underway that we haven't yet shared, but we'll continue to disclose that as we get closer to realizing those benefits. Thanks, Matt.
Operator: Next one, Jamie.
Dan Brennan: Next question comes from Dan Brennan from TD Cowan. Please go ahead with your question. Great. Thanks. Thanks for your questions. Maybe two-potter, just on pull through the first one. I know Christian in the past, you've talked about maybe by the first quarter of next year, you'd be at a point at which you could talk about what seems like adorable pull-through to kind of model off of it. Sounds like you've had now.
Dan Brennan: Last three quarters in the low 400s, you know, last two, four, 15, 10, like you were pretty constructive, just wondering, you think it's fair to be thinking 400 plus at this point on pull-through from here. And then secondly, you know, stocks traded off a little bit here despite a really good quarter. I think on the comments on 24, just wondering, could you just speak to a little bit about like the types of customers, maybe where you're seeing, you know, a little bit of elongated cycles. Is it in academia? Is it across a small mix in biopharma? You know, you talked a little bit about trying to just a little bit more color there. Thank you.
Christian Henry: Sure. So, first of all, for next year, you know, we're not going to comment on the pull-through numbers yet. I'm still going to stand by the fact that it's still early early in our launch, you know, the pull-through figures for Q3 were derived from the install base of what was at 77 units in the denominator. We'll see how we get another quarter under our belt here in Q4 with 129 systems. But by the first quarter, you know, perhaps on the, on the, you know, the call in April or May, I don't know, when it's late April or early May, you know, we should, I think, have a view at that point.
Christian Henry: It'll vary, but I do think the numbers are above, you know, there's certainly above where my long-term model and thinking have been, and so that's encouraging, but I don't, I don't want to declare victory yet until we get a little more, you know, a little more under our belt. When you think about, you know, the commentary, I mean, we, the first thing I want to reemphasize is we continue to, we believe we're going to significantly grow next, last year, period, and a story.
Christian Henry: We are having a fan, so far this year, we've raised guidance every single quarter, and we've had a very strong result in Q3. Q4, we're looking to have another strong quarter in Q4. And so, from my perspective, the business is operating on all cylinders and really from a revenue and customer perspective. But it would be remiss if I didn't acknowledge and recognize that the environment out there is certainly more challenging than it's been in the past.
Christian Henry: Certainly more challenging than it was when we had our investor day last year. And the impact of customers are customers that are smaller, one-to-two-Z-type revenue purchasers that would be in small biotech, for example. Some of the academic funding in the United States, I think the funding hasn't gone away and is still there. But the anxiety with the government shutdown that we saw at the end of the quarter, the continued rhetoric that's going on, does give us pause to be appropriately conservative.
Christian Henry: Outside the United States, I did spend a second or two talking about China in particular. China is actually, as we continue to grow, China is going to become less of a percentage of our revenues. And I think that's already starting to transpire. So, on balance, that's good for us. Europe, we had several new customers and we have great opportunities in the funnel in Europe. But it is a tough, with high inflation, it is a tough, tougher environment. And so, what we're doing is we're just trying to take a responsible view here. And if we outperform, you know, we outperform.
Operator: Next question, Jamie?
John Sourbeer: Our nice question comes from John Sauerbeer from UBS. Please go ahead with your question. Hi, thanks for taking the questions and congrats on the the quarter. You know, maybe just clarification, you're just on that extension of order cycles. I guess, you know, I've seen any increase in cancellations. And then, I guess, also, you know, you're not providing, you know, color on next year. But when you look at, I guess, the announcement with the PAC Bio Capital last month, I guess any just way to frame how you see maybe is there potentially more leasing next year versus capital purchases?
John Sourbeer: How do you see kind of that shipment place out over 24? Yeah, thank you for the congratulations. We're proud of the quarter to be sure. You know, we haven't seen any cancellations. We haven't, you know, the competitive environment we've been doing very, very well against our competitors as evidenced by the shipments in the quarter. We continue to make progress there. So we haven't seen cancellations. We, when we see this, we see orders push out across a quarter or maybe perhaps three to six months, a quarter or two.
John Sourbeer: And so when we don't feel like the business is going away, we don't feel like the business is being taken by competitors. And we don't feel like there's any waning desire to do sequencing. So all of those things are very strong, you know, for us. But we do see the conversations are taken, you know, that particularly where you see it is the early conversations are taken. Longer. So it may not have an extreme, the most near-term impact, but you don't know, you know, when you're actually in the sale, you don't know, are you going to get it done in the next six weeks, or is it going to take 12 weeks?
John Sourbeer: And it's really that's, you know, that's one way to think about it. Pac-Bio, you know, I think there's still confusion with investors, perhaps, about the Pac-Bio Capital Program. We've always had leasing programs in place. We just rebranded this program, Pac-Bio, and we have a new leasing partner, which we believe will give us more flexibility and more access. But when I look at revenue for next year, you know, it doesn't immediately strike me that we're going to do more leasing next year versus this year.
John Sourbeer: And when we do the leasing, we still get all of the revenue up front. And that's, and that's a really important, you know, aspect of this is the way these leasing programs work, is that we work with a financial partner. And that takes the, that actually buys the system and, and then takes payment from, from the end customer. And we can work with that leasing partner to do, to create incentive programs or other things if we so chose.
John Sourbeer: But, but right now, you know, we don't see leasing as being, you know, any bigger than it was this year per se. It might naturally grow because our whole business is growing, but I don't think a greater proportion. But I also haven't done the math to know explicitly to be clear.
Christian Henry: Next question.
Shinji Nam: Our next question comes from Shinji Nam from Scotia Bank. Please go ahead with your question. Hi, thanks for taking the question and congrats on the quarter. Christian, we'd love to get your thoughts on the long re sequencing market over the longer term. Let's say the next five years. You laid out the key drivers at the analyst day, you know, and the growth potential there, but given the stronger the expected adoption of radio so far, do you think the long re sequencing might could, the market could have a bigger impact over the longer term.
Shinji Nam: Yeah, thank you. That's a great question. And, you know, when you look out over the next five years, I think what Revia was showing. The key thing is that the thesis that germline driven genomics needs the comprehensiveness of long reads. And if, you know, if we can create platforms that give you the economics and the throughput and the all of all of the capabilities of the multi ohms, like we talked about in the prepared remarks, you know, it really does plan.
Shinji Nam: And it really will serve a large part of that market. I think our 2026 market estimates were somewhere in the range of the sequencing market being 12 to 14 billion dollars. And, you know, realistically, probably half of that, at least, is could be served by, by long read sequence thing if not more. And I think this year's proven that that's exactly on track. You know, another, another area where maybe people don't realize, but it's really important, is that plant and animal, plant and animal genetics really benefit from long re sequencing.
Shinji Nam: Oftentimes those genomes have are multiplied. They're not just diploid genomes. They have more chromosomes. They also have longer, bigger genomes, some of smaller genomes. And having, you know, having the ability to have highly accurate sequencing in that space is actually where we're significantly outperforming in 2023. And I think if you look out over five years, that's another area where you're going to see, you know, strong performance. It's not, we focus a lot, to be honest, on germline human genetics, because, you know, those are very, very significant markets. But we can't leave the plant and animal world behind. You know, that's a multi hundred million dollar plus business as well.
Operator: Well, Jamie, how about our last question?
Luke Sergott: Our final question today comes from Luke Sergott, from Barclays. Please go ahead with your question. Great. Thanks, squeeze me in. So on the 4Q implied guide, can you break out like the assumptions that you guys are having from consumables versus the instrument ramp that we should be getting to hit your guidance? And then as you guys continue to launch all these new applications, I mean, clearly all these questions are on consumables and how that's going to pace next year.
Luke Sergott: But in the pushback we get for not pushback, but commentary we get from your customers is that you need to, there will be even more adoption here if you bring down price per sample. And if you increase the application, so how do you guys weigh that investment as you think about going forward the next couple of years? Yeah, thanks, Luke, and appreciate you for hanging in there too. So, you know, when I think about Q4, we didn't break out the specifics, but, but we do think consumable revenue will continue to grow from here a little bit.
Luke Sergott: And, you know, and I think that instruments, you know, we'll see how we do, we'll see how we do on the instruments. When you start to think about consumables, bring it down the price. I don't think I've ever heard a customer. I don't think I've ever heard a customer say that they wouldn't do more if the price was lower. So that's not a revelatory comment, but, but I do think that, but I, but I do think that right, there is this elasticity in the market.
Luke Sergott: We are just at the beginning of that elasticity. The radio gives us the ability to start testing that. And I think we started in a great spot this year. What you'll see from us is actually radio will over time be able to deliver more throughput per smart cell. And as we do that, we'll have opportunities to either, you know, we'll be able to effectively lower the price per base or per gig per G, so to speak.
Luke Sergott: And so you'll, you'll get to see that from that perspective. And then the applications are critical on some of these things that we're launching right now, you know, we've had in the works for a while. And, and next year you're going to continue to see in the first half of the year, more applications being launched on the system. And all of this is geared towards, you know, driving more utilization of the systems.
Luke Sergott: I taught for I spent a lot of time with my prepared remarks today talking about the end and workflow and improving this sample preparation, talking about next year using circulomics to improve our workflow as well. And so we're doing all of these things to drive that consumable pull through the sample prep revenue will will grow as well, but, but it's really all about driving that consumable pull through. And then selling new systems.
Luke Sergott: And so, you know, when we were looking forward to, you know, talking about 2024, when we get there, we still have to, you know, wrap up 2023 strong, but, you know, right now, you know, we're very proud of what we've done in the first three quarters, we're looking towards growth that's above our long term guidance north of 50% or perhaps one of the fastest growing companies in our in our peer group. Which is exciting competitively, the products are very competitive.
Luke Sergott: We've been able to execute on on delivering those products. And as we kind of, you know, move forward to close out this year strong, we're really looking forward to, you know, another great year for the. Company. So we appreciate everyone's support.
Operator: Alright, that wraps it up. Thank you everybody for all the questions today and thanks for joining us. We look forward to connecting with many of you this quarter at the various conferences and bidding you as we move into 2024. Thank you. Ladies, gentlemen, the conference has now concluded. We thank you for joining today's presentation. You may now disconnect your