Q2 2024 Pacific Biosciences of California Inc Earnings Call

Operator: Good day, and welcome to the PACBIO second quarter 2024 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Todd Friedman, Senior Director of Investor Relations. Please go ahead.

Operator: Good day, and welcome to the PacBio second quarter 2024 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Speaker Change: Good day and welcome to the PACBIO Second Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touchdown phone. To withdraw your question, please press star, then two. Please note this event is being recorded.

Speaker Change: After today's presentation, there will be an opportunity to ask questions.

Speaker Change: To ask a question, you may press star, then 1 on a touch-tone phone. To withdraw your question, please press star, then 2.

Todd Friedman: I would now like to turn the conference over to Todd Friedman, Senior Director of Investor Relations.

Speaker Change: Please note this event is being recorded. I would now like to turn the conference over to Todd Friedman, Senior Director of Investor Relations. Please go ahead.

Todd Friedman: Please go ahead. Good afternoon, and welcome to PacBio second quarter 2024 earnings conference call. Earlier today, we issued a press release outlining the financial results we'll be discussing on today's call, a copy of which is available on the investor's section for website at www.pacb.com or is furnished on Form 8-K available on the Securities and Exchange Commission website at www.sec.gov.

Todd Friedman: Good afternoon, and welcome to PacFile's second quarter 2024 earnings conference call. Earlier today, we issued a press release outlining the financial results we'll be discussing on today's call, a copy of which is available on the investor section of our website at www.pacb.com or is filed on Form 8K available on the Securities and Exchange Commission website at www.sec.gov. A copy of our earnings presentation is also available in the investor section of our website. With me today are Christian Henry, President and Chief Executive Officer, and Susan Kim, Chief Financial Officer.

Todd Friedman: Good afternoon, and welcome to PAC-BIO's second quarter 2024 earnings conference call.

Speaker Change: Earlier today, we issued a press release outlining the financial results we'll be discussing on today's call.

Speaker Change: A copy of which is available on the Investor section of our website at www.pacb.com or is furnished on Form 8K available on the Securities and Exchange Commission website at www.sec.gov. A copy of our earnings presentation is also available on the Investor section of our website.

Todd Friedman: A copy of our earnings presentation is also available on the Investor's section of our website. With me today, are Christian Henry, President and Chief Executive Officer, and Susan Kim, Chief Financial Officer.

Speaker Change: With me today are Christian Henry, President and Chief Executive Officer, and Susan Kim, Chief Financial Officer.

Todd Friedman: On today's call, we will make board-looking statements, including, among other statements, regarding predictions, estimates, expectations, and guidance. You should not place undue reliance on forward-looking statements because they are subject to assumptions, risks, and uncertainties that could cause our actual results to differ materially from those projected or discussed. These reviewer SEC filings, including our most recent forms 10-Q and 10-K, and our press releases, to better understand the risks and uncertainties that could cause results to differ. We've displayed any obligation to update or revise these board-looking statements except as required by law.

Todd Friedman: On today's call, we will make forward-looking statements, including, among other things, predictions, estimates, expectations, and guidance. You should not place undue reliance on forward-looking statements because they are subject to assumptions, risks, and uncertainties that could cause our actual results to differ materially from those projected or discussed. Please review our SEC filings, including our most recent forms 10-Q and 10-K, and our press releases, to better understand the risks and uncertainties that could cause results to differ.

Speaker Change: On today's call, we will make forward-looking statements, including, among other statements, regarding predictions, estimates, expectations, and guidance.

Speaker Change: You should not place undue reliance on forward-looking statements because they are subject to assumptions, risks, and uncertainties that could cause our actual results to differ materially from those projected or discussed.

Speaker Change: Please review our SEC filings, including our most recent forms 10-Q and 10-K, and our press releases to better understand the risks and uncertainties that could cause results to differ. You disclaim any obligation to update or revise these forward-looking statements, except as required by law.

Todd Friedman: We disclaim any obligation to update or revise these forward-looking statements, except as required by law. We will also present certain financial information on a non-GAAP basis, which 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. Reconciliations between historical U.S. GAAP and non-GAAP results are presented in our earnings release, which is available in the investor section of our website.

Todd Friedman: We will also present certain financial information on a non-GAAP basis, which 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. Reconciliation between historical US GAAP and non-GAAP results are presented in our earnings release, which is available on the investor's section of our website. The future periods were unable to reconcile non-GAAP growth margin and non-GAAP operating expenses without unreasonable effort due to the uncertainty regarding, among other matters, certain acquisition-related items that may arise during the year.

Speaker Change: We will also present certain financial information on a non-GAAP basis.

Speaker Change: which 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 Change: Reconciliations between historical U.S. GAAP and non-GAAP results are presented in our earnings release, which is available on the investor section of our website.

Todd Friedman: For future periods, we are unable to reconcile non-GAAP gross margin and non-GAAP operating expenses without unreasonable effort due to the uncertainty regarding, among other matters, certain acquisition-related items that may arise during the year. A recording of today's call will be available shortly after the live call in the investor section of our website. Those electing to use the replay are cautioned that forward-looking statements may differ or change materially after the completion of the live call.

Speaker Change: For future periods, we're unable to reconcile non-GAAP gross margin and non-GAAP operating expenses without unreasonable effort due to the uncertainty regarding, among other matters, certain acquisition-related items that may arise during the year.

Todd Friedman: A recording of today's call will be available shortly after the live call and the Investor section of our website. Those electing to use the replay are cautioned that four looking statements may differ or change materially after the completion of the live call.

Speaker Change: A recording of today's call will be available shortly after the live call in the investor section of our website.

Speaker Change: Those electing to use the replay are cautioned that forward-looking statements may differ or change materially after the completion of the live call. I'll now hand it over to Christian.

Christian Henry: I'll now hand it over to Christian. Thank you, Todd, and thank you for joining us today. The first half of 2024 has been challenging for PAC files. However, early Q2, we successfully initiated a significant restructuring, which we expect will reduce our non-GAAP operating expenses by more than 75 million on an annualized basis. And significantly reduce our quarterly cash firm. Even with this restructuring, we are making significant progress in our product development pipeline and serving our customers with best-in-class support. There were several bright spots in many areas of our business in the quarter, including several customers adopting revenue and a clinical setting.

Todd Friedman: I'll now hand it over to Christian.

Christian Henry: Thank you, Todd, and thank you for joining us today. The first half of 2024 has been challenging for PacBio, but early in Q2, we successfully initiated a significant restructuring which we expect will reduce our non-GAAP operating expenses by more than $75 million on an annualized basis and significantly reduce our quarterly cash burn. Even with this restructuring, we are making significant progress in our product development pipeline and serving our customers with best-in-class support.

Christian Henry: Thank you, Todd, and thank you for joining us today.

Christian Henry: The first half of 2024 has been challenging for PacBio, however early in Q2 we successfully initiated a significant restructuring which we expect will reduce our non-GAAP operating expenses by more than $75 million on an annualized basis.

Christian Henry: and significantly reduce our quarterly cash burn.

Christian Henry: Even with this restructuring, we are making significant progress in our product development pipeline and serving our customers with best-in-class support.

Christian Henry: There were several bright spots in many areas of our business in the quarter, including several customers adopting Revio in a clinical setting. And we are now seeing signs that lead us to believe that we will see sequential growth throughout the remainder of the year. I want to thank all of our employees for their dedication and support as we pursue our mission of enabling the promise of genomics to better humans.

Christian Henry: There were several bright spots in many areas of our business in the quarter, including several customers adopting Revio in a clinical setting. And we are now seeing signs that lead us to believe that we will see sequential growth throughout the remainder of the year.

Christian Henry: And we are now seeing signs that lead us to believe that we will see sequential growth throughout the remainder of the year. I want to thank all of our employees for their dedication and support as we pursue our mission of enabling the promise of genomics to better human.

Christian Henry: I want to thank all of our employees for their dedication and support as we pursue our mission of enabling the promise of genomics to better human health.

Christian Henry: and Health.

Christian Henry: On our last call, I outlined the following four strategic priorities for the remainder of the year. Number one, improving our commercial execution to drive adoption of both radio and onset. Number two, continuing the development of new platforms that are expected to broaden our product offering and drive revenue growth. Number three, improving our gross margin and driving manufacturing efficiencies. And number four, reducing annualized non-GAFT run rate operating expenses.

Christian Henry: On our last call, I outlined the following four strategic priorities for the remainder of the year. Number one, improving our commercial execution to drive adoption of both Revio and Ontario. Number two, continuing the development of new platforms that are expected to broaden our product offering and drive revenue. Number three, improving our gross margin and driving manufacturing efficiencies. And number four, reducing annualized non-GAAP run rate operating expenses.

Christian Henry: On our last call I outlined the following four strategic priorities for the remainder of the year. Number one, improving our commercial execution to drive adoption of both Revio and Onset.

Christian Henry: Number two, continuing the development of new platforms that are expected to broaden our product offering and drive revenue growth.

Christian Henry: 3. Improving our gross margin and driving manufacturing efficiencies 4. Reducing annualized non-GAAP run rate operating expenses

Christian Henry: In my remarks today, I will comment on the progress we are making against the top two priorities, specifically focusing on our end markets and related commercial execution.

Christian Henry: In my remarks today, I will comment on the progress we are making against the top two priorities, specifically focusing on our end markets and related commercial executions. Susan will then spend some time focused on our third and fourth priorities and outlining our financial... First, let's do a quick overview of our second quarter results and our updated guidance. Total revenue in Q2 was $36 million, which was below our expectations. Our revenue reflects a shortfall in instrument placements, which we believe is due to the ongoing impact of the difficult macro backdrop and elongated customer purchasing cycles. Second quarter revenue included 24 Ravio systems, representing four systems below our expectations. Although we shipped fewer ravioli than anticipated, the average selling price of ravioli increased during the quarter.

Christian Henry: In my remarks today, I will comment on the progress we are making against the top two priorities, specifically focusing on our end markets and related commercial execution.

Christian Henry: Susan will then spend some time focused on our third and fourth priority and outlining our financial results. The first, let's do a quick overview of our second quarter results and our updated guidance. Total revenue in 22 was 36 million, which was below our expectations. Our revenue reflects a shortfall in instrument placement, which we believe is due to the ongoing impact of the difficult macro backdrop and elongated customer purchasing cycles. Second quarter revenue included 24 radio systems, representing four systems below our expectations. Although we shipped fewer radios than anticipated, the average selling price of radio increased during the quarter.

Christian Henry: Susan will then spend some time focused on our third and fourth priorities and outlining our financial results.

Christian Henry: We continue to see elongated instrument purchasing cycles in each of our regions during the quarter, which we believe is due to a number of factors. Number one, several companies and organizations are awaiting funding for their systems, and we're seeing that funding is increasingly delayed. Number two, we continue to experience unanticipated delays in the procurement process, including tenders in Europe and APAC, where they're taking longer than expected.

Susan Kim: But first, let's do a quick overview of our second quarter results and our updated guidance.

Susan Kim: Total revenue in Q2 was $36 million, which was below our expectations. Our revenue reflects a shortfall in instrument placements, which we believe is due to the ongoing impact of the difficult macro backdrop and elongated customer purchasing cycles.

Susan Kim: Second quarter revenue included 24 Revio systems, representing four systems below our expectations.

Susan Kim: Although we shipped fewer ravioli than anticipated, the average selling price of ravioli increased during the quarter.

Christian Henry: We continue to see elongated instrument purchasing cycles in each of our regions during the quarter, which we believe is due to a number of factors. Number one, several companies and organizations are awaiting funding for their systems, and we're seeing that funding is increasingly delayed. Number two, we continue to experience unanticipated delays in the procurement process, which include tenders in Europe and A-PAC, which are taking longer than expected. And number three, sample volumes are not materializing as fast as we expected for some potential new radio customers, causing them to delay their purchases. On the consumable side of our business, we deliver revenue of $17 million, growing 24% year over year and 7% sequentially, as customers continue to ramp up their radio usage.

Susan Kim: We continue to see elongated instrument purchasing cycles in each of our regions during the quarter, which we believe is due to a number of factors. Number one, several companies and organizations are awaiting funding for their systems, and we're seeing that funding is increasingly delayed.

Susan Kim: Number two, we continue to experience unanticipated delays in the procurement process which include tenders in Europe and APAC.

Christian Henry: And number three, sample volumes are not materializing as fast as we expected for some potential new Revio customers, causing them to delay their purchase. On the consumable side of our business, we delivered revenue of $17 million, growing 24% year-over-year and 7% sequentially, as customers continue to ramp up their Revio use. We saw strength in EMEA, with consumable revenue growing 42% year-over-year and 50% quarter-over-quarter, hitting an all-time high.

Susan Kim: which are taking longer than expected, and number three, sample volumes are not materializing as fast as we expected for some potential new Revio customers, causing them to delay their purchases.

Susan Kim: On the consumable side of our business, we delivered revenue of $17 million, growing 24% year-over-year and 7% sequentially, as customers continue to ramp up their Ravio usage.

Christian Henry: We saw strength in Amia with consumable revenue growing 42% year over year and 50% quarter over quarter, hitting an all-time high. The growth in consumable revenue in Amia was driven by new customers scaling long re sequencing during the second quarter. Notable customers include the University of Tartu sequencing for the Estonian Biobank and Biosensia, a leading global provider of clinical laboratory testing services in Germany, which is scaling its testing offerings. We are further encouraged by the growing excitement for long regions in the region. No, the gene, for instance, has implemented radio in its brand new lab in Munich, Germany, to serve customers across the European scientific community.

Susan Kim: We saw strength in EMEA, with consumable revenue growing 42% year-over-year and 50% quarter-over-quarter, hitting an all-time high. The growth in consumable revenue in EMEA was driven by new customers scaling long-read sequencing during the second quarter.

Christian Henry: The growth in consumable revenue in EMEA was driven by new customers scaling long-read sequencing during the second quarter. Notable customers include the University of Tartu, sequencing for the Estonian Biobank, and Biocentia, a leading global provider of clinical laboratory testing services in Germany, which is scaling its testing operations. We are further encouraged by the growing excitement for long-regional research. Novagene, for instance, has implemented Revio in its brand new lab in Munich, Germany, to serve customers across the European scientific community.

Susan Kim: Notable customers include the University of Tartu, sequencing for the Estonian Biobank, and BioCentia, a leading global provider of clinical laboratory testing services in Germany, which is scaling its testing offerings.

Susan Kim: We are further encouraged by the growing excitement for long reads in the region. Novagene, for instance, has implemented Revio in its brand new lab in Munich, Germany to serve customers across the European scientific community.

Christian Henry: Despite the total growth in consumables, revenue was slightly below our expectations, which we believe was primarily due to a large research project in the United States losing funding and weakness in the age of Pacific region, notably in China.

Christian Henry: Despite the total growth in consumables, revenue was slightly below our expectations, which we believe was primarily due to a large research project in the United States losing funding and weakness in the Asia-Pacific region, notably in China.

Speaker Change: despite the total growth in consuidmables revenue with slightly belower expectations which we believe was primarily due to a large research project in the united states losing funding and weakness in the as ia pacific region notably in china

Christian Henry: Looking ahead, for the full year, we now believe revenue will be around the low end of our previously guided range of 170 to 200 million, which we believe is primarily due to the continuation of the headwinds we experienced in the first half of the year and the expectation that organizations will continue to operate in a capital constrained environment for the rest of 2024. Indeed, external challenges are affecting Pac-File and others in the industry, particularly with respect to capital equipment purchases. In order to drive instrument placements, we have implemented a number of programs to make high-five long-re sequencing more accessible than ever before, including promotions designed to ease customers' upfront capital expenditure requirements while maintaining Pac-File's overall economic value.

Christian Henry: Looking ahead for the full year, we now believe revenue will be around the low end of our previously guided range of $170 to $200 million, which we believe is primarily due to the continuation of the headwinds we experienced in the first half of the year and the expectation that organizations will continue to operate in a capital-constrained environment for the rest of 2024. Indeed, external challenges are affecting Pacphile and others in the industry, particularly with respect to capital equipment.

Speaker Change: looking ahead for the full year we now believe revenue will be around the low end of our previously guided range of one hundred and seventy to two hundred million

Susan Kim: which we believe is primarily due to the continuation of the headwinds we experienced in the first half of the year and the expectation that organizations will continue to operate in a capital-constrained environment for the rest of 2024.

Susan Kim: Indeed, external challenges are affecting PacBio and others in the industry, particularly with respect to capital equipment purchases.

Christian Henry: In order to drive instrument placements, we have implemented a number of programs to make HiFi long-read sequencing more accessible than ever before, including promotions designed to ease customers' upfront capital expenditure requirements while maintaining PacBio's overall economic value. In the second quarter, we shipped several instruments to customers utilizing some of these promotions, and we are actively working to close several more deals in the second half of this year. Additionally, we announced last week that our leasing partner, Mitsubishi Capital, is offering one of the most attractive deals on a regular instrument through a two-year rental agreement for eligible customers in the United States.

Susan Kim: In order to drive instrument placements, we have implemented a number of programs to make HiFi long-read sequencing more accessible than ever before, including promotions designed to ease customers' upfront capital expenditure requirements while maintaining PacBio's overall economic value.

Christian Henry: In the second quarter, we ship several instruments to customers utilizing some of these promotions and are actively working to close several more deals in the second half of this year. Additionally, we announced last week that our leasing partner, Mitsubishi Capital, is offering one of the most attractive deals on a radio instrument through a two-year mental agreement for eligible customers in the United States. With this offer, Mitsubishi will purchase the radio directly from Pac-File and then rent the system to customers with an option for the customer to buy the radio at the end of the lease.

Susan Kim: In the second quarter we shipped several instruments to customers utilizing some of these promotions and are actively working to close several more deals in the second half of this year.

Susan Kim: Additionally, we announced last week that our leasing partner, Mitsubishi Capital, is offering one of the most attractive deals on a revio instrument through a two-year rental agreement for eligible customers in the United States.

Christian Henry: With this offer, Mitsubishi will purchase the Revio directly from PacBio and then rent the system to customers with an option for the customer to buy the Revio at the end of the lease. This program does not require a consumable purchase commitment, which is appealing to research customers that are primarily project-based.

Susan Kim: With this offer, Mitsubishi will purchase the Revio directly from PacBio and then rent the system to customers with an option for the customer to buy the Revio at the end of the lease term.

Christian Henry: This program does not require a consumable purchase commitment, which is appealing to research customers that are primarily project-based. We expect this new promotion to make high-five sequencing even more accessible to a broader range of customers.

Speaker Change: This program does not require a consumable purchase commitment, which is appealing to research customers that are primarily project based.

Christian Henry: We expect this new promotion to make HiFi sequencing even more accessible to a broader range of customers. As for ANSO, we launched a promotion for the system in late May to make it what we believe is the most attractive mid-throughput short-read instrument on the market. As a result, customers can trade in any NGS system and acquire an OXO for $99,000, with sequencing costs as low as $4 per gigabit.

Susan Kim: We expect this new promotion to make HiFi sequencing even more accessible to a broader range of customers.

Christian Henry: As for ONCEO, we launched a promotion for the system in late May to make it what we believe is the most attractive mid-throughput short-read instrument on the market. As a result, customers can trade in any NGS system and acquire an ONCEO for $99,000. The sequencing costs as low as $4 for gigabits. This promotion has already garnered customer interest and increased the order opportunities in our sales pipeline. Consequently, we anticipate a substantial ramp-up for the platform in the second half of the year.

Speaker Change: As for ONSO, we launched a promotion for the system in late May to make it what we believe is the most attractive mid-throughput short-read instrument on the market. As a result, customers can trade in any NGS system and acquire an ONSO for $99,000.

Christian Henry: This promotion has already garnered customer interest and increased the order opportunities in our sales pipeline. Consequently, we anticipate a substantial ramp-up for the platform in the second half of the year. In order to continue building our sales funnel, we held several major marketing events throughout the world during the quarter. These PRISM marketing events were an overwhelming success.

Susan Kim: with sequencing costs as low as $4 per gigabit. This promotion has already garnered customer interest and increased the order opportunities in our sales pipeline.

Susan Kim: Consequently, we anticipate a substantial ramp-up for the platform in the second half of the year.

Christian Henry: In order to continue building our sales funnel, we held several major marketing events throughout the world during the quarter. These prism marketing events were an overwhelming success. The six events attracted approximately 810 B's and helped drive dozens of new radio opportunities, some of which have already closed and others that were actively working on the market. We are now seeing several large projects, such as the University of Fair 2 sequencing for the Utstownian Biobank, the Singapore Precise Project, and the Gregor Consortium Project, all scaling up. In addition, we continue to see positive book-to-build ratios for consumables, as customers are placing longer-term purchase orders for their smart cells and reagents.

Susan Kim: in order to continue building oursales bunnel we held several major marketing events throughout the world during the quarter

Christian Henry: The six events attracted approximately 800 attendees and helped drive dozens of new review opportunities, some of which have already closed, and others that are actively working on closing in the second half of this year. On the consumable side, we are seeing indications that give us confidence that consumables will continue growing in the second half of the year. For example, we are now seeing several large projects, such as University of Tartu sequencing for the Estonian Biobank, the Singapore Precise Project, and the Greger Consortium Project, all scaling up.

Susan Kim: These PRISM marketing events were an overwhelming success. The six events attracted approximately 800 attendees and helped drive dozens of new Rev. Yo! opportunities, some of which have already closed and others that were actively working on closing in the second half of this year.

Speaker Change: On the consumable side, we are seeing indications that give us confidence that consumables will continue growing in the second half of the year.

Speaker Change: For example, we are now seeing several large projects, such as University of Khartoum sequencing for the Estonian Biobank, the Singapore PRECISE project, and the Greger Consortium project, all scaling up.

Christian Henry: In addition, we continue to see positive book-to-bill ratios for consumables as customers are placing longer-term purchase orders for their smart cells and reagents, a potential leading indicator for quarterly growth. Meanwhile, while we remain cautious about the outlook in China for the remainder of the year, customer utilization trends have started to improve in the past couple of months, and July marks the highest utilization month for the region this year. On our last call last quarter, we introduced a histogram chart of our Revio installed base by utilization rate. As a reminder, we can monitor the utilization of the majority of our Revio fleet. As one might expect, newer customers take longer to ramp up utilization levels, and we continue to see this in Q2.

Speaker Change: In addition, we continue to see positive book-to-bill ratios for consumables as customers are placing longer-term purchase orders for their smart cells and reagents.

Christian Henry: A potential leading indicator for quarterly growth. While we remain cautious about the outlook in China for the remainder of the year, customer utilization trends have started to improve in the past couple of months, and July marks the highest utilization month for the region this year.

Speaker Change: a potential leading indicator for quarterly growth. While we remain cautious about the outlook in China for the remainder of the year, customer utilization trends have started to improve in the past couple of months, and July marks the highest utilization month for the region this year.

Christian Henry: On our last quarter, we introduced a histogram chart of our radio install based by utilization rate. As a reminder, we can monitor the utilization of the majority of our radio fleet. As one might expect, newer customers take longer to wrap utilization level, and we continue to see this in Q2. However, what was encouraging is that, compared to last quarter, we saw more instruments move from the low utilization bucket. It entered the medium or high utilization buckets, and we saw increased pull-through from both medium and high utilization customers.

Speaker Change: On our last call last quarter, we introduced a histogram chart of our Revio install base by utilization rate.

Speaker Change: As a reminder, we can monitor the utilization of the majority of our Rev-E-O fleet.

Speaker Change: As one might expect, newer customers take longer to wrap utilization levels, and we continue to see this in Q2.

Christian Henry: However, what was encouraging is that, compared to last quarter, we saw more instruments move from the low-utilization bucket into the medium or high-utilization buckets, and we saw increased pull-through from both medium and high-utilization customers. Our focus will be to continue simplifying our workflows and helping our customers get up to their planned utilization rate as fast as possible in order to maximize our consumable revenue opportunity. Now, let's take a look at a few of the other commercial highlights during the quarter.

Speaker Change: However, what was encouraging is that compared to last quarter, we saw more instruments move from the low-utilization bucket into the medium or high-utilization buckets, and we saw increased pull-through from both medium and high-utilization customers.

Christian Henry: Our focus will be to continue simplifying our workflows and helping our customers get up to their planned utilization rate as fast as possible in order to maximize our consumable revenue opportunity.

Speaker Change: Our focus will be to continue simplifying our workflows and helping our customers get up to their planned utilization rate as fast as possible in order to maximize our consumable revenue opportunities.

Christian Henry: Now let's take a look at a few of the other commercial highlights during the quarter. We continue to be encouraged by the growth and sequencing data as data produced from the radio platform grew quarter over quarter, and total data output from pack biosequences grew 2.2 times from the second quarter of last year. Radio continues to be the fastest growing instrument in our history, in part through its ability to gain market share via new customers. In the first half of 2024, new customers accounted for nearly half of total shipments, highlighting the growing value proposition of high five sequencing and the expanding range of application that radio addresses.

Christian Henry: We continue to be encouraged by the growth in sequencing data, as data produced from the Revio platform grew quarter over quarter, and total data output from PacBio sequencers grew 2.2 times from the second quarter of last year. Revio continues to be the fastest-growing instrument in our history, in part through its ability to gain market share via new customers. In the first half of 2024, new customers accounted for nearly half of total shipments, highlighting the growing value proposition of HiFi sequencing and the expanding range of applications that Revio addresses.

Speaker Change: Now let's take a look at a few of the other commercial highlights during the quarter.

Christian Henry: At the same time, we see significant opportunities to drive adoption among the remaining 180 plus equal to customers who have not yet ordered a radio. Further encouraging are the results from our annual customer survey, which shows an NPS score of 56 among those surveyed. In addition, 9 out of 10 respondents reported being satisfied or very satisfied with their radio system. We are pleased by the diversity of customer types that are adopting radio. In the second quarter, we delivered multiple radios to a range of customers including research institutes, core labs, service providers, diagnostics and LVT labs, children's hospitals, human genetic research organizations, and pharmaceutical companies.

Christian Henry: At the same time, we see significant opportunities to drive adoption among the remaining 180-plus SQL 2 customers who have not yet ordered a driver. Further encouraging are the results from our annual customer survey, which shows an NPF score of 56 among those surveyed. In addition, nine out of ten respondents reported being satisfied or very satisfied with their reviews.

Speaker Change: In addition, nine out of 10 respondents reported being satisfied or very satisfied with their system.

Christian Henry: We are pleased by the diversity of customer types that are adopting Revio. In the second quarter, we delivered multiple Revios to a range of customers, including research institutes, core labs, service providers, diagnostics and LVT labs, children's hospitals, human genetic research organizations, and pharmaceutical companies. This customer diversity is expected to lead to more applications and greater penetration into our end market. Additionally, we expect adoption by diagnostic and LDT labs could potentially establish a long-term revenue stream.

Speaker Change: We are pleased by the diversity of customer types that are adopting revenue in the second quarter, we delivered multiple radios to a range of customers, including research institutes core Lab's service providers diagnostics and L. D T labs children's hospitals human genetic research organizations.

Speaker Change: And pharmaceutical company.

Christian Henry: This customer diversity is expected to lead to more application and greater penetration into our end markets. Additionally, we expect adoption by diagnostic and LVT lab can potentially establish a long-term revenue stream as these companies expand their testing menus. Notably, we delivered multiple radios to Quest Diagnostics to support the company's development of tests for neurological disorders, leveraging the advantages of a recently launched peer target repeat expansion panel. Two along core and university faculty of medicine in Thailand has adopted its second radio system to scale its high five sequencing capability. The organization plans to sequence 1,000 human genomes annually over the next five years to improve health outcomes.

Speaker Change: This customer diversity is expected to lead to more application and greater penetration into our end markets.

Speaker Change: Additionally, we expect adoption by diagnostic and LPT labs can potentially establish a long term revenue stream as these companies expand their testing menu.

Christian Henry: As these companies expand their testing. Notably, we delivered multiple Revios to Quest Diagnostics to support the company's development of tests for neurological disorders, leveraging the advantages of our recently launched PureTarget Repeat Expansion. Two Aloncorn University faculty of medicine in Thailand have adopted its second Revio system to scale its Hi-Fi sequencing capability. The organization plans to sequence 1,000 human genomes annually over the next five years to improve health outcomes. Health ENCODE, a leading company in genetic diagnostics, is bringing the first Revio system to Spain, becoming PacBio's first service provider in Southern Europe. This system is expected to enable large-scale HiFi long reads to improve the detection of variants in complex regions for customers throughout the region.

Speaker Change: Notably we delivered multiple <unk> to quest diagnostics to support the company's development of tests for neurological disorders, leveraging the advantages of our recently launched pure target repeat expansion path.

Speaker Change: Two a long corn University faculty of Medicine in Thailand has adopted its second read yes system to scale its hifi sequencing capability.

Speaker Change: Organization plans to sequence 1000, human genomes annually over the next five years to improve health outcomes.

Christian Henry: Health in code, a leading company in genetic diagnostics, is bringing the first radio system to Spain, becoming pack files, first service provider in southern Europe. This system is expected to enable large scale high five long reads to improve the detection of variants in complex regions for customers throughout. This system is expected to enable large scale high five long reads to improve the detection of variants in complex regions for customers throughout the next five years.

Speaker Change: Health <unk> co a leading company in genetic diagnostics is bringing the first radio system to Spain.

Speaker Change: <unk> Pak Bio's first service provider in southern Europe.

Speaker Change: This system is expected to enable large scale, hi Fi long reads to improve the detection of variance in complex region for customers throughout the region.

Christian Henry: We're continuing to see the adoption of transcriptomics and single-cell RNA sequencing with our Kinex kit, which launched last December. In Q2, Kinex already surpassed 1 million in quarterly revenue and helped drive radio placements, including a radio system at a prominent cancer research center in Texas. In second quarter, we also started to see some early customers ramp up their use of Onset. The hospital day at Speleade.is in the Ecuador, for example, has sequenced 700 patient samples as part of a 2000 sample oncology project and is looking to expand into other projects.

Christian Henry: We're continuing to see the adoption of transcriptomics and single-cell RNA sequencing with our Connex kit, which launched last December. In Q2, Connex already surpassed $1 million in quarterly revenue and helped drive Revio placement, including a radio system at a prominent cancer research center in Texas.

Speaker Change: We're continuing to see the adoption of transcript telmex and single cell RNA sequencing with our connects kits, which launched last December.

Speaker Change: Q2, <unk> already surpassed $1 million in quarterly revenue and helped drive grab your placements, including a radio system at a prominent cancer Research Center in Texas.

Speaker Change: In second quarter.

Christian Henry: We also started to see some early customers ramp up their use of On. The Hospital de Expeliaridades in Ecuador, for example, has sequenced 700 patient samples as part of a 2,000-sample oncology project and is looking to expand into other projects. In the second quarter, we also made significant progress in research and development. For example, we are in the late stages of developing new Revio consumables, which we expect will meaningfully increase the system's throughput without the need for additional capital investment. The new consumables are also expected to significantly decrease input. DNA Input Requirements, and add additional methylation calling capability

Speaker Change: We also started to see some early customers ramp up their use of answer.

Speaker Change: The hospital day, especially I, they've got is India. Ecuador. For example has sequenced 700 patient samples as part of a 2000 sample oncology project and is looking to expand into other projects.

Christian Henry: In the second quarter, we also made significant progress in research and development. For example, we are in the late stages of developing a new radio consumables, which we expect will meaningfully increase the system's throughput without the need for additional capital investment. The new consumables are also expected to significantly decrease input DNA input requirements and add additional methylation calling capabilities. We believe these improvements will unlock more samples and increase the capacity of our customers with more value than ever before.

Speaker Change: In the second quarter, we also made significant progress in research and development.

Speaker Change: For example, we are in the late stages of developing a new Rev. Yet new radio consumables, which will which we expect will meaningfully increase the system throughput without the need for additional capital investment.

Speaker Change: The new consumables are also expected to significantly decrease input.

Speaker Change: N a input requirements and add additional methylation calling capabilities.

Christian Henry: We believe these improvements will unlock more samples and increase Revio's capacity, providing our customers with more value than ever before. We look forward to sharing more about this consumable upgrade later this year. Additionally, we're continuing to make progress in our work to develop a low-throughput, long-read platform and a high-throughput, short-read platform. Finally, we're supporting our customers and R&D pipeline while reducing our costs and cash. As discussed last quarter, we initiated a restructuring plan to reduce our non-GAAP operating expenses and expect to exit this year with annualized run rate savings exceeding our previous non-GAAP target of $50 to $75 million.

Speaker Change: We believe these improvements will unlock more samples and increased rehab, yes capacity, providing our customers with more value than ever before.

Christian Henry: We look forward to sharing more about this consumable upgrade later this year.

Speaker Change: We look forward to sharing more about this consumable upgrades later this year.

Christian Henry: Additionally, we are continuing to make progress in our work to develop a low-throughput long-read platform and a high-throughput short-read system.

Speaker Change: Additionally, we're continuing to make progress in our work to develop a low throughput long read platform and a high throughput short reach system.

Christian Henry: Finally, we are supporting our customers and R&D pipeline while reducing our costs in cash per.

Speaker Change: Finally, we're supporting our customers and R&D pipeline, while reducing our cost and cash burn.

Christian Henry: As we discussed last quarter, we initiated a restructuring plan to reduce our non-GAAP operating expenses and expect to exit this year with annualized remade savings exceeding our previous non-GAAP target of 50 to 75 million. As a result of this restructuring, we believe our cash earn will continue to decline sequentially in the third quarter and the fourth quarter this year.

Speaker Change: As we discussed last quarter, we initiated a restructuring plan to reduce our non-GAAP operating expenses and expect to exit this year with annualized run rate savings exceeding our previous non-GAAP target at $50 million to $75 million.

Christian Henry: As a result of this restructuring, we believe our cash burn will continue to decline sequentially in the third quarter and the fourth quarter. With that, I'll hand the call to Susan to discuss the financials in some more detail. Susan? Thank you, Christian.

Speaker Change: As a result of this restructuring we believe our cash burn will continue to decline sequentially in the third quarter and the fourth quarter of this year.

Susan Kim: With that, I'll hand a call to Susan to discuss the financials in some more detail. Thank you, Christian. I will be discussing non-GAAP results which include non-cash stock-based compensation expense. I encourage you to review a reconciliation of GAAP to non-GAAP financial measures in our earnings press release. As discussed, we reported 36.0 million in product service and other revenue in the second quarter of 2024, compared to 47.6 million in the second quarter of 2023. Intro revenue in the second quarter was 14.7 million, a 51% decrease from 29.9 million in the second quarter of 2023 due to lower radio unit shipment.

Speaker Change: With that I'll hand, the call to Susan to discuss the financials in some more detail Susan thank.

Susan Kim: Thank you, Christian. I will be discussing non-GAAP results, which include non-cash, stock-based compensation expense. I encourage you to review a reconciliation of GAAP to non-GAAP financial measures in our earnings trust fund. As discussed, we reported $36.0 million in product, service, and other revenue in the second quarter of 2024, compared to $47.6 million in the second quarter of 2023. Interim revenue in the second quarter was $14.7 million, a 51% decrease from $29.9 million in the second quarter of 2023 due to lower Revio unit shipments. We ended the quarter with an installed base of 225 Revio systems.

Susan Kim: Thank you Christian I will be discussing non-GAAP results, which include noncash stock based compensation expense I encourage you to review our reconciliation of GAAP to non-GAAP financial measures in our earnings press release.

Susan Kim: As discussed we reported $36 1 million in product service and other revenue in the second quarter of 2024 compared to $47 6 million in the second quarter of 2023.

Speaker Change: And so our revenue in the second quarter was $14 7, million% to 51% a decrease of $29 9 million in the second quarter of 2023 due to lower radio unit shipment.

Susan Kim: We ended the quarter with an install base of 225 radio systems. Turning to consumables, revenue of 17.0 million in the second quarter increased 24% from 13.7 million in the second quarter of last year. Approximately 74% of consumable revenue came from radio systems, which reflected in annualized pull-through of the radio system of approximately 251,000, with the remainder coming from a mix of other systems. Finally, service and other revenue with $4.3 million in the second quarter compared to $3.9 million in the second quarter of 2023. We expected to see modest sequential increases in service and other revenue as the commencement of Rev.

Speaker Change: We ended the quarter with an installed base of 200 and twenty-five radio system.

Susan Kim: Turning to consumables, revenue of $17.0 million in the second quarter increased 24% from $13.7 million in the second quarter of last year. Approximately 74% of consumable revenue came from Revio systems, which reflected an annualized pull-through of the Revio system of approximately $251,000, with the remainder coming from a mix of other systems. Finally, service and other revenue was $4.3 million in the second quarter compared to $3.9 million in the second quarter of 2023.

Speaker Change: Turning to consumables revenue of $17 1 million in the second quarter increased 24% from $13 7 million in the second quarter of last year.

Speaker Change: Ultimately, 74% of consumable revenue came from radio system, which reflected an annualized pull through of the radio system of approximately 251000 with the remainder coming from a mix of other systems.

Speaker Change: Finally service and other revenue was $4 3 million in the second quarter compared to $3 9 million in the second quarter of 2023, we expect to see modest sequential increases in service and other revenue at the commencement of radio service contract is expected to more than offset a decrease in service contract revenue, resulting from <unk>.

Susan Kim: We expect to see modest sequential increases in service and other revenue as the commencement of Revio's service contract is expected to more than offset the decrease in service contract revenue resulting from SQL 2 and 2ED commissions. From a regional perspective, America's revenue of $20.8 million exceeded our internal expectations due to greater revenue placement, but represents a decrease of 13% compared to the second quarter of 2023. Growth in consumables was offset by lower review placements compared to last year.

Susan Kim: Service Contracts is expected to more than offset the decrease in service contract revenue resulting from C-2 and 2-E-D commissions. From a regional perspective, the America's revenue of $20.8 million exceeded our internal expectations due to greater radio placement, but represents the decrease of 13 percent compared to the second quarter of 2023. Growth and consumables was offset by lower radio placements compared to last year. For Asia Pacific, revenue of $8.2 million decreased 36 percent over the prior year, driven mainly by lower revenue in China, which continues to face challenges with funding in a weaker macroeconomic environment. We expect many of our customers to benefit from the government-announced stimulus program, so we don't expect any impact from such programs until 2025 at the earliest.

Speaker Change: For Q2, we decommission.

Speaker Change: From a regional perspective, the Americas revenue of $20 8 million exceeded our internal expectations due to greater radio placement, but represents a decrease of 13% compared to the second quarter of 2023.

Speaker Change: Growth in consumables was offset by lower radio placements compared to last year.

Susan Kim: For Asia-Pacific, revenue of $8.2 million decreased 36% over the prior year, driven mainly by lower revenue in China, which continues to face challenges with funding in a weaker macroeconomic environment. We expect many of our customers to benefit from the government-announced stimulus programs, but we don't expect any impact from such programs until 2025 at the earliest.

Speaker Change: Asia Pacific revenue was $8 2 million decreased 36% over the prior year, driven mainly by lower revenue in China, which continues to face challenges with funding and a weaker macroeconomic environment.

Speaker Change: We expect many of our customers to benefit from the government announced stimulus program, but we don't expect any impact from such program until 2025 at the earliest.

Susan Kim: Finally, a mere revenue of $7.0 million decreased 35 percent over the prior year. As we discussed, the region saw record consumables as customers ramped up their radio usage, which was offset by lower radio placement. Moving down the P&L, second quarter 2024 non-GAAP growth profit of 13.2 million represented a non-GAAP growth margin of 37 percent compared to a non-GAAP growth profit of 15.7 million or 33 percent in the second quarter of last year. The second quarter's non-GAAP growth margin improved approximately 400 basis points from the first quarter of 2024 as radio ASP improved, and in particular, as we continue to realize production cost savings on the radio instrument bill.

Susan Kim: Finally, EMEA revenue of $7.0 million decreased 35% over the prior year. As we discussed, the region saw record consumables as customers ramped up their revio usage, which was offset by lower revio placement. Moving down the P&L, second quarter 2024 non-GAAP gross profit of $13.2 million represented a non-GAAP gross margin of 37%, compared to a non-GAAP gross profit of $15.7 million, or 33%, in the second quarter of last year. The second quarter's non-gap growth margin improved approximately 400 basis points from the first quarter of 2024 as Revio ASPs improved, and in particular, as we continue to realize production cost savings on the Revio instrument bills.

Speaker Change: Finally, EMEA revenue of seven point no million decreased 35% over the prior year as we discuss the region saw record consumables as customers ramped up their radio usage, which was offset by lower radio placement.

Speaker Change: Moving down the P&L second quarter, 'twenty, 'twenty, four and non-GAAP gross profit of $13 2 million represented a non-GAAP gross margin of 37% compared to a non-GAAP gross profit of $15 7 million or 33% in the second quarter of last year.

Speaker Change: The second quarter's non-GAAP gross margin improved approximately 400 basis points from the first quarter of 2024 as radio Asp's in crude and in particular as we continue to realize production cost savings on the radio instrument built.

Susan Kim: Non-GAAP operating expenses were 71.0 million in the second quarter of 2024, representing an 18 percent decrease from 86.7 million in the second quarter of 2023. Non-GAAP operating expenses also declined 19 percent sequentially compared to the first quarter of 2024. As we began to realize cost savings related to our restructuring plan initiated last quarter and represented our lowest non-GAAP operating expenses quarter since Q3 of 2021. Regarding headcount, we ended the quarter with 581 employees compared to 796 at the end of 2023 and 818 at the end of the second quarter of 2023. Our restructuring reduced our non-GAAP operating expenses, some of which was the result of a 25 percent reduction in total headcount.

Susan Kim: Non-GAAP operating expenses were $71.0 million in the second quarter of 2024, representing an 18% decrease from $86.7 million in the second quarter of 2023. Non-GAAP operating expenses also declined 19% sequentially compared to the first quarter of 2024, as we began to realize cost savings related to our restructuring plan initiated last quarter and represented our lowest non-GAAP operating expenses quarter since Q3 of 2021. Regarding headcount, we ended the quarter with 581 employees compared to 796 at the end of 2023 and 818 at the end of the second quarter of 2023.

Speaker Change: non-GAAP operating expenses were 71.1 million in the second quarter of 2024, representing an 18% decrease from $86 7 million in the second quarter of 2023.

Speaker Change: non-GAAP operating expenses also declined 19% sequentially compared to the first quarter of 2024, as we began to realize cost savings related to our restructuring plan initiated last quarter and represented our lowest non-GAAP operating expenses quarter since Q3 F. 2021.

Speaker Change: Regarding head count we ended the quarter with 581 employees compared to 796 at the end of 2023 and 818 at the end of the second quarter of 2023.

Susan Kim: Our restructuring reduced our non-GAAP operating expenses, some of which was a result of a 25% reduction in total headcount. Operating expenses in the second quarter included non-cash, share-based compensation of $16.1 million, compared to $16.7 million in the second quarter of last year. The non-GAAP net loss was $55.2 million, representing $0.20 per share in the second quarter of 2024, compared to a non-GAAP net loss of $65.6 million, representing $0.26 per share in the second quarter of 2023. Non-GAAP net loss excluded $93.2 million in non-cash goodwill impairment charges due to the decline in stock price, among other factors, $18.0 million of restructuring expenses, and $6.9 million related to the amortization of acquired intangible assets.

Speaker Change: Our restructuring reduced our non-GAAP operating expenses some of which was the result of a 25% reduction in total head count.

Susan Kim: Operating expenses in the second quarter included non-cash share-based compensation of 16.1 million, compared to 16.7 million in the second quarter of last year. Non-GAAP net loss was 55.2 million, representing 20 cents per share in the second quarter of 2024, compared to a non-GAAP net loss of 65.6 million, representing 26 cents per share in the second quarter of 2023. Non-GAAP net loss excluded 93.2 million in non-cash goodwill and payment charge due to the decline in stock price, among other factors; 18.0 million of restructuring expenses; and 6.9 million related to the amortization of acquired intangible assets. Starting to our balance sheet items, we ended the second quarter with 509.8 million in unrestricted cash and investments compared with 631.4 million at December 31, 2023.

Speaker Change: Operating expenses in the second quarter included noncash share based compensation of $16 1 million compared to $16 7 million in the second quarter of last year.

Speaker Change: non-GAAP net loss was $55 2 million, representing 20 cents per share in the second quarter of 2024 compared to a non-GAAP net loss of $65 6 million, representing 26 cents per share in the second quarter of 2023.

Speaker Change: non-GAAP net loss, excluding $93 2 million in noncash goodwill impairment charge due to the decline in stock price. Among other factors 18.1 million of restructuring expenses and $6 9 million related to the amortization of acquired intangible assets.

Susan Kim: Turning to our balance sheet items, we ended the second quarter with $509.8 million in unrestricted cash and investments compared with $631.4 million at December 31, 2023. Inventory increased slightly in the second quarter to $68.6 million, representing 1.6 inventory turns, compared with $67.3 million at March 31, 2024, representing 1.7 inventory turns. Accounts receivable increased in the second quarter to $32.4 million compared to $30.3 million at March 31, 2024.

Speaker Change: Turning to our balance sheet items, we ended the second quarter with $509 8 million in unrestricted cash and investments compared with $631 4 million at December 31, 2023.

Susan Kim: Inventory increased slightly in the second quarter to 68.6 million, representing 1.6 inventory turns, compared with 67.3 million at March 31, 2024, representing 1.7 inventory turns. Accounts receivable increase in the second quarter to 32.4 million compared to 30.3 million at March 31, 2024.

Speaker Change: Inventory increased by the end of second quarter to $68 6 million, representing one six inventory turns compared with $57 3 million at March 31, 2024, representing 1.7 inventory turns.

Speaker Change: Accounts receivable increased in the second quarter to $32 4 million compared to $30 3 million at March 31 2024.

Susan Kim: Turning to guidance, as Christian mentioned earlier, we've set full year 2024 revenue to be around the low end of the previously guided range of 170 million and 200 million. The low end of the four-year guidance range assumes 80 million of insurance revenues, which includes 115 radio shipments. We expect 72 million in consumable revenue, which assumes an annual pull-through of 260,000 for the radio platform. With revenues at the low end of our range, we also expect non-GAAP growth margins to be around the low end of our previously guided 35% to 38% range. As we discussed, we have made significant progress on improving the per-unit production cost of both radio instruments and radio consumables and expect both to end the year approximately 20% lower than when we launched the platform.

Susan Kim: Turning to guidance, as Christian mentioned earlier, we expect full-year 2024 revenue to be around the low end of the previously guided range of $170 million and $200 million. The low end of the four-year guidance range assumes $80 million of insurance revenue, which includes 115 Revio shipments. We expect $72 million in consumable revenue, which assumes an annual pull-through of $260,000 for the Revio platform.

Speaker Change: Turning to guidance.

Speaker Change: I Should've mentioned earlier, we expect full year 'twenty 'twenty four revenue to be around the low end of the previously guided range of $170 million and 200 million.

Speaker Change: Low ended the full year guidance range, I think 80 million.

Speaker Change: Instrument revenue, which includes the 115 radio shipments.

Speaker Change: We expect $72 million in consumable revenue, which assumes an annual pull through at 260000 for the RIDEA platform.

Susan Kim: With revenues at the low end of our range, we also expect non-GAAP gross margins to be around the low end of our previously guided 35% to 38% range. As we discussed, we have made significant progress on improving the per unit production cost of both radio instruments and radio consumables and expect both to end the year approximately 20% lower than when we launched the platform. We anticipate that these costs and operational improvements will continue beyond 2024 and are expected to drive quarterly gross margin expansion this year and going forward. However, our total gross margins in the second half may fluctuate quarter to quarter based on product mix, customer product mix, and ASP.

Speaker Change: With revenues at the low end of our range. We also expect non-GAAP gross margin to be around the low end of our previously guided 35% to 38% range.

Speaker Change: As we discussed we have made significant progress on improving the per unit production cost of both radio instruments and radio consumable and expect both to end the year approximately 20% lower than when we launched the platform.

Susan Kim: We anticipate that these costs and operational improvements will continue beyond 2024 and are expected to drive quarterly growth margin expansion this year and going forward. However, our total growth margins in the second half may fluctuate quarter to quarter, based off of product mix, customer product mix, and ASP. Moving to operating expenses, we remain diligent in our efforts to lower cash burn and spend profile and expect non-GAAP operating expenses to be around the end of our 300 to 310 million range. The low end of the operating expense guidance range assumes 140 million in non-GAAP research and development expenses and 160 million in non-GAAP selling, general and administrative expenses.

Speaker Change: We anticipate that these costs and operational improvements will continue beyond 2024 and are expected to drive quarterly gross margin expansion this year and going forward.

Speaker Change: However, our total gross margins in the second half may fluctuate quarter to quarter based off on product mix customer project mix and a S. P.

Susan Kim: Moving to operating expenses, we remain diligent in our efforts to lower cash burn and spend profile and expect non-GAAP operating expenses to be around the lower end of our $300 to $310 million range. The low end of the Operating Expense Guidance Range assumes $140 million in non-GAAP research and development expenses and $160 million in non-GAAP selling, general, and administrative expenses. We continue to expect full-year non-GAAP operating expenses to decline in 2025 compared to 2024 and expect to exit the year at a full-year run rate that reflects savings significantly above the high-end $75 million non-GAAP reduction target.

Speaker Change: Moving to operating expenses, we remain diligent in our efforts to lower our cash burn and spend profile and expect non-GAAP operating expenses to be around the lower end of our $300 million to $310 million range.

Speaker Change: The low end of the operating expense guidance range assumes a $140 million and non-GAAP research and development expenses and $160 million and non-GAAP selling general and administrative expenses. We continue to expect full year non-GAAP operating expenses to decline in 2025 compared to 2024.

Susan Kim: We continue to expect full-year non-GAAP operating expenses to decline in 2025 compared to 2024 and expect to exit the year at a full-year run rate that reflects savings significantly above the high end 75 million non-GAAP reduction target. We expect interest and other income to be around the high end of our 5 million to 10 million range. Our operating expense and cash management discipline is allowing us to maintain our ending cash cash equivalence and investment guidance in the range of 435 million to 450 million, representing a cash burn of 189 million at the midpoint. The more importantly, our expected quarterly cashburn exiting this year will be reduced materially, helping us set up 2025 with a much lower cashburn than 2024.

Speaker Change: To exit the year at a full year run rate that reflects savings significantly above the high end $75 million non-GAAP reduction target.

Susan Kim: We expect interest and other income to be around the high end of our $5 million to $10 million range. Our operating expense and cash management discipline is allowing us to maintain our ending cash, cash equivalents, and investments guidance in the range of $435 million to $450 million, representing a cash burn of $189 million at the midpoint. But more importantly, our expected quarterly cash burn exiting this year will be reduced materially, helping to set up 2025 with a much lower cash burn than 2024.

Speaker Change: We expect interest and other income to be around the high end of our 5 million to $10 million range.

Speaker Change: Our operating expense and cash management discipline is allowing us to maintain our ending cash cash equivalents and investments guidance in the range of 435 million to $450 million, representing a cash burn of $189 million at the midpoint.

Speaker Change: But more importantly, our expected quarterly cash burn exiting this year will be reduced materially helping to set up 2025 with a much lower at Casper and then 2024.

Susan Kim: We still expect 273 million in weighted average years outstanding for the full-year 2024.

Speaker Change: We still expect 273 million and weighted average shares outstanding for the full year 'twenty 'twenty four.

Susan Kim: Finally, we remain committed to turning the business cash flow positive by the end of 2026. We intend to do this by executing on our strategic priorities, which are anticipated to result in revenue growth in 2025 and beyond, with new products and consumables expansion from the increasing revenue in sub-base. Expanding growth margins with lower per unit production costs and continued mixed shifts to consumables and lower non-GAAP operating expenses in 2025 with minimal growth thereafter.

Susan Kim: We still expect 273 million weighted average shares outstanding for the full year 2024. Finally, we remain committed to turning the business cash flow positive by the end of 2026. We intend to do this by executing on our strategic priorities, which are anticipated to result in revenue growth in 2025 and beyond, with new products and consumables expansion from the increasing revenue install base, expanding growth margins with lower per unit production costs, and continued mixed shift to consumables, and lower non-GAAP operating expenses in 2025 with minimal growth thereafter. We will provide more details on our assumptions and updated long-term guidance at a later date. I'll hand it back to Christian for some final remarks. Christian? Thank you.

Speaker Change: Finally, we remain committed to trying to get to cash flow positive by the end of 2026.

Speaker Change: We intend to do this by executing on our strategic priorities, which are anticipated to result in revenue growth in 2025, and beyond with new products and consumables expansion from the increasing installed base.

Speaker Change: Expanding gross margins with lower per unit production costs and continued mix shift to consumables and lower non-GAAP operating expenses in 2025 with minimal growth thereafter.

Susan Kim: We will provide more details on our assumptions and updated long-term guidance at a later date.

Speaker Change: We will provide more details on our assumptions and updated long term guidance at a later date I'll hand, it back to Christian for some final remarks Christian.

Christian Henry: I'll hand it back to Christian for some final remarks. Christian? Thank you, Susan. While the first half of 2024 has certainly been challenging, I'm encouraged that we're taking the difficult of necessary steps to streamline our business by reducing non-GAAP operating expenses and driving costs out of our manufacturing. I'm also encouraged by the incredible progress that we continue to make in our product development pipeline. We continue to improve the performance of the radio platform, which will provide more value to our customers than ever before, and we have made substantial progress in our low-throughput, long-reed platform, which will enable us to reach a broader customer base.

Christian Henry: Thank you, Susan. While the first half of 2024 has certainly been challenging, I'm encouraged that we're taking the difficult but necessary steps to streamline our business by reducing non-GAAP operating expenses and driving costs out of our manufacturers. I am also encouraged by the incredible progress that we continue to make in our product development pipeline. We continue to improve the performance of the Revio platform, which will provide more value to our customers than ever before, and we have made substantial progress in our low-throughput, long-read platform, which will enable us to reach a broader customer base.

Christian Henry: Thank you Susan while the first half of 2024 has certainly been challenging I'm encouraged that we're taking the difficult but necessary steps to dreamworld streamline our business by reducing non-GAAP operating expenses and driving costs out of our manufacturing.

Christian Henry: I'm also encouraged by the incredible progress that we continue to make in our product development pipeline we continue.

Speaker Change: To improve the performance of grabbed the radio platform, which will provide more value to our customers than ever before and we have made substantial progress in our low throughput long read platform, which will enable us to reach a broader customer base.

Christian Henry: Immersally, we are seeing increased adoption of radio and more clinically focused accounts as these customers are leveraging the platform in applications that are extremely difficult for short-reduced sequencing technologies. We're also seeing science that we will return to growth in the second half of the year, as we've seen several customers choose to expand their radio fleet, and we continue to see a large number of radio purchases from new customers. We remain optimistic about our business, and the prospects are both our long and short-read sequencing technologies.

Christian Henry: Commercially, we are seeing increased adoption of Ravio in more clinically focused accounts as these customers are leveraging the platform in applications that are extremely difficult for short-read sequencing technology. We're also seeing signs that we will return to growth in the second half of the year as we've seen several customers choose to expand their Revio fleet, and we continue to see a large number of our Revio purchases from new customers. We remain optimistic about our business and the prospects for both our long and short-read sequencing technologies.

Speaker Change: Actually we are seeing increased adoption of ravioli and more clinically focused accounts as these customers are leveraging the platform and applications that are extremely difficult for short read sequencing technologies.

Christian Henry: Also seeing signs that we will return to growth in the second half of the year as we've seen several customers choose to expand their radio sleep and we continue to see a large number of our radio purchases from new customers.

Speaker Change: We remain optimistic about our business and the prospects for both our long and short read sequencing technologies I firmly believe that we are on the path to building a pack vial into a leader in life science tools and that we are on track to becoming cash flow positive by the end of 2026 and with that I'd like to open up the call.

Christian Henry: I firmly believe that we are on the path to building a packed aisle into a leader in life science tools, and that we are on track to becoming casual-positive by the end of 2026.

Christian Henry: I firmly believe that we are on the path to building PAC-BIO into a leader in life science tools and that we are on track to becoming CASELOPE positive by the end of 2021. And with that, I'd like to open up the call to Q&A. Operator.

Operator: And with that, I'd like to open up the call to Q&A, operator. We will now begin the question-and-answer session. To ask a question, you may press star, then one on a touch-tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys.

Speaker Change: To Q&A operator.

Operator: We will now begin the question and answer session. To ask a question, you may press star, then 1 on a touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.

Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on a touchtone phone.

Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw. Your question. Please press Star and then to also please limit yourself to one question and one follow up re queue to ask additional questions.

Operator: If at any time your question has been addressed and you would like to withdraw your question, please press star and then 2. Also, please limit yourself to one question and one follow-up question to ask additional questions. The first question comes from Dan Brennan with TD Cowan. Please go ahead.

Operator: If at any time your question has been addressed and you would like to withdraw your question, please press star and then two.

Operator: Also, please let me yourself to one question and one follow-up, ReQ, to ask additional questions.

Dan Brennan: The first question comes from Dan Brennan with TD Cowan. Please go ahead. Hi, this is Tom on for Dan. Thanks for taking the question today. I want to focus on your consumables, and for the back half of the year, it looks like you're taking a more measured look at that.

Speaker Change: The first question comes from Dan Brennan with TD Cowen. Please go ahead.

Tom: Hi, this is Tom on behalf of Dan. Thanks for taking the question today. I want to focus on your consumables for the back half of the year; looks like you're taking a more measured look at that. I want to understand, maybe given the installation base is a bit more mature and a lot of the new installations will be in instruments that are new to pack or customers that are new to pack bio, kind of what gives you confidence coming into 2025 that you do get that utilization up?

Speaker Change: Hi, This is Tom on for Dan. Thanks for Thanks for taking my questions today.

Speaker Change: I want to focus on your consumables for the back half of the it looks like you're taking a more measured look at that.

Christian Henry: I want to understand maybe given the install base a bit more mature, and a lot of the new to pack, or customers that are new to pack bio, kind of what gives you confidence coming into 2025 that you do get that utilization up, and maybe talk through a bit of that sample comment you made. Anyone on the preferred marks? Thanks very much. Sir, thanks for the question. So, you know, I think the, what we saw in the second quarter was we did have a reasonably good consumable result and we saw some, you know, some pretty exciting pockets, such as what's happening in Europe right now.

Speaker Change: I want to understand maybe given them.

Speaker Change: Pool basis, a bit more mature and a lot of the new installs will be in insurance that are new.

Speaker Change: Cost is on a new type of buyer.

Speaker Change: Kind of what gives you confidence coming into 2025 that you do get that utilization up.

Christian Henry: And maybe we could talk through a bit about that sample comment you made. Do you want to provide marks? Thanks very much.

Speaker Change: And maybe talk for a bit.

Christian Henry: Sure. Thanks for the question.

Tom: Tom will comment you made during the prepared remarks.

Speaker Change: <unk>.

Christian Henry: So, you know, I think what we saw in the second quarter was we did have a reasonably good consumable result and we saw some, you know, some pretty exciting pockets, such as what's happening in Europe right now. And what gives me some confidence that we're seeing, you know, we're seeing those trends, and we expect those trends to continue are really a couple of different things. You know, first, we're seeing customers that have been in the low utilization bucket, which are traditionally the new customers, are actually moving into kind of the mid-utilization bucket and then, in some cases, even into the higher utilization bucket.

Speaker Change: Sure. Thanks for the thanks for the question. So you know I think the well what we saw in the second quarter was we did have a reasonably good consumable results and we saw some.

Speaker Change: Some pretty exciting pockets such as what what's happening in Europe, right now and what gives me some some confidence that we're seeing.

Christian Henry: And what gives me some, some confidence that we're seeing, you know, we're seeing those trends and we expect those trends to continue is really a couple of different things. You know, first, we're seeing customers that have been in low utilization, the yield low utilization bucket, which are traditionally the new customers, are actually moving into kind of the mid utilization bucket and then in some, even into the higher utilization bucket. And what we're seeing is, in the mid and high utilization in the second quarter, is we actually saw higher consumable poultry. That higher consumable poultry is really related to larger projects that are starting to get up to speed, which we announced the number of those.

Speaker Change: We're seeing those trends and we expect those trends to continue as really a couple of different things.

Speaker Change: First we're seeing customers that have been in low utilization and low utilization bucket, which are traditionally the new customers are actually moving into kind of the mid utilization bucket and then and some even into the higher utilization bucket and what we're seeing is in the mid and high utilization in the second quarter as we.

Christian Henry: And what we're seeing is in the mid and high utilization in the second quarter, we actually saw higher consumable pull-through. That higher consumable pull-through is really related to larger projects that are starting to get up to speed, which we announced a number of those. And then some kinds of customers are starting to be, you know, those clinical-type customers that run very consistently and have that consistent revenue. As we move into 2025, I fully expect us to see even more of that, with more clinical customers adopting our long-read technology because it can do things that short-read technologies just can't do.

Speaker Change: Actually saw higher consumable pull through.

Speaker Change: That higher consumable pull through is really related to larger projects that are starting to get up to speed, which we announced a number of those and then some kinds of customers are starting to be clear.

Christian Henry: And then some kinds of customers are starting to be, you know, those clinical type customers that run very consistent and have that consistent revenue stream. As we move into 2025, I fully expect us to see even more of that more cut more clinical customers adopting our long read technology because it can do things that short read technologies just can't do. And we're starting to see, you know, more of the big, more of the big projects.

Speaker Change: Clinical type customers that run very consistent and have that consistent revenue stream.

Speaker Change: As we move into 2025, I fully expect us to see even more of that more cut more clinical customers adopting our long read technology, because they can do things that short read technologies just can't do.

Operator: Good day, and welcome to the PacBio Second Quarter 2024 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signally conference specialist by pressing the star key followed by zero.

Christian Henry: And we're starting to see, you know, more of the big projects. Now, in the second quarter and for 2024, there is a mitigating factor. One of the large projects in the United States lost a lot of its funding or most of its funding, which will impact our, you know, our back half of 2024 some. But on balance, we're seeing more consumable utilization and more consumable usage, which I think bodes well for future instrument pull-through and, you know, improving, significant improvement from where we are today.

Speaker Change: And we're starting to see more of the big more of the big projects now in the second quarter and for 2024, there is a mitigating factor one of the large projects in the United States lost a lot of its funding our most of its funding, which will impact our <unk> or 'twenty back half of 2024.

Christian Henry: Now, in the second quarter and for 2024, there is a mitigating factor: one of the large projects in the United States. We've lost a lot of its funding or most of its funding, which will impact our, you know, our 20 back app of 2024 some, but on balance, we're seeing more consumable utilization and more consumable usage, which I think both well for future instrument pull through and, you know, improving significant improvement from where we are today. Thanks.

Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touchdown phone. To withdraw your question, please press star then two. Please note this event is being recorded.

Speaker Change: But on balance, we're seeing more consumable utilization and more consumable usage, which I think bodes well for future instrument pull through and improving.

Todd Friedman: I would now like to turn the conference over to Todd Friedman, Senior Director of Investor Relations. Please go ahead.

Speaker Change: Significant improvement from where we are today.

Todd Friedman: Good afternoon, and welcome to PacBio Second Quarter 2024 earnings conference call. Earlier today, we issued a press release outlining the financial results we'll be discussing on today's call, a copy of which is available on the investor's section for website at www.pacb.com or is furnished on form a K available on the Securities and Exchange Commission website at www.suc.gov. A copy of our earnings presentation is also available on the investor's section of our website.

Christian Henry: Thanks. And if I could just follow up on that kind of POPSEQ topic, some experts we've spoken to are excited about the ability to run larger scale studies on lower coverage, but they've run into some sentiment in the community that people are still focused on doing a 30x depth genome. I guess, what do you think changes that, and over what time frame do you think that changes?

Christian Henry: And if I could just just follow up on that kind of on that kind of pop seek topic. You know, some experts we've spoken to are excited about the ability to run, you know, larger scale studies on lower coverage, but that they've run into some sentiment in the community that people are still focused on doing a 30x that genome. I guess, what do you think changes that, and over what time frame do you think that changes? Well, it's interesting. You know, this has been one of the big questions that we've had to address over the last few years.

Speaker Change: Thanks, and if I could just follow up on that kind of unlike lymphoseek topic.

Speaker Change: We've spoken to all excited about the ability to.

Speaker Change: Two one larger scale studies on our coverage.

Speaker Change: Run into some sentiment in the community.

Speaker Change: People are still focused on doing it that JAK stat genome.

Speaker Change: I guess, what do you think changes that and over what timeframe do you think that changes.

Christian Henry: Well, it's interesting, you know, this has been one of the big questions that we've had to address over the last few years. If you, you know, for those of you that have been following this space for a long time, you know, 30x has been around and was really somewhat of an arbitrary level of coverage. And as we know, in the real world, customers do experiments at a whole range of coverage levels, some much higher than 30x and some much lower than 30x.

Speaker Change: Well. It's interesting you know this has been one of the big questions that we had to address over the last few years.

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 make board looking statements, including among other statements regarding predictions, estimates, expectations and guidance. You should not place undue reliance on board looking statements because they are subject to assumptions, risks and uncertainties that could cause our actual results to differ materially from those projected or discussed. These reviewer SEC filings, including our most recent forms, 10Q and 10K, and our press releases to better understand the risks and uncertainties that could cause results to differ.

Christian Henry: If you, you know, for those of you that have been following this space for a long time, you know, 30x has been around and was really somewhat of an arbitrary, you know, level of coverage. And as we know in the real world, customers do experiments at a whole range of coverage, some much higher than 30x and some much lower than 30x. But what we've done is a pretty extensive titration experiments comparing pack by a high five sequencing to other technologies that 30x and lower. And what we consistently see is that customers are very comfortable, you know, below 20x, even comparing a high five genome to an alternative genome.

Speaker Change: For those of you that have been following this space for a long time.

Speaker Change: <unk> has been around and was really somewhat of an arbitrary.

Speaker Change: The level of coverage and as we know in the real world customers do experiments at a whole range of coverage is some much higher than 30 acts in so much lower than 30 ex but what we've done is a pretty extensive titration experiments comparing Pac bio hifi sequencing to other technologies that <unk> lower.

Christian Henry: But what we've done is a pretty extensive titration experiment comparing PacBio HiFi sequencing to other technologies at 30x and lower. And what we consistently see is that customers are very comfortable, you know, below 20x, even comparing a HiFi genome to an alternative genome. And so I think the community, as more papers continue to get published with those lower coverage levels, that will build more confidence. But, you know, even if the coverage stays at 30x, we will continue to improve the Revio system.

Speaker Change: And what we consistently see is that customers are very comfortable.

Todd Friedman: We've displayed any obligation to update or revise these board looking statements except as required by law. We will also present certain financial information on a non-gap basis, which 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 gap. Reconciliation between historical US gap and non-gap results are presented in our earnings release, which is available on the investor's section of our website. The future periods were unable to reconcile non-gap growth margin and non-gap operating expenses without unreasonable effort due to the uncertainty regarding among other matters, certain acquisition related items that may arise during the year.

Speaker Change: Below 20, actually even comparing a hi Fi genome to an alternative genome and so I think I think the community has more papers continue to get published with those lower coverage levels that will build more more confidence, but even if the coverage either stays at 30 actually continue to.

Christian Henry: And so I think I think the community has more papers continue to get published with those lower coverage levels that will build more, more confidence. But, you know, even if the coverage stays at 30x, we continue to improve the radio system. I talked about, you know, really for the first time today talked about new consumables that we will be shipping. You know, shipping at the end of this year, roughly, that will significantly improve the throughput of the radio, which will drive the cost for gigabase down even further and also significantly lower the DNA input amounts.

Speaker Change: Improved the <unk> system I talked about you know really for the first time today talked about new consumables that we will be shifting.

Christian Henry: I talked about, you know, really for the first time today, new consumables that we will be shipping. Shipping at the end of this year, roughly, that will significantly improve the throughput of the radio, which will drive the cost per gigabase down even further and also significantly lower the DNA input amounts. I'm not going to give too many of the specifics today because we want to save that for when we get in front of customers, but it is quite exciting, and so we have the, you know, we are continuing to increase the throughput, which will drive the cost per gigabyte down, which will give customers even more flexibility, whether they want to sequence at 10x, 20x, 30x, 50x, whatever they decide.

Christian Henry: Thanks Christian, I appreciate that. And the next question comes from Tejas Savant with Morgan Stanley. Please go ahead.

Speaker Change: She shipping at the end of this year roughly that will significantly.

Speaker Change: Significantly improve the throughput of the ABL, which will drive the cost per gigabit down even further and also significantly lowered the DNA input amounts.

Operator: A recording of today's call will be available shortly after the live call and the investor section of our website. Those electing to use the replay are caution that four looking statements may differ or change materially after the completion of the live call.

Christian Henry: I'm not going to give too many of the specifics today because we want to stay that for when we get in front of customers, but it is quite exciting. And so we have the, you know, we are continuing to increase the throughput. We have the throughput, which will drive the cost for gigabase down, which will give customers even more flexibility, whether they want to sequence at 10X, 20X, 30X, 50X, whatever they, whatever they decide.

Speaker Change: I'm not going to give too many of the specifics today, because we want we want to save that for when we get in front of customers but.

Christian Henry: I'll now hand it over to Christian. Thank you, Todd, and thank you for joining us today. The first half of 2024 has been challenging for PAC files. However, early Q2, we successfully initiated a significant restructuring, which we expect will reduce our non-gap operating expenses by more than 75 million on an annualized basis. And significantly reduce our quarterly cash firm. Even with this restructuring, we are making significant progress in our product development pipeline and serving our customers with best in class support.

Speaker Change: But it is quite exciting and so we have that.

Speaker Change: We are in continuing to increase the throughput, which will drive the cost per gigabit age down which will give customers even more flexibility.

Speaker Change: Whether they want to sequence. It 10 X 20 X 30 X 50 X whatever whatever they whatever they decide.

Speaker Change: Good question, Thanks, Chris I appreciate that.

Tejas Surant: And the next question comes from Tejas Surant with Morgan Stanley. Please go ahead. Hello, this is Yuko on the call for Tejas. Thank you for taking our questions. Could you provide early feedback on the new pack bio capital program announced? And provide indicators that make you believe that access to capital is the key hurdle for reveal placements rather than the excess capacity enabled by substantially higher throughput with reveal? Yeah, so we, you know, several of the 24 systems that we closed in Q2 were under our various promotional programs. Some of those are through the Pack Bio Capital.

Josh <unk>: And the next question comes from Josh <unk> with Morgan Stanley. Please go ahead.

Josh <unk>: Well.

Josh <unk>: Thank you for taking my questions.

Christian Henry: There were several bright spots in many areas of our business in the quarter, including several customers adopting revenue and a clinical setting. And we are now seeing signs that lead us to believe that we will see sequential growth throughout the remainder of the year. I want to thank all of our employees for their dedication and support as we pursue our mission of enabling the promise of genomics to better human, and Health.

Tejas Savant: Please provide early feedback, and the Ohio Capital Program announced.

Speaker Change: Could you provide early feedback on the new.

Speaker Change: Capital program.

Speaker Change: And provide indicators that make you believe.

Speaker Change: Access to capital is a key hurdle.

Speaker Change: Rather than the excess capacity enabled by substantially higher throughput.

Christian Henry: Yeah, so we, you know, several of the 24 systems that we closed in Q2 were under our various promotional programs. Some of those are through PacBio Capital. You know, we announced a new program last week with Mitsubishi Capital where there's no reagent commitment, and it's just a straight rental, which is great for some research organizations. And, you know, the reason why we feel it's still more capital-driven than excess capacity in the market is that, you know, when we go through the instruments that didn't close in the quarter that we were hoping to close, almost all of them, or the vast majority were due to funding constraints or timing around the funding and not the decision to purchase because they had too much capacity.

Speaker Change: Yeah. So we you know several several of the of the 24 systems that we closed in Q2.

Christian Henry: On our last call, I outlined the following four strategic priorities for the remainder of the year. Number one, improving our commercial execution to drive adoption of both radio and onset. Number two, continuing the development of new platforms that are expected to broaden our product offering and drive revenue growth. Number three, improving our gross margin and driving manufacturing efficiencies. And number four, reducing annualized non-gaft run rate operating expenses. In my remarks today, I will comment on the progress we are making against the top two priorities, specifically focusing on our end markets and related commercial execution.

Josh <unk>: We're under our various promotional programs some of those are through the pack bio capital.

Christian Henry: You know, we announced a new program last week with the DC Capital where there's no reagent commitment, and it's just a straight rental, which is great for some research, some research organizations. And, you know, the reason why we feel it's still more capital driven than excess capacity in the market is that, you know, when we go through the instruments that didn't close in the quarter that we were hoping to close. Almost all of them are the vast majority were due to funding constraints or timing around the funding and not the decision to purchase because they have too much capacity.

Josh <unk>: We announced a new program last week with Mitsubishi capital, where there's no reagent commitment and it's just a straight rental which is great for some research.

Josh <unk>: Some research organizations and the the reason why we feel it's it's still more capital driven than excess capacity in the market is that when we go through the instruments that didn't close in the quarter that we were hoping to close almost all of them or the vast majority were due to funding constraints.

Speaker Change: <unk> or timing around the funding and not.

Christian Henry: Now, in some cases with some service providers, that's certainly the case where, you know, they've acquired a Revio, and it's, you know, so much more powerful than the Sequel IIe that it takes them time to order their second Revio. But we still see, quite frankly, in the deals that didn't close in the second quarter, the vast majority were funding-related and timing of receiving that, separately.

Susan Kim: Susan will then spend some time focused on our third and fourth priority and outlining our financial results.

Josh <unk>: Not the decision to purchase because they have too much capacity now in some cases with some service providers. That's certainly the case, where you know they.

Christian Henry: The first, let's do a quick overview of our second quarter results and our updated guidance. Total revenue in 22 was 36 million, which was below our expectations. Our revenue reflects a shortfall in instrument placement, which we believe is due to the ongoing impact of the difficult macro backdrop and elongated customer purchasing cycles. Second quarter revenue included 24 radio systems, representing four systems below our expectations. Although we shipped fewer radios than anticipated, the average selling price of radio increased during the quarter.

Christian Henry: Now, in some cases with some service providers, that's certainly the case where, you know, they required a reveal and it's, you know, so much more powerful than the sequel to read that it takes them time to order their second reveal. But, we still see, you know, we still see quite frankly in the deals that didn't close in the second quarter, the vast majority were funding related and timing of receiving that funding.

Speaker Change: They required a RVO and it's so much more powerful than the sequel to me that it takes some time.

Josh <unk>: To order their second Raphael, but but we still see we still see quite frankly in the in the deals that didn't close in the second quarter.

Josh <unk>: Majority were funding related and timing of receiving that funding.

Christian Henry: Thank you for that color, and then separately last quarter, you talked about improvements in manufacturing, providing you the flexibility to lower this price on also flow cells. Have you passed on any of the cost, leaving from manufacturing improvements to customers to catalyze greater adoption? We certainly have, you know, with respect to on so in particular, we've done a couple of things we, we've, you know, introduced promotional pricing in late May with respect to the capital and now, you know, right now you can trade in any other NGF system and get a 99 K on so, but we've also lowered the cost per gigabase to now as low as $4 and when we launched the product, we launched it at $15 a day.

Speaker Change: Thank you for that color and then separately last quarter you talked about.

Christian Henry: Last quarter you talked about in manufacturing, providing you with the flexibility to lower the list price on on-sale flow cells. Have you passed on any? We certainly have. You know, with respect to ONSO in particular, we've done a couple of things. We've, you know, introduced promotional pricing in late May with respect to capital. And now, you know, right now, you can trade on any other NGS system and get a 99K ONSO. But we've also lowered the cost per gigabyte to now as low as $4. And when we launched the product, we launched it at $15 a gig.

Josh <unk>: Improvements.

Christian Henry: We continue to see elongated instrument purchasing cycles in each of our regions during the quarter, which we believe is due to a number of factors. Number one, several companies and organizations are awaiting funding for their systems. And we're seeing that funding is increasingly delayed. Number two, we continue to experience an unanticipated delays in the procurement process, which include tenders in Europe and A-PAC, which are taking longer than expected. And number three, sample volumes are not materializing as fast as we as expected for some potential new radio customers causing them to delay their purchases.

Josh <unk>: Manufacturing, providing us the flexibility to lower list price on the answer.

Speaker Change: Have you passed on any other cost, leaving from manufacturing improvements to customers to catalyze greater adoption.

Speaker Change: We certainly have you know with respect to answer in particular, we've done a couple of things.

Speaker Change: We introduced promotional pricing in late May with respect to the capital and now you know right now you can trade in any other NGL system and get a 99 K ourselves, but we've also lowered the cost per gigabit to down as low as $4 and when we launched the product we launched it at $15.

Christian Henry: On the consumable side of our business, we deliver revenue of $17 million, growing 24% year over year, and 7% sequentially, as customers continue to ramp up their radio usage. We saw strength in Amia with consumable revenue growing 42% year over year and 50% quarter over quarter, hitting an all time high. The growth in consumable revenue in Amia was driven by new customers scaling long re sequencing during the second quarter. Notable customers include the University of Tartu sequencing for the Estonian Biobank and biosensia, a leading global provider of clinical laboratory testing services in Germany, which is scaling its testing offerings.

Christian Henry: So yes, we've taken some of that benefit by frankly the majority of that benefit and pass it on to our customers to drive adoption with respect to on so. And, you know, to kind of go back to the long report folio, we certainly are doing the some of the same things. You know, our yields have been improving on consumables, which are helping to drive our ability in bigger projects to give very nice pricing. But also, you know, drive better margins over time and, you know, Susan pointed out and probably one of the things the operations group is especially proud of is they've significantly taken the cost of revenue out. Production costs of revenue down and that, you know, that's resulting a lot more price flexibility.

Christian Henry: So, yes, we've taken some of that benefit, quite frankly, the majority of that benefit, and passed it on to our customers to drive adoption with respect to ONSO. And, you know, to kind of go back to the LongRe portfolio, we certainly are doing some of the same things. You know, our yields have been improving on consumables, which is helping to drive our ability on bigger projects to give very nice prices but also, you know, drive better margins over time.

Josh <unk>: So so yes, we've taken some of that benefit quite frankly, the majority of that benefit and pass it onto our customers to drive adoption with respect to answer.

Speaker Change: And you know to kind of go back to the laundry portfolio.

Speaker Change: We certainly are doing the some of the same things with our yields have been improving on.

Speaker Change: Consumables, which are helping to drive our ability in bigger projects to give very nice pricing, but also drive better margins over time.

Christian Henry: And you know, as Susan pointed out, and probably one of the things that the operations group is especially proud of is they've significantly taken the cost of REVIO out, the production cost of REVIO down, and that's, you know, that's resulting in a lot more price flexibility. But turns out, in the second quarter, we really didn't need that. You know, the ASPs were up a bit, but it is part of our whole plan to get the cash flow break even, drive our gross margins up, and I think you're seeing early indications, you know, with the 400 basis point improvement this quarter, that we're on a path to make that happen.

Speaker Change: And as Susan pointed out in probably one of the things of the operations group is especially proud of is they've significantly taken the cost of <unk>.

Christian Henry: We are further encouraged by the growing excitement for long regions in the region. No, the gene, for instance, has implemented radio in its brand new lab in Munich, Germany to serve customers across the European scientific community. Despite the total growth in consumables, revenue was slightly below our expectations, which we believe was primarily due to a large research project in the United States, losing funding and weakness in the age of Pacific region, notably in China.

Susan Kim: Production costs at <unk> down and that's that's resulting a lot more price flexibility.

Christian Henry: Turns out in the second quarter, we really didn't we really didn't need that. We, you know, we, we, the ASPs are up a bit, but it is part of our whole plan to get the capsule break even, drive our gross margins up, and I think you're seeing early indications, you know, with the 400 basis point improvement this quarter that, you know, we're on a path to make that. Thank you.

Speaker Change: Turns out in the second quarter, we really didnt, we really didnt need that are we.

Speaker Change: We are the asps were up a bit but it is part of our whole plan to get to cash flow breakeven drive our gross margins up and I think you are seeing early indications with the 400 basis point improvement this quarter that.

Susan Kim: We're on a path to make that happen.

Christian Henry: Looking ahead, for the full year, we now believe revenue will be around the low end of our previously guided range of 170 to 200 million, which we believe is primarily due to the continuation of the headwinds we experienced in the first half of the year and the expectation that organizations will continue to operate in a capital constrained environment for the rest of 2024. Indeed, external challenges are affecting Pac-File and others in the industry, particularly with respect to capital equipment purchases.

Susan Kim: Thank you. Thank you bill.

Soudi Nambi: And the next question comes from Soudi Nambi with Guggenheim. Please go ahead. I apologize, Soudi. Can you please repeat your question there? Sure. This is Ricky on for Soudi as Guggenheim. Thanks for taking our question. You mentioned that you're expecting a 20% reduction in the radio instrument and consumable costs by the end of the year, and you're expecting that to continue beyond 2024. So how much more room is there to reduce the costs from there?

Sudi Nambi: And the next question comes from Sudi Nambi about Guggenheim.

Speaker Change: And the next question comes from Sue D Namby with Guggenheim. Please go ahead.

Operator: I apologize. I apologize. CD, can you please repeat your question there? Sure. This is Rikki on for Sugu at Guggenheim.

Speaker Change: So that reduction.

Speaker Change: Joe I apologize C. D can you. Please repeat your question there.

Rikki: Thanks for taking our question. You mentioned that you're expecting a 20% reduction in the review instrument and consumable costs by the end of the year, and you expect that to continue beyond 2024. So how much more room is there to reduce the costs from there? And then, with respect to the source of the cost reductions, how much of this is due to scaling up production volumes, and how much of it is from more production-based actions that you could carry across to other products as you launch them?

Speaker Change: Sure. This is Ricky on first you do at Guggenheim. Thanks.

Ricky: Thanks for taking our question you'd mentioned that you're expecting a 20% reduction in the radio instrument and consumable costs by the end of the here and you're expecting that to continue beyond 2024, so how much more room is there to reduce the costs from there and then with respect to the source of the cost reductions how much of this is.

Christian Henry: In order to drive instrument placements, we have implemented a number of programs to make high-five long-re sequencing more accessible than ever before, including promotions designed to ease customers upfront capital expenditure requirements while maintaining Pac-File's overall economic value. In the second quarter, we ship several instruments to customers utilizing some of these promotions and are actively working to close several more deals in the second half of this year. Additionally, we announced last week that our leasing partner, Mitsubishi Capital, is offering one of the most attractive deals on a radio instrument through a two-year mental agreement for eligible customers in the United States.

Christian Henry: And then, with respect to the source of the cost reduction, how much of this is due to scaling up production volumes, and how much of it is from more production-based actions that you could carry across to other products as you launch them. Yeah, that's a great question. And Ricky, you know, to be clear, we talked about a 20% drop in radio production costs, not that consumables per se. The consumables are going down as well. So, you know, we're going to see significant improvements. Those are both durable improvements that will persist, and they were not really due to increases in manufacturing volumes.

Speaker Change: Due to scaling up production volumes and how much of that is from more production based actions that you could carry across to other products that you launched them.

Christian Henry: Yeah, that's a great question. And Ricky, to be clear, we talked about a 20% drop in revio production costs, not that of consumables per se. The consumables are going down as well. So, you know, we're going to see significant improvements. Those are both Durable improvements that will persist, and they were not really due to increases in manufacturing volumes. On the Revio instrument side, the reductions are due to innovation that we've been able to do to move the bomb and make the bomb less expensive, so that's improved algorithms, which drive the requirements for less compute or less GPUs, which drive cost down.

Speaker Change: Yeah, that's a great question and Ricky.

Speaker Change: To be clear, we've talked about a 20% drop in revenue production cost not the consumables per se. The consumables are are going down as well. So we're going to see significant improvement those are both durable improvements that will persist and they were not do too.

Christian Henry: With this offer, Mitsubishi will purchase the radio directly from Pac-File and then rent the system to customers with an option for the customer to buy the radio at the end of the leaster. This program does not require a consumable purchase commitment, which is appealing to research customers that are primarily project-based. We expect this new promotion to make high-five sequencing even more accessible to a broader range of customers.

Speaker Change: Not really due to increases in manufacturing volumes they on the RVO instrument side.

Christian Henry: They on the radio instrument side, the reductions are due to innovation that we've been able to do to take, you know, move the bomb and make the bomb less expensive. So that's improved algorithms, which drive less the requirements for less compute or less cheap pure GPUs, which drive costs down. They also include manufacturing changes in how we manufacture; you know, the relationship between RC or contract manufacturing ourselves. We're enforcing more of the production. And as a result, we're able to eliminate the margin that our contract manufacturer would receive, which is substantial and will still have a very high-quality product and meet the production on the consumable radio consumables side.

Speaker Change: There.

Speaker Change: The reductions or do you do.

Speaker Change: Innovation that we've been able to do to take.

Speaker Change: <unk> moved the bomb and make the bomb less expensive.

Christian Henry: As for ONCEO, we launched a promotion for the system in late May to make it what we believe is the most attractive mid-throughput short-read instrument on the market. As a result, customers can trade in any NGS system and acquire an ONCEO for $99,000. The sequencing costs as low as $4 for gigabits. This promotion has already garnered customer interest and increased the order opportunities in our sales pipeline. Consequently, we anticipate a substantial ramp-up for the platform in the second half of the year.

Speaker Change: So that's improved algorithms, which drive.

Ricky: Less because the requirements for less compute or less gene fewer gpus, which drive cost down. They also include manufacturing.

Christian Henry: They also include manufacturing... Changes in how we manufacture, you know, the relationship between our contract manufacturer and ourselves. We're insourcing more of the production, and as a result, we're able to eliminate the margin that our contract manufacturer would receive, which is substantial, and we still have a very high quality product and meet the deadline. On the consumable, regular consumable side, we're seeing benefits such as increased yields, so yields have been improving, which has a direct impact on the level of cost, and then we have, you know, we're tightening up our supply chain, which is also giving us benefits, so you're seeing durable impacts that will subsist into or persist into 2024 and beyond.

Speaker Change: Changes in how we manufacture you know the relationship between our see our contract manufacturing ourselves we're in sourcing more of the production and as a result, we're able to eliminate.

Ricky: Eliminate the margin that our contract manufacturer would receive which is substantial and still have a very high quality product and meet the production on the consumable radio consumable side. The benefits. We're seeing we're seeing increased yields and so yields have been improving which are a direct impact on <unk>.

Christian Henry: In order to continue building our sales funnel, we held several major marketing events throughout the world during the quarter. These prism marketing events were an overwhelming success. The six events attracted approximately 810 B's and helped drive dozens of new radio opportunities, some of which have already closed and others that were actively working on the market. We are now seeing several large projects, such as the University of Fair 2 sequencing for the Utstownian Biobank, the Singapore Precise Project, and the Gregor Consortium Project, all scaling up.

Christian Henry: You know, the benefits we're seeing, we're seeing increased yields, and so yields have been improving, which are a direct impact on the level of cost. And then we have, you know, we're tightening up our supply chain, which is also giving us benefits. So, you're seeing durable impacts that will persist into or persist into 2024 and beyond.

Speaker Change: The level of cost.

Speaker Change: And then we have new we're tightening up our supply chain, which is also giving us benefits. So youre seeing durable impacts that will will subsist persist into 2024 and beyond I think the one thing that I'll add to that as well is that our restructuring it.

Susan Kim: I think the one thing that I'll add to that as well is that our restructuring also entailed a restructuring of our service organization, which enabled us to take out some costs, which is structural going forward in terms of us being able to support more service revenue on a lower cost base, which is going to help improve our gross margin. Yeah, that's a good point.

Susan Kim: I think the one thing that I'll add to that as well is that are restructuring. It also entailed a restructuring of our service organizations, which enabled us to take out some costs, which is, again, structural going forward in terms of us being able to support more service revenue on a lower cost base, which is going to help improve our growth margin. Yeah, that's a good point, Susan. Great. Thank you.

Speaker Change: It also entailed a restructuring of our service organization, which enabled us to take out some costs, which is again structural going forward in terms of us being able to support more service revenue on a lower cost base, which is going to help improve our gross margin yeah. That's a good point Susan.

Christian Henry: In addition, we continue to see positive book-to-build ratios for consumables, as customers are placing longer-term purchase orders for their smart cells and reagents. A potential leading indicator for quarterly growth. While we remain cautious about the outlook in China for the remainder of the year, customer utilization trends have started to improve in the past couple of months and July marks the highest utilization month for the region this year. On our last quarter, we introduced a histogram chart of our radio install based by utilization rate.

Susan Kim: Yeah, that's a good point, Susan.

Christian Henry: Great, thank you. And just as a follow-up, can you confirm how much of those cost reductions are baked into your guidance?

Susan Kim: Great. Thank you and just as a follow up can you confirm how much of those cost reductions are baked into your guidance.

Christian Henry: And just as a follow-up, can you confirm how much of those cost reductions are baked into your guidance? Well, we certainly are anticipating them, and they're very real. So they're generally in our guidance right to you. That's right. And so, Christian, I talked about enforcing a key component, which we initiated in Q2. There are other ideas that our manufacturing team has that we're more confident that we're going to enforce more. A lot of that is not baked into our guidance. It could be outside for this year, but if not, it'll come into 2025. But we still have improvements in reducing the bomb that is embedded in our guidance that is reflected in the graph that you see in the earnings.

Susan Kim: Well, we certainly are anticipating them, and they're very real, so they're generally within our guidance, right Susan? That's right.

Christian Henry: Well, we certainly are anticipating them and theyre very real so they're generally in our guidance right season, that's right and so Christian had talked about enforcing a key component, which we initiated in Q2. There are other ideas that our manufacturing team has that we're more confident that we're going to end.

Susan Kim: That's right. And so Christian had talked about enforcing a key component, which we initiated in Q2. There are other ideas that our manufacturing team has that we're more confident that we're going to enforce. A lot of that is not baked into our guidance. It could be applied for this year, but if not, it'll come into effect in 2025. But we still have improvements in reducing the bomb that is embedded in our guidance, which is reflected in the graph that you see in the earnings presentation.

Speaker Change: It's more a lot of that is not baked into our guidance it could be upside for this year, but if not it will come into 2025, but we still have improvements in reducing the bond that is embedded in our guidance that is reflected in the graph that you see in the earnings presentation.

Christian Henry: As a reminder, we can monitor the utilization of the majority of our radio fleet. As one might expect newer customers take longer to wrap utilization level and we continue to see this in Q2. However, what was encouraging is that compared to last quarter, we saw more instruments move from the low utilization bucket. It entered the medium or high utilization buckets and we saw increased pull-through from both medium and high utilization customers. Our focus will be to continue simplifying our workflows and helping our customers get up to their planned utilization rate as fast as possible in order to maximize our consumable revenue opportunity.

Operator: Thank you.

Operator: Great, thanks so much. Next question.

Jack Meehan: Next question.

Speaker Change: Thanks for the Great next question please.

Speaker Change: Yeah.

Christian Henry: Next question comes from Jack Meehan with an Efron Research. Please go ahead. Hi, thanks. Good afternoon. One is to ask Christian, just about your confidence around growing sales sequentially in the year end. Even if you land at the low end of 170 million, I think that implies something like 45-50 million per quarter in the back half. So it's just curious, did you build any backlog in the quarter, or is this just really like timing? You can see the orders, and they're going to start coming in in a second. Yeah, it's a good question, Jack. We did actually, our book-to-build ratio was over one in the quarter.

Jack Meehan: The next question comes from Jack Meehan with Nephron Research. Please go ahead.

Speaker Change: Our next question comes from Jack Meehan with Nephron Research. Please go ahead.

Jack Meehan: Hi, thanks. Good afternoon.

Jack Meehan: Hi, Thanks, good afternoon.

Jack Meehan: Wanted to ask Christian just about your confidence around growing sales sequentially and the year and even a few land at the low end of the 170 million I think that implies.

Speaker Change: Something like 45 50 million per quarter in the back half. So I was just curious did you build any backlog in the quarter or is this just really like timing you can see the orders and they're going to start coming in in the second half.

Christian Henry: Now let's take a look at a few of the other commercial highlights during the quarter. We continue to be encouraged by the growth and sequencing data as data produced from the radio platform grew quarter over quarter and total data output from pack biosequences grew 2.2 times from the second quarter of last year. Radio continues to be the fastest growing instrument in our history in part through its ability to gain market share via new customers.

Christian Henry: I wanted to ask Christian just about your confidence around growing sales sequentially into year end. Even if you land at the low end of 170 million, I think that implies, you know, something like 45, 50 million per quarter in the back half. So I was just curious, did you build any backlog in the quarter? Or is this just really about timing, you can see the orders, and you know they're going to start coming in the second half?

Christian Henry: Yes, it's a good question Jack we did actually our book to Bill ratio was over one in the quarter. So we did build a little bit of backlog.

Christian Henry: Yeah, it's a good question, Jack. We did actually have a book-to-bill ratio of over one in the quarter, so we did build a little bit of a backlog. But really, we see the sales funnels, and we, you know, we see, we have building confidence that our consumables are going to grow and that instruments are expected to improve from where we are right now. I would expect the third quarter to be, you know, lower than the fourth quarter. And also, you know, in the third quarter, we may see some government year-end spending, as well as some general year-end spending. So that might help us.

Christian Henry: So we did build a little bit of backlog. But really, we see the sales funnels, and we have building confidence that our consumables are going to grow and that instruments are expected to improve from where we are right now. I would expect a third quarter to be, you know, lower than the fourth quarter and also, you know, in the third quarter, we may see some government year-end spending as well as in the fourth quarter kind of general year-end spending. So that might help us. And actually, if you look at the mix of revenue for the year versus, you know, most other years.

Speaker Change: But really it's we see the sales funnels and we.

Christian Henry: We see we are building confidence that our consumables are going to grow and that instruments.

Christian Henry: In the first half of 2024, new customers accounted for nearly half of total shipments highlighting the growing value proposition of high five sequencing and the expanding range of application that radio addresses. At the same time, we see significant opportunities to drive adoption among the remaining 180 plus equal to customers who have not yet ordered a radio. Further encouraging are the results from our annual customer survey which shows an NPS score of 56 among those surveyed.

Christian Henry: <unk> are expected to improve from where we are right now I would expect the third quarter to be.

Christian Henry: Lower than the fourth quarter and also in the third quarter, we may see some government year end spending.

Christian Henry: As well as in the fourth quarter kind of general year end spending so that might help us and actually if you look at the mix of revenue.

Christian Henry: And actually, if you look at the mix of revenue for the year versus, you know, most other years, it's not really that far out of line. Typically, you know, you see 45, 55, or in terms of percentages of the year, we're not that far off from those kinds of metrics. So, you know, if you look at the past, it's not unreasonable to kind of think of how this is going to play out.

Christian Henry: For the year versus most other years, it's not really that far out of line typically.

Christian Henry: It's not really that far out of line. Typically, you know, you see 45-55% or, in terms of percentages, of the year. We're not that far off from those kinds of metrics. So, you know, if you look at the past, it's not unreasonable to kind of think of how this is going to play out. And if you look at the detailed sales funnel, you know, we see we see radio, instrument placements improving. We see, you know, the on so funnel is significantly bigger than it's been, which should help. And then also the consumables, you know, we're getting more.

Christian Henry: You see $45 55, or so in terms of percentages of the year, we're not that far off from those kinds of metrics. So.

Christian Henry: In addition, 9 out of 10 respondents reported being satisfied or very satisfied with their radio system. We are pleased by the diversity of customer types that are adopting radio. In the second quarter, we delivered multiple radios to a range of customers including research institutes, core labs, service providers, diagnostics and LVT labs, children's hospitals, human genetic research organizations and pharmaceutical companies. This customer diversity is expected to lead to more application and greater penetration into our end markets.

Christian Henry: If you if you look at the past, it's not unreasonable to kind of think of how this is going to play out and if you look at the detailed sales funnel.

Christian Henry: And if you look at the detailed sales funnel, you know, we see revio instrument placements improving. We see, you know, the funnel is significantly bigger than it's been, which should help. And then also, the consumables, you know, we're getting more, we have nice bookings in Q2. Some of those will, you know, a lot of those will ship in Q3 and all through, all, you know, for the next 12 months as more customers get on. Standing Purchase Agreements, which allows us to really have so much better visibility into the consumer numbers.

Christian Henry: We see we see <unk>.

Christian Henry: Instrument placements improving we see.

Christian Henry: Also funnel is significantly bigger than it's been which which should help and then also the consumables. We're getting more we had nice nice bookings in Q2 some of those but you know a lot of those will ship in Q3 and all through all for the next 12.

Christian Henry: Of course, we had nice, nice bookings in Q2. Some of those, you know, a lot of those will ship in Q3 and all through all, you know, for the next 12 months is more customers are getting on. Standing purchase agreements, which allows us to really have so much better visibility into the consumer members. So, so we have building confidence; you know, the economic environment is still tough. I think most of our peers have been talking about a tough capital environment on their call to squatter. We don't see; I mean, we think it's going to be difficult the rest of the year.

Christian Henry: Additionally, we expect adoption by diagnostic and LVT lab can potentially establish a long term revenue stream as these companies expand their testing menus. Notably, we delivered multiple radios to quest diagnostics to support the company's development of tests or neurological disorders, leveraging the advantages of a recently launched peer target repeat expansion panel. Two along core and university faculty of medicine in Thailand has adopted its second radio system to scale its high five sequencing capability.

Christian Henry: Months as more customers are getting on.

Christian Henry: Standing purchase agreements, which allows us to really have so much better visibility into the consumable number.

Christian Henry: So we are building confidence. You know, the economic environment is still tough. I think most of our peers have been talking about a tough capital environment on their calls this quarter. We don't see, I mean, we think it's going to be difficult the rest of the year. And when we, when we considered our guidance, you know, we considered it was still going to be tough.

Christian Henry: So we have building confidence.

Christian Henry: The economic environment is still tough I think most of our peers have been talking about a tough.

Christian Henry: Capital environment on their calls this quarter.

Christian Henry: We don't see I mean, we think it's going to be difficult the rest of the year and when we when we considered our guidance. We considered it was still going to be tough.

Christian Henry: And when we, when we considered our guidance, you know, we considered it was still going to be tough. Great.

Christian Henry: The organization plans to sequence 1,000 human genomes annually over the next five years to improve health outcomes. Health in code, a leading company in genetic diagnostics is bringing the first radio system to Spain, becoming pack files, first service provider in southern Europe. This system is expected to enable large scale high five long reads to improve the detection of variants in complex regions for customers throughout. This system is expected to enable large scale high five long reads to improve the detection of variants in complex regions for customers throughout the next five years.

Christian Henry: Great. And just one follow-up question: the build of revenue into your end, is this predominantly coming from Revio? I know you talked about the new program as a release to ONSO for trade-ins. Is there any color you can share on what's embedded for ONSO in terms of second half versus first half? Thank you.

Christian Henry: Great.

Christian Henry: And just one follow-up is the, you know, you know, the build of revenue into your end. Is this predominantly coming from Revio? I know you talked about the new program is a release on so for trade ins. Is there any color you can share on what's embedded for on so in terms of second half versus first half? Thank you. Yeah, I think, I mean, also, we haven't we don't break out on so revenue, but answer revenue is forecast to be significantly better than it was in the first half. So that will, you know, when you look at growth, that will be one of our fastest growth areas if our forecast holds.

Speaker Change: Just one follow up is the.

Speaker Change: The build of revenue into year end is this predominantly coming from <unk> I know you talked about.

Speaker Change: The new program as it relates to ASO for trade ins.

Speaker Change: Is there any color you can share on what's embedded for Ron So in terms of second half versus first half. Thank you.

Christian Henry: Yeah, I think, I mean, we don't break out ONSO revenue, but ONSO revenue is forecast to be significantly better than it was in the first half. So that will, you know, when you look at growth, that will be one of our fastest growth areas if our forecast is correct. Thank you all for joining us. And the next, and the next question comes from

Speaker Change: Yeah, I think I mean answer we haven't we don't break out answer revenue, but also revenue.

Christian Henry: We're continuing to see the adoption of transcriptomics and single cell RNA sequencing with our Kinex kit, which launched last December. In Q2, Kinex already surpassed 1 million in quarterly revenue and helped drive radio placements, including a radio system at a prominent cancer research center in Texas. In second quarter, we also started to see some early customers ramp up their use of onset. The hospital day at Speleade.is in the Ecuador, for example, has sequenced 700 patient samples as part of a 2000 sample oncology project and is looking to expand into other projects.

Speaker Change: Is forecast to be significantly better than it was in the first half.

Speaker Change: So that will you know when you look at growth that will be one of our fastest growth areas, if our forecast a hole.

Christian Henry: But the most, you know, on a relative basis, right, the Revio instruments, a lot more revenue per unit. And so I would expect. Radio instrumentation, as well as the scale up and growth and consumers, those will be the predominant drivers of growth in the back up. Thank you.

Christian Henry: But the most.

Christian Henry: On a relative basis right the revenue of instruments, a lot more revenue per unit and so I would expect <unk> instrumentation as well as the scale up in growth in consumables those will be the predominant drivers of growth in the back half.

Jeff: Thanks, Jeff.

Doug Schenkel: And the next question comes from Doug Schenkel with Wolf Research. Please go ahead.

Doug Schneekle: And the next question comes from Doug Schneekle with Wolf Research. Please go ahead.

Christian Henry: And the next question comes from Doug Sneakers with Wolfe Research. Please go ahead.

Christian Henry: In the second quarter, we also made significant progress in research and development. For example, we are in the late stages of developing a new radio consumables, which we expect will meaningfully increase the system's throughput without the need for additional capital investment. The new consumables are also expected to significantly decrease input DNA input requirements and add additional methylation calling capabilities. We believe these improvements will unlock more samples and increase the capacity of our customers with more value than ever before. We look forward to sharing more about this consumable upgrade later this year.

Madeline Mollman: Hi, this is Madeline Mollman on Sir Doug. Chris Merding improvement is one of the keys to financial viability of Pac-Bio. Just wondering, how are you thinking about the exit rate for gross margin, given that you now expect to be at the low end of the guide? Susan, do you want to ask about it? Yeah, so you're right that we had guided the year's gross margins to be at the low end of the 35 to 38 percent gross margins. And our gross margins, we are structurally reducing the cost base of manufacturing our instruments and our consumables.

madeline moment: Hi, This is madeline moment on them.

Speaker Change: Gross margin improvement and one of the keys to the financial viability of hostile just wondering how are you thinking about the exit rate for gross margin given that you now expect to be at the low end up the guide.

Susan Kim: Susan, do you want to answer that one?

Christian Henry: Susan do you want to answer that yeah. So you're right that we had guided the year gross margin to be at the low end up to 35% to 38% gross margin and our gross margins, we are structurally reducing the cost base.

Susan Kim: Yeah, so you're right that we had guided the year's gross margins to be at the low end of the 35% to 38% gross margins. And with our gross margins, we are structurally reducing the cost base of manufacturing our instruments and our consumables. And it's very much front and center when we think about the new products we're developing and how we, what components we include, and how we think about the pricing and margin at launch.

Susan Kim: Manufacturing, our instruments and our consumables and it's very much front and center when we think about the new products, we're developing and how we what components. We include and how we think about the pricing and margin at launch and so overall, our gross margins will expand as our revenue grows.

Susan Kim: And it's very much front and center when we think about the new products we're developing and what components we include and how we think about the pricing and margin at launch. And so overall, gross margins will expand as our revenue grows. That's 35 percent. Of course, if you look at how we've done in the first half, it does assume that there's some fluctuation quarter to quarter. And, as my prepared remarks describe, sometimes you do have some fluctuations in gross margins related to AFP mix, customer project mix, revenue mix. That can change some of the quarter-to-quarter gross margins.

Christian Henry: Additionally, we are continuing to make progress in our work to develop a low-throughput long-read platform and a high-throughput short-read system. Finally, we are supporting our customers and R&D pipeline while reducing our costs in cash per.

Susan Kim: And so overall, our gross margins will expand as our revenue grows. That 35%, of course, if you look at how we did in the first half, assumes that there's some fluctuation quarter to quarter. And as my prepared remarks described, sometimes you do have some fluctuations in gross margins related to the ASP mix, customer project mix, and revenue mix that can change some of the quarter to quarter gross margins. But I think the important takeaway is that structurally, our cost base is coming down, such that when you look at 25 and 26, as our revenue continues to grow, our gross margins will expand, and we'll get nice leverage on our gross margin as our revenues continue to grow.

Speaker Change: That 35% of course, if you look at how we've done in the first half does that assume that there's some fluctuation quarter to quarter and all of my prepared remarks described sometimes you do have some fluctuations in gross margin related to E. S. P mix customer and project mix revenue mix in the basket changed some.

Christian Henry: As we discussed last quarter, we initiated a restructuring plan to reduce our non-gap operating expenses and expect to exit this year with annualized remade savings exceeding our previous non-gap target of 50 to 75 million. As a result of this restructuring, we believe our cash earn will continue to decline sequentially in the third quarter and the fourth quarter this year.

Susan Kim: Quarter to quarter for a smart guy, but I think the important takeaway is that structurally our cost base is coming down such that when you look at 25 and 26 as our revenue continues to grow our gross margins will expand and we'll get nice leverage on our gross margin as our revenues continue to grow.

Christian Henry: But I think some important takeaway is that structurally our cost base is coming down, such that when you look at 25 and 26, as our revenue continues to grow, our gross margins will expand and will get nice leverage on our gross margin as our revenues continue to grow. I think one thing I would add to that is, you know, revenue mix is essential here. You know, pack bio for its entire distance has been so dependent on instruments, which carry lower gross margins than consumables. And, you know, radio for the first time truly gives us the ability to have, you know, to generate consumable revenues that are high enough that really positively contribute to the gross margins.

Susan Kim: With that, I'll hand a call to Susan to discuss the financials in some more detail. Thank you, Christian. I will be discussing non-gap results which include non-cash stock-based compensation expense.

Christian Henry: I think that one thing I would add to that is, you know, revenue mix is essential. You know, PacBio for its entire existence has been so dependent on instruments which carry lower gross margins than consumables, and Revio, for the first time, truly gives us the ability to have, you know, generate consumable revenues that are high enough to really positively contribute to the gross margin. So although we may exit 20 this year, the year 24, you know, kind of at the lower end of the guidance, you know, when you look at the whole year, as consumables continue to grow, that will provide a natural uplift.

Speaker Change: I think the one thing I would add to that is as you know revenue mix is essential here.

Susan Kim: I encourage you to review a reconciliation of gap to non-gap financial measures in our earnings press release. As discussed, we reported 36.0 million in product service and other revenue in the second quarter of 2024, compared to 47.6 million in the second quarter of 2023. Intro revenue in the second quarter was 14.7 million, a 51% decrease from 29.9 million in the second quarter of 2023 due to lower radio unit shipment. We ended the quarter with an install base of 225 radio systems.

Christian Henry: Pac bio for its entire existence has been so dependent on instruments, which carry lower gross margins than consumables and radio for the first time truly gives us the ability to have.

Christian Henry: To generate.

Christian Henry: Consumable revenues that are that are high enough that really positively contribute to the gross margin. So although we may exit 'twenty year.

Christian Henry: So we may exit 20, you know, the year 24, you know, kind of at the lower end of the guidance. You know, when you look at the whole year, as consumables continue to grow, that will provide a natural uplift. Also, you know, we fully expect the new products that were developing to carry higher gross margins than our existing products. And so those will all be contributing to if you start to look at, you know, 2025 and 2026. It's a front-and-center issue for us. No question about it.

Susan Kim: Turning to consumables, revenue of 17.0 million in the second quarter increased 24% from 13.7 million in the second quarter of last year. Approximately 74% of consumable revenue came from radio systems which reflected in annualized pull-through of the radio system of approximately 251,000 with the remainder coming from a mix of other systems. Systems. Finally, service and other revenue with $4.3 million in the second quarter compared to $3.9 million in the second quarter of 2023.

Christian Henry: <unk> 24.

Christian Henry: You know kind of at the lower end of the guidance you know when you look at the whole year as consumables continue to grow that will provide a natural uplift also.

Christian Henry: Also, you know, we fully expect the new products that we're developing to carry higher gross margins than our existing products, and so those will all be contributing to, as we start to look at, you know, 2025 and 2026. It's a front and center issue for us, no question about it. Great, thank you.

Christian Henry: Fully expect the new products that we're developing to carry higher gross margins than our than our existing products and so those will all be contributing to as we start to look at 2025 and 2026, It's a front and center issue for US No question about it.

Christian Henry: Great. Thank you.

Speaker Change: Great. Thank you.

David Westenberg: And the next question comes from David Westenberg with Piper Sandler. Please go ahead. Hi, this is John on for Dave. Thanks for your technical question. First, I’d just like to ask about your head count reduction. Could you give any thoughts on how confident you are that the reduction won't impact fails growth? Thank you. Well, you know, I think you asked a question for sales growth in the head count reduction specifically. And so I'll address that first, but you know, we did make cuts across the organization, and truly the sales impact sales organization was impacted some.

David Westenberg: And the next question comes from David Westenberg with Piper Sandler. Please go ahead. Hi, this is John Unferdave. Thanks for taking the question. First, I'd just like to ask about your head contradiction. Could you give any thoughts on that?

Christian Henry: And the next question comes from David Westenburg with Piper Sandler. Please go ahead.

Susan Kim: We expected to see modest sequential increases in service and other revenue as the commencement of Rev. Service Contracts is expected to more than offset the decrease in service contract revenue resulting from C-2 and 2-E-D commissions. From a regional perspective, the America's revenue of $20.8 million exceeded our internal expectations due to greater radio placement, but represents the decrease of 13 percent compared to the second quarter of 2023. Growth and consumables was offset by lower radio placements compared to last year.

Susan Kim: Hi, This is John on for Dave. Thanks for taking the question first of all just like to ask about your head count reduction could you give any thoughts on how confident you are that the reduction it won't impact our sales growth. Thank you.

John Unferdave: Well, you know, I think you asked the question about sales growth in the headcount reduction specifically, and so I'll address that first. But, you know, we did make cuts across the organization, and surely, the sales organization was impacted some, but it was less impacted than some of the other groups. And so, you know, we've spent a lot of time building out a commercial infrastructure to support the long run of the company.

Speaker Change: Well you know.

Speaker Change: I think you asked you asked the question for sales growth in the head count reduction specifically and so I'll address that first but we did make we did make cuts across the organization and surely the sales impact sales organization was impacted some but it was less impacted than some of the other groups and so.

Christian Henry: But it was less impacted than some of the other groups. And so, you know, we spent a lot of time building out a commercial infrastructure to support the long run of the company. And what we've done is in this last restructuring, we reorganized the commercial organization a bit so that we can have fewer stand and layers and have much more executive touch, so to speak, at, you know, with the customers directly. And so I feel pretty confident that that's helping and that's driving conversations. Of course, you too is when we executed all this. So we'll see over the next few quarters how we do.

Susan Kim: For Asia Pacific, revenue of $8.2 million decreased 36 percent over the prior year, driven mainly by lower revenue in China, which continues to face challenges with funding in a weaker macroeconomic environment. We expect many of our customers to benefit from the government-announced stimulus program, so we don't expect any impact from such programs until 2025 at the earliest. Finally, a mere revenue of $7.0 million decreased 35 percent over the prior year. As we discussed, the region saw record consumables as customers ramped up their radio usage, which was offset by lower radio placement.

Susan Kim: We spent a lot of time building out a commercial infrastructure to support the long around the company and what we've done is.

John Unferdave: And what we've done is, in this last restructuring, we reorganized the commercial organization a bit so that we can have fewer spans and layers and have much more executive touch, so to speak, with the customers directly.

Susan Kim: In this last restructuring we reorganize the commercial organization a bit so that we can have fewer spans and layers and have much more executive touch so to speak with the customers directly and so I feel pretty confident that that's that's helping and that's driving.

Christian Henry: And so I feel pretty confident that that's helping and it's driving conversations. Of course, Q2 is when we executed all this, so we'll see over the next few quarters how we do, but the early signs are pointing to that we are maintaining those customer relationships, we're building new relationships, and we are acting faster, which is encouraging. If you look at the rest of the business, you know, we also cut very significantly across R&D, but we were very focused on Focusing, making sure that we invested appropriately in the near-term revenue driving projects, like the new platforms, and those new platforms, you know, are fully staffed and we're making great progress and, you know, quite frankly, when you look at Q2, the revenue result was not what we expected, but the R&D result was, was actually ahead of what I was expecting, and so I'm very excited about the progress we're making, even though we had to make some very painful decisions with respect to the restructuring.

Susan Kim: <unk> of course Q2 is when we executed all this so we will see over the next few quarters, how we do but.

Christian Henry: But, but the early signs are pointing to that we are maintaining those customer relationships with those new relationships. And we are acting faster, which is encouraging. If you look at the rest of the business, you know, we also cut very significantly across R&D, but we were very focused on focusing, making sure that we invested appropriately in the near-term revenue driving projects like the new platforms, and those new platforms, you know, are fully staffed and we're making great progress. And, you know, quite frankly, when you look at Q2, the revenue result was not what we expected, but the R&D result was actually ahead of what I was expecting.

Susan Kim: Moving down the P&L, second quarter 2024 non-gap growth profit of 13.2 million represented a non-gap growth margin of 37 percent compared to a non-gap growth profit of 15.7 million or 33 percent in the second quarter of last year. The second quarter's non-gap growth margin improved approximately 400 basis points from the first quarter of 2024 as radio ASP improved, and in particular, as we continue to realize production cost savings on the radio instrument bill.

Susan Kim: The early signs are pointing to that.

Susan Kim: We are maintaining those customer relationships, we're building new relationships and we are acting faster, which is encouraging if you look at the rest of the business.

Susan Kim: We also cut very significantly cross R&D, but we were very focused on.

Susan Kim: Focusing making sure that we invested appropriately in the near term revenue driving projects like the new platforms and those new platforms.

Susan Kim: Our fully staffed and we're making great progress.

Susan Kim: Non-gap operating expenses were 71.0 million in the second quarter of 2024 representing an 18 percent decrease from 86.7 million in the second quarter of 2023. Non-gap operating expenses also declined 19 percent sequentially compared to the first quarter of 2024. As we began to realize cost savings related to our restructuring plan initiated last quarter and represented our lowest non-gap operating expenses quarter since Q3 of 2021. Regarding headcount, we ended the quarter with 581 employees compared to 796 at the end of 2023 and 818 at the end of the second quarter of 2023.

Susan Kim: Quite frankly when.

Susan Kim: When you look at Q2. The revenue result was not what we expected, but the R&D result was.

Susan Kim: Was actually ahead of what I was expecting and so I'm very excited about.

Christian Henry: And so I'm very excited about the progress for making, even though we had to make some very painful decisions with respect to the restructuring. Thank you.

Susan Kim: The progress, we're making even though we had to make some very painful decisions with respect to the restructuring.

Susan Kim: Okay.

Christian Henry: Great, thank you. And if you could give any thoughts that you have on what the pipeline looks like for population sequencing projects globally and what the appetite is for long-read sequencing generally, that'd be great. Thank you.

Speaker Change: Great. Thank you and if you could give any thoughts that you have on what the pipeline looks like for a population sequencing projects globally.

Christian Henry: And if you could give any thoughts that you have on what the pipeline that looks like for population sequencing projects globally and what the appetite is for long-read sequencing generally, that'd be great. Thank you. We respect the pipeline. We're still tracking many, many, many 10,000 plus sample projects that are working their way through the system. We are very happy to see some of the bigger projects get off the ground in Q2. So the Estonia Biobank Project started sequencing. The Gregor Consortium Project started sequencing precise started sequencing. So those are all those are all strong projects that are going to that are really starting to scale.

Speaker Change: And what the appetite is for long read sequencing generally that'd be great. Thank you.

Christian Henry: I missed the second part of that question. Yeah, the top ten was the first part. What was the second part?

Speaker Change: I missed the second part of that question. Yeah Top 10 was the first part what was the second part.

Speaker Change: But.

Operator: So, with respect to POPGEN, we're still tracking many, many, many 10,000 plus sample projects that are working their way through the system. We are very happy to see some of the bigger projects get off the ground in Q2, so the Estonian Biobank project started sequencing, the Greger Consortium project started sequencing, Dr. Sykes started sequencing, so those are all strong projects that are really starting to scale. We see lots of opportunities around the world, and it really comes down to these projects taking a long time to get the sample cohorts in place, as well as all the funding and all the infrastructure required to execute on them.

Susan Kim: Our restructuring reduced our non-gap operating expenses, some of which was the result of a 25 percent reduction in total headcount. Operating expenses in the second quarter included non-cash share-based compensation of 16.1 million compared to 16.7 million in the second quarter of last year. Non-gap net loss was 55.2 million representing 20 cents per share in the second quarter of 2024 compared to a non-gap net loss of 65.6 million representing 26 cents per share in the second quarter of 2023.

Speaker Change: Oh appetite for long read sequencing in general So I you know.

Susan Kim: With respect to top 10, we're still tracking many you know.

Susan Kim: Many many 10000 plus sample projects that are working their way through the system.

Susan Kim: Happy to see some of the bigger projects get off the ground in Q2, so the Estonia biobank projects started sequencing that Greg or consortium project started sequencing precise.

Speaker Change: Started sequencing so those are all.

Speaker Change: Those are all strong projects that are going on that are really starting to scale, we see lots of opportunities around the world.

Christian Henry: We see lots of opportunities around the world, and it really comes down to these projects taking a long time to get the sample cohorts in place, as well as all the funding and all of the infrastructure required to execute on them. But with respect to, you know, seeing more of those later this year, I wouldn't be surprised to see us announce some other projects this year. Certainly, over the next, you know, certainly over the next 18 months, there are lots of projects and lots of fleet expansions that we are seeing that I think are real, you know, opportunities for the company.

Susan Kim: Non-gap net loss excluded 93.2 million in non-cash goodwill and payment charge due to the decline in stock price among other factors, 18.0 million of restructuring expenses, and 6.9 million related to the amortization of acquired intangible assets. Starting to our balance sheet items, we ended the second quarter with 509.8 million in unrestricted cash and investments compared with 631.4 million at December 31, 2023. Inventory increased slightly in the second quarter to 68.6 million, representing 1.6 inventory turns, compared with 67.3 million at March 31, 2024, representing 1.7 inventory turns.

Speaker Change: And it really comes down to these projects take a long time to get the sample cohorts in place as well as all the funding and all the all of the all.

Speaker Change: All the infrastructure required to execute on them.

Operator: With respect to seeing more of those later this year, I wouldn't be surprised to see us announce some other projects this year. Certainly, over the next 18 months, there are lots of projects and lots of fleet expansions that we are seeing that I think are real opportunities for the company. One thing I would say that is really encouraging and probably the brightest spot in the quarter is just the amount of clinical adoption we are starting to see. It is really fantastic.

Susan Kim: But with respect to.

Susan Kim: Seeing more of those later this year I wouldn't be surprised to see us announce some some other projects this year certainly over the next.

Susan Kim: Certainly over the next 18 months there are lots of projects and lots of fleet expansion that we are seeing that I think there are real opportunities for the company one thing I would say that is.

Christian Henry: One thing I would say that is really encouraging and probably the brightest spot in the quarter is just the amount of clinical adoption we're starting to see is really fantastic. And it was, it was really driven off of we launched a new product called Pure Target, which is a panel, which a lot of the clinical diagnostic companies are leveraging that panel and creating their own versions of the panel to do everything from carrier testing to neurology and other other kinds of other kinds of clinical testing. These, these are going to be, you know, very large customers over time for us that are expectation, and they will be running thousands and thousands of samples, which will create a durable source of revenue.

Speaker Change: Really encouraging and probably the brightest spot in the quarter is just the amount of clinical adoption, we're starting to see is.

Susan Kim: Accounts receivable increase in the second quarter to 32.4 million compared to 30.3 million at March 31, 2024. Turning to guidance, as Christian mentioned earlier, we've set full year 2024 revenue to be around the low end of the previously guided range of 170 million and 200 million. The low end of the four-year guidance range assumes 80 million of insurance revenues, which includes 115 radio shipments. We expect 72 million in consumable revenue, which assumes an annual pull-through of 260,000 for the radio platform.

Susan Kim: It's really fantastic and it was it was really driven off of we launched a new product called pure target.

Operator: It was really driven by We launched a new product called Pure Target, which is a panel that a lot of clinical diagnostic companies are leveraging that panel and creating their own versions of the panel to do everything from carrier testing to neurology and other kinds of clinical testing.

Speaker Change: It is a panel, which a lot of the clinical diagnostic companies are leveraging that paddle and creating their own versions of the panel to do everything from carrier testing to neurology and other other kinds of others.

Speaker Change: Other kinds of clinical testing.

Christian Henry: These are going to be, you know, very large customers over time for us, and they will be running thousands and thousands of samples, which will create a durable source of revenue. And I think that's happening on a timeline, quite frankly, faster than I would have expected.

Speaker Change: These are going to be very large customers over time for us that's our expectation and they will be running thousands and thousands of samples, which will create a durable source of revenue and I think that's happening on a timeline.

Christian Henry: And I think that's happening on a timeline, quite frankly, faster than I would have expected. So encouraged by the population sequencing, also very encouraged by sequencing uptake in general. I do think that we are still absorbing some capacity, you know, with particularly with the service providers and kind of the classic academic core labs. And so, you know, we're working hard with them to help them get projects so that they can fill their instruments up, and eventually we'll have the. The low throughput long read instrument, which will be a great complement to radio, and we'll see I wouldn't be surprised to see many customers have radio and the low throughput instrument in their labs and then, you know, other customers, allowing a more distributed long read sequencing capability using high five with the low throughput instrument.

Susan Kim: With revenues at the low end of our range, we also expect non-gap growth margins to be around the low end of our previously guided 35% to 38% range. As we discussed, we have made significant progress on improving the per-unit production cost of both radio instruments and radio consumables and expect both to end the year approximately 20% lower than when we launched the platform. We anticipate that these costs and operational improvements will continue beyond 2024 and are expected to drive quarterly growth margin expansion this year and going forward.

Speaker Change: Quite frankly faster than I would've expected. So encouraged by the population sequencing also very encouraged by sequencing uptake in general I do think that we're still absorbing some capacity.

Christian Henry: So, encouraged by population sequencing, also very encouraged by sequencing uptake in general. I do think that we are still absorbing some capacity, you know, particularly with service providers and kind of the classic academic core labs. And so, you know, we're working hard with them to help them get projects so that they can fill their instruments up. And eventually, we'll have the low-throughput long-read instrument, which will be a great complement to Revio.

Susan Kim: Particularly with the service providers in and kind of the classic academic core labs.

Speaker Change: And so we're working hard with them to help them get projects. So that they can fill their they can fill their instruments up and eventually we will have the well the low throughput long read instrument, which will be a great complement to radio and we'll see I wouldn't be surprised to see many customers have grabbed the O and the low throughput.

Susan Kim: However, our total growth margins in the second half may fluctuate quarter to quarter, based off on product mix, customer product mix, and ASP. Moving to operating expenses, we remain diligent in our efforts to lower cashburn and spend profile and expect non-gap operating expenses to be around the end of our 300 to 310 million range. The low end of the operating expense guidance range assumes 140 million in non-gap research and development expenses and 160 million in non-gap selling general and administrative expenses.

Christian Henry: And we'll see; I wouldn't be surprised to see many customers have Revio and the low throughput instrument in their labs. And then, you know, other customers offering a more distributed long-read sequencing capability using HiFi with the low throughput instrument. So, looking forward to getting that product out the door, too.

Susan Kim: Instrument in their labs, and then other customers.

Speaker Change: Allowing a more distributed long read sequencing capability, using hi Fi with a lower throughput instrument. So looking forward to getting that product out the door too.

Eve Burstein: So looking forward to getting that product out the door too. Thank you.

Christian Henry: Thanks, John. Great. Great. And the next question comes from Eve. Burstein with Burstein.

John: Thanks, John.

Eve Burstein: Thank you very much.

John: Okay. Thank you very much.

Christian Henry: And the next question comes from Eve Burstein with Burstein. I remember having a discussion with you on customers in China generally having very high utilization rate. Yesterday, one of your competitors said that stimulus in China would not affect NGS, while you mentioned that it could be actually a tailwind. So how are the conversations going with these customers and potentially other customers in the region? And what do you guys expect with 2025, especially after a rough year in China, for everyone? I don't think the, you know, I think the funding, any stimulus funding, wouldn't necessarily be a tailwind.

John: And the next question comes from Eve.

Dean: Dean with Bruce Bruce.

Susan Kim: We continue to expect full-year non-gap operating expenses to decline in 2025 compared to 2024 and expect to exit the year at a full-year run rate that reflects savings significantly above the high end 75 million non-gap reduction target. We expect interest and other income to be around the high end of our 5 million to 10 million range. Our operating expense and cash management discipline is allowing us to maintain our ending cash cash equivalence and investment guidance in the range of 435 million to 450 million representing a cashburn of 189 million at the midpoint.

Dean: Stan.

Alberto: Hi, this is Alberto on behalf of Eve. I remember having a discussion with you about customers in China generally having very high utilization rates. Yesterday one of your competitors said that stimulus in China would not affect NGS, while you mentioned that it could actually be a tailwind. So how are the conversations going with these customers and potentially other customers in the region, and what do you guys expect for 2025, especially after a rough year in China for everyone?

Susan Kim: Hi.

Speaker Change: Onshore Eve.

Speaker Change: So I remember, having a discussion with you on customers in China, generally having very high utilization rates.

Speaker Change: Yesterday, one of your competitors.

Speaker Change: Seamlessly China would not affect Angie asked why are you mentioned that it could be a tailwind. So how long are the conversation going with these customers and potentially other customers in the region.

Speaker Change: What do you guys expect for 2025, especially after a rough year in China for everyone.

Christian Henry: Yeah, that's a good question.

Speaker Change: Yeah.

Speaker Change: Good question I don't think I don't think that the.

Susan Kim: The more importantly our expected quarterly cashburn exiting this year will be reduced materially helping us set up 2025 with a much lower cashburn than 2024. We still expect 273 million in weighted average years outstanding for the full-year 2024. Finally, we remain committed to turning the business cash flow positives by the end of 2026. We intend to do this by executing on our strategic priorities, which are anticipated to result in revenue growth in 2025 and beyond, with new products and consumables expansion from the increasing revenue in sub-base. Expanding growth margins with lower per unit production costs and continued mixed shifts to consumables and lower non-gap operating expenses in 2025 with minimal growth thereafter.

Speaker Change: I think this funds being any stimulus funding.

Christian Henry: I, you know, I don't think the, the, You know, I think this funding, any stimulus funding, wouldn't necessarily be a tailwind. I think it's maybe perhaps a bit of a return to normalcy. You know, our business is very different from some of our competitors in China, in particular in that we have several large service providers as our primary customers, and then they market out into the Chinese market, and it's mostly a service business for us. The implications of that are that, you know, we perhaps get more aggregated revenue from a concentrated customer base.

Speaker Change: It wouldn't necessarily be a tailwind I think its may be perhaps a bit of a more of a return to normalcy.

Christian Henry: I think it's maybe perhaps a bit of a more of their terms and normalcy. You know, our business is very different than some of our competitors in China, in particular, in that we have several large service providers as our primary, primary customers, and then they market out into the Chinese market, and it's mostly a service business for us. The implications of that are that, you know, that we perhaps get more aggregated revenue into a concentrated customer base. Those service providers have been having a tough year this year, but we do think the stimulus just will add more projects, which will help those service providers.

Speaker Change: Our business is very different than some of our competitors in China in particular in that we have.

Speaker Change: Several large service providers as our primary.

Speaker Change: Primary customers and then they market out into the into the Chinese market and its mostly a service business for us.

Speaker Change: The implications of that are that.

Speaker Change: But.

Speaker Change: Perhaps get more aggregated revenue into a concentrated customer base those service providers that have been having a tough year. This year, but we do think the stimulus just add we.

Christian Henry: Those service providers have been having a tough year this year, but we do think the stimulus will add more projects which will help those service providers and, as we get the low-throughput instrument into the market, as well as give the other Chinese customers the opportunity for that low-throughput instrument. If you look at the rest of Asia-Pacific, you know, there are a few bright spots, but actually, Asia-Pacific as a whole has been pretty tough.

Speaker Change: We will add more projects, which will help those service providers and as we get the low throughput instrument into the market as well give the gift.

Susan Kim: We will provide more details on our assumptions and updated long-term guidance at a later date.

Christian Henry: And as we get the low throughput instrument into the market as well, give the other Chinese customers the opportunity for that for that low throughput instrument. If you look at the rest of Asia Pacific, you know, there are a few bright spots, but actually Asia Pacific as holds been pretty tough. Korea is not in very good standing. Japan is doing okay. The rest of, you know, Southeast Asia, at least for us is, is doing maybe just a bit below expectations, but not radically, not not radically strong either. So, you know, Asia is really a tough, tough market for us and overall this year, mainly driven by that China, the China challenge.

Christian Henry: I'll hand it back to Christian for some final remarks. Christian? Thank you, Susan.

Speaker Change: Other Chinese customers the opportunity for that for that low throughput instrument. If you look at the rest of the Asia Pacific.

Christian Henry: While the first half of 2024 has certainly been challenging, I'm encouraged that we're taking the difficult of necessary steps to streamline our business by reducing non-gap operating expenses and driving costs out of our manufacturing. I'm also encouraged by the incredible progress that we continue to make in our product development pipeline. We continue to improve the performance of the radio platform, which will provide more value to our customers than ever before, and we have made substantial progress in our low-throughput, long-reed platform, which will enable us to reach a broader customer base.

Speaker Change: There are few bright spots, but actually Asia Pacific is holes being pretty tough Korea Korea is not in very good standing Japan is doing okay.

Christian Henry: Korea is not in very good standing. Japan is doing okay. The rest of, you know, Southeast Asia, at least for us, is doing maybe just a bit below expectations, but not radically, not radically. Do I think 25 will be better than 24? I do think the stimulus will help. Some new products will help. And we'll go from there.

Speaker Change: The rest of southeast Asia at least for US as it is doing maybe just a bit below expectation, but not radically radically.

Speaker Change: Lastly, strong either so Asia is really a tough tough market for us and overall this year, mainly driven by that China did.

Christian Henry: Immersally, we are seeing increased adoption of radio and more clinically focused accounts as these customers are leveraging the platform in applications that are extremely difficult for short-reduced sequencing technologies. We're also seeing science that we will return to growth in the second half of the year as we've seen several customers choose to expand their radio fleet, and we continue to see a large number of radio purchases from new customers. We remain optimistic about our business, and the prospects are both our long and short-reed sequencing technologies.

Speaker Change: China Challenge do.

Christian Henry: Do I think 25 will be better than 24? I do think the stimulus will help; some new products will help, and, you know, we'll go from there.

Speaker Change: Do I think 25 to 45 will be better than 'twenty four I do think the stimulus will help some new products will help and.

Speaker Change: We'll go from there.

Christian Henry: Okay, thank you. And another question I had. I saw from your graph and also from your comments, actually the question partnership is going very well. You know, how do you stick with your strategy around clinical market and partnership? We've seen other like your main competitor having large partnerships with even equity investments in there. How would you articulate your strategy in the clinical market? And what are the aside from neurological applications? What are the main areas in which you're seeing the most interest that could actually rescale and to the next level? Yeah, so we're in the clinical market. Our strategy is to develop products and replicate and kits and technologies that really compete and do things that short-re sequencing can't do very well, first and foremost, and use that as a beachhead to get into those accounts and then demonstrate that the power of high-fi can supplant, you know, even short-re sequencing.

Speaker Change: Okay. Thank you and another question I had I saw from your graph and also from your comments that actually the quest.

Christian Henry: Okay, thank you. And another question I had, I saw from your graph and also from your comments that the Quest partnership is going very well. General, how would you articulate your strategy around the clinical market and partnership? We've seen others, like your main competitor, having a large partnership with even equity investments in there. How would you articulate your strategy in the clinical market? And what are the, aside from neurological applications, the main areas in which you're seeing the most interest that could actually really scale to the next level?

Christian Henry: Yeah.

Speaker Change: Partnership is going very well.

Speaker Change: How do you stimulate your strategy around clinical market and partnership, but we've seen other like your main competitor, having large partnership we needed equity investments in there, but how would you articulate your strategy in the legal market and what are the aside from neurological expectations what are the main areas.

Christian Henry: I firmly believe that we are on the path to building a packed aisle into a leader in life science tools, and that we are on track to becoming casual-positive by the end of 2026.

Operator: And with that, I'd like to open up the call to Q&A, Operator. We will now begin the question-and-answer session to ask a question you may press star than one on a touch-tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. Also please let me yourself to one question and one follow-up, ReQ, to ask additional questions.

Speaker Change: To me the most interest that could actually really scale to the next level.

Christian Henry: Yeah, so we're in the clinical market, and our strategy is to, you know, develop products and applications and kits and technologies that really compete and do things that short-read sequencing can't do very well, first and foremost, and use that as a beachhead to get into those accounts and then demonstrate that the power of HiFi can supplant, you know, even short-read sequencing. This is evident, for example, at BioCentia in Germany, where they're converting many tests into one HiFi whole genome test, and they're eliminating, and for them, economically, it makes incredible sense because they're eliminating all of these other tests and using a long-read whole genome to get the result.

Speaker Change: Yeah. So we're in the clinical market our strategy is to.

Speaker Change: Developed products and applications.

Speaker Change: And kits and technologies that.

Speaker Change: That really compete and do things that shortly shortly sequencing can't do very well first and foremost and use that as a beachhead to get into those accounts and then demonstrate that the power of hi Fi can supplant.

Tom: The first question comes from Dan Brennan with TD Cowan, please go ahead. Hi, this is Tom on for Dan. Thanks for taking the question today. I want to focus on your consumables and for the back half of the year, looks like you're taking a more measured look at that. I want to understand maybe given the install base a bit more mature, and a lot of the new to pack, or customers that are new to pack bio, kind of what gives you confidence coming into 2025 that you do get that utilization up, and maybe talk through a bit of that sample comment you made.

Speaker Change: Even short read sequencing. This is evident for example, a biosensor in Germany, where they're they're converting.

Christian Henry: This is evident, for example, a biosensia in Germany where they're converting many tests into one high-fi whole genome test, and they're eliminating, and for them economically it makes incredible sense because they're eliminating all of these other tests and using a long range of whole genome to get the result. And so our strategy is to penetrate with applications that are difficult for short-reeds to accomplish, if not impossible, and then spread by demonstrating our value, you know, our value proposition and our competitive costs and economics across the entire workflow. So that's the fundamental strategy. The early applications where we're seeing the most traction are, of course, in rare and undiagnosed disease, where we're seeing, you know, institutes like Children's Mercy continue expanding their fleet, and they've now, they're now using a high-fi whole genome as the first line diagnostic for these kids coming in with rare disease, which is just, quite frankly, very gratifying and quite remarkable.

Speaker Change: Many tests into one hi Fi whole genome test and they are in their eliminating and for them economically it makes incredible sense, because they're eliminating all of these other tests and using a longer you get the whole genome to get the results and so our strategy is to penetrate with applications.

Christian Henry: And so our strategy is to penetrate with applications that are difficult for short-reads to accomplish, if not impossible, and then spread by demonstrating our value, you know, our value proposition, and our competitive costs and economics across the entire workflow. So that's the fundamental strategy.

Speaker Change: That.

Speaker Change: That are difficult for short reach to accomplish if not impossible and then and then spread by demonstrating our value our value proposition and our competitive cost and economics across the entire workflow. So that that's the fundamental strategy. The early applications, where we're seeing the most traction are.

Tom: Anyone on the preferred marks? Thanks very much. Sir, thanks for the question. So, you know, I think the, what we saw in the second quarter was we did have a reasonably good, consumable result and we saw some, you know, some pretty exciting pockets, such as what's happening in Europe right now. And what gives me some, some confidence that we're seeing, you know, we're seeing those trends and we expect those trends to continue is really a couple of different things.

Christian Henry: The early applications where we're seeing the most traction are, of course, in rare and undiagnosed diseases, where we're seeing, you know, institutes like Children's Mercy continue expanding their fleet, and they've now, they're now using a HiFi whole genome as the first-line diagnostic for these kids coming in with rare diseases, which is just, quite frankly, very gratifying and quite remarkable. We're also seeing customers interested in various long-read panels, particularly carrier testing, where we can do, where we can, you know, long-read sequencing can be much more effective at many different disorders or potential diagnostic problems when thinking about having a baby than what short-read sequencing can do.

Speaker Change: Of course in rare and undiagnosed disease, where we're seeing.

Speaker Change: Institutes like children's Mercy to continue expanding their fleet and they've now they're now using a hi Fi whole genome as the first line diagnostic for these kids coming in with rare disease, which is just quite frankly very gratifying is quite remarkable.

Tom: You know, first, we're seeing customers that have been in low utilization, the yield low utilization bucket, which are traditionally the new customers are actually moving into kind of the mid utilization bucket and then in some even into the higher utilization bucket. And what we're seeing is in the mid and high utilization in the second quarter is we actually saw higher consumable poultry. That higher consumable poultry is really related to larger projects that are starting to get up to speed, which we announced the number of those.

Christian Henry: We're also seeing customers interested in panel, various long-range panels, particularly in carrier testing where we can do, where we can, you know, long-range sequencing can be much more effective at many different disorders for potential diagnostic problems when thinking about having a baby than what short-reeds sequencing can do. And then the third is this whole genome approach where you do a whole genome and you replace a battery of other tests. And so the combination of those is where we're seeing a lot of traction, and really we saw, you know, that was certainly one of the biggest bright spots for us in Q2.

Speaker Change: We're also seeing customers interested in panel various long read panels, particularly in carrier testing, where we can do where we can you know long read sequencing can be much more effective at many different disorders or potential diagnostic problems.

Speaker Change: In when thinking about having a baby than what short read sequencing can do and then the third is this whole genome approach, where you do a whole genome and you replace a battery of other tests and so the combination of those is where we're seeing a lot of traction.

Christian Henry: And then the third is this whole genome approach, where you do a whole genome and replace a battery of other tests. So the combination of those is where we're seeing a lot of traction, and really we saw, you know, that was certainly one of the biggest bright spots for us in Q2. Over time, we think we're going to see more oncology testing, particularly blood cancers using long reads. As we drive our sample input requirements down with the new radio consumable, that will enable us to do more than we ever have before as well. So, you know, we see the clinical opportunity as fundamentally really important. We're very focused on it right now by providing technologies that no one else really has, and we can do things that others can't.

Tom: And then some kinds of customers are starting to be, you know, those clinical type customers that run very consistent and have that consistent revenue stream. As we move into 2025, I fully expect us to see even more of that more cut more clinical customers adopting our long read technology because it can do things that short read technologies just can't do. And we're starting to see, you know, more of the big more of the big projects.

Speaker Change: And really we saw that was certainly one of the biggest bright spots for us in Q2 over time, we think we're going to see more oncology testing, particularly in the blood cancers using long reads.

Christian Henry: Over time, we think we're going to see more oncology testing, particularly in the blood cancers using longer AIDS. As we drive our sample input requirements down with the new radio-consumable, that will enable us to do more than we ever have before as well. So, you know, we see the clinical opportunity as fundamentally really important. We're very focused on it right now by providing technologies that no one else really has, and we can do things that others can.

Speaker Change: As we drive our sample input requirements down as with the new radio consumables that will enable us to do to do more than we ever have before as well. So we see as a critical opportunity is as fundamentally really important we're very focused on it right now.

Tom: Now, in the second quarter and for 2024, there is a mitigating factor, one of the large projects in the United States. We've lost a lot of its funding or most of its funding, which will impact our, you know, our 20 back app of 2024 some, but on balance, we're seeing more consumable utilization and more consumable usage, which I think both well for future instrument pull through and, you know, improving significant improvement from where we are today. Thanks.

Speaker Change: By providing providing technologies that no one else really has and we can do things that others can't.

Sung Jinam: Thank you.

Speaker Change: Thank you.

Sung Jinam: And the next question comes from Sung Jinam with Scotia Bank. Please go ahead. Hi, thanks for taking the questions. A lot of my questions have been answered.

Sung Ji Nam: And the next question comes from Sung Ji Nam with Scotiabank. Please go ahead.

Speaker Change: And the next question comes from sung <unk> Nam with Scotiabank. Please go ahead.

Sung Ji Nam: Hi, thanks for taking the questions. A lot of my questions have been answered, but just wondering about your existing SQL customers, and this might be, you know, I might not be doing the maps fast enough, but the ones that have not converted yet to Revio that are kind of waiting for funding or whatnot, are they still utilizing consumables kind of at a pretty steady rate, and do you expect them to continue to do so, or has there been any slowdown? you know, in terms of consumable pull through for that segment of your customers.

Speaker Change: Hi, Thanks for taking the question a lot of my questions have been answered, but just wondering about the your existing sequel customers and this might be you know I might not be doing the math fast enough, but the ones that have not converted yet to read the hours that are kind of waiting for funding or whatnot are they.

Sung Jinam: But just wondering about your existing SQL customers, and this might be, you know, I might not be doing the maps fast enough, but the ones that have not converted yet to radio that are kind of waiting for funding or whatnot, are they still utilizing consumables kind of at a pretty steady rate, and do you expect them to continue to do so? Or has there been any slowdown in terms of consumable pull-through for that segment of your customers? Yeah, I mean, the customers that are still SQL users are generally using their instruments. You know, the, the, the poll through of the install base has gone down, down, you know, down some, so they are using them less, but the reality is they're still using consumables; they're still regularly using them.

Christian Henry: And if I could just just follow up on that kind of on that kind of pop seek topic. You know, some experts we've spoken to are excited about the ability to run, you know, larger scale studies on on lower coverage, but that they've run into some sentiment in the community that people are still focused on doing a 30x that genome. I guess what do you think changes that and over what time frame do you think that changes?

Speaker Change: So utilizing consumables.

Speaker Change: Kind of at a pretty steady rate.

Speaker Change: Do you expect them to continue to do so or has there ever been any slow down into.

Christian Henry: Well, it's interesting. You know, this has been one of the big questions that we've had to address over the last few years. If you, you know, for those of you that have been following this space for a long time, you know, 30x has been around and was really somewhat of an arbitrary, you know, level of coverage. And as we know in the real world, customers do experiments at a whole range of coverage is some much higher than 30x and so much lower than 30x.

Christian Henry: But what we've done is a pretty extensive titration experiments comparing pack by a high five sequencing to other technologies that 30x and lower. And what we consistently see is that customers are very comfortable, you know, below 20x even comparing a high five genome to an alternative genome. And so I think I think the community has more papers continue to get published with those lower coverage levels that will build more, more confidence.

Speaker Change: In terms of consumable pull through for that for that segment of your customers.

Christian Henry: Yeah, I mean, what the customers that are that are still SQL users are generally using their instruments. You know, the pull through of the install base has gone down, down some.

Speaker Change: Yeah, I mean, the customers that are.

Speaker Change: That are still sequel uses are generally using their instruments.

Speaker Change: You know the the <unk>.

Speaker Change: All through.

Speaker Change: Of the installed base has gone down.

Speaker Change:

Christian Henry: So they are using them less, but the reality is they're still using consumables, they're still regularly using them. And I would expect, over time, they will move on to Revio, or they'll move on to the low throughput system when that's available. I would suspect some of those same customers are also outsourcing maybe perhaps their bigger projects to Revio, Revio Core Labs, which is okay, but it's another indication that we need to keep pushing long read samples into the market so we can drive so that we can really take advantage of the throughput and the capability of the radio.

Speaker Change: Yeah down some so they are using them less but the reality is they are still using consumables were still regularly using them.

Christian Henry: And, you know, I would expect over time, you know, they will, they will move on to radio or they'll move on to the low throughput system when that's available. I would suspect some of those, some of those equal customers are also outsourcing, maybe perhaps the bigger projects to Radio, Radio Core Labs, which, which is okay. But it's also, it's another indication that we need to keep pushing, you know, long read samples into the market so we can drive so that we can really take advantage of the throughput and the capability of the radio system. Gotcha.

Speaker Change: And I.

Speaker Change: I would expect over time.

Speaker Change: It will they will move on onto radio or they'll move on to the low throughput system when that's available.

Speaker Change: I would suspect some of those some of those people customers are also outsourcing maybe perhaps the bigger projects to radio radio core labs.

Christian Henry: But, you know, even if the coverage stays at 30x, we continue to improve the radio system. I talked about, you know, really for the first time today talked about new consumables that we will be shipping. You know, shipping at the end of this year, roughly, that will significantly improve the throughput of the radio, which will drive the cost for gigabase down even further and also significantly lower the DNA input amounts. I'm not going to give too many of the specifics today because we want we want to stay that for when we get in front of customers, but, but it is quite exciting.

Speaker Change: Which which is okay, but it's also it's another indication that we need to keep pushing long read samples into the market. So we can drive.

Speaker Change: So that we can really take advantage of that the throughput and the capability of the radio system.

Christian Henry: Gotcha. And then just on the low throughput long read, just as a clarification, that's what you used to call the benchtop long read sequencer. Is that correct?

Speaker Change: Gotcha.

Christian Henry: And then just on the low throughput, long read, just as a clarification, that's the what you use to call bench top, long read sequencer, is that correct? And then, sorry, if I missed it, what's the timing in terms of the launch there? And is that a platform where you expect to do some sort of an early access program to get a sense of kind of the customer feedback, or is that something that you can just launch and it's a, you know, plug-and-play? Yeah, so the low throughput system is certainly the bench top system; you're right, maybe we should use that terminology.

Speaker Change: And then just on the the low throughput long read just as a clarification. That's what you used to call. It bench top long read sequencing or is that correct and then.

Christian Henry: And then Sorry if I missed it, but what's the timing in terms of the launch there, and is that a platform where you expect to do some sort of an early access program to get a sense of kind of customer feedback, or is that something that you can just launch and it's plug and play? Yeah, so the low throughput system is certainly... The benchtop system. You're right; maybe we should have used that terminology.

Speaker Change: Sorry, if I missed it but what's the timing in terms of the launch there and is that a platform where you expect to do some sort of an early access program.

Speaker Change: If you get a sense of kind of customer feedback or is that something that you think this launch and it's a plug and play them.

Christian Henry: And so we have the, you know, we are continuing to increase the throughput. We have the throughput, which will drive the cost for gigabase down, which will give customers even more flexibility, whether they want to sequence at 10X, 20X, 30X, 50X, whatever they, whatever they decide.

Speaker Change: You know, yes, so the luxury the low throughput system is certainly.

Speaker Change: The bench top system, you're right, maybe we shouldn't use that terminology.

Christian Henry: With respect to an early access program, you know, the reality is that it uses the, the bench top system uses the exact same consumables as the radio. So it uses, you know, the 25M flow cell or Smart Cell as the principle tool there. And so we expect, you know, we expected to basically it's going to work with all applications straight out of the box. So I don't think we'll have a very extensive early access program. I think we'll go pretty much straight to market. We're deep in our development right now.

Christian Henry: With respect to an early access program, the reality is that the benchtop system uses the exact same consumables as the Revio, so it uses the 25M smart cell as the principal tool there. And so we expect it to basically work with all applications straight out of the box, so I don't think we'll have a very extensive early access program. I think we'll go pretty much straight to market.

Speaker Change: With respect to an early access program you know the reality is is that it uses the benchmark system uses the exact same consumables as the ABL.

Yuko: And the next question comes from Tejas Surant with Morgan Stanley. Please go ahead. Hello, this is Yuko on the call for Tejas. Thank you for taking our questions. Could you provide early feedback on the new pack bio capital program announced? And provide indicators that make you believe that access to capital is the key hurdle for reveal placements rather than the excess capacity enabled by substantially higher throughput with reveal? Yeah, so we, you know, several several of the of the 24 systems that we closed in Q2 were under our various promotional programs.

Speaker Change: So it uses the twenty-five them flow cell are smart cell as the.

Speaker Change: Principal.

Speaker Change: Tool there and so we expect.

Speaker Change: We expect it to basically it's going to work with all applications straight out of the box. So I don't think we'll have a very extensive early access program I think will goes pretty much straight to market. We're deep in our development right now we haven't we haven't announced the launch date, so I'm not going to use an earnings call to do that but.

Christian Henry: We're deep in our development right now, and we haven't announced the launch date, so I'm not going to use an earnings call to do that. But I do think it is a mission-critical platform for us. We've made a lot of progress, and we're not that far away.

Yuko: Some of those are through the pack bio capital. You know, we announced a new program last week with the DC capital where there's no reagent commitment and it's just a straight rental, which is great for some research, some research organizations. And, you know, the reason why we feel it's still more capital driven than excess capacity in the market is that, you know, when we go through the instruments that didn't close in the quarter that we were hoping to close.

Christian Henry: We haven't, we haven't announced the launch date, so I'm not going to use an earnings call to do that. But, but I do think, you know, it is a mission critical platform for us. We've made a lot of progress, and we're not that far away. Super helpful.

Speaker Change: But I do think.

Speaker Change: It is it is a mission critical platform for US we've made a lot of progress and we're not that far away.

Speaker Change: Super helpful. Thank you.

Matthew Sykes: Thank you.

Christian Henry: And the next question comes from Matt Sykes with Goldman Sachs. Please go ahead. Thank you, definitely. And thank you for taking my questions. Just interesting time. We've got two quick ones. I'll ask them both up front. The first one's just Christian on ASPs. You've made a couple of mentions of higher ASPs in a quarter. One, what's driving that higher ASP? What are your expectations of ASPs going in the back half? And just given the mix of programs, you have to onboard customers. Is there any particular program that's driving that? And then secondly, just on the demand and your comments on re-acceleration in the back half, you outlined a couple of points for Q2 that are hurting demand, to which the delays in procurement and the sample volumes.

Christian Henry: And the next question comes from Matt Sykes with Goldman Sachs. Please go ahead.

Speaker Change: And the next question comes from Mac Sykes with Goldman Sachs. Please go ahead.

Matt Sykes: Hey, good afternoon. Thanks for taking my questions. Just in the interest of time, I've got two quick ones. I'll ask them both up front. The first one is just Christian on ASPs.

Yuko: Almost all of them are the vast majority were due to funding constraints or timing around the funding and not not the decision to purchase because they have too much capacity. Now, in some cases with some service providers, that's certainly the case where, you know, they they required a reveal and it's, you know, so much more powerful than the sequel to read that it takes them time to order their second reveal, but, but we still see, you know, we still see quite frankly in the in the deals that didn't close in the second quarter, the vast majority were funding related and timing of receiving that funding.

Mac Sykes: Hey, good afternoon. Thanks for taking my questions just interest of time I think it's got two quick ones I'll ask them. Both upfront first one is just a question on Asps as you've made a couple of mentions of Paris based piece in the quarter, one whats driving that higher ASP. What are your expectations of ACP is going in the back half and just given the mix of programs you have to onboard.

Matt Sykes: You've made a couple of mentions of higher ASPs in the quarter. One, what's driving that higher ASP? What are your expectations of ASPs going into the back half? And just given the mix of programs you have to onboard customers, is there any particular program that's driving that? And then secondly, just on demand and your comments on reacceleration in the back half, you outlined a couple of points for Q2 that are hurting demand, two of which are delays in procurement and sample volumes. Do you expect those to improve, or do you expect more to persevere through those issues that could last throughout the course of the year? Thanks.

Speaker Change: Customers is there any particular program thats driving that and then secondly, just on the demand and your comments on Reacceleration in the back half.

Speaker Change: Outline a couple of points for Q2 that are that are hurting demand to which the delays in procurement and the sample volumes do you expect those to improve or do you expect more to persevere through those those issues that could.

Christian Henry: Do you expect those to improve, or do you expect more to persevere through those issues that could last throughout the course of the year? Thank you.

Speaker Change: Throughout the course of the year.

Christian Henry: Yeah, good questions, Matt. You know, first of all, ASPs were hired. ASPs are going to vary from quarter to quarter. The reason why I highlighted that on the call was I just wanted to point out that, you know, ASPs, although we didn't have a great unit quarter relative to our internal expectations, we also didn't give away the farm to get to the numbers that we got to. And that was important.

Christian Henry: Good questions, Matt. First of all, ASPs were higher. ASPs are going to vary from quarter to quarter. The reason why I highlighted that on the call was I just wanted to point out that ASPs, although we didn't have a great unit quarter relative to our internal expectations, we also didn't give way to farm to get to the numbers that we got to. That was important. I think that ASPs will probably stick around the same range we're in right now, give or take, for the rest of the year. The promotional programs; we know what's important about those.

Matt: Yeah, good questions Matt.

Speaker Change: You know first of all Asps were higher asp's are going to vary from quarter to quarter.

Speaker Change: The reason why I highlighted that on the call was I just wanted to point out that.

Yuko: Thank you for that color and then separately last quarter, you talked about improvement improvements in manufacturing, providing you the flexibility to lower this price on also flow cells. Have you passed on any of the cost leaving from manufacturing improvements to customers to catalyze greater adoption? We certainly have, you know, with respect to on so in particular, we've done a couple of things we, we've, you know, introduced promotional pricing in late May with respect to the capital and now, you know, right now you can trade in any other NGF system and get a 99 K on so, but we've also lowered the cost per gigabase to now as low as $4 and when we launched the product, we launched it at $15 a day.

Speaker Change: S P.

Speaker Change: Although we didn't have a great unit quarter relative to our internal expectations. We also didn't give away the farm to get to the numbers that.

Speaker Change: We got two and that that was that was important.

Christian Henry: I think that ASPs will probably stick around in the same range we're in right now, give or take for the rest of the year. The promotional programs. Do you know what's important about those? Usually, what happens is you get some deals on those promotional programs, but the most important part of these promotions is it gives us opportunities to market the products, and it drives building the funnel, and drives interest. Some customers can take advantage of the promos, like we have a promo now where you don't pay any money down for the instrument, but you have to take a certain amount of consumables every month, so to speak, and basically, the price of the instruments is baked into the price of the consumables.

Speaker Change: I think that ASP will probably stick around the same range. We're in right now.

Speaker Change: It would take for the rest of the year.

Speaker Change: <unk> promotional programs now what's important about those usually what happens is you get some deals on those promotional programs, but the most important part of this promotion is it gives us opportunities to market the products and get it drives building the funnel drives interest some customers are.

Christian Henry: Usually what happens is you get some deals on those promotional programs, but the most important part of these promotions is it gives us opportunities to market the products and get a drives building the funnel drives interest. Some customers can take advantage of promos, like we have a promo now where you don't think you have to pay any money down for the instrument, but you have to take a certain amount of consumables every month, so to speak, and basically the price of the instruments is baked into the price of the consumables. Some customers can do that because they have a steady stream and they know where they know where they're going.

Speaker Change: Can take advantage of the promos like like we have a promo now where you don't pay any money down for the instrument, but you have to take a certain amount of consumables every month so to speak.

Yuko: So yes, we've taken some of that benefit by frankly the majority of that benefit and pass it on to our customers to drive adoption with respect to on so. And, you know, to kind of go back to the long report folio, we certainly are doing the some of the same things, you know, our yields have been improving on consumables which are helping to drive our ability in bigger projects to give very nice pricing.

Speaker Change: And basically the price of the instruments baked into the price of the consumables. Some customers can do that because they have a steady stream and they know where they.

Christian Henry: Some customers can do that because they have a steady stream and they know where, you know, they know where they're going. Other customers can't because they run from project to project and they worry that, you know, that they may not have a use for the consumables in, you know, the off month, so to speak. That's why I'm so excited about this Mitsubishi program, where it's a straight rental.

Speaker Change: They know where theyre going other customers can't because they run from project to project and they worry that that they may not have a use for the consumables.

Christian Henry: Other customers can't because they run from project to project, and they worry that they may not have a use for the consumables in the off month, so to speak. That's why I'm so excited about this Mitsubishi program where it's a straight rental. I haven't seen that done very much in our field in the past, and so that'll be interesting to see how research customers take that up. But either way, it's a really good way for people to for us to get out there and be in front of our customers, demonstrating flexibility and driving sales. With respect to the challenges with accelerating demand, procurement, and numbers of samples, I think procurement is an area where you just have to persevere.

Speaker Change: In other in the off months so to speak.

Yuko: But also, you know, drive better margins over time and, you know, Susan pointed out and probably one of the things the operations group is especially proud of is they've significantly taken the cost of revenue out production costs of revenue down and that, you know, that's resulting a lot more price flexibility. Turns out in the second quarter, we really didn't we really didn't need that. We, you know, we, we, the ASPs are up a bit, but it is part of our whole plan to get the capsule break even drive our gross margins up and I think you're seeing early indications, you know, with the 400 basis point improvement this quarter that, you know, we're on a path to make that.

Speaker Change: That's why I'm. So excited about this Mitsubishi program, where it's a straight rental.

Christian Henry: I haven't seen that done very much in our field in the past. And so it'll be interesting to see, you know, how research customers take that up. But either way, it's a really good way for people to, for us to get out there and be in front of our customers, demonstrating flexibility and driving sales. With respect to kind of the challenges with accelerating demand, you know, procurement and numbers of samples, I think procurement is an area where you just have to persevere.

Speaker Change: I haven't seen that done very much in our field in the past and so that'll be interesting to see.

Speaker Change: How research customers.

Speaker Change: I picked that up but either way, it's a really good way for people to.

Speaker Change: For us to get out there and be in front of our customers demonstrating flexibility.

Christian Henry: Thank you.

Speaker Change: And driving sales with remain with respect to kind of be the challenges with with accelerating demand.

Speaker Change: Pyramid and numbers of samples I think procurement is an area where you just have to persevere I think the rest I think the capital market as well.

Christian Henry: I think the capital market is the market for capital equipment is going to still be tough, probably going to be tough all next year, and perhaps even in the next year, so we just have to be very much in tune with our customers and understand everything it takes to get a sale done and through the pyramid process so that we can number one forecast accurately, but number two, accelerate the deals as fast as we practically can. With respect to samples, I think samples are continuing to increase. One of the metrics Todd kept talking to me about was the fact that we sequenced radio. We sequenced over 2.2 fold more sequenced in the last year when you compare on a year over your basis.

Christian Henry: I think the rest of the capital market is, the market for capital equipment is going to still be tough. It's probably going to be tough all next year and perhaps even next year.

Speaker Change: The market for capital equipment is going to still be tough, it's probably going to be tough all next year and perhaps even to next year.

Ricky: And the next question comes from Soudi Nambi with Guggenheim. Please go ahead. I apologize, Soudi.

Christian Henry: So we just have to be very much in tune with our customers and understand everything it takes to get a sale done and through the pyramid process so that we can, number one, forecast accurately, but number two, accelerate the deals as fast as we practically can. With respect to samples, I think samples are continuing to increase. You know, one of the metrics Todd kept talking to me about was the fact that we sequenced, you know, the Revio, we sequenced over 2.2 times more sequences in the last year when you compare on a year-over-year basis.

Speaker Change: In the next year. So we just have to be very much in tune with our customers and understand everything it takes to get a sale done in 300 experiment process. So that we can number one forecast accurately but number two accelerate the deals is as fast as we practically can with respect to samples I think.

Christian Henry: Can you please repeat your question there? Sure. This is Ricky on for Soudi as Guggenheim. Thanks for taking our question. You mentioned that you're expecting a 20% reduction in the radio instrument and consumable costs by the end of the year, and you're expecting that to continue beyond 2024. So how much more room is there to reduce the costs from there? And then with respect to the source of the cost reduction, how much of this is due to scaling up production volumes and how much of it is from more production based actions that you could carry across to other products as you launch them.

Speaker Change: Samples are continuing decrease one of the one of the metrics Todd Katz.

Todd Katz: Talking to me about was the fact that we sequenced.

Todd Katz: Yes, it would be sequenced over $2 two fold more sequence.

Todd Katz: In the last in the last year, when you compare on a year over year basis.

Christian Henry: That's dramatic, and it shows that Longreads, you know, it demonstrates that Longreads really are taking hold in the market and becoming a very important part of the market. What we, I do think more and more samples are coming into the market, and so that one, I think, can be, you know, will be rectified probably much faster. And also, as we continue to develop new applications, those new applications drive even more samples.

Christian Henry: That's dramatic, and it shows that long reads, you know, demonstrate that long reads really are taking hold in the market and becoming a very important part of the market. What we, I do think more and more samples are coming into the market, and so that one I think can be, you know, will be rectified probably much faster, and also as we continue to develop new applications, those new applications drive even more samples. When we talked about with the radio, new radio consumables that are coming, the DNA input requirements are going to go down very, very significantly, and that is also going to drive more samples into the radio platform.

Speaker Change: That's that's dramatic and it shows that long read demonstrates that long reads really are taking hold in the market and becoming a very important part of the market.

Speaker Change: I do think more and more samples are coming into the market and so that one I think can be.

Christian Henry: Yeah, that's a great question. And Ricky, you know, to be clear, we talked about a 20% drop in radio production costs, not that consumables per se. The consumables are going down as well. So, you know, we're going to see significant improvements. Those are both durable improvements that will persist and they were not due to not really due to increases in manufacturing volumes. They on the radio instrument side, the reductions are due to innovation that we've been able to do to take, you know, move the bomb and make the bomb less expensive.

Speaker Change: You know will be rectified, probably much faster and also as we continue to develop new applications. Those new applications are drive even more samples and we talked about with the <unk> New radio consumables that are coming the DNA input requirements are going to go down very very significantly.

Christian Henry: And we talked about how with the new Revio consumables that are coming, the DNA input requirements are going to go down very, very significantly, and that is also going to drive more samples into the Revio platform. So I'm much more bullish on samples coming into the market than solving the procurement challenge.

Speaker Change: And that is also going to drive more samples into the directly a platform. So I'm much more bullish on samples coming into the market and solving the procurement challenge to be honest got it very helpful. Thanks Christian.

Christian Henry: So I'm much more bullish on samples coming into the market than solving the procurement challenge. I got it. Very helpful. Thanks, Christian. Yes.

Matt Sykes: Got it. Very helpful. Thanks, Christian.

Speaker Change: Yep.

Operator: Thank you, Matt.

Matt: Hey, Matt.

Todd Friedman: Okay, this concludes our question and answer session. I would like to turn the conference back over to Todd Friedman for any closing remarks.

Todd Friedman: Okay, this concludes our question in the answer session.

Matt: Okay. This concludes our question and answer session.

Operator: I would like to turn the conference back over to Todd Friedman for any closing remarks. Thanks, Dave, and thank everybody for the questions in the time today. We look forward to connecting with many of you later this quarter at the various conferences, and we'll talk soon. Take care.

Christian Henry: So that's improved algorithms which drive less the requirements for less compute or less cheap pure GPUs, which drive costs down. They also include manufacturing changes in how we manufacture, you know, the relationship between RC or contract manufacturing ourselves, we're enforcing more of the production. And as a result, we're able to eliminate the margin that our contract manufacturer would receive, which is substantial and will still have a very high quality product and meet the production on the consumable radio consumables side.

Matt: I'd like to turn the conference back over to Todd Friedman for any closing remarks.

Todd Friedman: Thanks Dave and thanks everybody for the questions and the time today. We look forward to connecting with many of you later this quarter at the various conferences, and we'll talk soon.

Todd Friedman: Sure Thanks, David and thanks, everybody for the questions and the time today.

Todd Friedman: We look forward to connecting with many of you later this quarter at the various conferences and we'll talk soon take care.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may not.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Matt: Yeah.

Christian Henry: You know, the benefits we're seeing, we're seeing increased yields and so yields have been improving, which are a direct impact on on the level of cost. And then we have, you know, we're tightening up our supply chain, which is also giving us benefits. So, you're seeing durable impacts that will persist into or persist into 2024 and beyond. I think the one thing that I'll add to that as well is that are restructuring.

Christian Henry: It also entailed a restructuring of our service organizations, which enabled us to take out some costs, which is, again, structural going forward in terms of us being able to support more service revenue on a lower cost base, which is going to help improve our growth margin. Yeah, that's a good point, Susan. Great. Thank you. And just as a follow up, can you confirm how much of those cost reductions are baked into your guidance?

Christian Henry: Well, we certainly are anticipating them, and they're very real. So they're generally in our guidance right to you. That's right. And so, Christian, I talked about enforcing a key component, which we initiated in Q2. There are other ideas that our manufacturing team has that were more confidence that we're going to enforce more. A lot of that is not baked into our guidance. It could be outside for this year, but if not, it'll come into 2025. But we still have improvements in reducing the bomb that is embedded in our guidance that is reflected in the graph that you see in the earnings. Thank you.

Jack Meehan: Next question. Next question comes from Jack Meehan with an Efron research. Please go ahead. Hi, thanks. Good afternoon. One is to ask Christian, just about your confidence around growing sales sequentially in the year end. Even if you land at the low end of 170 million, I think that implies something like 45-50 million per quarter in the back half. So it's just curious, did you build any backlog in the quarter or is this just really like timing?

Jack Meehan: You can see the orders and they're going to start coming in in a second. Yeah, it's a good question, Jack. We did actually our book to build ratio was over one in the quarter. So we did build a little bit of backlog. But really, we see the sales funnels and we have building confidence that our consumables are going to grow and that instruments are expected to improve from where we are right now.

Jack Meehan: I would expect a third quarter to be, you know, lower than the fourth quarter and also, you know, in the third quarter, we may see some government year end spending as well as in the fourth quarter kind of general year end spending. So that might help us. And actually, if you look at the mix of revenue for the year versus, you know, most other years. It's not really that far out of line.

Jack Meehan: Typically, you know, you see 45-55 or in terms of percentages of the year. We're not that far off from those kinds of metrics. So, you know, if you look at the past, it's not unreasonable to kind of think of how this is going to play out. And if you look at the detailed sales funnel, you know, we see we see radio, instrument placements improving. We see, you know, the on so funnel is significantly bigger than it's been, which should help.

Jack Meehan: And then also the consumables, you know, we're getting more. Of course, we had nice, nice bookings in Q2. Some of those, you know, a lot of those will ship in Q3 and all through all, you know, for the next 12 months is more customers are getting on. Standing purchase agreements, which allows us to really have so much better visibility into the consumer members. So, so we have building confidence, you know, the economic environment is still tough.

Jack Meehan: I think most of our peers have been talking about a tough capital environment on their call to squatter. We don't see, I mean, we think it's going to be difficult the rest of the year. And when we, when we considered our guidance, you know, we considered it was still going to be tough. Great. And just one follow up is the, you know, you know, the build of revenue into your end. Is this predominantly coming from revio?

Jack Meehan: I know you talked about the new program is a release on so for trade ins. Is there any color you can share on what's embedded for on so in terms of second half versus first half? Thank you. Yeah, I think, I mean, also, we haven't we don't break out on so revenue, but answer revenue is forecast to be significantly better than it was in the first half. So that will, you know, when you look at growth, that will be one of our fastest growth areas if our forecast hold.

Jack Meehan: But the most, you know, on a relative basis, right, the revio instruments, a lot more revenue per unit. And so I would expect. Radio instrumentation, as well as the scale up and growth and consumers, those will be the predominant drivers of growth in the back up. Thank you. And the next question comes from Doug Schneekle with Wolf Research. Please go ahead. Hi, this is Madeline Mollman on Sir Doug. Chris Merding improvement is one of the key to financial viability of Pac-Bio.

Jack Meehan: Just wondering, how are you thinking about the exit rate for gross margin, giving that you now expect to be at the low end of the guide? Susan, you want to ask about it? Yeah, so you're right that we had guided the year's gross margins to be at the low end of the 35 to 38 percent gross margins. And our gross margins, we are structurally reducing the cost base of manufacturing our instruments and our consumables.

Jack Meehan: And it's very much front and center when we think about the new products we're developing and what components we include and how we think about the pricing and margin at launch. And so overall, gross margins will expand as our revenue grows. That's 35 percent. Of course, if you look at how we've done in the first half, does assume that there's some fluctuation quarter to quarter. And as my prepared remarks describe, sometimes you do have some fluctuations in gross margins related to AFP mix, customer project mix, revenue mix.

Jack Meehan: That can change some of the quarter to quarter gross margins. But I think some important takeaway is that structurally our cost base is coming down, such that when you look at 25 and 26 as our revenue continues to grow, our gross margins will expand and will get nice leverage on our gross margin as our revenues continue to grow. I think one thing I would add to that is, you know, revenue mix is essential here.

Jack Meehan: You know, pack bio for its entire distance has been so dependent on instruments, which carry lower gross margins than consumables. And, you know, radio for the first time truly gives us the ability to have, you know, to generate consumable revenues that are high enough that really positively contribute to the gross margins. So we may exit 20, you know, the year 24, you know, kind of at the lower end of the guidance, you know, when you look at the whole year, as consumables continue to grow, that will provide a natural uplift.

Jack Meehan: Also, you know, we fully expect the new products that were developing to carry higher gross margins than than our existing products. And so those will all be contributing to if you start to look at, you know, 2025 and 2026. It's a front and center issue for us. No question about it. Great. Thank you. And the next question comes from David Westenberg with Piper Sandler. Please go ahead. Hi, this is John on for Dave.

Jack Meehan: Thanks for your technical question. First, I'd just like to ask about your head count reduction. Could you give any thoughts on how confident you are that the reduction won't impact fails growth? Thank you. Well, you know, I think you asked you asked a question for sales growth in the head count reduction specifically. And so I'll address that first, but you know, we did make we did make cuts across the organization and truly the sales impact sales organization was impacted some.

Jack Meehan: But it was less impacted than some of the other groups. And so, you know, we spent a lot of time building out a commercial infrastructure to support the long run of the company. And what we've done is in this last restructuring, we reorganized the commercial organization a bit so that we can have fewer stand and layers and have much more executive touch so to speak at, you know, with the customers directly.

Jack Meehan: And so I feel pretty confident that that's that's helping and that's driving conversations. Of course, you too is when we executed all this. So we'll see over the next few quarters how we do. But, but the early signs are pointing to that we are we are maintaining those customer relationships with those new relationships. And we are acting faster, which is encouraging. If you look at the rest of the business, you know, we also cut very significantly across R&D, but we were very focused on focusing, making sure that we invested appropriately in the near term revenue driving projects like the new platforms and those new platforms, you know, are fully staffed and we're making great progress.

Jack Meehan: And, you know, quite frankly, when you look at Q2, the revenue result was not what we expected, but the R&D result was was actually ahead of what I was expecting. And so I'm very excited about the progress for making even though we had to make some very painful decisions with respect to the restructuring. Thank you. And if you could give any thoughts that you have on what the pipeline that looks like for population sequencing projects globally and what the appetite is for long-read sequencing generally, that'd be great.

Jack Meehan: Thank you. We respect the pipeline. We're still tracking many, many, many 10,000 plus sample projects that are working their way through the system. We are very happy to see some of the bigger projects get off the ground in Q2. So the Estonia Biobank Project started sequencing the Gregor Consortium Project started sequencing precise started sequencing. So those are all those are all strong projects that are going to that are really starting to scale.

Jack Meehan: We see lots of opportunities around the world and it really comes down to these projects take a long time to get the sample cohorts in place as well as all the funding and all of the infrastructure required to execute on them. But with respect to, you know, seeing more of those later this year, I wouldn't be surprised to see us announce some other projects this year. Certainly over the next, you know, certainly over the next 18 months, there are lots of projects and lots of fleet expansions that that we are seeing that I think are real, you know, opportunities for the company.

Jack Meehan: One thing I would say that is really encouraging and probably the brightest spot in the quarter is just the amount of clinical adoption we're starting to see is is is really fantastic. And it was, it was really driven off of we launched a new product called pure target, which is a panel, which a lot of the clinical diagnostic companies are leveraging that panel and creating their own versions of the panel to do everything from carrier testing to neurology and other other kinds of other kinds of clinical testing.

Jack Meehan: These, these are going to be, you know, very large customers over time for us that are expectation and they will be running thousands and thousands of samples, which will create a durable source of revenue. And I think that's happening on a timeline quite frankly faster than I would have expected. So encouraged by the population sequencing also very encouraged by sequencing uptake in general. I do think that we are still absorbing some capacity, you know, with particularly with the service providers and and kind of the classic academic core labs.

Jack Meehan: And so, you know, we're working hard with them to help them get projects so that they can fill their they can fill their instruments up and eventually we'll have the. The low throughput long read instrument, which will be a great complement to radio and we'll see I wouldn't be surprised to see many customers have radio and the low throughput instrument in their labs and then, you know, other customers, allowing a more distributed long read sequencing capability using high five with the low throughput instrument. So looking forward to getting that product out the door too. Thank you.

Christian Henry: Thank you very much.

Eve Burstein: And the next question comes from Eve Burstein with Burstein. I remember having a discussion with you on customers in China generally having very high utilization rate. Yesterday one of your competitors said that stimulus in China would not affect NGS while you mentioned that it could be actually tailwind.

Christian Henry: So how are the conversations going with these customers and potentially other customers in the region? And what do you guys expect with 2025, especially after a rough year in China, for everyone? I don't think the, you know, I think the funding, any stimulus funding, wouldn't necessarily be a tailwind. I think it's maybe perhaps a bit of a more of their terms and normalcy. You know, our business is very different than some of our competitors in China in particular in that we have several large service providers as our primary, primary customers and then they market out into the into the Chinese market and it's mostly a service business for us.

Christian Henry: The implications of that are that, you know, that we perhaps get more aggregated revenue into a concentrated customer base. Those service providers have been having a tough year this year, but we do think the stimulus just will add more projects, which will help those service providers. And as we get the low throughput instrument into the market as well, give the give other Chinese customers the opportunity for that for that low throughput instrument.

Christian Henry: If you look at the rest of Asia Pacific, you know, there are a few bright spots, but actually Asia Pacific as holds been pretty tough. Korea is not in very good standing. Japan is doing okay. The rest of, you know, Southeast Asia, at least for us is, is doing maybe just a bit below expectations, but not radically, not not radically strong either. So, you know, Asia is really a tough, tough market for us and overall this year, mainly driven by that China, the China challenge. Do I think 25 will be better than 24? I do think the stimulus will help some new products will help and, you know, we'll go from there. Okay, thank you.

Christian Henry: And another question I had. I saw from your graph and also from your comments actually the question partnership is going very well. You know, how do you stick with your strategy around clinical market and partnership? We've seen other like your main competitor having large partnership with even equity investments in there. How would you articulate your strategy in the clinical market? And what are the aside from neurological applications? What are the main areas in which you're seeing the most interest that could actually rescale and to the next level?

Christian Henry: Yeah, so we're in the clinical market, our strategy is to develop products and replicate and kits and technologies that really compete and do things that short-re sequencing can't do very well, first and foremost, and use that as a beachhead to get into those accounts and then demonstrate that the power of high-fi can supplant, you know, even short-re sequencing. This is evident, for example, a biosensia in Germany where they're converting many tests into one high-fi whole genome test and they're eliminating, and for them economically it makes incredible sense because they're eliminating all of these other tests and using a long range of whole genome to get the result.

Christian Henry: And so our strategy is to penetrate with applications that are difficult for short-reeds to accomplish if not impossible and then spread by demonstrating our value, you know, our value proposition and our competitive costs and economics across the entire workflow. So that's the fundamental strategy. The early applications where we're seeing the most traction are, of course, in rare and undiagnosed disease where we're seeing, you know, institutes like children's mercy to continue expanding their fleet and they've now, they're now using a high-fi whole genome as the first line diagnostic for these kids coming in with rare disease which is just quite frankly very gratifying and quite remarkable.

Christian Henry: We're also seeing customers interested in panel, various long-range panels, particularly in carrier testing where we can do, where we can, you know, long-range sequencing can be much more effective at many different disorders for potential diagnostic problems when thinking about having a baby than what short-reeds sequencing can do. And then the third is this whole genome approach where you do a whole genome and you replace a battery of other tests. And so the combination of those is where we're seeing a lot of traction and really we saw, you know, that was certainly one of the biggest bright spots for us in Q2.

Christian Henry: Over time, we think we're going to see more oncology testing, particularly in the blood cancers using longer AIDS. As we drive our sample input requirements down with the new radio-consumable, that will enable us to do more than we ever have before as well. So, you know, we see the clinical opportunity as fundamentally really important. We're very focused on it right now by providing providing technologies that no one else really has and we can do things that others can. Thank you.

Sung Jinam: And the next question comes from Sung Jinam with Scotia Bank. Please go ahead. Hi, thanks for taking the questions. A lot of my questions have been answered. But just wondering about your existing SQL customers and this might be, you know, I might not be doing the maps fast enough, but the ones that have not converted yet to radio that are kind of waiting for funding or whatnot, are they still utilizing consumables kind of at a pretty steady rate and do you expect them to continue to do so?

Sung Jinam: Or has there been any slowdown in terms of consumable pull-through for that segment of your customers? Yeah, I mean, the customers that are still SQL users are generally using their instruments. You know, the, the, the poll through of the install base has gone down, down, you know, down some, so they are using them less, but the reality is they're still using consumables, they're still regularly using them. And, you know, I would expect over time, you know, they will, they will move on on to radio or they'll move on to the low throughput system when that's available.

Sung Jinam: I would suspect some of those, some of those equal customers are also outsourcing, maybe perhaps the bigger projects to radio, radio core labs, which, which is okay. But it's also, it's another indication that we need to keep pushing, you know, long read samples into the market so we can drive so that we can really take advantage of the throughput and the capability of the radio system. Gotcha.

Christian Henry: And then just on the low throughput, long read, just as a clarification, that's the what you use to call bench top, long read sequencer, is that correct? And then, sorry, if I missed it, what's the timing in terms of the launch there? And is that a platform where you expect to do some sort of an early access program to get a sense of kind of the customer feedback, or is that something that you can just launch and it's a, you know, plug-and-play?

Christian Henry: Yeah, so the low throughput system is certainly the bench top system you're right, maybe we should use that terminology. With respect to an early access program, you know, the reality is, is that it uses the, the bench top system uses the exact same consumables as the radio. So it uses, you know, the 25M flow cell or smart cell as the principle tool there. And so we expect, you know, we expected to basically it's going to work with all applications straight out of the box.

Christian Henry: So I don't think we'll have a very extensive early access program. I think we'll go pretty much straight to market. We're deep in our development right now. We haven't, we haven't announced the launch date, so I'm not going to use an earnings call to do that. But, but I do think, you know, it is an, it is a mission critical platform for us. We've made a lot of progress and we're not that far away. Super helpful. Thank you.

Matt Sykes: And the next question comes from Matt Sykes with Goldman Sachs. Please go ahead. Thank you, definitely. And thank you for taking my questions. Just interesting time. We've got two quick ones. I'll ask them both up front. The first one's just Christian on ASPs. You've made a couple of mentions of higher ASPs in a quarter. One, what's driving that higher ASP? What are your expectations of ASPs going in the back half? And just given the mix of programs, you have to onboard customers.

Matt Sykes: Is there any particular program that's driving that? And then secondly, just on the demand and your comments on re-acceleration in the back half, you outlined a couple of points for Q2 that are hurting demand to which the delays in procurement and the sample volumes. Do you expect those to improve or do you expect more to persevere through those issues that could last throughout the course of the year? Thank you.

Christian Henry: Good questions, Matt. First of all, ASPs were higher. ASPs are going to vary from quarter to quarter. The reason why I highlighted that on the call was I just wanted to point out that ASPs, although we didn't have a great unit quarter relative to our internal expectations, we also didn't give way to farm to get to the numbers that we got to. That was important. I think that ASPs will probably stick around the same range we're in right now, give or take for the rest of the year.

Christian Henry: The promotional programs, we know what's important about those. Usually what happens is you get some deals on those promotional programs, but the most important part of these promotions is it gives us opportunities to market the products and get a drives building the funnel drives interest. Some customers can take advantage of promos, like we have a promo now where you don't think you have to pay any money down for the instrument, but you have to take a certain amount of consumables every month, so to speak, and basically the price of the instruments baked into the price of the consumables.

Christian Henry: Some customers can do that because they have a steady stream and they know where they know where they're going. Other customers can't because they run from project to project and they worry that they may not have a use for the consumables in the off month, so to speak. That's why I'm so excited about this Mitsubishi program where it's a straight rental. I haven't seen that done very much in our field in the past, and so that'll be interesting to see how research customers take that up. But either way, it's a really good way for people to for us to get out there and be in front of our customers, demonstrating flexibility and driving sales.

Christian Henry: With respect to the challenges with accelerating demand, procurement and numbers of samples, I think procurement is an area where you just have to persevere. I think the capital market is the market for capital equipment is going to still be tough, probably going to be tough all next year, and perhaps even in the next year, so we just have to be very much in tune with our customers and understand everything it takes to get a sale done and through the pyramid process so that we can number one forecast accurately, but number two, accelerate the deals as fast as we practically can.

Christian Henry: With respect to samples, I think samples are continuing to increase. One of the metrics Todd kept talking to me about was the fact that we sequenced radio, we sequenced over 2.2 fold more sequenced in the last year when you compare on a year over your basis. That's dramatic, and it shows that long reads, you know, demonstrates that long reads really are taking hold in the market and becoming a very important part of the market.

Christian Henry: What we, I do think more and more samples are coming into the market, and so that one I think can be, you know, will be rectified probably much faster, and also as we continue to develop new applications, those new applications drive even more samples. When we talked about with the radio, new radio consumables that are coming, the DNA input requirements are going to go down very, very significantly, and that is also going to drive more samples into the radio platform. So I'm much more bullish on samples coming into the market than solving the procurement challenge. I got it. Very helpful. Thanks, Christian. Yes. Thank you, Matt.

Operator: Okay, this concludes our question in the answer session.

Todd Friedman: I would like to turn the conference back over to Todd Friedman for any closing remarks. Thanks, Dave, and thank everybody for the questions in the time today. We look forward to connecting with many of you later this quarter at the various conferences, and we'll talk soon.

Operator: Take care.

Operator: The conference is now concluded.

Operator: Thank you for attending today's presentation.

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