Q2 2025 Pacific Biosciences of California Inc Earnings Call
Good afternoon and welcome to the pack. Bio second quarter 2025 earnings conference call.
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I would now like to turn the conference over to Todd Friedman director of investor relations. Please go ahead.
Good afternoon and welcome to Pacific Biosciences of California Inc.'s second quarter 2025 earnings conference call.
Earlier today, we issued a press release. Outlining the financial results will be discussed on today's call.
A copy of which is available on the investor section of our website at www.pac.com or as furnished on form AK 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.
with me today are Christian Henry, president and chief executive officer and Jim Gibson, Chief Financial Officer
Looking statements including among others statements regarding predictions estimates, expectations and guidance.
you should not Place undue Reliance on a 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 disgust
Please review our SEC filings, including our most recent forms, 10, q, and 10K. And our press release to better understand the risks and uncertainties, that could cause results to differ.
We disclaim any obligation to update or revise these 4 looking statements except as required by law.
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 caution that we're looking statements, May differ, or change materially after the completion of the live call.
From now, turn the call over to Christian.
Thank you, Todd and good afternoon everyone. Our financial results in the second quarter demonstrate that we continue to make significant progress towards our goal of increasing, the adoption of our Long Reach, sequencing platforms and driving the company towards positive cash flows.
We delivered you both year-over-year and sequential Revenue growth reduced, our quarterly cash burn. When we are on track to achieve the Strategic initiatives that we laid out earlier this year.
We reported 39.8 million in Revenue up 7%, sequentially and 10% compared to Q2 of last year.
This was driven by strong International growth with Revenue in our APAC and are regions combined up, 45% compared to Q2 of 2024.
Non-gaap growth margin was 38.3% ahead of our expectations driven by a favorable product mix with a better than expected contribution from consumables.
And we ended the quarter with approximately 315 million in cash and Investments also above plan reflecting our continued cost discipline and lower than expected operating expenses.
Second quarter. Instrument Revenue was 14.2 million up, sequentially, and down 4% year-over-year.
As funding constraints, particularly, with academic and government. Customers continued to pressure, higher capex purchases.
Consumables were strong during the quarter with Revenue, totaling, 18.9 million up 11% year-over-year and ahead of our expectations.
Annualized Revenue, pull through remained within our expected range of the low to mid 200000000 per system with steady utilization across our installed base.
Our recently launched Spark chemistry is driving growth and expanding Hi-Fi adoption compared to prior chemistry. It increases throughput by up to 33%, lowers the cost for genome, and reduces DNA input requirements for full.
As a result sequencing gigabytes output hit an all-time high in Q2 up approximately 66% year-over-year.
Turning to the full year outlook at this point, we are starting to see the impact from tariffs in China to be lower than we expected last quarter. However, it continues to be difficult to predict how tariffs will ultimately impact our business particularly in China.
Capital spending remains constrained, particularly Among Us academic institutions, which continue to face Government funding headwinds and NIH related uncertainty.
Taking these factors into account. We are maintaining the midpoint of our full year, Revenue guidance and narrowing. The range to 155 to 165 million representing 1 to 7% growth over 2024
At the midpoint, this assumes mid-teen growth and consumables Revenue as Revo, utilization continues to ramp across a growing install base, partially offset by mid-teen, Decline and instrument Revenue due to the current macroeconomic environment including uncertainty around academic funding.
despite these macroeconomic headwinds, we continue to see broad adoption of our Hi-Fi sequencing platforms across research translational and clinical markets,
In the second quarter, we shipped 15, ravoux systems and 38 bigger systems bringing our cumulative totals of install base to 297 Revenue.
And 73 Vegas systems.
On the revio side, 60% of the placements went to brand new customers and 1/3 were to ldt Diagnostics or Hospital Labs, encouraging signs, that Hi-Fi is gaining share in these Labs replacing a number of Legacy Technologies.
This is especially true in genetic and rare disease testing.
A few recent examples include variant Antics, a Diagnostics lab based in Boston, and a new to pack. Bio customer that is seeking to improve key. Genetic disease assets by using, revio and pack by Ohio high fee, sequencing in lie of Legacy sequencing Technologies.
Gene DX also added another revio to its Fleet in the second quarter and plans to incorporate our Pure Target chemistry to further Advance key tests.
Additionally we placed additional Revenue systems into Hospital Systems in northern Europe where Hi-Fi is being used to advance the understanding and improve solve rates for rare disease at scale.
Turning to Vega the PAC bio. Team is built a robust platform where extremely pleased with the systems continued momentum and strong performance in the field. In the second quarter, nearly 60% of Vega shipments were to new Pac. Bio customers. And since launching in very late Q4 last year, Vega has brought over 40 new Laboratories into the pack bio ecosystem. A number, we expect to grow.
Into the future.
Importantly, Vega is not just broadening our customer base. It's also expanding the range of applications Hi-Fi can support.
We're seeing strong adoption among smaller labs and new market, segments and approximately 70% of Vega. Customers are using the platform for nonh whole genome applications including small, amplicon sequencing, targeted, panels and microbial genomics.
That's exactly the kind of accessibility and versatility we designed Vega to deliver and it's performing exceptionally well, customer runs. Consistently exceed, our specifications across a range of insert sizes with high fee, Reed lengths, and yields often surpassing expectations.
At the Charles University in Prague, for example, 1 researcher shared how switching to Vega has significantly improved his Labs scientific output.
By eliminating months of troubleshooting associated with incomplete short read data, he's able to double his publication rate while significantly improving data quality, starting projects with complete chromosomes, from the outset.
With its lower Capital cost. Compact footprint and integrated analysis tools. We believe Vega is opening new segments of the genomics market to pack bio including labs and institutions that were previously Out Of Reach for long, Reed platforms.
Miami University in Ohio is another great example.
Researchers at the institution shared that the system was intuitive to operate with streamlined, informatics capabilities and they plan to use the platform across a wide range of applications including single cell epigenetics and Immunology.
They also noted that big is more cost-effective than the leading low, throughput short read Next Generation, sequencing platform with run costs, that align well with the funding models. Common in many academic and translational research settings.
We're also seeing growing momentum in population, scale and multi-omic initiatives around the world.
In July Pac, bio Hi-Fi technology, powered the first Arab human Panino.
Published in nature communication, this study uncovered millions of previously, undetected variants reinforcing the importance of long, read accuracy, when it comes to capturing genetic diversity in improving reference genomes.
We Believe studies like this demonstrate, why highly accurate long read. Sequencing is foundational to large-scale population genomics, programs, especially those seeking to expand inclusion across, historically underrepresented groups
Long read project, a major Global effort that is expanding Beyond its original. Nanopore only design to now include HiFi based sequencing. As part of this next phase Pac, bio plans to contribute full isoform full length, isoform RNA data from roughly 1,000 samples. Using our connects RNA kits and revio systems.
The program's leaders specifically selected Connects for its data quality, isoform resolution, and throughput offerings, which we believe is a clear advantage over existing short-read and long-read transcriptomic methods.
With simplified prep, low, RNA input requirements and scalable outputs connects is uniquely suited for large-scale multi- population studies. This collaboration highlights. How researchers are increasingly turning to Hi-Fi and connects to drive deeper insight into Gene regulation and transcript diversity at population scale.
As previously mentioned, we're also seeing continued progress in clinical sequencing applications as well.
Quest. Diagnostics for example announced that its Athena Diagnostics division is using Pac bio Hi-Fi sequencing to enhance its taxia movement disorder panel.
Built on ravio and powered by our Pure Target chemistry. This assay can detect repeat, expansions and complex variants. That can be frequently missed by conventional short read tests.
It's a clear example of how Hi-Fi sequencing is making its way into routine clinical workflows enabling more comprehensive and accurate testing.
We're also expanding our clinical footprint internationally.
Recently, we announced a new agreement with high-rise Gene.
A leading genomics, distributor in China with deep expertise, bringing long, read sequencing into clinical use. How I has already played a pivotal role in advancing highfi based testing in the region. They launched a high 5 based HLA typing product in 2022, and they've since deepen collaborations with major Blood Centers to expand. National research efforts in rare blood, classification, antigen mapping and applications that demand the high resolution allele level accuracy that Hi-Fi uniquely provides
Through this partnership, we expect to further grow, our clinical presence in the transfusion medicine and hematology markets in China.
In translational research. We were honored by to be selected by Target ALS to support the largest global ALS genomic, study utilizing high-5 sequencing to date. This project is expected to use Revo to generate whole genome data from thousands of ALS patient samples, aiming to uncover. The complex genetic contributors to this devastating disease and generate the largest long read open access database for ALS.
ALS presents a challenge in genetic, landscape marked by structural variance, repeat expansions, and non-coding elements, many of which are invisible to traditional sequencing.
We Believe high-fives length and accuracy, make it particularly capable of resolving these difficult regions. Helping researchers discover new links between genetic variation and disease progression.
And because the data from the study will be made broadly available. It has the potential to accelerate discoveries that lead to better Diagnostics new therapeutic targets and ultimately hope for people living with ALS
and Beyond highfi adoption. We're also helping Define the next generation of genomic benchmarks.
Earlier this week, a study published in nature methods, introduced the Platinum pedigree Benchmark, the most comprehensive family-based, variant data set, ever released.
Developed by scientists at Pac bio alongside collaborators at the University of Washington University of Utah and others. This Benchmark characterizes, not just simple variants but also complex and repeat, Rich regions that have traditionally been excluded from reference data sets.
This resource was used to retrain Google's deep variant. AI model resulting in a 344% reduction in erroneous variant calls genome wide with even greater improvements in the most difficult regions.
It's a powerful validation of how Hi-Fi data is improving. The performance of AI, based tools and reinforcing pack bios position as a leader in sequencing accuracy.
The most expensive component of our consumable multiple times. This is a major step towards reducing the cost per genome for our customers and at the same time, improving our own gross margin. We believe this capability will help unlock larger, scale projects, increase flexibility and create more value for customers doing High, throughput research and clinical sequencing, we look forward to sharing more about this Innovative technology at a later date.
I'll now hand the call over to Jim to discuss financials before I finish with a few closing remarks Jim. Thank you Christian. I'll 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 39.8 million in product service and other Revenue in the second quarter of 2025.
Refer to 36 million in the second quarter of 2024, instrument Revenue in the second quarter was 14.2 million. The decrease of 4% from 14.7 million in the second quarter of 2024 due to lower Revenue unit shipments, partially, offset by 38, Vega systems. As we commend shipping, this platform late last year,
We ended the quarter with 297 cumulative. Rebio ship system, shipments and 73 cumulative, Vega system shipments.
Turning to consumables revenue of 18.9 million. In the second quarter, increased 11% from 17 million in the second quarter of 2024 with annualized Revo pull through pers system of approximately 219,000.
Vega consumables continue to grow sequentially with the expansion of the installed base and we anticipate providing an expected pull through range at a later date. Once there is a larger and more established install base finally service and other Revenue grew approximately 57% to 6.7 million. In the second quarter compared to 4.3 million. In the second quarter of 2024 driven by an increase in Revenue, Service contract, revenue and revenue related to a large population. Sequencing program, in Southeast Asia.
From a regional perspective, America's revenue of 17.7 million decreased, 15% compared to the second quarter of 2024 with the region, most affected by Government funding headwinds and nah funding uncertainty. We're pleased to see. Vega making progress with this customer base as over half the systems went to academic or government customers
For Asia, Pacific revenue of 12.6 million increased 53% compared to the second quarter of 2024 driven by increased revenue and Vega placements and increased revenue from a population sequencing project in Southeast Asia.
Amia revenue of 9.5 million increased 35% compared to the second quarter of 2024 building a momentum in the first quarter, the region continued to see strength and revenue placements in the hospital and clinical researcher, customer base and growing demand for the Vega platform.
Moving down the p&l.
Second quarter, 2025 non-gaap gross. Profit of 15.2 million represented a non-gaap gross margin of 38%. Compared to a non-gaap gross profit of 13.2 million or 37% in. The second quarter of 2024. Primarily due to higher consumable, margins consumable margins, improved in the quarter, as a result of lower, revio consumable per unit costs. This was partially offset by lower instant margin as we work towards shipping. Our production rate Vega systems in the second half of 2025.
Non-gaap operating expenses were 58.1 million in the second quarter of 2025. Representing an 18%, decrease, from non-gaap operating expenses of 71 million in the second quarter of 2024.
Operating expenses in the second quarter of 2025 included. Non-cash share-based compensation of 11 million from her to 16.1 million in the second quarter of 2024.
The decrease in both non-gaap operating expenses and non-cash. Stock-based compensation was primarily due to the restructuring initiative. We implemented earlier this year
Regarding headcount, we ended the quarter with 491 employees compared to 575 at the end of Q4 2024 and 500 at the end of Q2 2024.
Non-GAAP net loss was $40 million, representing $0.13 per share in the second quarter of 2025, compared to a non-GAAP net loss of $55.2 million, representing $0.20 per share in the second quarter of 2024.
Million at March 31st 2025.
Turning to guidance as discussed earlier, we are maintaining our Revenue guidance midpoint, but narrowing, the range to 155 million to 165 million. As we believe the prior downside scenario to China in 2025 has been significantly mitigated. While the upside case continues to be pressured by the academic funding environment.
Like last quarter, this continues to be an extremely Dynamic macro environment, especially with respect to trade policy and uncertainty surrounding future NIH funding.
Our guidance midpoint assumes consumable Revenue. Grows in the mid- teens compared to 2024 partially offset by a mid-. Teens decline in instrument Revenue.
Consistent with the first half of 2025, we expect annual, pull through per revio system, to be in the low to mid 2000, thousands.
In the Americas. Our guidance continues to assume significant uncertainty in the broader academic, research Community, especially in the near term with accelerating activity in the clinical Market, anticipated to offset some of the potential headwinds
For asia-pacific, we continue to visit anticipate Revenue growth in the region in 2025, though. We expect a slight sequential decline in Q3 compared to Q2 due to modest tariff. Related order acceleration in the first half of the year
We continue to expect a Mia to be the fastest growing region in 2025, as population. Sequencing program, scale, whole genome sequencing and clinical settings, grow, and we expand our customer base with Vega.
Looking at Q3 Revenue, we expect Revenue to be roughly flat on a sequential and year-over-year basis partially due to a sequential decline in APAC after a strong Q2.
Moving down the p&l with the first half of 2025 coming in better than we expected. And for unit cost, reductions expected on a revenue, instrument, and consumables, and the biggest system in the second half.
We are raising our 2025 non-gaap gross margin guidance range and now expected to be between 37% and 40% and we continue to expect to exit the year above 40%.
As mentioned, we are operating in an environment with trade policy uncertainty, and if the US enacts tariffs on certain countries in our supply chain, we could face incremental pressure to our cost of goods in the second half of this year as of. Now, our guidance does not factor in a material increase in cogs related to tariffs.
We continue to be focused on our spend. We now expect non-gaap operating expenses to be in the range of 235 million to 240 million. We expect to continue to realize Savings in 2026 and as such anticipate 2026 non-gaap operating expenses to be lower than in 2025.
we now expect interest in other income to be between 6 million and 8 million in 2025 and the way that average share count for EPS for the full year to be approximately 298 million
we continue to expect our ending cash balance of cash and Investments to be approximately 270 million at the end of 2, 2025, when excluding the 5 million licensing payment in q1, this implies 115 million cash burn in 2025, or an improvement of 72 million in adjusted cash burn compared to 2024
We remain on track towards our plan to achieve positive, Cash Flow by the end of 2027 and believe our 315 million in cash and Investments, as of June 30th will fund us through this transition.
I will now hand it back to Christian for some final remarks.
Hello. I want to come back to the core of why we believe the company is positioned to deliver long-term value to its stakeholders.
I find technology is fundamentally different from anything else in the market. It enables researchers and clinicians to read native single DNA molecules at lengths of up to 25, kilobases with exceptional accuracy. While simultaneously detecting epigenetic modifications, such as 5, methyl C and 6 methyl a in the same sequencing run at, no additional cost. We believe no other platform matches this level of biological Insight at
Scale.
With spark chemistry connects RNA kits. Pure Target panels and our upcoming multi-use smart cell capability. We're delivering true end to end Solutions reducing barriers to adoption through a improved cost efficiency higher, throughput and workflow simplicity.
Together, these Innovations are setting the stage for broader adoption and clinical and population scale genomics.
We believe that we are well on the path to supporting. Not just tens of thousands of genomes, But ultimately hundreds of thousands to even millions of genomes.
By investing efficiently and narrowing our strategic priorities. We've meaningfully reduced our cash burn and are on track toward our goal of becoming cash flow positive as we exit 2027.
That's the opportunity ahead. That's why we've refocused on Long Reed Innovation. And that's why we believe Pac bio is well positioned to lead the next chapter of genomic medicine.
With that, I'd like the operator to begin the Q&A portion of this call.
We will now begin the question and answer session.
To ask a question. You may press star then 1 on your telephone keypad. If you are using a speaker-phone please pick up your handset before pressing the keys.
To withdraw your question. Please. Press star. Then 2
At this time, we will pause momentarily to assemble our roster.
The first question is from David westenberg with Piper Sandler, please go ahead.
Hi, um, great job on the quarter and, and thanks for taking the question here. Uh, I want to start
Start off with the tough macro, uh, situation in the US. Are you seeing an impact? Um, uh, just instruments. Are you seeing any kind of differences in consumable Behavior either by stocking or even putting off? And then I just wanted to follow up on that 1 and just ask, you know, the Senate definitely sounds like they support NIH and will not allow the cuts to go through. Are you hearing the actual Labs feeling that way? Or do they really need to see the proof in the pudding here?
Yeah, thanks David. Um, and and appreciate the kind words on the quarter. We're we're proud of what we accomplished in Q2. It is, you know, the macro continues to be tough in the US. And and that's certainly impacts instruments. In fact, you know, most of our REO placements were, were to, uh, commercial type providers and not academic customers in the quarter. And I, I think that's going to continue until we get some more clarity around NIH. Consumables is a little bit different. You know, what we're seeing is consumable utilization. Across the board has been, uh, you know, basically pretty healthy and even trending up in some, some modest increments here and there. But what we don't what you, what it's always difficult to know is what experiments are are customers putting off because of the NIH uncertainty, and that's there, certainly is some of that
um,
But, you know, so far in the United States, that hasn't hurt our consumable revenue. And, you know, we think the back half of the year will continue to look strong on the consumable front.
With respect to, you know, the government and NIH, you know, I do think customers are cautious. They are skeptical of the government right now, in general, uh, because of all the upheaval, when I talked to you, you know, funding bodies and administrators the people making the decisions, uh, you know, there's there still is confusion. Uh, there still is high levels of uncertainty when when funding will happen.
And so, uh, you know, we've heard the same thing, you have that the Senate is uh, is is very supportive of the NIH. We believe that, you know, the cuts probably won't be as uh, dire as perhaps has been outlined earlier in the year, but but we will have to wait and see.
Where I want to leave this. At least with the NIH is, is the reality is the rest of the business across the world is growing extremely strong. You know, we saw our International growth at 45%. In fact, Amia individually, grew, uh, 35% in the quarter, and APAC grew 53% in the quarter. Uh, so these are these are really strong results and they're really driven by uh, in a, in a Mia. Well, actually
Actually in both territories increasing adoption and utilization of of revio with Vega driving, you know, with Vega driving, our ability to land and spend across a much broader uh, array of accounts than we ever could. So, you know, we're we're very encouraged by the portfolio right now and we just have to figure out, uh, you know, how to keep moving in the US in this tough macro.
These were predominantly actually ones that were Outsourcing to large institutions in the past and you actually are seeing that Dynamic where, um, you know, instead of sending it out to in sources, they're insourcing it. And and you know, you're seeing not this kind of overcapacity. So we're, um, supply and demand are are, are are more in equilibrium today than maybe a few years ago or a few quarters ago.
yeah, I think that
So when you look at the new customers, uh, most of the time those customers probably have done, some experiments that have been outsourced to get them into long reads, but not always and it's really the array of applications microbial. Um, uh, small amplicon, sequencing targeted panels things like that, that you know, where Vega is a perfect fit and so they can, uh, you know, the, those customers can implement it in their lab with much faster turnaround than if they were to Outsource it at 169,000, uh, at list price, you know? It's, it's a, it's a great, a great bargain. And in fact, uh, you know, if you look at Vega compared to uh, low throughput, short, read sequencers, leading shortly, sequencers, it's actually cheaper to, to run Vega than it is to run those other short low group of platforms. And so we're seeing some customers saying, hey, I've always wanted to get in into long reads,
And now I'm surprised at how inexpensive it is and how easy it is to use as I kind of pointed out in my, my, my prepared remarks. And so, I do think there's, uh, there's a bit of balance in the market relative to the to a few quarters ago as you kind of said and it was this has been the strategy that we outlined in 2021, quite frankly that you have a suite of sequencers that meet the customers where they are with a combination of throughput cost uh and and relative performance. But all of them with the Hallmark of uh packed by Ohio Hi-Fi, highly accurate epigenetics in every run for for, uh, for free and, uh, and single molecule sequencing, so that you can do a lot more with the product. So, we'll see.
Answer the questions Dave. Uh, Gary, we'll take the next, uh, question in the queue. Next question, is from Jack, man, with nefron research. Please go ahead.
Hey guys, good afternoon.
Wanted to talk about clinical customer adoption. It felt like in the script. Uh, you made a lot of progress on that front, you know, over the last, you know, few quarters. Is it possible to get a rough estimate of how much of your consumables are coming from Clinical now? And just how that growth rate compares to the overall
Yeah, I mean you know right now uh it it's roughly. 15% of our consumables are coming from uh, those clinical customers and that's a figure that's growing. Uh, and you know, we expect, uh, and we expect to to see that continue to grow. Most of these clinical customers are still invalidation, phase. Oh, you know, and developing their assays and preparing them for, you know, prime time a few of them, like Quest have launched products, uh, which is, you know, super exciting to see. But, um, so I do think 15% is as a proportion probably will grow over over time here and will be a key driver of consumable growth. Overall,
And when you, when we factor in translational clinical research too, so like the ALS program, we're part of, you know, that's not included in the 15%. Um, the 15% is mainly DX and LDT labs or direct and hospitals for genetic disease. If you add in clinical research on top of that, it's a much larger figure. Got it. And then the repo pull-through in the quarter.
I know, it can bounce around a little bit step down from 1 CE, the guy assumes it picks up. Um, I was just curious the Dynamics around, pull through in the quarter. Um, do you think any of the, the funding issues might have impacted that? And also, how did this the spark? Uh, roll out kind of influence, uh, overall. Consumables Revenue. Thank you.
consumables going into Japan in the quarter and so that you know kind of help boost um
Abuse q1 Q2. You know, we really, uh, we really it was a pretty normalized quarter. I suspect that uh, you know, it's kind of bouncing around in the range. I don't expect it to. I, I do think it'll continue to bounce around in that range through the rest of the year and and probably probably, you know, the key a key change point will be as we were talking about before, with clinical is as these bigger customers start to use, uh, use it in, in routine ways. I suspect that might have an impact on it. Um, if you look at spark, the spark chemistry has been, you know, quite remarkable. Actually, we were seeing up to a 33% Improvement. So, that's basically lowering the cost per sample for our customers and enabling more samples to get on the system. Could, could that have a modest impact in the short run? Perhaps we're seeing probably at this point though uh, over
Over 90% of our runs are, are with the spark chemistry. And so, any pull through impact from that will will probably normalize itself out over say this quarter, next quarter, we're kind of, you know, seeing all of that adoption effectively happening. Now, so we'll start to see a normalized, um, rate from it if that makes any sense.
The next question is from Kyle, Mixon question.
The next question is from Kyle. Mixon with canaccord. Please go ahead.
Hey guys, thanks for the questions. Congrats on the quarter, I'm going to ask um, multi Park question. The first is on on the clinical just to follow up to Jack. You said 33% or I guess a third of the reio placements were to um ldt or Hospital labs and you're replacing Legacy Tech. I was just, you know, want to ask if these labs are typically using multiple long range Technologies. I'm curious if you're winning head-to-head or permanently displacing Legacy, you know, short, or long read and then secondly on the placements. I mean that insurance were great in the quarter as, as Dave said before. Um you know how are you thinking about placements going forward. Was there any you know, pull forward I guess from areas besides Asia, for example in in the second quarter, thanks.
Um, you know, Kyle can you repeat the second part of the question again? Because I didn't quite I didn't get it all written down. Actually.
To up front to avoid being taken off. So just instrument placement is going forward, given it was you were ahead of expectations and we start expectations in in the second quarter and I was thinking there might be like a pull forward or like an acceleration from 3 to 2 to 2. So just thinking about like a run rate for placements going forward. If if we should use the second quarter as a good basis,
Okay. Fair enough. Okay well we'll start with the clinical. Uh we'll we'll start with the clinical uh Labs. So these these many of these labs are using uh multiple Technologies, multiple sequencing Technologies. Most of them certainly use uh short read, sequencing Technologies. And what's happening is that they're implementing. Our technology alongside the short read sequencing technology to help them get answers that they couldn't get and were replacing, you know, Legacy, uh, molecular biology techniques, such as, uh, PC at various PCR, Southern blot other things in some of the labs, where we've won head-to-head. We are replacing other long read Technologies, uh, which is exciting. Uh, but in many Labs they're running, you know, they're definitely running multiple Technologies. What we're hearing from our customers is now that we've achieved The Innovation with pure Target and with spark chemistry.
Industry, the economics of running uh revio in a clinical uh in a clinical setting are uh you know, fit within their envelopes and the accuracy and the performance of our system and the ease of informatics is significantly better than other long read Technologies which will help them, be more efficient, save money, and get better answers to patients and so you know we're very uh we're very excited.
You know, we don't think we've hit the steady state, uh, placement rate by any stretch. You know, we do think there's a lot of opportunity there, the sales funnel continues to grow, 1 of the things that we're really excited about with respect to Vega, is that we're seeing the sales cycle be much faster than than revio. And we're seeing lots of, uh, lots of opportunities crop up in the first month of the quarter, for example, and close in intra quarter, which, uh, you know, isn't that common quite frankly with revio? And so the velocity of sales of, uh, Vega is helping us and we'll, and I do expect to see it grow in the back half, you know, Vega we Vega will be dependent to, I mean, um, revio will be dependent on how, uh, NIH funding kind of emerges. We still see tremendous amounts of opportunity internationally. And as we've said even, as we said back in February, you know, we thought
About Europe would be our fastest growing region. This year, we continue to believe that a lot of that is based on uh rare disease work with with um, with revio. So I I think that, you know, we will see uh, our our forecasts now are kind of flattish on on Revo sorts of placements as a Baseline and maybe we'll do a little better, some quarters, a little, a little lower, some other quarters. If that helps
Yeah, that was perfect. The next question.
Yeah.
The next question is from Doug Shankle. With wolf research. Please go ahead.
Thanks for checking the questions. So my first question is just on. It's not trying to get a backlog because back,
Mr. Shankle your phone is breaking up.
Yeah, you broke up. Can you start over for us? Is that any better, guys?
Yes, it is actually.
Guys, can you hear me now?
We can.
Okay, very sorry about that. So, um, thanks for taking the questions. Uh, the first 1 is on. I was going to say backlog, but it's not really backlog. It's, you know, almost like the activity that's really close to officially getting an order on Vega and, um, on Revenue. I'm asking because I'm just wondering, like how close you are to getting orders that you think would turn into orders and ultimately Revenue. If we got a good and or a better than bad or better than worst case. NIH funding scenario, I I'm I'm wondering if like if there's any way to quantify almost the pent-up demand that exists pending resolution. And I'm also wondering if that's a potential source of Revenue upside this year. If that's
Something we should be contemplating as we look ahead to 2026.
Yeah. Doug, that's boy. That is a crystal ball question. No question about it, and, and thank you for that.
The the, you know, Todd and I were actually just talking about that before the call looking at the third quarter, uh, looking at the third quarter forecast and where we are right now. And the, what's what's really interesting is that the number of of, you know, near forecasted opportunities is is significant um, much more much bigger than what we normally see. And and I think I would probably character and I'm speaking principally of Vega by the way. Um, and I would characterize that as probably what you're trying to get to and I can't give you a a number. Really. I don't think that really makes sense. But but uh, but you are right that we're seeing a lot of opportunities that are near opportunities that we will set our um you know, not in the official forecasts, but are near the forecast. And so, depending on, you know, for example, let's say that there is
That may not be completely dependent on NIH. They might be, they might be dependent on other macro factors and and I do think that that's a source of of potential upside for 2025 and certainly sets the stage for 2026.
Okay.
Super helpful. Um, 1.
Technology, roadmap question.
I you, you've talked about the development of reusable, smart, sells understanding. Those would help reduce costs for customers.
Um, I'm just wondering you know, which, which type of customer's, um, you know, essentially, which, which customer class do you think would be more open to this, you know, is this something that you think could work on the research side? But if you think about clinical Endeavors, um, is it is it really less relevant in in in that category? Thank you.
Yeah. Doug know, we, we've had lots of conversations with, uh, all kinds of different customers and customers are are really excited about it whether its clinical customers or uh, or research customers. So we think it will be a broad uh a broad adoption of this capability. Now, we will, we're going to be very thoughtful about how we roll this technology out, uh, because it it is real Innovation. And, you know, the industry hasn't seen this before uh in a in a meaningful.
Sort of way. And so, you know, we will focus on our higher volume High. Throughput, customers likely first uh, because they'll get, they'll get the most benefit out of it. The way we will implement the technology will be um, in a very automated way. So it's very customer friendly and simple. Uh, consistent with everything we try to do here at Pac bio. And um, and so, you know, we do think that that will that will really help those those higher throughput. Customers both on the clinical side and on the um, research side. And, you know, the beautiful thing about this technology is not only does it lower the cost per sample for our customers. It's substantially increases, our gross margin at the same time, so it's 1 of those unique
Innovations that provides a double win lower, lower prices and higher gross margins uh which is what we're looking for.
Thanks Doug.
The next question is from subu nambi with Guggenheim Securities. Please go ahead.
Hey guys, thank you for taking my questions. Um, you saw a really strong performance outside the US and I know you're a streaming status course with Tiff environment, but how much growth internationally is factored into your guidance with respect to tariffs and is there any risk that outperformance International? You could be a risk to guidance?
Yeah, so that's a great question. You know, we've considered... we have.
been thoughtful about, um, you know, how we think about tariffs and, and so we're, we're not saying tariffs were out of the woods on tariffs. And so, we've taken a pretty conservative view on that in spite of that. You know, we've seen substantial growth in the first half and we think that will, that will continue in the second half. Um, especially with respect to China. We've been, you know, uh, the the situation continues to be volatile. And, and none of us really know where the answers are. So we have we have built our guidance around, um, more conservative cases than less.
But, uh, but perhaps not as conservative as we were last quarter. Um, is is the best way to see that? And the reality is we're we're already halfway through the year, so when you were looking into Q2 at starting with Q2 you, you were you, if you remember when we gave the guidance, then we were still all trying to Grapple with with Liberation day and what China was saying, uh, what we were saying and China was saying and what the US was saying about China, we think it's a little bit more clear now, but but not much. So we didn't, we didn't overreach on that at all. We're still very taking a very conservative View.
With our guidance.
Perfect, thank you so much.
Yes.
The next question is from. Tau Peterson with Jeffries. Please go ahead.
Hi team. This is Priya on for Tau just a question on pricing. Are you able to take price to account for tariff Dynamics? I know 1 of your competitors had called out a 5% tariff charge. So I was wondering what your thoughts are on pricing there.
We're not really seeing any tariff impacts and so, uh, at this point and so, you know, I think that's that's masked as just a price increase. Not not a terrorist, uh, a tariff S charge. I think if we really were seeing tariff, um, a significant impact from tariffs, we would certainly have to evaluate whether we either change our price or or added S charge as others will do. But at this point, you know, I don't think we've seen any substantial impact to uh, to Merit kind of evaluating that, but we would
if we needed to,
Awesome. Thank you.
The next question is from Mason carrico with Stevens. Please go ahead.
Hey guys, um, a lot's been asked here, but maybe I'll just stick to one. Um, you've highlighted some of how some of these larger scale projects, um, like the Estonia BioBank, have helped drive strength in Europe. Um, how concentrated, I guess, is the 2025 revenue in these types of initiatives, and do you see similar opportunities, similar popsy projects on the horizon that could sustain a media growth into 2026?
Yes, that great great, great question. Mason, thank you so much. Um, so you know you're right, the larger larger scale, like the Estonia project has has has helped buoy uh, some of the growth in Europe. But 1 thing, I'll point out is in the second quarter, the European team placed, uh, revios into several hospitals in uh in the Nordic region for rare disease. Clinical rare routine clinical rare disease, you know, starting with translational research but really moving into uh what you could consider National programs for uh for rare disease. And so the growth in Europe is actually been much broader base than just the Estonia project. Uh, it has been uh with principally in what we're seeing in this rare disease in the in the hospital setting. Um, so this is all clinical and it's happening throughout.
Throughout the nordics and and in into the continent of Europe itself. Uh, and so we're actually, uh, pretty excited about that. Looking at, looking at the rest of the world, there are several popsy programs that are, um, you know, percolating around and moving forward. Whether that's the precise program continuing on, in Singapore. Um, programs in Thailand, uh, programs in, uh, other.
Other parts of the world as well.
Uh, these are all significant opportunities and I wouldn't be surprised if in 2026 some of these, uh, projects actually start driving pack bios Revenue growth. Um, we haven't, you know, I don't want to report on anything, we don't any any projects we don't have yet, but I do think that there's a lot of substantial opportunity and there's and these are principally outside the United States where there's funding available so stay tuned on that. And uh I look forward to keeping you uh posted
Perfect. Thanks.
The next question is from Luke <unk> with Barclays. Please go ahead.
Hey, this is Jake on for Louise Thanks for the question.
You mentioned not being able to supply some customers with spark region at the end of <unk> you had some back orders and those capacity constraints has been addressed and could you quantify how much of <unk> consumable revenue.
<unk> from <unk>, if it was material.
Yeah, I mean, I think we had we did have some back orders in Q1, and we resolved a lot of that during the quarter a lot of it what is the sequencing.
Reagents and so what we did in Q2 Q as we increase the batch sizes of our of our production, which has helped us kind of get our arms around delivering on time to these customers. We still have some back order here and there, but it's not a it's not really a material.
Push into Q3 at this point I think we've solved that.
Vast majority of the issues.
That's helpful. Thank you.
Yes.
The next question is from Tom Stephens with Cowen <unk> Company. Please go ahead.
Hi, Thanks for taking my question here just another one on the reusable flow so.
So are you are you guys still committed to scaling throughput longer time, all or has the model switch to kind of consistent throughput, but much higher gross margin.
And then I've got another follow up on kind of your unit costs.
Yes, no so consistent with our strategy our objective is to deliver not only.
Lower cost and higher gross margin, but also higher higher throughput. Our objective is to get close to price parity with short read sequencing and at the same time get close to parity with the scale of height of short read sequencing to we think we think the future will require both.
Yes.
For us to achieve both of those aspects were starting with.
<unk>.
Programs in place to develop a higher throughput sequencer you can imagine we're always working on those kinds of projects and then at the same time.
We're developing.
<unk> multi use smart cell that will enable lower prices and so the combination will enable us to be successful at competing for the millions of samples that are available in the market for us to go after.
So we've got both going on.
That's really helpful. And then just a quick one on unit costs, you've always you made really really good progress.
And it kind of low revenue environment have you changed.
How you guys are perceiving a longtime gross margin outlook given kind of the effective unit cost cuts you've been able to make in the last couple of quarters or is this just executing on our plan you guys or do you have in place.
Well I think we you know we haven't updated our long term gross margin guidance and perhaps will do that at another time, but but.
Of course, our objective is to dramatically increase our gross margins from here and part of that is making fundamental innovation improvement.
Both on the smart cell side and on the instrument side, and where we're making progress every every quarter on driving the cost of instrumentation down increasing the yields of smart cells, we had near record yields for smart sales in the second quarter, which is which is helping.
Pushes forward and so what we're doing is we're putting all of the fundamental cost improvements in place and then as we scale, we will get the economies of scale benefits, which will be a further push to help gross margins, but we haven't updated the guidance for the long run.
But at this point.
We're laser focused on exceeding.
Exiting the year exceeding 40%.
And then I'm sure we will communicate at the right time.
The next rung on the ladder up in 'twenty, six but I do think there is substantial opportunity to significantly increase gross margin here over the next few years.
Thanks, Christian and I appreciate that.
Yes.
The next question is from Hugo <unk> with Morgan Stanley. Please go ahead.
Hi, This is Jason on for it you co a lot's been asked I'm going to stick to one.
So I just want to understand the type of applications on Vega, how similar or different are those applications compared to the main ones on <unk> or the application of a similar enough to where if they've got customers transition to rough feel in the long run if they need higher throughput or are some applications just more economical to run on Vega. Thank you.
Yeah. That's a great question. So the great thing about our technology at the applications are applicable across the instrument portfolio some may choose.
For for example, microbial applications.
60 gigabases of sequencing.
Hi Fi sequencing is pretty is a substantial amount of sequencing, but if they need more scale. We have multiplex technologies that will allow them to multiplex more samples and take advantage of the throughput of revenue and so it really becomes.
It really becomes what is the scale of samples that the customer is looking at and how <unk> and <unk>.
And what is the flow of samples in their labs and so for example.
You don't really get the and this happens with other vendors to where you requires an incredible amount of samples to get on a flow cell for example, two in order to.
Get the lowest price per sample that you can we would face the same some of the same things some of the same challenges on ravioli in very small genome applications. So if you have a lot of sample it would be no problem.
If you have a lot of samples consistently it'd be even easier.
But it is it is such that they get their customers can easily go from Vega to radio and radio back to Vega.
Pending on what their needs are at that specific time.
Great I appreciate the color.
Yes, so we're at the top of the hour. So we'll wrap it up here.
Thank you everybody for all the questions.
Look forward to connecting with you at <unk>.
Conferences later this quarter and when we report our Q3 results next quarter have a good one.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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Yes.
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