Q1 2024 Pacific Biosciences of California Inc Earnings Call
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Speaker Change: Hello, and welcome to the park Bio first quarter 'twenty 'twenty four earnings conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.
Speaker Change: After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad and to withdraw from the question queue. Please press Star then two.
Speaker Change: As a reminder, this conference is being recorded.
Speaker Change: I would now like to hand, the call to Todd Friedman Senior director of Investor Relations. Please go ahead.
Todd Friedman: Good afternoon, and welcome to <unk> Bio's first quarter 2024 earnings conference call earlier today, we issued a press release outlining the financial results, we will be discussing on today's call a copy of which is available on the investors section of our website at www Dot Tacb dotcom or it's furnished on form 8-K.
Speaker Change: On the Securities and Exchange Commission website at Www SEC Gov.
Speaker Change: A copy of our earnings presentation is also available on the investors section of our website at Www Dot <unk> Dot com.
Speaker Change: With me today are 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 expectation with respect to our growth potential instrument and consumable sales are.
Susan G. Kim: It meant to create a sustainable cash flow positive company by the end of 2026 expectations with respect to certain customers being early in the ramp up and measures to increase their utilization.
Susan G. Kim: GAAP and non-GAAP guidance and expected benefits of using pacbio products or technologies, and new product expectations, you should not place undue reliance on forward looking statements because they are subject to various subject.
Susan G. Kim: The risks and uncertainties that could cause our actual results to differ materially from those projected or discussed.
Susan G. Kim: For you to the documents that we file with the SEC, including our most recent forms 10-Q, and 10-K and our recent press release to better understand the risks and uncertainties that could cause actual results to differ.
Susan G. Kim: Disclaim any obligation to update or revise these forward looking statements, except as required by law we.
Susan G. Kim: We will also present certain financial information on a non-GAAP basis.
Susan G. Kim: 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.
Susan G. Kim: Management believes that non-GAAP financial measures combined with U S. GAAP financial measures provides useful information to compare our performance relative to forecast and strategic plans and benchmark our performance externally against competitors.
Susan G. Kim: Reconciliations between historical GAAP and non-GAAP results are not presented in tables within our earnings release.
Susan G. Kim: For future periods, we are unable to.
Susan G. Kim: Reconcile the non-GAAP gross margin and non-GAAP operating expenses without unreasonable effort due to the uncertainty regarding among other matters certain acquisition related items.
Susan G. Kim: They arise during the year, including future changes in fair value adjustments of contingent consideration.
Susan G. Kim: Allocation of amortization expense attributable to certain acquired intangible assets.
Susan G. Kim: 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.
Susan G. Kim: Investors electing to use the audio replay are cautioned that forward looking statements on today's call may differ or change materially after the completion of the live call.
Susan G. Kim: Finally, we'll be hosting a question and answer session. After our prepared remarks.
Susan G. Kim: The analysts please limit themselves to one question. So we could accommodate everybody in the queue.
Susan G. Kim: I will now turn the call over to Christian.
Christian: Todd and thank you for joining our call today in todays remarks, we will discuss some of the factors that contributed to our previously announced revenue shortfall and revised full year guidance. We will also discuss the steps we're taking to return to revenue growth and why we are confident and the assumptions underlying our updated financial.
Christian: Forecasts finally.
Susan G. Kim: We'll share our refocus priorities for 2024, which we believe will position us to build pack bio into a sustainable cash flow positive company with the ability to execute in any macro environment.
Susan G. Kim: While we forecast near term growth to be lower than our original guidance for 2024, we have never been more confident in the value of our platforms, our long term growth potential and our ability to capture market share in the multibillion dollar sequencing opportunity.
Susan G. Kim: But first let's recap the first quarter.
Susan G. Kim: <unk> with our pre announcement on April 16 revenue of $38 three 8 million for the first quarter was below expectations due to an increasing number of customers delaying instrument purchases and softness in consumables shipments.
Susan G. Kim: Based on our first quarter results and our expectation that some of these external factors will likely persist throughout 2024, we expect full year revenues to be in the range of $170 million to $200 million.
Susan G. Kim: The instrument shortfall, primarily resulted from elongated customer purchasing cycles as the median sales cycle for ravioli instrument purchases increased more than we expected in the first quarter of 2024.
Susan G. Kim: More specifically, we believe that the sales cycle increased primarily because of uncertainty surrounding the timing of funding for new capital equipment, particularly in the United States and China.
Susan G. Kim: Mahler sequel to in two weeks customers, who are planning to upgrade to a Ravi how are waiting for the samples to drive that upgrade and an increasing proportion of the sales pipeline is comprised of new customers in the first quarter of 2024, which are proven to have longer sales cycles compared to those existing backed biotech.
Susan G. Kim: Customers.
Susan G. Kim: While consumable revenue grew 15% year over year. It was also below our expectations. We believe this was primarily attributed to the slower than expected ramp up in sequencing by our small and mid sized customers many of whom are new to pack by them.
Susan G. Kim: The time for a new radio customers and new projects to reach full capacity has been slower than we anticipated.
Susan G. Kim: Sample delays impacting sequencing volume in the quarter for certain large customers and some smaller service providers in China operating at lower utilization as a result of the challenging funding environment.
Susan G. Kim: In Q1 more customers than we expected utilize their graduate assistants at less than 20% capacity.
Susan G. Kim: Many of these newer customers and the average age of the system. Many of these are newer customers and the average age of the systems in this category was less than four months.
Susan G. Kim: Which we believe indicates that these customers are still early in their ramp up.
Susan G. Kim: Pace of the ramp is dependent on a number of factors, including the timing of sample availability lab readiness and funding among other reasons.
Susan G. Kim: We are putting measures in place that we believe will help these customers ramp to their full utilization as timely as possible and helped drive consumable growth going forward.
Susan G. Kim: Moving on we're implementing several strategies aimed at accelerating instrument and consumable revenue.
Susan G. Kim: First is an intense focus on the customer to drive new sales opportunities close existing deal and accelerate consumable revenue ramp up time.
Susan G. Kim: And among other activities. This involves launching our prism customer focus roadshows. These events include discussions and workshops with Pac bio users and key opinion leaders in genomics, where they'll engage and share the groundbreaking science that Ravi I was enabling we're organizing events across six global cities.
Susan G. Kim: With approximately 1000 registered attendees representing over 500 organizations.
Susan G. Kim: Any of them, we believe will become future radio users.
Susan G. Kim: We're reducing the spans and layers in the commercial organization, which will allow leadership to get closer to and more involved in the sales process.
Susan G. Kim: Also establishing tiger teams to actively work with low volume customers to accelerate their radio Ram and collaborate with them to secure samples to feed their sequencer and we're continuing to collaborate with customers to demonstrate the value of high find long read sequencing to drive long term durable revenue.
Susan G. Kim: Second we're addressing the upfront capex barrier some customers face when assessing hi Fi and we're doing this by <unk>.
Susan G. Kim: Implementing promotions that east customers upfront capex requirements and we're doing this in ways that preserve pack bias overall economic value. These promotions have already created more funnel opportunities, which we believe will close this year and we're focusing our product development on a bench top platform, which will allow for a loan.
Susan G. Kim: Capex century, and upon launch potentially open up Pac bio hifi sequencing to hundreds of new global customers.
Susan G. Kim: Third, we're expanding the market and applications addressable with revenue and Hi Fi.
Susan G. Kim: As I'll discuss shortly we're investing in developing library prep and informatic solutions around grabbed that enhance the platform's value proposition.
Susan G. Kim: These launches include peer target for targeted clinical research applications and connects for transcript telematics and 16 S meta genomics.
Susan G. Kim: And we're also developing future enhancements that we will believe will further reduce DNA input requirements below one microgram of DNA or 30 ex whole human genome.
Susan G. Kim: Potentially opening up more existing sample and new projects to hifi sequencing.
Susan G. Kim: Looking ahead, our pipeline of sales leads has continued to grow each quarter. Since we launched <unk>. We believe our current sales pipeline is sufficient to at least support the midpoint of our guide of 120 radio systems, which provides further confidence in our revised revenue targets for 2024.
Susan G. Kim: There's no doubt the pack bio and then in our industry are facing increasing headwinds. This year. However, we remain incredibly optimistic about our business and the prospects for long read sequencing.
Susan G. Kim: Our powerful sequencing technologies continue to play an important role in revolutionizing genomics and the demand for an interest in our products indicates the tremendous market opportunity ahead.
Susan G. Kim: One encouraging indicator is the amount of data customers generate with their sequences growth in this metric demonstrates increasing utility and broader acceptance of long read Hi Fi technology.
Susan G. Kim: First quarter total generated total data generated from Pacbio long read sequencing grew two and a half times from the first quarter of last year. This.
Susan G. Kim: This growth is a testament to the overall interest in Rabat and the continued market share gain for long reads.
Susan G. Kim: As of March 31st just over just one year. After commercialization, we surpassed 200 cumulative radio shipments marking the fastest install base ramp in Pac bio history from a throughput perspective. This has the same powers over 3000 and sequel to lease our previous generation platform.
Susan G. Kim: This rapid scale up demonstrates our customers' desire to sequence using pack bio high five more than ever but it will take some time for them to migrate projects and samples to this newfound capacity.
Susan G. Kim: We've been exceptionally pleased with the number of new customers adopting rab, yeah, as 57% of the systems shipped in the first quarter went to new pack bio instrument customers.
Susan G. Kim: These customers included University of charts, you posted a Sony is national Biobank. The team selected ravioli exclusively over other short and long read technology to sequence 10000 whole human genomes as part of their goal to adopt personalized medicine at scale and understand the underlying genetics of health does.
Susan G. Kim: E and treatment outcomes. It also includes the first rodeo in Latin America, which will be used by a customer to support.
Susan G. Kim: In support of a thousand sample human genome project.
Susan G. Kim: These new radio customers add to the existing multi thousand sample projects that we've shared over the past year, such as large scale human genomics program in Singapore, which is expected to start sequencing. This quarter and continued sequencing from the all of US a million veterans program in the United States.
Susan G. Kim: We're also pleased to announce that Ambry genetics has joined the collaboration with the Gregor consortium and the University of California, Irvine and aims to sequence up to 7000 long read Hi Fi genomes over the next three years focusing on the development on developing new insights into rare disease, Eddie allergy and treat.
Susan G. Kim: Radio enables more than just large scale research studies hospitals are increasingly seeking to implement radio to achieve unprecedented insights into genetic and rare disease. It includes existing Pac bio customers like Seoul National University Hospital, which utilize one of our recently announced instrument.
Susan G. Kim: Ocean and plans to use high five long read technology to improve its testing capabilities in rare disease and cancer.
Susan G. Kim: <unk>, a leading pediatric hospital in Canada purchased a rab yet its first Pac bio system to sequence 1500 rapid whole genomes of critically ill infants Hi Fi was the clear choice for this clinical oriented customer at the other long read sequencing technology proved too high an error.
Susan G. Kim: Great.
Susan G. Kim: To support these customers we are continuously enhancing our software launching new library prep sample prep solutions, which make pacbio sequencing more turnkey and more accessible than ever.
Susan G. Kim: Additionally, we believe these new products will help contribute to a recurring revenue stream outside the core smart cells and sequencing reagents used to run revenue.
Susan G. Kim: We've seen tremendous interest in our recently launched connect full length RNA kits launched in the fourth quarter of 2023, we booked orders for 160 customers as of March 31, totaling over $1 $5 million. The pack bio peer target panel was launched and began shipping in late March allowing.
Susan G. Kim: For a comprehensive characterization of repeat expansion.
Susan G. Kim: Spansion serve repetitive DNA sequences have been linked to over 50 monogenic disorders in cancers. This kit enables customers to interrogate some of the most critical and hardest sequence gene related to these diseases and multiplex up to 192 sample on the radio system.
Susan G. Kim: Combined with our target repeat expansion caller, and then Dan a bind DNA extraction kits.
Susan G. Kim: Laos for an easy and scalable workflow to capture repeat expansions, bringing customers from sample to answer in three days.
Susan G. Kim: We just started shipping these kits in March and we're already seeing great interest from customers ranging from pediatric hospitals, so large commercial testing labs, biopharma and academic labs.
Susan G. Kim: Launched in the first quarter, our high five perhaps complex library kids further enable our customers to automate and scale on Rab yet these kits allow radio customers to prepare up to 96 libraries at a time at a lower cost per library and some of our largest customers are adopting these kids to help them further scale their projects.
Susan G. Kim: Expect the kids to be particularly beneficial for microbial genome and low pass large genome sequencing for library prep cost or a large percentage of the overall workflow costs.
Susan G. Kim: The new unified Pan DNA kit developed from the Turkey Olympics technology supports a high molecular weight extraction from cells bacteria blood tissue insect and plant nuclei this new product.
Susan G. Kim: Product consolidates the capabilities of our existing sample specific offerings into a single solution for DNA extraction.
Susan G. Kim: Since we acquired it in 2021 over 1000 customers have ordered circular <unk> kits.
Susan G. Kim: Line helps us deliver solutions to the thousands of lower throughput long read users and could potentially serve as a funnel for our future bench top long read sequencing.
Susan G. Kim: We continue to be pleased with the traction of our sample extraction offerings and excluding large OEM purchases from one customer the first quarter was our most successful quarter for sample prep.
Susan G. Kim: Finally, our version 13 software continues to improve the ravioli user experience nearly all customers are utilizing the recently launched adaptive loading feature which improves customer experience by preventing overloading of the smart cell, allowing customers to low DNA more confidently and achieve higher and more consistent.
Susan G. Kim: Just it yields.
Susan G. Kim: The deep 13 enabled on almost every rabbit the mean yield per smart cell for whole genome sequencing runs in 2024, it's approximately five gigabits, it's higher than in 2023.
Susan G. Kim: We continue to see success with our ASO platform instrument shipments grew again in the first quarter and the installed base now spans six continents. We've completed our consolidation of answer instrument and consumable manufacturing into our Menlo Park facility, which allows us to fully leverage our operational infrastructure.
Speaker Change: So now, let's look ahead and discuss our four strategic priorities going forward.
Speaker Change: First improving our commercial execution to drive adoption of both radio and answer.
Speaker Change: Placing a greater focus on the value proposition of hifi sequencing and increasing collaboration with customers purchasing departments and decision makers were also working to improve our partnership with customers post instrument purchase to ensure that they get are getting samples into their lab to feed their radio.
Speaker Change: With respect to answer in the first quarter, we scaled the manufacturing in the platform, enabling us to deliver instruments based on demand much more rapidly, which will help drive our ability to sell the system. Additionally, we've identified opportunities to drive manufacturing improvements and lower the unit cost of consumables, which.
Speaker Change: Gives us the flexibility to lower the list price on answer flow cells, and reagents to as low as $8 per gigabyte.
Speaker Change: With these advances along with a more focused and targeted selling effort. We believe that we can be very competitive in this market.
Speaker Change: Second continuing the development of new platforms that are expected to broaden our product offering and drive our revenue growth.
Speaker Change: We continue to believe that developing a multi part platform portfolio is important for our success, enabling us to reach more customers and drive technology adoption.
Speaker Change: We expect our radio platform to be the primary contributed contributor to revenue over the next few years, we are aggressively pursuing the development of a long read bench top system, which will have a much lower capital cost, enabling us to reach a new subset of lower throughput customers and provide flexibility to existing radio customers.
Speaker Change: Through fleet expansion.
Speaker Change: We believe that this instrument will address a market over of over 1000 potential customers.
Speaker Change: We're also developing a high throughput short read platform that is expected to enable us to serve high throughput labs with our leading sequencing by binding technology.
Speaker Change: This highly accurate technology is perfect for a needle in a haystack applications such as liquid biopsy, we believe it to be highly competitive in terms of both throughput and cost relative to other high throughput offerings.
Speaker Change: Addressable market for this platform is estimated to be over $1 billion per year.
Speaker Change: We are also continuing to develop our next generation smart cell.
Speaker Change: This sale is expected to power a new extremely high throughput long read platform, enabling throughput dramatically higher than that of the radio system.
Speaker Change: Third we're implementing projects to improve our gross margin and drive manufacturing efficiencies a cornerstone of our path to cash flow breakeven is our ability to improve gross margins through revenue mix and unit cost reduction.
Speaker Change: Already reduce the production cost of both of the <unk> instrument and the twenty-five damn smart cell and expect more improvements this year and beyond outside of our next generation platforms. This is a critical R&D and operations effort that we will continue to invest in.
Speaker Change: Finally, we are reducing annualized run rate operating expenses last week, we began implementing our restructuring plan to reduce operating expenses as part of that we made the difficult decision to reduce our total head count by approximately 25% or 195 employees and close outs.
Speaker Change: San Diego office.
Speaker Change: Actually all functions within the company were impacted the reductions are being made based on our refocused priorities that I discussed above.
Speaker Change: As a result, I believe that we have the resources required to achieve our near term priorities.
Speaker Change: With these reductions along with other non head count related savings, we now expect a lower our non-GAAP operating expenses on an annualized run rate basis by more than the $75 million reduction by year end.
Speaker Change: This is above the range we provided in our pre announcement on April 16, we believe that it positions us to deliver on our commitment to our plan to create a sustainable cash flow positive company by the end of 2026 and enable us to continue to provide scientists with some of the best technologies that push the boundaries of buyer.
Speaker Change: Logical discovery.
Speaker Change: And with that I'll pass the call to Susan to discuss our financials Susan.
Susan G. Kim: Thank you Christian as previously mentioned, we recorded 38.8 million in potash.
Susan G. Kim: Other revenue in the first quarter of 2024.
Susan G. Kim: Parents at $38 9 million in the first quarter of 2023.
Susan G. Kim: Revenue in the first quarter was $19 1 million a decrease of 8% from $20 7 million in the first quarter of 2023.
Susan G. Kim: The decrease was due to lower radio unit shipment.
Susan G. Kim: Quarter with Bobby.
Susan G. Kim: Hundred and one radio system.
Susan G. Kim: Turning to consumables, we delivered revenue of $16 1 million in the first quarter.
Susan G. Kim: <unk> increased from $14 1 million in the first quarter of last year.
Susan G. Kim: Approximately 69% of consumable revenue came from Rabih yesterday, which reflected an annualized pull through of the radio system of 254000.
Susan G. Kim: And the remaining two mobile revenue from other synthetics and other consumables.
Susan G. Kim: We expect equal to and TUI share of total consumable to continue declining as we continue shipping radio and customers transitioning to the new system.
Susan G. Kim: Finally service and other revenue was $3 8 million in the first quarter compared to $4 2 million in the first quarter of 2023.
Susan G. Kim: Klein was primarily due to customers transitioning to the radio system, which includes our first year warranty and asking not to have any investing called Q2, we started to play out.
Susan G. Kim: From a regional perspective revenue in the Americas was $17 7, million% to 7% decrease compared to the first quarter of 2023.
Susan G. Kim: Driven by a decline in radio shipments as Brett, yes, it themselves took longer to close.
Susan G. Kim: We believe the majority of growth you have seen some opportunity that slipped out of the first quarter pipeline encountered challenges with funding.
Susan G. Kim: And some more growth in the quarter was partially offset by delays in large project spending and sample availability at heightened utilization side.
Susan G. Kim: For Asia Pacific revenue was $12 8 million, 7% versus the prior year with headwinds in China, partially offsetting growth.
Susan G. Kim: Our countries, including Japan, we.
Susan G. Kim: We believe China will have young sales were impacted by capital funding challenges and lower radio sequencing pricing offered by large service providers delaying the need to directly purchase radio answering by the smaller labs.
Susan G. Kim: Looking ahead, we're encouraged by new modernization initiatives in China, we believe equal boost R&D capital spend including sequencing instruments and several potential customers have already applied for radio funding under this program.
Susan G. Kim: Yes.
Susan G. Kim: The fact that the thing to our 2024 expectation.
Susan G. Kim: Finally, our net revenue was $8 4 million.
Susan G. Kim: Percent over the prior year period, but was lower than previously anticipated and some insurance deals were delayed and for some newsprint orders yet the associated consumable orders were pushed into the following quarter after installation.
Susan G. Kim: Moving down the P&L GAAP gross profit of $11 3 million in the first quarter of 2024, representing a gross margin of 29% compared to a GAAP gross profit of $9 8 million in the first quarter of 2023, which represented a gross margin of 25%.
Susan G. Kim: First quarter 2024, non-GAAP gross profit of $12 8 million, representing a non-GAAP gross margin of 33% compared to a non-GAAP gross profit of $9 9 million or 26% in the first quarter of last year.
Susan G. Kim: non-GAAP gross profit in the first quarter excludes approximately $1 3 million of expenses or the amortization of acquired intangible assets.
Susan G. Kim: Gross margin increased year over year, primarily due to the adjustments of approximately $3 5 million recognized in the first quarter of 2023, primarily related to accident equal to two we can feel about inventory and resulted from a faster than expected decline in demand for people, who need due to the product transit.
Speaker Change: So wrapping up.
Speaker Change: We are pleased to have completed the consolidation of our chart. We can see the whole manufacturing for reagent flow cells from San Diego to Menlo Park during the quarter, helping to lower production costs for every consumable kit manufacturer starting in Q2 2024.
Speaker Change: In addition, we transition the build out of a key component on the radios on.
Speaker Change: Long house.
Speaker Change: Since being implemented in March has helped to reduce the contact manufacturing overhead expenses.
Speaker Change: Each radio instrument built by tens of thousands of dollars.
Speaker Change: GAAP operating expenses were $92 6 million in the first quarter of 2024 compared to 101 1 million in the first quarter of 2023.
Speaker Change: non-GAAP operating expenses were $87 2 million in the first quarter of 2024. This represents a 2% decrease for our non-GAAP operating expenses down to $88 7 million in the first quarter of 2023.
Speaker Change: Operating expenses in the first quarter included noncash share based compensation of $17 4 million compared to $16 1 million in the first quarter of last year.
Speaker Change: Regarding head count we ended the quarter with 787 employees compared to 796 at the end of 'twenty two 'twenty three and 793 at the end of the first quarter of 2024.
Speaker Change: I've never mind here in April we began implementing reductions in our head count by approximately 195 employees and therefore expect to end the second quarter and full year 2024, with a headcount of less than 600.
Speaker Change: GAAP net loss in the first quarter of 2024, it was $78 2 million or <unk> 29 per share compared to a GAAP net loss of 88 million in the first quarter of 2023 or 36.
Speaker Change: For sure.
Speaker Change: non-GAAP net loss was $71 4 million, representing 26 cents per share in the first quarter of 2024 compared to a non-GAAP net loss of $75 5 million, representing 31 cents per share in the first quarter of 2023.
Speaker Change: Turning to our balance sheet items, we ended the first quarter with 561 9 million in unrestricted cash and investments compared to 631 4 million on December 31 2023.
Speaker Change: Inventory balances increased in the first quarter to $67 3 million, representing one seven inventory turns.
Speaker Change: That's a $56 7 million on December 31, 2023, representing 2.9 inventory turn the increases in inventory primarily reflects purchases of radio and also instrument and consumable inventory.
Speaker Change: Accounts receivable decreased in the first quarter at $30 3 million compared with $36 6 million at December 31, 2023.
Speaker Change: Now to expand a bit on our financial guidance.
Speaker Change: Same thing with our cleanup on April 16, we believe full year 2020 for revenue to be between $170 million and $200 million.
Speaker Change: At the midpoint of this guidance, we assumed $85 million of instrument revenues, which included a 120 video shipments, making gradual still the fastest growing sequence or impart by our history.
Speaker Change: We expect $80 million in consumable revenue, which assumes an annual pull through at 290 K radio platform.
Speaker Change: Moving down the P&L to gross margin, we now expect full year gross margin to be between 35% and 38% lower by one point at the midpoint from our prior guidance due to lower volume and revenue.
Speaker Change: We have made significant progress on improving the per unit cost at both revenue instrument consumable and expect to end the year with revenue instrument costs, 10% lower than when we launched the platform and consumable unit cost over 25% lower.
Speaker Change: These costs and operational improvements will continue beyond 2024 and are expected to drive quarterly gross margin expansion this year and going toward.
Speaker Change: Moving to operating expenses, we now expect non-GAAP operating expenses declined year over year from the 355 million, we reported in 2023 and be approximately 300 million $310 million.
Speaker Change: At the midpoint, we expect $150 million and non-GAAP research and development expenses, and 155 million and non-GAAP selling general and administrative expenses.
Speaker Change: I've mentioned, we expect the non-GAAP annualized amounts of these savings to be above the high end of our $50 million to $75 million range by year end and as a result, we expect full year non-GAAP operating expenses to decline in 2025 compared to 2024.
Speaker Change: We continue to expect five to 10 million in interest and other income.
Speaker Change: $73 million and weighted average shares outstanding for the full year 2024, and we continue to expect ending cash cash equivalents and investments to be in the range of 435 million to $450 million, representing a cash burn of $189 million at the midpoint.
Speaker Change: As a reminder, we have not we announced that we were unlikely to it that we were unlikely to achieve our previous long term guidance.
Speaker Change: While we are not providing updated figures today, we remain committed to our planet turning cash flow positive by the end of 2020 fixed under various revenue scenarios, which include revenue growth in 2025, and beyond with new product and Brian consumables on increasing revenue installed base.
Speaker Change: Expanding gross margins with reduced manufacturing per unit costs and continued mix shift to consumables and lower non-GAAP operating expenses in 2025 compared to <unk> 2024 with minimal growth thereafter.
Speaker Change: We will provide more details behind the assumptions in our updated long term guidance at a later date.
Speaker Change: I'll now turn it back to Christian for some final remarks Christian.
Christian Henry: Before we move to Q&A I just wanted to leave you with three things I Hope you take away from our call.
Christian Henry: One our business in the industry are facing headwinds, which we believe are short term.
Christian Henry: We have a clear plan to address these issues, which includes proactively working with our customers and focusing our talented people and resources on our highest potential technologies. It also involves right sizing our organization and expenses to align with the lower near term revenue expectations. We are also firmly commit.
Christian Henry: Two our plan of achieving positive cash flow exiting 2026.
Christian Henry: And finally remember we.
Christian Henry: We remain optimistic about our technology and the power of our differentiated platforms. We're confident that we have the right plan in place that will enable us to capitalize on the long term growth and value creation opportunity ahead of us for the benefit of scientists and clinical researchers around the world.
Christian Henry: We continue to be energized by the countless stories of customers utilizing our technologies to look deeper into the genome and uncover biological insights that are otherwise undetectable.
Speaker Change: With that I'd like to open the call up to Q&A operator.
Speaker Change: Thank you very much we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad. If you were using a speaker phone. Please pick up your handset before pressing the keys to withdraw. Your question you May Press Star then two.
Speaker Change: As a courtesy to others. Please limit yourself to one question you May then rejoin the queue for any additional follow up questions.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: Today's first question comes from Kyle Nixon with Canaccord. Please go ahead.
Kyle Alexander Mikson: Hey, guys. Thanks for the questions and good to chat with you.
Kyle Alexander Mikson: So Christian you know a few years ago. You said these really exciting medium term growth and margin targets right and since then you've had to withdraw those who've just went over that.
Kyle Alexander Mikson: Probably not going to come close to hitting those numbers I think you've probably seen confident on cash breakeven, but we'll see what happens there. So.
Christian Henry: Definitely there's been some external factors a lot of it seems to be due to changes in the revenue forecast maybe some of the other products as well that you quite I'm watching.
Christian Henry: I guess question, just how do you kind of regain investor confidence and support in both the demand for the revenue was all of these future long repeating serves as long as its ability to provide appropriate and achievable financial guidance going forward.
Speaker Change: Yeah. Thank you for your question Kyle obviously.
Speaker Change: Regaining investor confidence is front and center for Us and I think I think the first the first thing. We've done is we've recognized that our revenue trajectory is not what we had forecast and we made aggressive moves quickly to rightsize our spin.
Kyle Alexander Mikson: The envelope so that we can confidently say that we're committed to being cash flow positive in 2026 and being cash flow positive in 2026.
Kyle Alexander Mikson: As Susan pointed out we do have some some X expectations like we do believe that we are going to be able to grow revenue we.
Kyle Alexander Mikson: We do but we believe we can achieve positive cash flows with really a modest revenue revenue ramp from here. So I want to make sure that that's.
Kyle Alexander Mikson: That's well understood that we are not planning to achieve the moon did that get to positive cash flows, but we are very disappear looking to be very disciplined about how we match our expenses with our revenue growth.
Kyle Alexander Mikson: So that's the first thing with investors is demonstrating our commitment to running this business responsible responsibly the.
Kyle Alexander Mikson: The second thing is to continue on the path.
Kyle Alexander Mikson: Our our strategy of building, leading a leading long read technologies and building a.
Kyle Alexander Mikson: Short read business as well is is still intact in our view, we still see on the long read side tremendous excitement and.
Kyle Alexander Mikson: And adoption of the <unk>.
Kyle Alexander Mikson: Technologies as I pointed out in my my remarks, we saw in the quarter. We saw two five times more sequencing.
Kyle Alexander Mikson: And happening in data being generated then it just 12 months ago.
Kyle Alexander Mikson: That's pretty incredible when you when you think about.
Kyle Alexander Mikson: Where we're going and you think about what our competitors are saying so.
Kyle Alexander Mikson: So we do think that there is a.
Kyle Alexander Mikson: Abroad.
Kyle Alexander Mikson: Excitement about long reads now the trend the translation of that excitement into revenue is really.
Kyle Alexander Mikson: Focus we're focusing our efforts on working with our customers to try to shrink the purchase cycle as much as we can given the macroeconomic constraints that we've been under and that's why you saw us implement some promotional programs to reduce capital capital expenditure.
Kyle Alexander Mikson: Acquirements.
Kyle Alexander Mikson: One thing I'll point out there is that the way we've done these promotions, we still end up in the same economic place, it's really a timing of the cash flows.
Kyle Alexander Mikson: The issue for the company, so we're reducing the barriers to get into the technology.
Kyle Alexander Mikson: Just a couple of things that we're doing at the end of the day to regain investor confidence.
Kyle Alexander Mikson: It is pretty straightforward. It is it is demonstrated financial discipline exhibit market leadership.
Kyle Alexander Mikson: And then you know deliver deliver revenues as we as we expect and then revenues improving gross margins and ultimately profit and positive cash flow. So.
Speaker Change: A lot of work to do Kyle, but we have a lot of excitement about what we're doing it's certainly frustrating and it was certainly disappointing to have to make such a big move, but we made the move aggressively early which gives us a great opportunity to get to positive cash flows.
Kyle Alexander Mikson: Thank you. The next question comes from Dan Brennan with T. D. Cohen. Please go ahead.
Daniel Gregory Brennan: Great. Thank you thanks for taking the question.
Daniel Gregory Brennan: Maybe a two parter, maybe just the first one.
Daniel Gregory Brennan: Christian just on <unk>.
Daniel Gregory Brennan: <unk> been developing the long read technology for over 10 years, you know when you guys are really differentiated there.
Daniel Gregory Brennan: This iteration, it's really you know the revenue there's a lot of excitement in the marketplace.
Kyle Alexander Mikson: I'm, just wondering given the balance sheet and given where the stock is and given the opportunity ahead on long read in all the demand and interest and Youre just trying to.
Kyle Alexander Mikson: We find the curb to kind of meet the demand in the right way what how come is it is it the right strategy to be so committed to the short portfolio at this point we're.
Kyle Alexander Mikson: Auto is differentiated with the.
Kyle Alexander Mikson: The accuracy, but we really don't see kind of what the numbers arent out until we've been and then you're still committed to the high throughput and so I'm just wondering given the pressure on the company and given the opportunity to have a long way not only on revenue, but on the mid throughput I'm just wondering why why not cut back significantly on short read to give investors more confidence in the path to this positive free cash flow and then the second part of.
Kyle Alexander Mikson: Would just be on <unk> as we think ahead this year and next year on placements or just any color you can give us about how youre thinking about trying to kind of optimize your go to market strategy to kind of give us confidence towards growth in placements. Thank you.
Speaker Change: Yeah, Dan Thanks for the question and and sure.
Speaker Change: This is of course, we've been thinking long and hard about how do we.
Speaker Change: How do we manage our business in light of our financial situation and in light of where the market is right now.
Speaker Change: And the good news, we'll start with this we have $562 million of cash on the balance sheet. So we are very well capitalized right now.
Speaker Change: We have a strong business and we believe we have both.
Speaker Change: Leading technologies on the long read side in the short read side. So we do believe we have a lot of assets and opportunities.
Speaker Change: Be sure to read side is certainly more competitive than it's been ever been and so we did have to ask ourselves do we keep going in and what I would say to that specifically as burst, we just scaled up product our production capability for.
Speaker Change: The answer system. So the reality is that we've seen increasing shipments each quarter.
Speaker Change: Q3, Q4, Q1, but we've been manufacturing constrained and we had some.
Speaker Change: Late development that we had to finish to make that to make the chemistry, even better and so the reality is we're still just getting started in this opportunity.
Speaker Change: And we in conversations with customers customers are excited about testing out.
Speaker Change: The accuracy customers are seeing.
Speaker Change: Interest in value in it, but we haven't been able to deliver to that yet and so I think that what what we're the way. We're thinking about this is that we aggressively drive our marketing activities and our commercialization efforts right now on an answer. So we think we can do that without sacrificing any.
Speaker Change: The commercialization opportunity with respect to.
Speaker Change: <unk>.
Speaker Change: And so we are going to be aggressively marketing the product over the next several quarters and we'll see how we how the product does in the market I think we're really just getting our feet under us so to speak there on the on the short read a high throughput side, we are already.
Speaker Change: I'm very encouraged with the development, we're making with the you know the apt on technology that we acquired were already sequencing billions agreed that high accuracy. We have I was just in the lab. The last late last week looking at new optical systems and advanced abilities for us.
Speaker Change: To actually get Super high resolution images, which will really enable us to sequence fast Pat.
Speaker Change: At very very high capability.
Speaker Change: And so that in and then we've had customers come in and actually into the office to look at the apt on technology.
Speaker Change: Large lab type customers and they are.
Speaker Change: The first conversations are after they look at the data is when when can we get an early access machine. So.
Speaker Change: All that being said what this means is that we are early in this journey I don't I believe strategically it is an important market for us, particularly these needle in a haystack applications.
Speaker Change: And I.
Speaker Change: I do think we have both the resources financially and personnel wise, even after the reductions to execute on this portfolio of course, we will be very focused on how we do in the market in the next several quarters.
Speaker Change: And evaluated at at the end of the year. So it's not like where we are gonna have both eyes open as we as we aggressively pursue this.
Speaker Change: The second part of your question and I know that was a long answer to the short read question, but I know a lot of people have that same question in their mind.
Speaker Change: With respect to <unk> and driving demand.
Speaker Change: As I said in my prepared remarks, the funnel has been increasing every single quarter, but the sales cycle has been.
Speaker Change: Lengthening and and a lot of it is new customers. So we're seeing new customers take nine to 12 months to to get to a purchase decision.
Speaker Change: And so I think that that we didn't anticipate it would be that one you know and and so we're working on ways in which we can lower the barriers to entry through the capital improve the.
Speaker Change: Bruce B.
Speaker Change: Hum.
Speaker Change: Hi Fi proof cases for example, with our prism events and how we're how we're getting more customers engaged with our with our high runner customers. So that they can they can see how they could get up to scale and take advantage of this incredible technology and so we have a lot of aggressive marketing and really.
Speaker Change: And you know on the ground to conversations that are going on right now to help these new customers to shorten the sales cycle and then also help customers kind of in the middle of the market get more samples to their <unk>. So they can drive.
Speaker Change: Drive their utilization up so that they get ready to buy their second Rab yet and.
Speaker Change: And we still have a significant number of instruments of sequel to ease that we can go after and we're hopeful that some of the capital reduction plans that we put in place will help us unlock some of that demand sooner rather than later so.
Speaker Change: These are just a few of the things Dan and I appreciate the question.
Speaker Change: Thank you. The next question comes from Doug Schenkel with Wolfe Research. Please go ahead.
Douglas Anthony Schenkel: Hey, everybody.
Douglas Anthony Schenkel: Taking my question listen it was a tough start to the year and.
Douglas Anthony Schenkel: You have to make some tough decisions quickly. So I hope you know that is appreciate it it's always tough to start the year. This way and I. Appreciate you move it quickly.
Douglas Anthony Schenkel: With that in mind.
Douglas Anthony Schenkel: It's good to hear that you think you can get to cash flow breakeven in 2026.
Speaker Change: Maybe this is asking Dan's question, a different way or just trying to check it up a level but.
Speaker Change: If I oversimplify things a little bit you kind of got two levers you cut costs.
Speaker Change: Or.
Speaker Change: You try to kind of grow in.
Speaker Change: The infrastructure that you built in.
Douglas Anthony Schenkel: It seems like you've kind of beard now to the to the former cutting costs, but.
Douglas Anthony Schenkel: That ultimately hurts your ability to kind of scale up to be a bigger company.
Douglas Anthony Schenkel: And yes, there is a toggle between those things right.
Douglas Anthony Schenkel: What I don't hear is kind of a pruning of the portfolio. So I'm I'm I'm trying to figure out how do you cut costs and how do we.
Douglas Anthony Schenkel: Balance that we want you to do that but if youre cutting cost and you're not turning the portfolio.
Douglas Anthony Schenkel: It simply put it kind of feels like you're still trying to thread the needle a little bit and if you're not investing as much and you don't have as much infrastructure.
Douglas Anthony Schenkel: It kind of just hurts the probability of success with essentially everything other than radio I think.
Speaker Change: So help us understand Christian.
Douglas Anthony Schenkel: I'm.
Douglas Anthony Schenkel: Maybe I'm wrong in.
Douglas Anthony Schenkel: But if I'm not.
Douglas Anthony Schenkel: Is this a sign that youre in a way of viewing the situation or something like that.
Douglas Anthony Schenkel: Don't let a good crisis go to waste and you feel like you can kind of level set and rightsize and still kind of have the same vision for the company remained intact. It's just delayed a little bit sorry that was a lot, but just wanted to kind of make sure we understand the logic here. Thank you.
Speaker Change: Yeah, Doug It's a great question and you know I.
Douglas Anthony Schenkel: I do think I do think in challenging times. It forces you to be even more focused it forces you to to push the teams to move faster and also from a pragmatic practical perspective, you know you need to rightsize our two.
Douglas Anthony Schenkel: To match revenues and to create sustainability as a business and so the levers you you are right. There's two fundamental levers there's actually really three right. There's drive revenue growth improved gross margins and decrease costs. Those are the three we have when we when we started this project.
Douglas Anthony Schenkel: I talked about the ability to develop multiple platforms.
Douglas Anthony Schenkel: Simultaneously and so we have we have a very large R&D budget and we have done a lot of that work already to develop next generation products that are in parallel with <unk> and so what what this really says.
Douglas Anthony Schenkel: Is that you know are our bench top system is much for its pretty far along and where we're leveraging other technologies coming from Ravioli for example to make that system fly and then we're also.
Douglas Anthony Schenkel: You know we're also.
Douglas Anthony Schenkel: Focused on we've been developing for a long time, the high throughput long read capability.
Douglas Anthony Schenkel: And so those projects have already been in motion and by making some of the reductions. We're just recognizing that we you know.
Douglas Anthony Schenkel: We've already.
Douglas Anthony Schenkel: But some of that bolus of work together.
Douglas Anthony Schenkel: And it isn't it isn't.
Douglas Anthony Schenkel: It isn't going to impact our ability to get those products out on a reasonable time horizon. So.
Douglas Anthony Schenkel: And that I think a lot about is that.
Douglas Anthony Schenkel: How do you how do you manage this.
Douglas Anthony Schenkel: I don't believe if you look at where we did the reductions we actually did the reductions just as much in <unk> as a percentage just as much in G&A and commercial as we did in R&D and that is getting us those reductions are focused on making us leaner more flexible ability to move fast.
Douglas Anthony Schenkel: We had to spend the first few years.
Douglas Anthony Schenkel: In this in this role as we built a new team to build the infrastructure to be able to manage the business as we grow a lot of that work's done and of course, you can always get better and do more but the core abilities for us to monitor our revenue manage our customers drive.
Douglas Anthony Schenkel: Drive commercialization relationships of marketing activities. Those things are those in that infrastructure is built and now we're able to leverage that infrastructure and reduce cost as a result of that so you see costs coming down broadly across the whole company.
Douglas Anthony Schenkel: Don't believe and I said they are explicitly in my remarks, I don't believe that we have cut so deeply that we're sacrificing the product portfolio.
Douglas Anthony Schenkel: Now of course, there are some areas, where we are reducing some investment for a while and that will be.
Douglas Anthony Schenkel: Kind of a nice to have.
Douglas Anthony Schenkel: Kind of a nice to have things, but we are still very very focused on we need a building a multi product portfolio. Because we think that's fundamental to create a robust business, but we're still focused on creating incredible customer experiences and the first principles. We actually started with when we went to the redux into the reductions.
Douglas Anthony Schenkel: We're number one we have to take care of our customers and delight them consistent with our values number two we have to we have to improve our commercial execution, we need to get better as a commercial organization to be able to forecast and then execute on these deals.
Douglas Anthony Schenkel: In spite of tough macroeconomic environment, and then number three we need to develop this product portfolio. Because we do believe that this product portfolio will give us the ability to create 500 plus million dollars of revenue.
Douglas Anthony Schenkel: Perhaps it's not on the same timeframe that we've talked that we were that.
Douglas Anthony Schenkel: That we were hoping for but we still fundamentally believe it so I.
Speaker Change: I appreciate the question and I can understand the concern, but I do think that our strategy right now is.
Douglas Anthony Schenkel: Is laser focused and the cost reductions we've made give us a great opportunity with very modest revenue growth to get to cash.
Douglas Anthony Schenkel: Cash flow breakeven, which is a very important right now in this in this market environment, which is different than it was two or three years ago.
Douglas Anthony Schenkel: Okay.
Douglas Anthony Schenkel: Okay.
Sung Ji Nam: Next question. Please. Thank you. The next question comes from sung <unk> Nam with Scotiabank. Please go ahead.
Sung Ji Nam: Hi, Thanks for taking my question for.
Sung Ji Nam: For your bench top long read.
Nam: A sequence of R&D development Christian you know appreciate that the that could alleviate some of the capital spending constraints in the current environment, but was curious what the overlap might be there for the addressable market. You mentioned 1000, they're still alive. So with your existing customer base are they are there.
Nam: <unk> segment meaningfully differentiate it and then over the longer term, how do you see the bench top searches hydro segments.
Nam: Evolving for a long read sequencing could that kind of narrow what we're seeing currently for the short read market or do you anticipate something different thank you.
Speaker Change: Yeah. These are great questions. Thank you for them B you know the first thing is.
Speaker Change: There, we do believe that there's over 1000 customers that could be opportunities for the bench top laundry system and.
Speaker Change: They're always in these.
Speaker Change: <unk> product portfolio is perhaps a little bit of overlap say between <unk> and the bench top but but the reality is what happens is oftentimes is when a customer is once the higher throughput system, but doesn't have the demand yet for that they may buy the lower through.
Speaker Change: Put system and then within a reasonable period of time say the next 24 months, you know within a year or two they end up scaling up and so when you think about locking a customer in for the long term at with upsell opportunities, it's really a.
Speaker Change: It's really a great way to get in and we've seen that in the past in other places, where where you sell a less expensive piece of gear and then over time, they migrate up up to a more expensive higher throughput pieces, a year and I think that's exactly the same thing I don't think the.
Speaker Change: The specifications on the laundry system, which we Havent published yet art the overlap isn't.
Speaker Change: There is no overlap <unk> is completely a different system and so I don't think there's going to be a tremendous amount of cannibalization.
Speaker Change: <unk> so to speak with the red would be ideal.
Speaker Change: <unk> system will it will be very powerful we believe in the clinical markets.
Speaker Change: Particularly in the smaller types of clinical labs, maybe not the highest throughput labs, but it'll have a number of different applications in those clinical labs. We you know when we talk about the bench top system with our high throughput customers today.
Speaker Change: Every single one ive spoken to so far literally had said we wanted to have that bench top system sitting right next to our <unk>. So that when we when we have an experiment that just makes sense to do on the bench that system. They can do that and have that flexibility. So we actually see.
Speaker Change: Many of the higher throughput labs, having both systems in place and if you look across the industry with other players. That's certainly the case many customers have you know different.
Speaker Change: Different different kinds of systems from the same company doing same technology with different throughput levels for different reasons. So we see that now the question is whether or not the bench top laundry system narrows, our short read opportunity I don't think so at all I think our focus in short reads is on.
Speaker Change: <unk> needle in a haystack applications and what that means is that we will be focused in areas, where the bench top long read system really won't have a lot of strategic capability and so I do think that they will be very separate.
Speaker Change: Thank you.
Speaker Change: The next question is from Luke Circuit with Barclays. Please go ahead.
Luke England Sergott: Did you say I'm on for Lucas Thanks for the questions.
Luke England Sergott: I think you've mentioned before that some of the benefits from the revenue promotion would start to come through in the second quarter.
Luke England Sergott: And that should be fully realized by the end of the year.
Luke England Sergott: How do you see this promotion kind of affecting the cadence of placements this year.
Luke England Sergott: Are you kind of see more into to give.
Luke England Sergott: Given when the promotion kind of began and then you mentioned some sample delays impacting sequencing volumes in the quarter.
Luke England Sergott: For some large customers could you kind of give us some granularity there and did those come from public projects.
Speaker Change: Yeah, It's a good question.
Speaker Change: So so.
Speaker Change: When you think about the promotions the promotions are.
Speaker Change: Spring new demand into the funnel, which has a lead time and then perhaps getting that middle of the funnel closer to the.
Speaker Change: You know to the tipping point, so to speak and so I would not be surprised if.
Speaker Change: The.
Speaker Change: Promotions.
Speaker Change: Start, helping in Q2 and and continue throughout the year, but I would also not be surprised to see if the promotions really have their biggest impact in the second half of the year, just because of the sales cycle.
Speaker Change: And I think that you know we've seen these elongated sales cycles. This will probably help.
Speaker Change: Which people across the finish line and shrink the sales cycle some.
Speaker Change: So perhaps it will have some impact in the second quarter, you know, we're not giving specific Q2 guidance today, but I do think the environment is still tough in Q2, and when I look at the year I look at the year. The second half are definitely getting better than the first half.
Speaker Change: So we definitely see that.
Speaker Change: Partially because one we see where the funnels are but also because the larger scale pop.
Speaker Change: Coffee project type projects are or will be there.
Speaker Change: It should mostly be fully operational in the second half of the year and so you know that.
Speaker Change: That goes to your second question, where some of the sample delays they were from some of the larger type.
Speaker Change: Population scale type projects.
Speaker Change: Yeah I.
Speaker Change: I do think some of those will start in the second quarter. We've already we're already seeing you know the Singapore project.
Speaker Change: It's slated to start this quarter the all of us projects being continuing the MVP project Veterans project is continuing.
Speaker Change: And.
Speaker Change: The Estonia projects actually ramping really quickly we install the systems they've been trained they're amazing people to work with they have a lot of sequencing capability and so we'll see how that project ramps.
Speaker Change: But we're we're pretty darn excited about that and so hopefully this quarter that will that will get up and ramped as well and then.
Speaker Change: Grow over the course of 2024, so the back half definitely.
Speaker Change: It looks a lot more promising than Q2.
Speaker Change: But Q2, where we're.
Speaker Change: We are continuing to build the funnel than where we're continuing to improve our execution over Q1.
Speaker Change: I think one other thing that I'll add in Sam if you seem to be in the earnings presentation. We have included a grandmother.
Speaker Change: Our installed base and what is across the horizontal access what the utilization of the instruments in our install base, but a key driver of that utilization and what you'll notice in the metrics below that in fact, the month or the age in which that interact wasn't solved and how long it's been in.
Speaker Change: Installation is also a driver so one of the things that we fully expect to happen is that they love utilization, which actually had been installed more recently are going to start to move to the right and that's going to help to grow our consumer revenue going forward. Yeah. That's a good point Susan.
Speaker Change: Alright next question. Thank you. The next question is from Tejas Savant with Morgan Stanley. Please go ahead.
Tejas Rajeev Savant: Hey, guys good evening and thanks for taking my question here.
Tejas Rajeev Savant: Christian sort of sticking with the needle threading and Piper Prunings or pipeline pruning theme here, so I want to start with.
Tejas Rajeev Savant: The Cogs side right. So you you talked about some good cost cuts on both the revenue unit as well as consumables can you just share how much will be passed onto customers. We are you know.
Tejas Rajeev Savant: The price cuts and promotions and so on and how much goes towards better margins to get you to that cash flow breakeven target for 2026.
Tejas Rajeev Savant: And then on the on the pipeline just to get a.
Speaker Change: A different tack on some of those earlier question I know you mentioned work on that next Gen smart cell for the for the ultra high throughput long read instrument, but.
Speaker Change: In a sense I mean, he's he's more long read capacity in the market really the priority that you'd need to solve for when it sounds like if anything the fact that there's too much long read capacities.
Tejas Rajeev Savant: Hamstringing sales here, a little bit beyond just the macro.
Tejas Rajeev Savant: And maybe the solution is.
Tejas Rajeev Savant: Helping those applications for long read mature and scale versus just place more boxes. I think you alluded to some of that on the commercial org side of things, but perhaps you can just elaborate on what you plan to do differently. There. Thank you.
Speaker Change: Yeah, Hey, Jess. Thank you those are good questions.
Speaker Change: Let's see let's start with let's start with the cost cuts and the improvement is what we're really seeing is we have been laser focused on reducing the production cost of revenue and we're doing that through a couple of different things.
Speaker Change: We're just getting more efficient and more effective in our manufacturing we have pulled back some of the stuff that we've been outsourcing to in source, it which lowers the cost we've been.
Speaker Change: Improving our supply chain and doing a lot of a lot of work around that that's driving the cost down but second we've actually been improving our software and our technology, which has given us the ability to reduce the amount of compute required or the power of the compute required in the instrument and so.
Speaker Change: We're on a path a glide path to.
Speaker Change: Be able to buy cheaper Gpus.
Speaker Change: Less extensive gpus and get the job done so that those are those are things that are getting starting to get realized now in Q2, and we will continue to get realized through the rest of the year.
Tejas Rajeev Savant: Some of that will get passed onto the customer some of it will drop the margin.
Tejas Rajeev Savant: It really depends on the.
Tejas Rajeev Savant: The situation I don't have the exact breakdown in front of me because it'll be dependent on on the customers, but but certainly.
Tejas Rajeev Savant: We're taking advantage of that to improve our gross margins and in cases, where it makes sense.
Tejas Rajeev Savant: Get that radio installed and up and running consumables faster because the long run that will drive better margin to the whole business. So we're doing a little bit of both on the twenty-five Dan we continue to make efficiency gains and improvements in yields have been getting better you know, that's where we've been taking a lot of cost out.
Tejas Rajeev Savant: Where yields are starting to get better we're improving our efficiency. There that is that's really great because that that simplifies it simplifies our plant, but it also.
Tejas Rajeev Savant: Enables us to price wherever we need to price and improve our gross margin a lot of that is going to our improvements in gross margin. So that's excited with respect to the pipeline you know the next generation smart cells actually really important to the company. The I agree that that there is.
Tejas Rajeev Savant: There is a lot there is more capacity in the market in the last 12 months than ever before in the history of <unk>.
Tejas Rajeev Savant: Long reads and customers are absorbing that capacity and it will take time as I said in my prepared remarks, but I also believe that we have to be planning for the future and the next generation smart cells been in development.
Tejas Rajeev Savant: For a couple of years now and it's these these are very long development program.
Tejas Rajeev Savant: Pretty much at the end of the development of the smart cell itself. Once we have the smart cell then we can decide when we developed the system around that and launch it into the market, but it is important to have that core technology available to us. So the reason why we are continuing on.
Tejas Rajeev Savant: Investing in it right at this moment is that the smart cell itself is almost almost done and were working with.
Tejas Rajeev Savant: External partners that we want to maintain those relationships with.
Tejas Rajeev Savant: Then that also gives us the flexibility to decide how and when to launch.
Tejas Rajeev Savant: And in ultra high throughput system, and and that will be dependent on how the market moves.
Tejas Rajeev Savant: Okay.
Tejas Rajeev Savant: Thank you. Our final question Tonight comes from Rachel that installed with J P. Morgan. Please go ahead.
Rachel: Oh Wow. This is my train of thought on the timing for any child from J P. Morgan. Thanks for taking my question I just wanted to touch quickly on having a background here.
Rachel: At the end of our kidney shared that's a turtle.
Rachel: $19 million most of that was maybe up so can you reconcile that 19, Matt is that slipped in the quarter with a 28 placements.
Rachel: It means for your backlog.
Speaker Change: Thank you.
Rachel: Susan you want to take that one yeah. So I might've missed the second half of the question, but so at the end of the year last year, we did have $19 million in product backlog, we dispose our backlog once a year, we are not disclosing it on a quarterly basis and about.
Speaker Change: But I wanted to think that we have said that this year is going to be a year in which there is going to be more book ship more times in the year.
Susan G. Kim: And then we had last year, that's just the nature of being in the second year of a new product launch so that is part of our assumption.
Susan G. Kim: And that is also included in our updated revenue guidance one of the trends that we have.
Susan G. Kim: Which started in the second half of last year is that customers are placing more standing orders for consumables, which has been a nice trend also a customer when they purchase the radio and some are choosing to go ahead and place an order it.
Susan G. Kim: Placed an order for consumables with a ship schedule and also one thing on the insurance side is that we did not ship all of the industry backlog. So we do still have insurance backlog.
Susan G. Kim: And we do we plan to continue to maintain its backlog throughout the year, but that kind of gives you some of the characteristics that's embedded in that guidance.
Susan G. Kim: Alright.
Speaker Change: Please go ahead. Thank you everybody for joining us today.
Speaker Change: That's going to conclude.
Speaker Change: Our call for today, and we look forward to connecting with you throughout the quarter and updating you on our Q2 results later this summer.
Speaker Change: Good one.
Speaker Change: You bet.
Speaker Change: The conference has now concluded.
Speaker Change: Are you for attending today's presentation you may now disconnect your lines.
Speaker Change: Okay.
Speaker Change: [music].