Q3 2025 Pacific Biosciences of California Inc Earnings Call

Speaker #3: Good day . And welcome to the Pacbio . Third quarter 2020 Earnings Conference Call . All participants will be in listen only mode .

Speaker #3: Should you need an 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 .

Speaker #3: To ask a question , you may press star , then one on a touch tone phone . To withdraw your question , please press star .

Speaker #3: Then two . Please note this event is being recorded . I would now like to turn the conference over to Carey Mandeville with investor Relations .

Speaker #3: Please go ahead .

Speaker #4: Good afternoon and welcome to Pacbio Third Quarter 2020 Earnings Conference call . Earlier today , we issued a press release outlining the financial results will be discussing on today's call .

Speaker #4: A copy of which is available on the investor section of our website at WW . Or as furnished on form 8-K available on the Securities and Exchange Commission website at w-w-w .

Speaker #4: 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 .

Speaker #4: On today's call , we will make forward looking statements , including , among others , statements regarding predictions , estimates , expectations and guidance .

Speaker #4: 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 #4: Please review our SEC filings , including our most recent form 10-q and 10-K and our press releases , to better understand the risks and uncertainties that could cause results to differ .

Speaker #4: We disclaim any obligation to update or revise these forward looking statements , except as required by law . We also present certain financial information on a non-GAAP basis , which is not prepared under our set of accounting rules and should only be used to supplement an understanding of the company's operating results .

Speaker #4: As reported under US GAAP . Reconciliations between historical US GAAP and non-GAAP results are presented in our earnings release , which is available on the investor section of our website .

Speaker #4: 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 .

Speaker #4: 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 forward looking statements may differ or change materially after the completion of the live call .

Speaker #4: I'll now turn the call over to Christian .

Speaker #5: Thank you and good afternoon , everyone . Starting with our top line performance in the third quarter , revenue came in at slightly below our expectations at 38.4 million , primarily due to fewer than expected shipments in Europe and lower than expected revenue .

Speaker #5: ASPs . However , our consumable revenue was well above our forecast , and once again at an all time high , reaching 21.3 million , demonstrating strong progress towards our goal of increasing adoption of our long read sequencing technology .

Speaker #5: As a result of this strength in consumables , non-GAAP gross margins were 42% , our highest level since 2022 . Looking at our regional performance at the beginning of the year , I said we expected EMEA to be our fastest growing region in 2025 .

Speaker #5: This continues to be the case , and in Q3 , EMEA saw growth of 18% on a year over year basis . The growth in EMEA was driven by approximately 50% year over year increase in consumable revenue .

Speaker #5: That was partially offset by the miss in Dega placements . Our strong growth in consumables was driven primarily by our commercial and clinically focused customers in the Americas .

Speaker #5: The funding environment continues to be challenging , especially for academic and government research customers who are dependent on NIH and other public budgets .

Speaker #5: As a result , procurement cycles continue to be elongated . In the third quarter , we did not see a significant end of government year budget spend in this region .

Speaker #5: We are anticipating a similar funding environment in 2026 . Finally , in Asia-Pacific , the funding environment continues to be challenged . However , we achieved our revenue forecast for the quarter , albeit at lower than expected ASPs .

Speaker #5: This was partially offset by exceeding our forecast for consumables in the region and our largest customers continue to have very high utilization rates and pull through .

Speaker #5: Looking specifically at China , we exceeded our expectations and continue to see strength in the region . From a product perspective , we shipped 13 Rovio systems and 32 Vega systems in the third quarter , bringing our cumulative shipments to 310 and 105 systems , respectively .

Speaker #5: Approximately 75% of the shipments were to New customers . We placed several Rovio Instruments with key institutions at lower prices , which resulted in lower ASPs for the third quarter .

Speaker #5: However , we believe these strategic accounts will ultimately drive higher utilization and above average consumable pull through for Vega . Shipments came in below our forecast , particularly in Europe , as several instruments were stuck in procurement processes that extended beyond the end of the quarter .

Speaker #5: Encouragingly , we have already received purchase orders for some of those units that were originally forecast in Q3 . Vega ASPs continue to be strong and were flat sequentially .

Speaker #5: We're confident in the long term opportunity of the Vega platform , given its attractive price point and ability to bring new customers into the Pacbio ecosystem .

Speaker #5: Importantly , approximately 60% of the Vega placements went to new to Pacbio customers and we continue to believe Vega will serve as both an entry point and an upsell opportunity for Rovio .

Speaker #5: Over time . Turning to consumables , revenue grew 15% year over year to 21.3 million in Q3 . Another record . This performance was supported by broad adoption of our Sparc chemistry and steady utilization across our growing install base .

Speaker #5: This also led to a roughly 65% increase in total Gigabases of sequencing output review . Annualized pull through was approximately $236,000 per system near the high end of our guidance range , a sign of durable demand from our customers .

Speaker #5: Over the course of the third quarter , our sales funnel improved , particularly for review . Looking forward , we expect to ship more and more Vega instruments in Q4 than we did in any other quarter this year .

Speaker #5: As a result , we expect total fourth quarter to grow both year over year and quarter over quarter with approximately 10% sequential growth .

Speaker #5: Given our Q3 performance , we are narrowing our revenue guidance for the full year of 2025 to the low end of our range .

Speaker #5: And now expect revenue to be between 100 and 50 5 million to 160 million . Jim will provide more details on our expectations for the remainder of the year .

Speaker #5: Shortly reducing our cash burn has also been a key focus this year , and in Q3 , we achieved another quarter of sequential improvement with cash burn totaling $16 million .

Speaker #5: We continue to expect total cash burn of approximately 115 million for 2025 , and improvement of more than 70 million compared to 2020 .

Speaker #5: For as we continue to recognize benefits from our restructuring . Our improvements to gross margin and continued expense discipline , I believe we are well on our way to achieving our goal of reaching cash flow break even as we exit 2027 .

Speaker #5: Our team at Pacbio continues to advance our core initiatives that will define the next phase of our growth . Let's start with our clinical opportunity .

Speaker #5: We are making significant advancements to deliver on our vision to lower barriers to adoption and enable clinicians worldwide to deliver more precise answers to patients and their families .

Speaker #5: Yesterday , we announced that the sequel to CAD system has received class three medical device registration approval from the National Medical Products Administration in China .

Speaker #5: Through our long standing partnership with Barry Genomics . This marks the first known regulatory approval of a clinical grade long read sequencer anywhere in the world , signaling a new era for precision medicine and high accuracy genomic testing in China .

Speaker #5: Berry plans to start by launching the sequel to Cnx system , which will run their recently approved thalassemia test in hospitals throughout China .

Speaker #5: Berry also intends to expand the use of HiFi technology to more clinical assays like congenital adrenal hyperplasia , fragile X syndrome , spinal muscular atrophy , Duchenne muscular dystrophy , and other complex single gene disorders , and panels , and has indicated that these assays also work very well on the Vega system in clinical research applications .

Speaker #5: High incidence genetic disorders such as thalassemia , spinal muscular atrophy , and fragile X syndrome often involve complex variant types that are difficult or impossible to detect .

Speaker #5: Using short read sequencing . With the sequel to CAD system , Chinese clinicians will be able to access all aspects of the genome , capturing single nucleotide variants , insertions , and deletions .

Speaker #5: Copy number variants , structural variants , repeat expansions , and of course , methylation with exceptional accuracy . We estimate that the potential testing market for thalassemia alone can be in the hundreds of thousands of samples per year in China .

Speaker #5: As demand for comprehensive genomic testing continues to grow . We are focused on expanding the potential clinical utility of HiFi sequencing . Earlier today , we were excited to share that the first major study demonstrating the clinical research power of HiFi genomes was published by the HiFi solves EMEA consortium .

Speaker #5: This study shows that Pacbio Hi-Fi sequencing , combined with Paraphase , a dedicated , dedicated haplotype based variant caller , uncovered all known clinically relevant variants present in the study .

Speaker #5: Population . Even in the hardest to sequence regions of the genome , demonstrating its readiness to power the future of clinical discovery . As a result , we believe researchers and clinicians will be able to save time and significant costs by turning to hi fi .

Speaker #5: First , hifi genomes reveal the complete picture of genetic variation that can truly change how rare diseases are understood and studied . We believe that these findings position HiFi as the clear path forward toward clinical grade genomics .

Speaker #5: Beyond expanding access and demonstrating clinical utility . We've also had several recent wins expanding the use of HiFi in the clinical research setting .

Speaker #5: First , Children's Mercy Hospital launched a single test HiFi based assay for genetic disease diagnosis . This replaces multiple legacy workflows with one comprehensive test providing faster time to answer and more accurate results for patients and their families .

Speaker #5: Additionally , Children's Mercy is expanding the use of HiFi into pediatric oncology . Additionally , in September , we launched the Enhanced Peer Target Portfolio , a family of products designed to target some of the most challenging regions of the genome .

Speaker #5: The family includes a carrier screening panel for inherited reproductive conditions , a repeat expansion disorder panel for neurological diseases , and a control panel to support custom assay design and validations .

Speaker #5: These panels are available in 24 and 96 sample kit formats to meet the needs of a variety of clinical researchers . These kits enable labs to replace several specialized tests with one flexible workflow that works for both clinical and large scale screening programs .

Speaker #5: Several of our customers are leveraging the pure target portfolio to develop specific assays for carrier screening . Carrier screening is one of the most widely ordered genetic tests worldwide , with millions of couples screened each year .

Speaker #5: It is a large , durable and highly relevant market . Because identifying carriers before or during pregnancy can have a profound impact on family planning and medical decision making .

Speaker #5: Importantly , many of the most medically relevant genes in carrier screening are some of the most challenging to assay . With short read sequencing due to pseudogenes , repeats , or structural complexity .

Speaker #5: HiFi sequencing works to resolve these challenges , providing complete , phased , and highly accurate results where legacy approaches often fall short . With our new HiFi based pure target portfolio , we believe Pacbio is uniquely positioned to deliver a more reliable and comprehensive standard for this essential area of genetic testing and to support our customers in making carrier screening more accessible at scale .

Speaker #5: Beyond the clinical research setting , our technology is uniquely suited for large population scale studies . Our HiFi technology and integrated solutions have recently been selected for several of these types of large scale studies .

Speaker #5: A great example of this is the recently announced Long Life Family Study , a major project led by the National Institute on Aging .

Speaker #5: This project will employ review systems with spark next Chemistry to generate comprehensive genomes and epigenome gnomes from up to 7800 participants . The goal is to help identify genetic and epigenetic clues underlying healthy aging and exceptional longevity , making this one of the world's largest long read studies of aging to date .

Speaker #5: Another example is the Korean Pangenome Reference Project , which recently selected our HiFi sequencing technology as its primary platform . This study is a landmark national initiative led by the Korea Disease Control and Prevention Agency , a part of the National Institute of Health .

Speaker #5: It will generate the first large scale telomere to telomere quality reference genomes representing the Korean population , and integrate the data into the global human genome reference Consortium .

Speaker #5: Specifically , the study of more than 1000 participants will utilize Pacbio integrated sequencing solution across the workflow , including HiFi whole genome sequencing connects full length RNA analysis , enabling the precise transcriptome profiling and sci fi technology for chromosome scale analysis .

Speaker #5: Detecting structural variants and complex genomic features by building a more inclusive and comprehensive reference . The initiative is expected to accelerate discovery of population specific variants , help improve insights into unexplained diseases , and support the development of precision diagnostics and therapies .

Speaker #5: Typhi is an essential component of helping researchers explore the full spectrum of human genomic diversity in these types of large scale studies . Another key example is how is a new study published by the All of Us research program , which is funded by the NIH , to amass longitudinal health data and genome sequences of 1 million US participants , with the goal of advancing precision medicine research and fueling new insights into human health .

Speaker #5: Powered by Pact Biotechnology . This study found that standard short read sequencing only detected half of the disease associated structural variants in their cohort .

Speaker #5: This revelation shows just how much of the human genome has remained out of view until now , and fundamentally redefines what it means to truly see everything in the human genome .

Speaker #5: Over the past several years , we've been very focused on productizing , our technology and developing the sample to answer workflows that researchers and clinical laboratories demand .

Speaker #5: To do this , we have dramatically lowered DNA input requirements and enabled several different sample types , including saliva , buccal , and even ffpe to our workflows .

Speaker #5: We've built the Pacbio compatible program to ensure robust automation solutions are available to our customers . As we scale , and we've launched two new long read sequencing platforms and developed a bio suite that helps our customers take advantage of HiFi technology with a robust end to end solution in place , we've turned our attention to dramatically lowering the cost of sequencing on our radio platform through a groundbreaking new chemistry Sparc , NX earlier this month at the American Society of Human Genetics conference held in Boston , we unveiled our new Sparc Next Chemistry , marking a defining moment for Pacbio .

Speaker #5: We believe that Spark Next will help dramatically lower the cost of human genome sequencing to less than $300 per genome at scale, making our technology economically competitive with many short-read sequencing platforms.

Speaker #5: Additionally , Spark Next is designed to improve our methylation calling performance and adds the ability to automatically call methyl hydroxy see another important epigenetic marker .

Speaker #5: But we believe the most revolutionary aspect of spark . Next is the ability to use the smart cell multiple times . The smart cell is by far the most expensive component of our consumable .

Speaker #5: By reusing the smart cell , we can reduce the cost of sequencing for our customers and improve our gross margins . Simultaneously , a rare win win , multi-use smart cells will be launched for review in a fully automated way , allowing for a seamless customer experience .

Speaker #5: Initially , customers will be able to reuse the Smart Cell . One additional time and over the near term , we expect to increase the number of uses more than 100 customers have already demonstrated interest in beta testing .

Speaker #5: Spark next on Revia , we expect to initiate the beta testing program later this month and then move to an early access phase in 2026 .

Speaker #5: This is not like a typical beta test , as the beta test group is paying for the consumables . A strong signal as to the underlying demand for this new chemistry .

Speaker #5: Once the early access program is complete , we plan to roll out spark next to all customers in 2026 . We are also continuing to broaden the application of HiFi sequencing .

Speaker #5: Most notably , we announced a new partnership with decipher to integrate their fiber seq workflow into the Pacbio compatible program . Fiber seq enables single molecule mapping of chromatin accessibility , methylation , and sequence variation in one assay , adding another dimension of epigenetic insight to HiFi and complementing our existing strengths in the genome , transcriptome and methylome sequencing .

Speaker #5: In October , we also announced an expanded partnership with SQL . Under this agreement , Pacbio will distribute Sql's long flex Kit , a scalable , easy to use sample preparation solution designed for HiFi sequencing .

Speaker #5: Long flex streamlines DNA shearing and multiplexing , enabling hundreds of samples to be prepared in a single run by reducing Prep bottlenecks . This kit is designed to make long read sequencing more accessible for low pass whole genome sequencing .

Speaker #5: Plasmid sequencing , and microbial genomics . Together with our existing workflows , Long Flex gives researchers more choice across high throughput applications and may help accelerate the adoption of HiFi for large scale studies .

Speaker #5: Overall , I'm excited about the progress we are making to broaden our footprint and advance our technology to create more value for customers doing high throughput research and clinical sequencing .

Speaker #5: I'll now hand the call over to Jim to discuss our financials before I finish with a few closing remarks. Jim, thank you. Christian.

Speaker #5: I will discuss non-GAAP results , which include non-cash stock based compensation expense . I encourage you to review the reconciliation of GAAP to non-GAAP financial measures in our earnings press release .

Speaker #5: We reported total revenue of $38.4 million in the third quarter of 2025 , compared to . 40 million in the third quarter of 2020 .

Speaker #5: For instrument revenue in the third quarter was 11.3 million , a 33% decrease from the third quarter of 2024 and a 20% decrease from the second quarter of 2025 , the year over year decrease was driven by lower revenue unit shipments , partially offset by 32 Vega systems .

Speaker #5: As we began shipping this platform late last year, turning to consumables, revenue increased to a new record of $21.3 million in the third quarter, an increase of 15% compared to the third quarter of 2024.

Speaker #5: This represented a 12% sequential increase. The annualized revenue pull-through system was approximately $236,000, an increase compared to approximately $219,000 in the second quarter of 2025.

Speaker #5: Due to increased utilization in our top accounts , Vega consumables grew sequentially with the expansion of the installed base , as we do with the Revia .

Speaker #5: We anticipate providing an expected pull through range for Vega as we get further into the commercial launch and have a more established installed base .

Speaker #5: Finally , service and other revenue grew approximately 25% to 5.8 million in the third quarter , compared to 4.7 million in the third quarter of 2020 .

Speaker #5: Four , driven by an increase in service contract revenue . From a regional perspective , Americas revenue of 18.1 million decreased 10% year over year , and increased 2% sequentially .

Speaker #5: The year over year decline was primarily driven by continued caution and academic capital spending , which weighed on demand . We were encouraged by Vega's momentum as Q3 marked our highest US placements to date , with 69% going to new Pacbio customers for Asia Pacific .

Speaker #5: Revenue of 9.6 million decreased 11% .

Speaker #6: Compared to the third quarter of 2024 , and decreased 24% sequentially the year over year decline reflected fewer placements compared to the prior year anemia revenue of 10.7 million increased 18% compared to the third quarter of 2024 , and increased 14% sequentially .

Speaker #6: The year over year increase was led by approximately 50% growth in consumables , supported by higher utilization and an expanding review . Installed base .

Speaker #6: Moving down the PNL third quarter 2025 non-GAAP gross profit of 16.2 million represented a non-GAAP gross margin of 42% , compared to a non-GAAP gross profit of 13 million , or 33% , in the third quarter of 2024 .

Speaker #6: non-GAAP gross margin increased year over year due to improved product mix as consumables have higher gross margins and represented approximately 55% of total revenue in the third quarter of 2025 , compared to approximately 46% in the third quarter of 2020 .

Speaker #6: For Q3 2025, we transitioned our Vega system to full-scale production and realized lower per-unit manufacturing costs. Additionally, Revix's smart cell manufacturing yields improved and trended above historical levels in the quarter.

Speaker #6: Non-GAAP operating expenses were $53.9 million in the third quarter of 2025, representing a 14% decrease from operating expenses of $62.4 million in the third quarter of 2024.

Speaker #6: Operating expenses in the third quarter of 2025 included non-cash share based compensation of 10.1 million , compared to 17 million in the third quarter of 2020 .

Speaker #6: For the decrease in both non-GAAP operating expenses and non-cash stock based compensation was primarily due to the recent restructuring initiatives regarding headcount . We ended the quarter with 490 employees , non-GAAP compared to 575 at the end of 2024 .

Speaker #6: non-GAAP net loss was 36.8 million , representing $0.12 per share in the third quarter of 2025 , compared to a non-GAAP net loss of 46 million , representing $0.17 per share in the third quarter of 2024 .

Speaker #6: We ended the third quarter of 2025 with $298.7 million in unrestricted cash and investments , compared with 389.9 million at December 31st , 2024 , and 314.7 million at June 30th , 2025 .

Speaker #6: Turning to guidance as Kristian shared , we expect a stronger Q4 with revenue growing approximately 10% sequentially . The strength in revenue growth is expected to be driven by more revenue placements and a continuation of the strength and consumables we have seen over the course of this year .

Speaker #6: We're particularly encouraged by the durability of our consumables business and the growing momentum we are seeing in clinical applications as a result of our Q3 performance , we are narrowing our revenue guidance for the full year 2025 to the low end of our range , and now expect revenue to be between 100 and 50 5 million to 160 million , moving down the PNL , we continue to expect to exit the year with non-GAAP gross margin above 40% .

Speaker #6: We expect our ending balance of cash and investments to be greater than 270 million at the end of 2025 , when excluding the 5 million licensing payment in Q1 .

Speaker #6: This implies approximately 115 million cash earned in 2025 , or an improvement of more than 70 million compared to 2024 . We believe based on our current assumptions , our 299 million in cash and investments as of September 30th is sufficient to reach cash positive cash flow by the end of 27 .

Speaker #6: I'll now hand it back to Kristian .

Speaker #5: Thanks , Jim . You know , our focus centers on one goal increasing adoption of hi long read sequencing across the sequencing market , especially in clinical applications and large scale whole genome projects .

Speaker #5: As we close out 2025 , I believe Pacbio is well positioned to deliver long term value to our stakeholders . Our hyphae technology is fundamentally different than anything else in the market , supporting our mission to enable the promise of genomics to better human health with the upcoming launch of our new Sparc NX chemistry with multi-use Sparc cells , we believe we can dramatically improve the economics for long read sequencing , which will help us penetrate the clinical market and expand our opportunity into large population scale programs .

Speaker #5: And finally , we are investing efficiently by focusing on our strategic priorities . This has resulted in meaningful reduction in our cash burn , and we are tracking toward a goal of achieving positive cash flows , exiting 2027 .

Speaker #5: We believe our strategy positions pacbio for long term growth , and we are confident in our ability to lead the next era of genomics .

Speaker #5: With that , we will now open it up for questions . Operator .

Speaker #3: We will now begin the question and answer session . To ask a question , you may press star , then one on your touch tone phone .

Speaker #3: If you are 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 then two .

Speaker #3: Please limit yourself to one question and one follow up question at this time we will pause momentarily to assemble our roster . Our first question comes from Kyle Mixon with Canaccord .

Speaker #7: Hey guys. Thanks for the questions. So, on instruments, a little soft in the quarter. I guess I heard all the dynamics going on.

Speaker #7: But I wanted to break that down into the two products . So with ASPs looks like a little bit weaker this quarter . Like less than 500 K for sure .

Speaker #7: Versus the list price of 5.99 K . Maybe just talk about what that could be going forward . If you could quantify that would be great .

Speaker #7: And then with Vega , interesting to see that kind of sequentially decline this early in the launch . How many placements were pushed out to future quarters due to the EMEA challenges ?

Speaker #7: Thanks .

Speaker #5: Yeah . Thanks , Kyle for the questions . I'll start with Ravio Ravio . ASPs were lower this quarter and my expectation is fourth quarter ASPs will actually recover .

Speaker #5: And you know , when we look at when we look at where we place the systems , we place them into some very strategic accounts .

Speaker #5: So they ended up with lower ASPs . But we believe that they will have high throughput . And and so as a result , you'll see , you know , better consumable usage which will drive revenue .

Speaker #5: There . So that that's a that's generally a smart decision . And then with respect to with respect to Vega , we did have a shortfall in Vega .

Speaker #5: And you know there was roughly half a dozen or so instruments that were in Europe that were stuck in various stages of procurement .

Speaker #5: None of those are lost as opportunities . As I said in the written remarks , some of them have already gotten through and are now POS .

Speaker #5: And I don't know if they've been shipped yet or not , but they're they'll be shipped in Q4 . And so , you know , I think that was a temporary issue with with procurement processes .

Speaker #5: I do think that the Vega opportunity to continues to be really strong in the funnels are strong . So it's really a question of the timing from quarter to quarter .

Speaker #5: The one other comment I will make , we did have one review system that unfortunately failed installation testing . And so it didn't get recognized .

Speaker #5: It'll be recognized in in in Q4 . And that one had a much , much higher ASP . So that would have pulled the numbers up a little bit .

Speaker #5: You know , we'll see that in Q4 . And that's really just a timing thing .

Speaker #3: Our next .

Speaker #5: Yeah , I think we're ready for the next question .

Speaker #3: Our next question comes from Doug Benko with Wolfe Research .

Speaker #8: Hi . This is Madeline Mullen on for Doug . I just wanted to touch on the gross margin . It was a little bit stronger in the quarter than I think we were expecting .

Speaker #8: And it was above your full year guide . Can you just sort of bucket out how much of that was mix versus some of the other things you called out ?

Speaker #8: It looks like maybe services gross margin was a little stronger this quarter as well . And then thinking , how should we be ?

Speaker #8: Think about gross margin as we head into 2026 .

Speaker #5: Yeah . Thank you for the question , Madeline . You know , gross margin was was really strong in the quarter . And it was above our our internal forecasts .

Speaker #5: Part of that is really related to , you know , the shortfall in instruments . Of course , because the product mix is really the biggest contributor to gross margins forward .

Speaker #5: We did see nice . You know , we our our yields in smart sell manufacturing are basically at all time highs right now .

Speaker #5: We saw cost reductions . We're seeing cost reductions on the Vega system on the on the radio system as well . So the production side , we're really focused on driving cost down .

Speaker #5: And that's helping . But the biggest contributor to the outperformance in the quarter was the strength and consumables . We had an all time record for consumables and and you know , coupled with the production costs being better , that that bodes really well for us when we look forward into 2016 , know we're not going to give any guidance on gross margin , but we certainly think that as consumables becomes a bigger part of the story , gross margins have a very strong chance of of growing , even from here .

Speaker #5: And and I think that that's really the beginning of , of this story . We've made a tremendous amount of progress on the gross margin line in the last , you know , four , 4 or 5 quarters .

Speaker #5: And I do think we're going to continue improving as consumables continue growing . And as instruments , you know , get some more normalized revenue levels .

Speaker #5: The lower production cost , one thing I will also say is the third quarter , you know , we didn't see a major impact on tariffs in the quarter , really , the however , the Vega system is experiencing some tariff that it's not material enough to , you know , pass on to customers at this point .

Speaker #5: But we're watching that .

Speaker #3: Our next question comes from Subbu Nambi with Guggenheim .

Speaker #9: Hey guys . This is Thomas . You made some initial remarks on funding for 26 , but just can you talk through what your assumptions are at this point for the instrument environment for next year ?

Speaker #9: Just some more color on funding . Funnel strength and any updated feedback you've heard from customer channels would be helpful .

Speaker #5: Well , I think that , you know , I think I said back in September that it does seem like the environment's kind of stabilizing and settling , and we're kind of , I think at my what I said was we're bouncing along the bottom a little bit here .

Speaker #5: I don't I don't think that's really changed since , since we made those comments in September . And when I , when I talk to customers , you know , I think the funding environment is going to be challenged next year .

Speaker #5: I think that we're going to continue to see uncertainty in the academic funding environment . Although the longer we're stable , the more the more purchasing agents will be comfortable releasing , you know , purchasing and funding in particularly in the United States , one of the things that we're doing is we're really pivoting into clinical and these other areas of our business , and we're seeing great traction there .

Speaker #5: You saw a lot of my written remarks today about that . The funding is a lot more robust . There . We're you know , we have a very strong product offering there now .

Speaker #5: And so I think for us , our expectation for 26 is that , you know , it will certainly in the first half continue to be challenging .

Speaker #5: And perhaps all year . But we'll give more guidance and color when we get there . And , you know , to keep us growing and moving in the right direction .

Speaker #5: You know , we're really moving a lot of our effort and focus into these clinical applications , these clinical customers . And we're seeing great traction in the United States and in , in Europe .

Speaker #5: So I'm excited about that progress we're making . Next question .

Speaker #3: Our next question comes from Luke Sergott with Barclays .

Speaker #10: Great . Thanks for the question , guys . I appreciate the update there on Rovio . And but as you look at the consumables and I know this is not a normal environment for you guys , but any kind of early look that you have from a Vega pull through , as we kind of think about the the pace here and as you guys place a couple , you know , a few more instruments in for Q you know what that could look like .

Speaker #10: And then or what you guys are , looking for internally . And then I guess on the Sparc , NX , the , you know , bringing the cost of sequencing down there .

Speaker #10: Can you talk about some of the data fidelity when you're running multiple runs on the same smart chip and then from the the beta testers on the Sparc , NX , like the you know , I know that's starting in November .

Speaker #10: So , you know how many beta testers are you guys looking for . And any early feedback or demand that you can call out ?

Speaker #5: Yeah . So we great , great questions . And you gave me you gave me a mouthful . So let's start here at the top .

Speaker #5: You know when we look at when we look at Vega , we'll start with Vega . You know we aren't commenting on Vega pull through yet I think we want to get a full , you know , a full year under our belt before we start seeing , you know , start really trying to set what the target we're really be .

Speaker #5: But , you know , your expectation for a product like this , based on others in my experience in the industry , is somewhere between , say , you know , 25 and $45,000 a year of of pull through per system .

Speaker #5: We'll see where we shake out . We haven't commented on it yet , and we're just going to wait and we'll do that next quarter .

Speaker #5: Perhaps , you know , to kind of wrap up the year or sometime in 2026 , you know , we had we were at the higher end of our , our pull through targets that we established this year .

Speaker #5: We're seeing good utilization , steady utilization across the install base and the high runner customers are really running their machines . And so I think that's that's actually very encouraging .

Speaker #5: What that what that means is that I would expect as we place more review systems , that that will be additive to our consumable revenue , because we haven't seen , you know , a major drop off in Rev , you know , the nth customer being a lower throughput customer .

Speaker #5: Ravio . And so I'm actually quite encouraged by that . And , you know , the 236 that we had this quarter , it's going to bounce around every quarter as it has this year .

Speaker #5: But but but I do think customers are utilizing their systems . And I think that bodes well for consumable growth in 2026 . When you look at Sparc and NX and data data fidelity , you know , one of the most exciting parts about this is that we're seeing very consistent levels of throughput from used to use to use , and the same high quality , very comprehensive data .

Speaker #5: So whether it's the first use or the second use , you get all the methylation , the structural variation , all of the hallmarks of what HiFi brings to the table with each use , you get very little carryover .

Speaker #5: So there's not a lot of there's not a lot of carryover from run to run . That's one thing customers have asked me a little bit about .

Speaker #5: And quite frankly , investors too . And I have to remind people that when we wash , this is a fully automated protocol on the system .

Speaker #5: And when we wash the smart cell for the for the get , prepare for the second run . We're actually all we have to do is clean 25 million single molecules , whereas in other environments or other technologies that are , you know , amplification based for , for example , short read sequencers , you know , you're looking at billions upon billions of molecules .

Speaker #5: And so it's a very different it's a very different paradigm . Also , our customers are running indexed samples almost exclusively . So , you know , we feel very confident and comfortable about about reuse both from a throughput perspective , quality of the data and the fidelity .

Speaker #5: So we're really excited about that . From a beta testing perspective . In my written remarks , I indicated that there's over 100 customers that have expressed interest .

Speaker #5: We signed the first group of customers up already . And they're going to be receiving their materials here very shortly . I don't think I want to tell describe how many , but customers , because I know there's a lot of customers that really just want to get going .

Speaker #5: We're going to start with a pretty small group of customers here through year end . And then expand it as we get into early 26 and manage manage an early access phase .

Speaker #5: And then in , you know , throughout 26 , we'll expand it so that all customers can get access to this important technology .

Speaker #5: Next question .

Speaker #3: Our next question comes from Tycho Peterson with Jefferies .

Speaker #11: Hey team . This is Lauren on for Tycho . Just a little bit of more clarity around the spark chemistry rollout . Are you guys expecting to drive kind of incremental revenue ?

Speaker #11: There or primarily improve margins and kind of what's the near-term target for pull through for revenue as this spark chemistry rolls out ? And then second around the pure target HiFi assays , which can now cover difficult to sequence genomes , what are some of the additional clinical or research applications there ?

Speaker #11: In addition to carrier screening that you're targeting for expansion ? Thanks .

Speaker #12: Yeah .

Speaker #5: So with with respect to how pull through will be impacted by the spark Chemist spark chemistry , you know we're going to we're going to wait and see what that looks like .

Speaker #5: I'm going to I'll probably provide more commentary when we get into January February when after the beta program is completed . So I'm going to pause on that one .

Speaker #5: But , you know , the point of spark . Spark next chemistry is to drive increased adoption of our technology . More samples coming to our platform and driving revenue growth .

Speaker #5: That is that is the principal driver of this is revenue growth . We will see a substantial benefit in gross margin as well because of because the cost of the smart cell is so such a large component of the total consumable cost .

Speaker #5: Every time you can use that smart cell over you , you amortize a pretty significant cost into the into the next run . So it really is truly a win win situation .

Speaker #5: Customers are going to get better pricing . We're going to get better consumable gross margin with the entire point being increasing our market penetration by being very competitive with short read technologies .

Speaker #5: Because most customers , when you talk to them , they would love to be using long read sequencers in , in , in applications where they're using short reads .

Speaker #5: Today . But they've always been hesitant because of cost . This takes that completely off the table , gives them the ability to have a more comprehensive view of the genome , drive deeper insight at a much better economics .

Speaker #5: And so I think that's going to be a really powerful growth driver for the company . But we'll comment on the specifics of what pull through might look like .

Speaker #5: We'll call it; we'll do that later next year. With respect to Pure Target, you know that our customers are using the Pure Target in lots of different ways.

Speaker #5: They're looking at not only they're looking at not only carry screening , but they're also using it for single gene type tests where you're looking at , say , ataxias , for example , or other neurodegenerative disorders .

Speaker #5: Anywhere where you have a single gene disorder or a or a multigene disorder , where there is challenges with respect to looking at them with short reads , that's an opportunity for pure target , and it's a portfolio of products .

Speaker #5: It's not just one kit , it's several different kits , targeted kits that enable customers to . Look specifically at carrier screening or other difficult to sequence tandem .

Speaker #5: And , you know , tandem repeats , etc. . And so it's a pretty broad portfolio , and it really is helping drive revenue placements into clinical accounts .

Speaker #5: And it will be an important growth driver for for carrier screening , for example , in 2026 , revenue , revenue and beyond .

Speaker #5: Next question .

Speaker #3: Our next question comes from Mason Carrico with Stephens.

Speaker #13: Hey , good afternoon . This is Ben on for Mason . Could you talk about how the funnel for your population scale programs has evolved .

Speaker #13: Just wondering if the multi-use announcement has potentially accelerated any existing conversations you're having or resulted in any new opportunities there ? And then just as a quick follow up on your comment of review , ASPs reverting higher in Q4 , should we assume that ASP remains stable in 2026 ?

Speaker #5: Yeah . Thank you , Mason , for our sorry , Ben . Thank you for the questions . Yeah . You know , we we have the excitement around around reuse or multi use and the lower pricing certainly has driven some new conversations just since the ashg on , you know major population scale programs .

Speaker #5: And so we'll see how that goes . The funnel of programs that we've been working on . It continues to progress . These take a long time to get done .

Speaker #5: But I would say the funnel is expanding and I do feel feel comfortable to say that , you know , some of these are actually going to get across the line here in the near term and really give us an opportunity to grow with these programs , because these would be , you know , very large sequencing programs that would be completely additive to our growth .

Speaker #5: And generally outside of our guidance , because we the timing of those , you know , are always they're highly variable . So it's very difficult to provide them into our guidance .

Speaker #5: So we'll keep you posted as we keep moving along . But there are , you know , but they are broad in nature .

Speaker #5: There global . And and there are new opportunities that have come up even since ashg when we made the announcement , reviewing ASPs were down in the down in the third quarter .

Speaker #5: I do think they will recover in the fourth quarter , and I do think ASPs in the first half of next year , you know , would be generally in a stable sort of range .

Speaker #5: The good news is that we've taken production costs out of the system. So the impact to gross margin perhaps isn't as bad as people might think.

Speaker #5: But but yeah , I do think that we're going to see stability in the in the gross margins . I mean , in the ASPs for the foreseeable future .

Speaker #5: And we'll go from there . And the last part of your question , I actually I didn't get it written down . It was something else with respect to revenue .

Speaker #5: If I missed it .

Speaker #13: No , I think you got it . It was on the ASPs heading into 2026 . Oh , cool . Thank you . Thank you .

Speaker #5: Yeah . I just want to make sure I answered all your questions . All right . Thanks , Ben .

Speaker #3: Our next question comes from Dan Brennan with TD Cowen .

Speaker #14: Hey , guys . This is Tom on for Dan here . Maybe just one on on your approach to air . I think historically when you when you've launched something it's taken a while to get integrated into use .

Speaker #14: Just just as you know , yield things are ironed out and etc. etc. . You know , are you taking any precautions or kind of what timeline should we be thinking for when this is kind of ready for prime time , given this is going to be a much more kind of high throughput flow cell , and I've got one more follow up from there .

Speaker #14: Thank you .

Speaker #5: Yeah . So I just want to confirm the question was really trying to understand the thinking around spark . The spark next rollout and when it will truly be ready for prime time is that is that what the question was ?

Speaker #5: Because you you kind of cut out for part of it ?

Speaker #14: Oh, yep. Yep. That's fine. That's fine.

Speaker #5: Okay , great . Well yeah . So I think we are taking a very measured approach to this for lots of reasons . First , we want to make sure our customers have a fantastic experience with this rollout .

Speaker #5: And we want to give them time to plan their projects so that they can take full advantage of the lower pricing and more samples can come into the market .

Speaker #5: We also want to see how the customer is actually use the technology . And so that will be happening in the beta program .

Speaker #5: And maybe the first part of the early access program , the technology and the you know , what we have to do with respect to the instrument , all we have to do is upgrade the software .

Speaker #5: So the firmware and the system will be upgraded . So that part is actually really straightforward . And so , you know , we will see how the market adopts the technology and roll it into early access .

Speaker #5: And depending on how fast new samples come into the market , we will you know , we will eliminate the early access part of this .

Speaker #5: It's important to note that we will continue to sell the single use smart cells alongside the multi-use smart cells , because in some situations , customers may want to use the single use smart cells as opposed to the multi-use smart cells .

Speaker #5: And for certain applications where perhaps they don't have as much throughput . So the customer will have flexibility in that sort of way .

Speaker #5: We will be monitoring how samples come into the technology with the whole intent of growing our consumable revenue next year .

Speaker #3: Our next question comes from Nathan with UBS .

Speaker #15: Question . You know , we're over a month into the US government shutdown . A lot of agencies have furloughed employees . I'm just curious if this has had any impact on order volumes , how you're sort of framing it for Q4 and beyond .

Speaker #15: And is there any potential uplift if , you know , we get things back up and running ? Thank you .

Speaker #5: Yeah . Thanks , Nathan . That's a good question . You know , when we were thinking about so far we haven't seen a material impact from the shutdown .

Speaker #5: I do think , you know , if the shutdown persists , we could see some impact . But the reality is , is our , our us academic , you know , NIH funded business has been challenged all year .

Speaker #5: So we've been driving our revenue from lots of other sources . And so therefore , the impact has been would be more muted anyways .

Speaker #5: I would expect though , the longer it goes , maybe it doesn't have that much of an impact in Q4 , but perhaps it has a bigger impact in Q1 or Q2 as as just the timing of when things get started again .

Speaker #5: That said , if if the government , you know , got back to work and people wanted to catch up . So to speak , you're right .

Speaker #5: That could have that could have a positive impact . You know , the guidance we gave for Q4 does not contemplate that positive impact .

Speaker #5: And , you know , but also doesn't assume that the government stays shut down for the rest of the year . But I would say that our revenue isn't as dependent on US government funded sources today as as it has been in the past .

Speaker #5: So the impacts actually not as big . Anyway , if that makes any sense . Next question .

Speaker #3: Our next question comes from David Westenberg with Piper Sandler .

Speaker #16: Hi , this is Skye on for Dave . Thanks for taking the question . First on revenue growth . Should we start with flat revenue growth for 2026 ?

Speaker #16: I know you mentioned revenue as kind of recovering in Q4 and maybe stable in the first half of 2026 , but anything there on revenue growth and then could you provide some more color on the geographic distribution of revenue placements and consumable sales , maybe where you anticipate placing more revenue and then the primary research applications that are driving the current demand ?

Speaker #16: Thanks .

Speaker #12: Sure .

Speaker #5: So we'll start with , you know , we aren't going to give any real color on 2026 today . So , you know , we'll stay tuned on that .

Speaker #5: I do think we're going to see a strong Q4 . We're expecting 10% sequential growth . And I think that that would be you know , that would be a nice , strong year end end of the year .

Speaker #5: And give us some momentum going into 2026 . I do think the fundamental aspects of our business , we've been increasing , we've been increasing our instrument placements , which is likely to .

Speaker #5: Drive consumable growth next year . We continue to place instruments at a pretty consistent clip , and so if you just take that onto itself , you would expect that we would be growing in 2026 and not flat .

Speaker #5: But we'll give formal guidance . You know , in 2026 when we get to that point . With respect to the geographic distribution of , you know , they're pretty , they're pretty broad .

Speaker #5: They're pretty balanced across the world right now . And , you know , as we kind of look out into into Q4 and beyond , I think that most of the reviews are being placed into commercial and clinical type accounts , not so much NIH funded , I believe in Q3 , we only had one system placed in in a in a kind of a NIH type funded environment .

Speaker #5: So hence my comments , my previous comments about government shutdowns and the impact on us . I do think that that will continue the we will I do think we're going to see expanded fleets in 26 as as some of our clinical customers continue to scale up , launch their ldts , and start to drive volume .

Speaker #5: I think that's a real source of opportunity for us . Our funnels have been improving in Europe as well . As I said in my written remarks , Europe has been our bright spot of the year in terms of regional growth , and we had a very strong growth quarter in Q Q3 despite the missing a few , a few Vega instruments .

Speaker #5: And so , you know , I think that Europe will continue to to grow in the next year . And as the US funding environment improves , that will certainly help us get back to a more normalized level .

Speaker #5: So that's how I see it right now .

Speaker #3: Our next question and last question of the call comes from Kyle Mixon with Canaccord .

Speaker #7: Hey guys . Thanks for the follow up . I want to follow up on the that question . Just the last question there about the kind of the growth for 26 .

Speaker #7: So I think like the streets at like mid-teens I know you're not talking about the actual quantification of it all , but when you think about it like qualitatively , there's a few factors .

Speaker #7: I would just love for your input on you got the flat Na budget , it could be flat , could be recession type actions .

Speaker #7: You got the impact of popsy projects , which you have a bunch of at this point you have possible market freezing or longer sales cycles due to some competing products coming out soon .

Speaker #7: Then you have , you know , China's removed the ban for Illumina . So wondering if that gives you any more optimism over there .

Speaker #7: You know these if you could just comment on these things and how you're looking at it , kind of exiting this year , entering next year , it'd be good to hear .

Speaker #7: Thanks .

Speaker #5: Yeah . Kyle , it's a nice way you framed it up . I mean , the reality is , is that if you look at 2025 , the contribution of our revenue from of NIH funded sources has been , you know , really small relative to kind of historical expectation .

Speaker #5: And so any improvement in NIH is going to help drive growth at all , even , even quite frankly , just certainty about keeping things flat is going to help drive growth for us .

Speaker #5: The pop seq programs , I do believe some of them are going to go live in 2026 , and that will certainly drive our growth as well .

Speaker #5: We we , you know , as the funding environment improves a little , I do think the sales cycles will shorten somewhat . Not elongate further .

Speaker #5: And I also think that other sequencers that are coming onto the market are actually not going to have a significant impact on us in 26 , principally from the clinical side of the world , because we are already expanding rapidly with the power of long read sequencing , replacing all of these legacy technologies in the workflow .

Speaker #5: There's no other . There's really no other technology out there today that can do as good a job as we can . Of replacing all the legacy technologies in a , in a , in a clinical lab workflow and what that means is that we're going to be more efficient for the lab .

Speaker #5: We have great economics already , but the economics of the lab are going to get better not just from introducing a product , but by eliminating steps in all the other workflows .

Speaker #5: And I think that's a that's a really big deal . When you look at China , you know , China , we had a very we we continue to do well in China .

Speaker #5: I think , you know , the launch of the Berry seemed sequel two C and is a very indicative of that's a market that has a great opportunity for us in long read sequencing on the clinical side , starting with , you know , with the single gene tests that that Barry's launching .

Speaker #5: But we also have , you know , a very strong HLA testing business with our we have a very strong our , our service providers in China continue to run , you know , very high rates of utilization , which lends itself to expanding their fleets .

Speaker #5: Some in 2026 . So the outlook for China , for us is , is is strong regardless of what happened with Illumina today , I would imagine that probably only helps us in terms of maybe easing the relationship , or at least creating a little more certainty around , you know , the risk profile associated with doing business in China .

Speaker #5: So I think there's a lot of we have made a lot of progress this year . And I think it sets us up really well for growth in 2026 , but we'll certainly provide a lot more detail and color as we get early into 26 .

Speaker #5: Right now , our focus is finishing , you know , 2025 really strong driving , sequential , significant sequential growth of 10% or so .

Speaker #5: And and really preparing to make multi-use and spark next , you know , a really impactful launch . And and I know the team is ready to do it .

Speaker #5: So that's that's where I'll leave it .

Speaker #3: This concludes today's conference . Thank you for attending today's presentation . You may now disconnect . No . And that this was a tough one .

Speaker #3: She was like she said , I wasn't fast enough . And I'm .

Speaker #17: Like .

Speaker #3: It's just that , like , I was trying to get trying to get the timing down . And I was making sure that they were done .