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Pacific Biosciences of California, Inc. (PACB) Q4 2022 Earnings Call Transcript

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Pacific Biosciences of California, Inc. (NASDAQ:PACB) Q4 2022 Earnings Conference Call February 16, 2023 4:30 PM ET

Company Participants

Todd Friedman - Director, Investor Relations

Christian Henry - President & Chief Executive Officer

Susan Kim - Chief Financial Officer

Conference Call Participants

Kyle Mikson - Canaccord

Julia Qin - JPMorgan

Tejas Savant - Morgan Stanley

Dan Brennan - Cowen

David Westenberg - Piper Sandler

Sung Ji Nam - Scotiabank

John Sourbeer - UBS

Ross Osborn - Cantor Fitzgerald

Operator

Hello, and invited to nan PacBio Fourth Quarter 2022 Earnings Conference Call. All participants will beryllium successful a listen-only mode. [Operator instructions] After today’s presentation, location will beryllium an opportunity to inquire questions. [Operator Instructions] Please statement this arena is being recorded.

I would now for illustration to move nan convention complete to Todd Friedman, Director of Investor Relations. Todd, please spell ahead.

Todd Friedman

Good afternoon, and invited to PacBio’s 4th fourth 2022 net convention call. Earlier today, we issued a property merchandise outlining nan financial results we will beryllium discussing connected today’s call, a transcript of which is connected nan Investor conception of our website, www.pacb.com, aliases arsenic furnished connected Form 8-K disposable connected nan Securities and Exchange Commission website astatine www.sec.gov.

With maine coming are Christian Henry, President and Chief Executive Officer; and Susan Kim, Chief Financial Officer.

Before we begin, I would for illustration to punctual you that connected today’s call, we will beryllium making forward-looking statements, including statements regarding predictions, progress, estimates, plans, intentions, guidance, and others, including expectations regarding our Revio Onso strategy successful their commercialization timeframe, nan early availability, uses, accuracy, coverage, advantages, value aliases capacity of, aliases benefits aliases expected benefits of utilizing PacBio products aliases technology, including our Revio Onso systems.

You should not spot undue reliance connected forward-looking statements because they are subject to assumptions, risks, and uncertainties that could origin our existent results to disagree materially from those projected aliases discussed, including those inherent successful processing and commercializing caller products.

We mention you to nan documents that we record pinch nan SEC, including our astir caller forms 10-Q and 10-K and our recent property merchandise to amended understand nan risks and uncertainties that could origin existent results to differ. We disclaim immoderate responsibility to update aliases revise these forward-looking statements isolated from arsenic required by law.

During nan call, we will besides coming definite financial accusation connected a non-GAAP basis. Non-GAAP accusation is not prepared nether a broad group of accounting rules and should only beryllium utilized to supplement and knowing of nan company's operating results arsenic reported nether US GAAP. Management believes that non-GAAP financial measures, mixed pinch US GAAP financial measures, supply useful accusation to comparison our capacity comparative to forecasts and strategical plans and benchmark our capacity externally against competitors.

Reconciliations betwixt humanities US GAAP and non-GAAP results are presented successful tables wrong our net release. For early periods we are incapable to reconcile nan non-GAAP gross separator and non-GAAP operating expenses without unreasonable effort owed to nan items indicated successful our net release.

In addition, please statement that today's telephone is being recorded and will beryllium disposable for audio replay connected nan Investor conception of our website soon aft nan call. Investors electing to usage nan audio replay are cautioned that forward-looking statements made connected today’s telephone whitethorn disagree aliases alteration materially aft nan completion of nan unrecorded call.

Finally, we will beryllium hosting a question-and-answer convention aft our prepared remarks. We inquire that analysts please limit themselves to 1 question, truthful that we could accommodate everybody successful nan queue.

And pinch that, I’ll now move nan telephone complete to Christian.

Christian Henry

Thank you, Todd. Good day and invited to our 4th fourth results and business highlights call. Thanks for joining america today. We person a batch of breathtaking news to stock and I'll footwear things disconnected pinch an update connected our capacity successful nan 4th fourth and 2022, I'll past delve into immoderate breathtaking developments we've seen successful nan past fewer months and wrap up pinch an update connected our marketplace segmentation. Susan will past supply a much in-depth look astatine our financial results and our guidance. But first, a speedy recap connected revenue. Our astir transformative long-read sequencer today, we are conscionable a fewer weeks distant from wide commercialized readiness of Revio, which is scheduled for adjacent month. Currently, we person dozens of instruments connected nan manufacturing level successful our Menlo Park facility. And astatine this point, we don't spot immoderate superior proviso concatenation constraints.

As a result, I expect that we'll vessel astatine slightest 25 Revio systems to customers anterior to nan extremity of nan quarter. We will proceed our manufacturing standard up done nan 2nd 4th and I judge we will beryllium astatine our planned accumulation complaint for 2023 by nan extremity of Q2. This is bully news arsenic nan Ravio level enables our customers to return connected projects successful nan thousands to tens of thousands of samples.

With this scale, we judge Revio will beryllium a crippled changer for scientists and objective researchers. What would person taken years aliases moreover decades pinch long-read sequencing successful nan past tin now beryllium completed successful a fraction of nan clip and costs pinch nan Revio platform.

For years, nan technological organization has relied connected short-read genomes and exomes, yielding valuable insights into nan quality genome.

However, contempt millions of short-read genomes being sequenced, overmuch of nan genome remains unactionable today, and our knowing of our 20,000 positive genes and their domiciled successful driving illness is still rather limited. Further, we now cognize that phenotype is not solely wished by genes, arsenic mutations successful non-coding regions tin origin definite cancers. Our knowing of nan effect of methylation connected familial illness is successful its earliest stages. And we besides admit that nan value of some series magnitude and accuracy successful knowing disorders caused by tandem repetition description s.

It’s clear that to amended understand nan quality genome researchers must beryllium capable to interrogate its afloat complexity pinch precocious accuracy. We expect that sequencing pinch nan Revio level will supply researchers pinch nan astir complete and meticulous position of nan genome successful a azygous assay.

With Revio, researchers will beryllium capable to interrogate nan genome from telomere to telomere, obtained phasing information, structural variation, epigenetic profiles, and of course, azygous nucleotide variants, each astatine nan standard and affordability required for ample projects.

The early excitement astir Revio and nan immense anticipation for genomic support our belief that we tin turn our gross towards our extremity of a compound yearly maturation complaint of 40% to 50% done 2026.

As we activity to execute our gross maturation targets, we spot 2023 arsenic a twelvemonth of merchandise transition. We expect galore Sequel II and IIe users will migrate complete to Revio complete nan people of nan year. These transitions are difficult to precisely foretell and arsenic a result, we whitethorn spot immoderate impermanent variability pinch respect to consumable revenue.

On nan instrumentality broadside of our business, we expect to spot continued spot for Revio passim nan year. Additionally, we do expect to spot a humble number of Sequel IIe systems and of course, besides our short-read sequencer remains connected way for commercialized shipment successful Q2 of 2023. As a result, our first guidance for 2023 is that we expect to execute betwixt 165 cardinal to 180 cardinal successful revenue, which represents maturation from 29% to 40%.

Now, turning to our results. In nan 4th quarter, PacBio achieved gross of $27.4 million, a 24% alteration compared to nan erstwhile year's quarter. The diminution successful gross was chiefly driven by nan announcement of nan motorboat of gross successful nan 4th quarter, which impacted orders and shipments for Sequel IIe. We delivered 18 Sequel IIes systems during nan 4th quarter, bringing our full installed guidelines to 512 Sequel II and Sequel IIe systems arsenic of December 31.

However, what genuinely sets this past 4th isolated is that we received orders for 76 Revio systems, a record-breaking commencement for a PacBio motorboat and acold surpassing our expectations.

We person seen a increasing excitement astir nan imaginable of Revio arsenic indicated by nan affirmative feedback we person received from our customers. At nan caller AGBT Conference, galore customers told america really Revio could thief them standard their investigation and interrogate nan genome astatine unprecedented levels.

At nan Plant & Genome Conference successful January, we saw a heavy appreciation for nan value of HiFi sequencing and nan enthusiasm for higher output agelong publication sequencing successful nan community. We hosted a packed shop wherever researchers from Corteva, UCLA, and HudsonAlpha discussed really PacBio sequencing advances their activity successful agri genomics, biodiversity, and works evolution.

We are thrilled to denote that nan first early entree Revio is successful way to researchers astatine nan Broad Institute. Over nan adjacent fewer weeks, nan squad astatine nan Broad Institute will execute their first soul sequencing runs connected nan platform, and successful March, we expect to statesman afloat commercialized shipments.

The Broad has already ordered 10 Revio systems to standard agelong publication sequencing for programs for illustration nan NIH's All of Us program. To put that successful perspective, 10 Revio systems has nan balanced sequencing powerfulness of 150 Sequel IIes. We look guardant to supporting this task and much organization standard investigation initiatives to come.

While connected nan taxable of All of Us, I wanted to talk a caller preprint for researchers progressive successful nan programme which highlights nan inferior of agelong publication sequencing. The authors noted that HiFi sounds produced nan astir meticulous results for some mini and ample variants, and concluded that "long sounds person wide worth for generating complete and meticulous version telephone calls".

The study besides showed that PacBio is best-in-class for calling variants moreover astatine little sum than different technologies. This supports our belief that moreover a PacBio genome astatine 10-fold sum tin beryllium much than capable for galore investigation projects. At 10-fold coverage, a Revio tin series 12 quality genomes successful 24 hours, aliases almost 4,000 genomes per twelvemonth astatine a database value of astir $330 per genome pinch methylation included.

The request for highly meticulous sounds is expanding arsenic evidenced by nan nickname of agelong publication sequencing has quality methods, method of nan twelvemonth pinch innovative studies utilizing PacBio's agelong sounds from nan Vertebrate Genome Project Telomere American Consortium and nan Human Pan Genome Reference Consortium, we judge Revio tin thrust further find pinch its enhanced throughput and costs effectiveness.

Our existing customers person besides recognized nan imaginable of Revio to accelerate their research. For example, Mohammed Bin Rashid University Of Medicine and Health Sciences, aliases MBRU purchased Sequel IIe past twelvemonth and ordered aggregate Revios successful nan 4th fourth to series for a very ample standard investigation task successful Dubai.

And nan Wellcome Sanger Institute, a longtime personification of PacBio for works and animal investigation now plans to summation its usage of long-reads successful quality applications, specified arsenic azygous compartment transcriptomics and version discovery pinch nan added powerfulness of Revio.

Moving connected to Onso, our beta programme is successful afloat plaything astatine nan Broad Institute, Corteva Agriscience, and Weill Cornell, each evaluating really Onso’s bonzer accuracy tin use their various genomic applications. Feedback truthful acold has been excellent, pinch 1 partner sharing that they've been highly impressed by Onso’s levels of accuracy and different point really highly meticulous sounds will beryllium transformative for galore genomic applications, including oncology.

We're pleased to denote that we're connected scheduled to statesman commercialization of Onso successful nan 2nd quarter, pinch a motorboat specification of 400 to 500 cardinal sounds and 200 rhythm and 300 rhythm kits. The expected specification for accuracy of complete 90% of nan bases astatine Q40 Plus and nan imaginable to scope Q50 Plus done approved room mentation we judge Onso will group a caller modular successful nan industry. The strategy has a competitory database value of 259,000 pinch nan 300 rhythm kit listed astatine $1,995. We're collaborating pinch workflow partners crossed nan short-read ecosystem and will supply room prep conversion kits, truthful that immoderate existent short-read assay tin move straight onto nan Onso platform.

Regarding its capabilities, we person validated Onso’s capacity done various testing methods, including nan SAR-Seq cell-free DNA power pinch Agilent room prep and seizure and our conversion kit. Internal results show that Onso is 2 times much delicate successful detecting version allele wave of 0.5% and is 1.4 times higher sensitivity moreover erstwhile applying duplex [indiscernible] astatine 4 times nan sum pinch different short-read sequencing technologies.

These capacity metrics item nan exceptional worth that Onso tin bring to nan market, offering precocious accuracy and sensitivity to meet nan demands of various genomic applications, including cell-free DNA research. In summation to cell-free DNA successful collaboration pinch 10x genomics Onso achieved 99.8% of nan bases astatine Q30 aliases amended for single-cell RNA sounds showing nan imaginable usage of ultra precocious accuracy successful single-cell workflows.

We are dedicated to providing our customers pinch broad and streamlined solutions for their sequencing workflows. This includes offering a scope of devices and workflows that are designed to support their success, from automation to sample mentation and informatics. Our caller initiatives see expanding our MAS-Seq programme to support caller assays connected nan Sequel II and IIe and Revio sequencing systems. These kits which build connected nan occurrence of past year's MAS-Seq concatenation exertion for single-cell isoform sequencing includes 16S and bulk Iso-Seq and will beryllium disposable later this year.

Additionally, our bioinformatics squad is continuously improving mentation tools, specified arsenic nan precocious launched paraphrase instrumentality that helps qualify nan acheronian regions of nan genome linked to spinal muscular atrophy.

On apical of our internally developed products and tools, we're partnering passim nan ecosystem to make it much plug and play. As such, we precocious introduced nan PacBio compatible programme designed to make PacBio sequencing much accessible, which includes partners crossed each ends of nan sequencing workflow, from automation and sample and room prep, to secondary and tertiary study tools.

Moving on, I want to stock an update connected our soul marketplace segmentation from nan erstwhile year. In 2022, quality genomics was nan largest information of our business, accounting for astir 40% of our revenue. Customers successful this conception see GenDx, who precocious ordered a Revio to target difficult to series genes and series quality full genomes for uncommon diseases, pinch antecedently inconclusive results.

In Radford University has leveraged PacBio exertion to make galore familial discoveries and plans to ramp-up from hundreds to thousands of genomes utilizing Revio. Beyond quality applications, we expect Revio to beryllium utilized successful applied markets for illustration works and animal genomics, which made up astir 25% of our gross successful 2022.

In this marketplace customers for illustration Corteva Agriscience are utilizing PacBio to study works genomes and place microbial infectious diseases that impact these plants, truthful they tin amended harvest yields and thrust cultivation sustainability. Plant and animal genomics besides see investigation programs for illustration nan Darwin Tree of Life Project, which precocious celebrated sequencing its 500 HiFi genome. The programme intends to series 70,000 type of eukaryotic organisms successful Britain and Ireland, and we expect Revio to alteration nan researchers to advancement towards this goal.

Additionally, infectious illness and microbiology, which represented 20% of our gross successful 2022 includes customers for illustration Bioengineering Lab, who plans to usage Ravio for metagenomics to observe and qualify communities of microbes for business and biomedical applications.

About 10% of our 2022 gross was from oncology applications, pinch PacBio’s highly meticulous agelong reads, allowing researchers to uncover caller isoforms, fusions and structural variants pinch exceptional accuracy.

Looking ahead, we expect to reside much of this ample marketplace pinch Onso's imaginable for bonzer sensitivity successful liquid biopsy applications. The remaining information of our gross comes from different and emerging applications. This includes cistron editing and cistron therapy applications.

Finally, we are pleased pinch nan support and liking from investors successful our equity raise past month. In an upsized offering, we raised $201 cardinal successful gross proceeds, which will further bolster our expertise to turn our business and thrust towards our extremity of affirmative rate flows during 2026.

With that, I'd for illustration to move nan telephone complete to Susan to talk our financials and guidance successful much detail. Susan?

Susan Kim

Thank you, Christian. As discussed, we reported $27.4 cardinal successful Product, Service and Other gross successful nan 4th fourth of 2022, which represented a alteration of 24% from $36 cardinal successful nan 4th fourth of 2021.

Entrant gross successful nan 4th fourth was 6.1 million, a alteration of 62% from $16.2 cardinal successful nan 4th fourth of 2021. The diminution successful gross was chiefly driven by nan announcement of nan motorboat of Revio successful nan 4th quarter, which impacted orders and shipments for Sequel IIe. We delivered 18 Sequel IIe systems during Q4 increasing nan instal guidelines to 512 Sequel II and IIe systems arsenic of December 31, 2022.

Turning to consumables, gross of $16.7 cardinal successful nan 4th fourth grew 11% from $15.0 cardinal successful nan 4th fourth of past year. And was a grounds for PacBio. Sequel II and IIe consumables represented astir 94% of our full consumable gross successful nan 4th quarter, pinch nan remainder from older systems and different consumables.

Annualized propulsion done per strategy connected nan Sequel II and IIe installed guidelines successful nan 4th fourth was astir 127,000. We expect Sequel II and IIe propulsion done to diminution passim 2023, arsenic we statesman shipping Revio and customers modulation to nan caller system. Finally, work and different gross was $4.6 cardinal successful nan 4th quarter, compared to $4.8 cardinal successful nan 4th fourth of 2021.

From a location perspective, America's gross of $12.0 cardinal declined 36% compared to nan 4th fourth of 2021, chiefly driven by little Sequel II, IIe replacements, pinch nan caller announcement of nan Revio launch.

Asia Pacific gross of $10.2 cardinal grew 23% complete nan anterior year. The region continued to recover, pinch maturation from some consumables and Sequel IIe to strategy income compared to nan anterior twelvemonth period. With nan motorboat of Revio respective customers besides purchased nan Revio Sequel IIe bundle to advancement their HiFi sequencing volume, pinch plans to further grow upon nan receipt aliases their first Revio.

Finally, AMEA gross of $5.2 cardinal was 43% little than nan anterior twelvemonth period. Also, chiefly driven by little Sequel II, IIe placements. In addition, rate fluctuations successful nan lb sterling and euro drove a 7% headwind. In contrast, nan region posted different grounds consumables quarter.

Moving down nan P&L, GAAP gross profit of $5.1 cardinal successful nan 4th fourth of 2022 represented a gross separator of 19% compared to a GAAP gross profit of $16.8 cardinal successful nan 4th fourth of 2021, which represented a gross separator of 47%.

Fourth 4th 2022 non-GAAP gross profit of $5.3 cardinal represented a non GAAP gross separator of 19% compared to a non GAAP gross profit of $16.9 cardinal aliases 47% successful nan 4th fourth of past year.

GAAP and non GAAP gross profit successful nan 4th fourth reflects nonaccomplishment connected acquisition commitments and adjustments for excess inventory, totaling astir $7.1 million, chiefly related to a faster than expected ramp successful Revio demand, which results successful faster than expected diminution and Sequel II, IIe request upon nan motorboat of Revio.

GAAP operating expenses were $92.2 cardinal successful nan 4th fourth of 2022, compared to 81.4 cardinal successful nan 4th fourth of 2021. Non GAAP operating expenses were $87.6 cardinal successful nan 4th fourth 2022, representing a 10% summation for non GAAP operating expenses of $79.9 cardinal successful nan 4th fourth of 2021. Increase GAAP and non-GAAP operating expenses chiefly bespeak higher income and trading related expenses.

In position of headcount, we ended nan 4th pinch 769 labor compared to 771 astatine nan extremity of Q3, 2022 and 728 astatine nan extremity of past year's 4th quarter. Operating expenses successful nan 4th fourth included full non-cash share-based compensation of $16.8 cardinal compared to $17.5 cardinal successful nan 4th fourth of past year.

GAAP nett nonaccomplishment successful nan 4th fourth of 2022 was $84.4 cardinal aliases $0.037 per stock compared to GAAP nett nonaccomplishment of $69.3 cardinal successful nan 4th fourth of 2021 aliases $0.31 per share. Non-GAAP nett nonaccomplishment was $79.6 million, representing $0.35 per stock successful nan 4th fourth of 2022 compared to a non-GAAP nett nonaccomplishment of $66.4 million, representing $0.30 per stock successful nan 4th fourth of 2021.

Now turning to our equilibrium sheet, we ended nan 4th fourth pinch $772 cardinal successful unrestricted rate and investments, compared pinch $834 cardinal astatine nan extremity of nan 3rd 4th of 2022. Our ending rate and investments exclude gross proceeds of astir $201 cardinal resulting from nan waste of shares of our communal banal and a follow-on nationalist offering successful January 2023.

Inventory balances accrued successful nan 4th fourth to $50.4 million, representing 1.6 inventory turns, compared pinch $43.5 cardinal astatine nan extremity of nan 3rd 4th of 2022, representing 1.9 inventory turns. The summation successful inventory chiefly reflects purchases of Revio and Onso instrumentality and consumables inventory.

Accounts receivable decreased successful nan 4th fourth to $18.8 million, reflecting a DSO of 70 days compared pinch $22.8 cardinal astatine nan extremity of nan 3rd 4th of 2022, reflecting a DSO of 71 day.

Moving to guidance. For nan afloat twelvemonth 2023, we expect gross successful nan scope of $165 cardinal to $180 million, representing a maturation complaint of astir 29% to 40% compared to 2022. The little extremity of nan scope assumes that a simplification successful Sequel II and IIe consumables from a faster than I expected ramped down much than offsets a ramp successful Revio consumable gross later successful nan year.

The high-end assumes consumable gross is level to somewhat higher compared to 2022 and greater Revio shipments successful nan year. In some precocious and debased ends of nan range, we expect work gross to diminution compared to 2022 arsenic customers decommission their Sequel II and IIe.

For nan first 4th of 2023, we expect to vessel astatine slightest 25 Revio instruments arsenic we build and ramp manufacturing capacity. We expect manufacturing capacity standard done nan 2nd 4th reaching our planned accumulation complaint for 2023 by nan extremity of Q2. Please statement that pinch nan yearly guidance successful place, we do not expect to stock instruments backlog aliases bid numbers connected a regular ground going forward.

Moving down nan P&L, we expect 2023 non-GAAP gross separator to beryllium betwixt 36% and 40%, which will exclude nan amortization of intangible assets. Lower margins results from a higher attraction of gross weighted towards instruments pinch nan early shipments of Revio astatine little separator owed to nan operation of little ASP from customer loyalty discounts, coupled pinch higher costs during a caller level launch.

We expect separator description beyond 2023 and support our semipermanent guidance of 55% to 60% positive successful 2026. We expect operating expenses to beryllium successful statement pinch semipermanent guidance and truthful non-GAAP operating expenses will turn little than 5% successful 2023 compared to 2022. We expect nan weighted mean stock count for EPS for nan afloat twelvemonth to beryllium astir 255 cardinal shares, reflecting nan caller waste of communal shares and shares expected to beryllium issued arsenic portion of nan Omniome milestone later this year.

With that, I will move nan telephone backmost to Christian. Christian?

Christian Henry

Thank you, Susan. During past month's JPMorgan Healthcare conference, I outlined our strategical goals for this year, focusing connected delivering results to our stakeholders. Our first privilege is to thrust wide take of our Revio sequencer by converting existing Sequel II and IIe customers and attracting caller PacBio customers. We're disconnected to a beardown commencement pinch 76 systems successful our backlog arsenic of twelvemonth end, and astir 30% of our income pipeline consisting of caller customers arsenic of twelvemonth end.

Second, we purpose to show nan unparalleled accuracy of Onso successful customer’s hands and show its expertise to toggle shape investigation successful respective genomic applications. As discussed, our soul information shows that Onso’s accuracy tin observe variants astatine acold greater extent than SPS and beta partners are sharing that they're having an fantabulous personification experience.

Third, we're committed to continuing to create our long-read sequencing technology, including ultra high-throughput and benchtop systems, and a next-generation SBB sequencer. This twelvemonth marks nan first measurement successful our travel for offering aggregate systems crossed nan sequencing spectrum pinch Revio and Onso starring nan way.

Next, we will leverage nan existent infrastructure to thrust towards affirmative rate flow. As Susan shared pinch our OpEx guidance, we're going to prioritize and attraction connected spending connected nan areas that matter nan most. Finally, we scheme to grow our partnerships crossed nan ecosystem and workflow to summation customer take of SBB and HiFi. With nan motorboat of nan PacBio compatible program, we person a model successful spot to onboard nan champion partners successful nan sequencing workflow.

Our agelong word extremity is to transcend 500 cardinal successful gross successful 2026. And we judge that 2023 is nan commencement of a multi twelvemonth maturation communicative towards achieving this. I look guardant to keeping you each updated connected our advancement passim nan year.

And pinch that, operator, would you please commencement nan Q&A information of our call.

Question-and-Answer Session

Operator

Yes, of course. We will now statesman nan question-and-answer session. [Operator Instructions] First mobility this evening comes from Kyle Mikson pinch Canaccord. Please spell ahead.

Kyle Mikson

Hey, Christian and Susan, acknowledgment for taking nan questions.

Christian Henry

Hi.

Kyle Mikson

Better. Yes. Hey, truthful I conjecture I'm nan guidance. This is benignant of nan scope a batch we're expecting. Two questions astir this, I conjecture wrong my 1 here. On instruments, does this benignant of presume your streamlining nan 25 Revio’s successful nan first quarter? I'm conscionable funny if you could benignant of talk astir what nan cadence of nan orders and nan shipments and nan rev rec going forward. And possibly for illustration wrong that, like, beyond nan shipment bolus successful March and nan recommencement of nan shipments and possibly for illustration May aliases June, there's going to beryllium astir apt for illustration an presumption for inventory, instrumentality position and nan 2nd half. So I'm conscionable funny astir that, that's for instruments. On consumables, possibly conscionable propulsion done dynamics for Sequel IIe 127k, I deliberation successful 4Q, I mean, really quickly could that decline? Could that beryllium for illustration 80k to 90k by nan extremity of nan year? I deliberation you mentioned Susan, Revio pulled done could beryllium – you're assuming immoderate consumables there. What are you reasoning astir it location funny astir that? Thanks, guys.

Christian Henry

All right. A batch of battalion there, Kyle, and thanks. I americium backmost successful nan saddle. So I'm sorry, I missed everyone astatine AGPT past week. But let's talk astir nan guidance a small spot and really we thought astir it. We do expect that, connected a quarter-by-quarter basis, revenues will amended passim nan year. We don't springiness quarterly guidance connected – connected revenue.

So I'm not different than to opportunity that, I do deliberation that what you're going to spot america turn complete nan people of nan year, and astir apt going to extremity there. With respect to Revio shipments, 25 is really conscionable nan commencement and we're prepared to nutrient and shipped much than that for a quarter. We're starting astatine 25, because we want to make judge we person an unthinkable customer acquisition pinch these early shipments, arsenic we standard up.

So I wouldn't presume that it's a linear, a linear benignant of outlay quarter-after-quarter-after-quarter. But I would opportunity that, 25 is simply a bully starting constituent for america to really get – get nan strategy retired successful nan section and commencement to spot really it impacts some consumables, pinch Sequel IIe, but also, nan utilization of Revio itself.

With respect to nan pull-through dynamics, arsenic I've said a mates of times. We aren't going to know, really what nan pull-through dynamics look for illustration for respective quarters. And so, nan truth is, we're not going to effort – effort to estimate aliases guess, what we do cognize is that, immoderate of our largest customers are early adopters of Revio. And truthful that will person – our presumption is that, they will usage Revio, and they will commencement to slow down nan usage of Sequel IIe, it whitethorn not spell wholly to zero pinch those customers. But it will surely diminution arsenic they move to the, standard and costs effectiveness of Revio.

And so, that could person an effect on, and it's apt that, it will person an effect connected Sequel IIe propulsion done astir apt complete nan adjacent mates of quarters. But wherever that yet settles out, I deliberation you've quoted 80k to 90k. We don't know, and we're not going to make a – we're not going to effort to conjecture astatine that today, we're going to spot really this unfolds complete nan people of nan – complete nan people of nan year.

I do deliberation that Revio utilization will – will apt turn complete nan people of nan twelvemonth and peculiarly arsenic we commencement to displacement to nan larger customers first. And past what we will spot is – we will commencement to spot immoderate benignant of normalization of that. I suspect, based connected past experiences, it's astir apt going to return america 3 aliases 4 quarters to really spot wherever that settles out. So hopefully, Kyle that, that answers your questions, and gives you a consciousness of really we're reasoning astir nan guidance pinch respect to nan instruments and consumables.

Kyle Mikson

Yeah. That was great, Christian. I'll hop backmost successful nan queue.

Operator

The adjacent mobility is from Julia Qin pinch JPMorgan. Please spell ahead.

Julia Qin

Hi, bully afternoon. So, successful position of nan manufacturing capacity for Revio, you said a 25 shipping successful 1Q and afloat ramped up by 2Q. So wherever do you deliberation nan proviso will guidelines astatine information complaint successful nan 2nd half of nan year? And past successful position of nan Revio pull-through ramp, I judge you antecedently mentioned that you expect a barbell distribution successful position of nan customer successful a volume. So is it adjacent to expect that nan little throughput customers will onboard later this year, aliases do you deliberation that's much of a 2024 and beyond dynamic?

Christian Henry

Julia, convey you for nan questions and it's bully to get to talk to you. You know, first of each reasoning astir nan tally complaint connected manufacturing, nan bully news is that we person capable accumulation capacity coming to fulfill a very wide scope of outcomes pinch respect to demand. And we are going to standard our accumulation and get to our dependable authorities by nan extremity of Q2. But that doesn't mean we couldn't standard further successful Q3 aliases Q4 and beyond. But what we're trying to do is, is not put america successful a business wherever we nutrient a batch of instruments astatine 1 time, and past trim nan dependable state.

We'd overmuch alternatively beryllium a small spot much accordant complete clip because that's really we'll get nan champion ratio retired of nan plant. And that's really we'll get nan best, nan lowest COGS and amended gross margin. Part of Revio is not only nan enablement of this caller exertion for our customers, but it's besides for america to thrust our gross separator betterment some done nan instrumentality itself complete time, but besides and particularly because it tin beryllium a overmuch higher pull-through instrument, which will thrust you cognize merchandise mix.

And erstwhile we deliberation astir that, barbell distribution arsenic you're talking astir pinch respect to consumables, you're right, typically successful these markets, you extremity up pinch possibly a bimodal distribution of very precocious throughput customers pinch very precocious utilization, and past little throughput customers.

Our anticipation is pinch Revio that, judge nan earliest shipments will astir apt beryllium to nan higher throughput and highest throughputs, and that'll astir apt beryllium mostly done Q1 and moreover a batch of Q2, but we're going to -- it's really important that we supply this exertion to each of our customers, and truthful we're going to effort really difficult to beryllium to, you know, to get immoderate of our little throughput customers, which we deliberation will beryllium nan precocious throughput customers of tomorrow, nan strategy arsenic soon arsenic we can. And, of course, we're going to service our very ample customers and ample projects, because they really alteration nan adjacent sets of ample projects to travel done to build nan business. And so, I would expect to spot a beautiful wide distribution of customers complete nan people of this 2023 and it'll proceed connected successful 2024.

Julia Qin

Got you. That's very helpful. And conscionable 1 follow-up connected nan Sequel pull-through if I may, I deliberation you mentioned that location mightiness beryllium immoderate near-term volatilities successful nan Sequel utilization, because location is an first activity of inventory destocking, but past if customers early orders aren't fulfilled, they mightiness person a rebound utilization. I'm conscionable curious, has your expected aliases reasonable anticipation of Revio proviso constrained successful that first year, being communicated to these customers successful an effort to, benignant of, and possibly soft retired their inventory guidance of bequest Sequel II and really does that, benignant of, tied to nan champion lawsuit and worst lawsuit script of Sequel propulsion done that's embedded successful your guidance?

Christian Henry

Yes. So we person been very clear pinch our customers and we are -- 1 of nan things we are trying to do is, we are laser focused connected our customers, that's 1 of our halfway values and helping them understand, timing of erstwhile they're going to person Revio erstwhile they utilize -- utilization of Sequel IIe consumable and II and IIe consumables.

We really tried to moving astatine nan grassroots level, each customer, truthful that they tin optimize their experience. Some customers that person ordered, opportunity recently, that it's apt that they're not going to get their Revio for a while, truthful they're going to proceed to tally their projects connected Sequel IIe. So we're going to want to make judge we thief them negociate that transition.

And it could person -- like, I said successful my prepared remarks, location could beryllium immoderate variability aliases volatility astir nan consumable gross arsenic we spell done this transition. The bully news is that by nan -- really, by nan extremity of nan year, this volatility is apt down us, and we're scaling our utilization connected Revio.

And you're starting to spot nan consumable pull-through from Revio. We're starting to understand what those numbers look for illustration and person much sense. But nan adjacent fewer quarters, it is going to beryllium modulation and we're conscionable managing that nan champion we can.

The bully news is -- nan different portion of bully news is that we person -- we’ve done a really bully occupation connected producing 25m smart cells and we're successful an fantabulous inventory position already.

And if you were -- if astir of you recall, we really completed nan 25m smart waste complete a twelvemonth agone astatine this point. So we've sewage a batch of acquisition pinch it. Yields are already coming up successful nan manufacturing plant. And so, our expertise to proviso nan marketplace astatine really immoderate level of request that we're benignant of seeing is already successful spot effectively, which is ace exciting.

Operator

The adjacent mobility comes from Tejas Savant pinch Morgan Stanley. Please, spell ahead.

Tejas Savant

Hey, guys, bully evening and Christian, it's bully to perceive your voice. We missed you astatine AGBT, particularly aft nan sun went down, arsenic a batch of group told you, I'm sure. On nan Revio for america to footwear things off, you've sewage 76 orders successful backlog. You're shipping 25 present successful fundamentally a period here, you've sewage nan April region arsenic well, but you -- Mark talked astir astatine AGBT, is not peculiarly impactful from a numbers standpoint. But could we really spot you vessel each of nan existent orders and backlog by nan extremity of nan 2nd quarter, aliases do you spot that arsenic much of a 3rd 4th aliases a mid 3rd 4th situation?

And past my 2nd mobility present is connected Onso. So, first, easy 1 for Susan, what precisely are you baking into nan guideline for Onso? Perhaps, immoderate colour connected nan number of shipments present successful nan backmost half?

And I deliberation you showed really bully information astatine AGBT. I deliberation it was, thing for illustration 600 cardinal to, benignant of, 730 cardinal reads, higher than your 400 to 500 target range. So what precisely remains to beryllium done location complete nan adjacent fewer months? Other than conscionable incorporating immoderate of nan learnings from your beta users?

Christian Henry

Yeah. Okay. A batch to unpack there, Tejas. Thank you for nan questions. First of all, I want to – you're right. We had 76 orders successful backlog astatine nan extremity of December. But nan truth is, we person much orders successful backlog than we did astatine nan extremity of December today. So, and nan logic why I commencement by that is that nan reality is that we, you know, we expect to proceed getting much and much orders complete nan people of nan year. And truthful it's you know, shipping nan 76 by a definite magnitude of time, I would expect america to transportation backlog for rather a while actually. Because I do deliberation nan order, nan request for nan merchandise is rather substantial.

And truthful what we're doing is we're moving to vessel nan 25, astatine slightest 25 units is what I said specifically, this 4th to get started. And past you're right. In April, we're still going to beryllium manufacturing systems each done April. So it's not like, you know, erstwhile we opportunity pause, each we're doing is making judge nan section is that we're very satisfied pinch really customers are ramping up connected Revio. It has thing to do pinch thing different than that, and truthful will it has precisely zero effect connected our expertise to present gross successful Q2, I conscionable want to make that crystal clear, because it does look for illustration some, immoderate analysts person really benignant of drilled into that and I don't – what we're focused connected is having an unthinkable launch. And that's portion of really you scheme these things retired to do it exceptionally well.

And truthful we're not – I'm not really going to opportunity erstwhile nan 76 gets each – each shipped, but what I americium going to opportunity is that, I do expect this to tally successful backlog for respective quarters this year. And that's partially because I deliberation nan bid book is going to beryllium very beardown each year.

And truthful that's really we deliberation astir that.

Let's see, talked astir nan pause. With respect to work, I'll walk nan guidance to Susan successful a sec. But conscionable to remark connected nan Onso, what do we person near to do? You are right, we've seen immoderate awesome results from our beta customers pinch respect to nan density. What we person to do now is we're really successful nan shape of making judge that nan instrument, we tin nutrient nan instrumentality astatine scale, making judge that we tin – make judge nan chemistry is hardened truthful that it tin get to a very wide diverseness of customers moving on, making judge we get accumulation of travel cells right, truthful that we tin present our to our customers consistently and astatine scale.

And truthful it really is – there's still immoderate package to activity to do, arsenic location ever is. So there's a batch of activity to do still to get to afloat commercialization. But nan bully news is that that you're seeing nan chemistry starting to perform, you're seeing nan densities improving, getting nan commercialized – getting nan commercialized specifications you're seeing, you know, you're seeing nan unthinkable accuracy moreover successful nan hands of our beta customers. So retired successful nan section connected customer samples, you're seeing that. So each of those signs are really encouraging for us.

It'll conscionable speak astir nan ramp, scale, finalizing nan development, taking feedback from those beta customers and integrating it into nan product. And, you know, portion of this besides is making judge that that Onso motorboat doesn't interfere pinch nan Revio motorboat too. We want to make judge that we do some launches exceptionally good because we deliberation some products are, captious to pushing nan authorities of nan organization forward, and let america to really, really turn and return a activity position successful this community. And Susan, do you want to remark connected Onso into nan guidance?

Susan Kim

Sure. So I deliberation pinch that backdrop, we are ace excited by nan affirmative customer feedback connected Onso, customer liking successful position of nan gross Onso bundle. But successful position of nan year, this is – this is simply a Revio twelvemonth successful position of our guidance, I conjecture to supply immoderate position successful position of Onso, what is baked into our guidance is fundamentally a humble number of Onso shipments successful nan year, but it's not a worldly publication to nan wide gross number arsenic this twelvemonth again is mostly driven by Revio.

Christian Henry

Yeah, peculiarly astir of nan growth.

Susan Kim

Most of nan growth, exactly.

Operator

The adjacent mobility comes from Dan Brennan pinch Cowen. Please spell ahead.

Dan Brennan

Great. Thanks for taking nan questions. I guess, possibly I'll instrumentality pinch one, but I conjecture a multiproduct, if that's easier. In position of consumable that was really adjuvant to perceive immoderate colour successful nan full guideline but really to deliberation astir consumables astatine nan precocious extremity of nan guide? And while I admit nan Sequel IIe rotation off, it's a difficult point to foretell like. Can you springiness america immoderate much colour wrong that guidance range? Like, what are nan barriers connected Sequel IIe consumable? And then, b, Christian, surely tin admit that nan orders didn't extremity astatine twelvemonth end. You discussed 76 orders from 43 countries and 30% goes from caller customers. That was arsenic of nan extremity of nan 4th quarter. Can you conscionable springiness america immoderate colour possibly astir really nan bid book has evolved since early January? And I'll time off it there. Thanks.

Christian Henry

Yeah. I mean, I think, we're going to effort to, I mean, realistically, we're going to effort to enactment retired of, looking astatine backlogs and bid books successful nan snap, but to color, what's happened since a twelvemonth end. We've had 2 very, very, very successful conferences, nan works and animal genome convention AGBT. And if anything, nan funnels are strengthening nan position tons of customers aliases galore customers person really tally samples wrong of our labs now successful our – successful our applications labs. So, customers are getting much assurance around, it really is what we opportunity it is. And I deliberation that's really – that's really exciting. And truthful the, nan chimney is it continues to strengthen. It is simply a global. It is simply a world funnel, and location are a batch of caller customers. And I deliberation that's 1 point that's really important to maine is, not only do we want to get each of our existing customers to standard up pinch Revio, but it is really important for america to show caller customers and spot these caller customers get engaged pinch nan technology.

So far, I deliberation nan – I deliberation we've seen a batch of that internally, pinch our customers and possibly possibly astir interestingly is nan standard group are starting to talk astir is different than ever earlier successful nan history of PacBio. And truthful group are starting – group are contemplating, 10,000 sample projects, 20,000 sample project, larger scale, large-scale transcriptomic projects, large-scale full genome projects.

And I deliberation that's going to beryllium – that's highly encouraging to, benignant of beryllium retired nan thesis that we needed to get to higher throughput, and we needed to get to economics that alteration that done -- enabled scale. We already -- and we proceed to do pinch nan champion accuracy and has that each of america preprint showed, rather frankly, nan HiFi sequencing correct now is nan astir meticulous and astir complete sequencer you tin get. And truthful that's each been really well, I cognize that doesn't thief you build your exemplary per se, but anecdotally, it makes america consciousness a batch better.

I didn't understand, Dan, your mobility really connected guidance barriers connected Sequel II, possibly could you inquire that mobility again?

Dan Brennan

I deliberation Susan talked astir consumables astatine nan precocious extremity of nan guideline would beryllium level to up, but that I presume you’re referring to full consumable, truthful Revio positive Sequel, and I conscionable wanted to explain that, and if it was, I was conscionable trying to deliberation done connected Sequel itself wrong nan guidance immoderate colour connected really we're reasoning astir Sequel IIe consumables astatine nan precocious extremity and nan debased extremity of nan guide?

Christian Henry

Yeah. So yeah, Susan was talking astir nan full consumable number, which makes -- nan full numbers is really nan difficult number to predict, because you don't cognize really accelerated Sequel II is going to decline. You do cognize that Revio is going to accelerate and it'll proceed to accelerate passim nan year. But we don't really cognize yet really that will transpire exactly. And truthful that's why, erstwhile we deliberation astir our guidance, we person contemplated that volatility successful nan scope of different outcomes. I deliberation that's astir apt nan easiest measurement to put it.

Operator

The adjacent mobility comes from David Westenberg pinch Piper Sandler. Please spell ahead.

David Westenberg

Hi. Thank you for taking nan question. I echo everybody's sentiment erstwhile I said, we really missed you astatine AGBT. So let's commencement with, I deliberation you've sewage nan number 30% caller to PacBio, would you beryllium consenting to talk whether they mightiness beryllium existing agelong publication customers utilizing possibly O&T, they're looking for possibly accuracy astatine a little cost, aliases if this would beryllium short publication customers that really are looking for agelong reads, because for each that it offers and past projects that they're looking at? Is location immoderate measurement to picture that 30% of customers?

Christian Henry

Yeah, I can't -- I don't person nan breakout successful beforehand of me. So I can't springiness you specifics. But nan reality is that location has been a batch of conversations and I'm getting nan 2nd half because I wasn't astatine AGBT, unfortunately, but astatine AGBT location were tons of conversations wherever customers were expressing their request to move to Revio from their existing long-read sequencing paradigm, because they spot nan accuracy, because they spot nan completeness.

And nan different point is they judge successful nan robustness of nan level that we bring to carnivore fixed their marketplace acquisition pinch Sequel IIe, and truthful we've seen that, but nan predominant information will still beryllium soon customers moving to long-reads. And what everyone has to recognize is that virtually each laboratory that's doing sequencing has a short-read sequencer today, aliases is, you know, that's nan predominant and phenotype successful nan world.

And what's happening is that they will bring a Revio instrumentality into their laboratory and they'll commencement to move projects distant from short-reads to long-reads for precisely what you said, nan benefits of completeness, structural variation, being capable to spot phasing consecutive retired of nan gross without immoderate tricks, epigenetics, you know, there's just, it's conscionable go truthful evident that there's truthful overmuch advantage to looking astatine long-reads complete short-reads, successful astir applications, and that you're starting to spot a batch of group commencement to make that move and move forward.

And I deliberation that's – I deliberation you're going to see, you know, Revio machines sitting correct alongside existing short-read sequencers, and nan Revio machines are going to beryllium capturing much and much astatine nan dollars successful galore different applications, wherever we intelligibly person important competitory advantage. And now we person nan standard and nan economics to alteration our customers.

Operator

The adjacent mobility comes from Sung Ji Nam pinch Scotiabank. Please spell ahead.

Sung Ji Nam

Hi. Thanks for taking my question. I tin wholly admit that. This is nan twelvemonth for Revio. But fixed nan – nan really affirmative feedback connected Onso and besides nan really charismatic bundles that you were offering, I was conscionable benignant of funny what your thoughts are successful position of nan attachment rate, if you will, successful nan outer years and besides successful bid what would you deliberation mightiness beryllium benignant of nan biggest obstruction successful position of customers really adapting Onso astatine this point? Are they looking for much information successful comparing Onso to different short-reads platforms, if you could talk astir those?

Christian Henry

Yes, I deliberation you're right. This is – nan – location is simply a batch of excitement astir Onso because, you cognize really for nan first clip successful a very agelong time. There's important differentiation successful nan short-read abstraction pinch Onso. And customers spot that – they spot nan bundle pricing and offering that we person arsenic thing unsocial and nary 1 other tin supply that and truthful precisely why our strategy of becoming nan only institution pinch highly meticulous agelong and short-read technologies gives america nan expertise to talk to each customer successful nan abstraction and really inquire them what questions are they trying to reply and supply them solutions that reply their questions.

And that's going to beryllium really powerful, not only arsenic we get retired of nan gross here, but complete nan adjacent respective years successful particular. And what I deliberation customers are going to beryllium excited astir is getting Onso into nan laboratory to spot what it tin do. And past watching our expertise to summation nan powerfulness of nan exertion done increases successful density, driving more, you know, driving much sounds per run, which would create much worth than ever before. And it's really that that differentiation.

I deliberation nan barriers coming are astir apt nan biggest barriers we person to get nan merchandise to marketplace to beryllium possibly a small lingua successful cheek, but that's really what it is. I deliberation that location is simply a batch of excitement astir nan product. We request to finalize nan development, make it a highly robust and person an astonishing motorboat and that's really what we're going to do present complete nan neck.

As we get Revio retired nan doorway and hole for Onso, and past you're going to spot america proceed to attraction complete nan 2nd half of nan twelvemonth and into adjacent twelvemonth connected really you merge pinch bundles, really you summation nan capacity of some Revio and Onso rather frankly, and past summation our worth to nan customers. And that's – that's really nan scheme of onslaught here. I'm very enthusiastic astir it. I mean, we are from a guidance perspective. We are taking a humble view, because we want to make judge we get this right. We cognize that, there's a batch of prime successful nan market. We judge we person a highly differentiated offering. But we besides want to beryllium applicable and responsible astir really we springiness our financial guidance.

Operator

The adjacent mobility is from John Sourbeer pinch UBS. Please spell ahead.

John Sourbeer

Hi. Thanks for taking nan mobility here. Maybe conscionable mobility for Susan, and connected nan greater than 25 shipments successful nan first quarter. Do you deliberation you tin admit those successful gross aliases tin you punctual america really nan gross nickname is connected nan shipment? And past follow-up, it sounds for illustration nan Broad for nan Revio has been shipped up nan door, person they really received it and up and running? And if so, immoderate early feedback connected nan installation location and software? Thanks.

Susan Kim

Yeah. So John 25 that – those will beryllium recognized arsenic revenue, because nan predominance of our shipments are nan premier elements of nan instruments we present to customers is recognized upon delivery. So that is – that is meant for gross nickname successful nan quarter.

Christian Henry

And past connected nan Revio going to nan Broad, it was – we sent it via truck, truthful nan trucks arriving adjacent infinitesimal – now I deliberation it's arriving really successful nan adjacent mates of days.

Susan Kim

Yeah.

Christian Henry

And truthful nan motortruck will get and they'll instal it adjacent week. And past they'll – they'll – they're very, very capable. So I wouldn't beryllium surprised, if earlier nan extremity of nan month. We're starting to spot runs travel disconnected of – disconnected of nan instrumentality assuming nan installation goes well.

Operator

The last mobility this evening comes from Ross Osborn pinch Cantor Fitzgerald. Please spell ahead.

Ross Osborn

Hi. Thanks for squeezing maine in. I know, it's been a agelong call. So I'll beryllium quick, truthful conscionable funny to perceive your position connected China. You said nan borders opening, but cases expanding comparatively beardown instrumentality demand. But immoderate penetration into wide activity would beryllium appreciated.

Christian Henry

Yeah. I'll – yeah. So correct now wide activities person been beautiful good. We had very beardown request for Revio successful China. And I deliberation that's going to, that will thief america pinch our Chinese gross successful nan quarter. You're right, erstwhile I springiness guidance, 1 of nan things I do interest astir is – is, really does China play itself retired this year, because we each nary of america really cognize really that will wholly play itself out. What buoys my assurance is nan truth that, we person a caller merchandise rhythm and a batch of enthusiasm, and a batch of orders are fresh for Revio. So that will help. But you're right, imaginable closures, COVID, those kinds of things. There's still headwinds that we look successful nan market, and erstwhile we were reasoning astir our guidance, we are trying to deliberation done – done that, location still are headwinds sitting retired there. That we're concerned pinch and watching, but truthful far, our position connected China correct now is that, we expect it to beryllium operations arsenic normal.

We will beryllium shifting immoderate Revio's to China this quarter. And so, that will – that will thief and get those customers started. But correct now, there's thing bonzer to report, but we are watching arsenic is I'm judge each of our competitors and peers, really that will unfold complete nan adjacent respective quarters?

Operator

This concludes our question-and-answer session. I would for illustration to move nan convention backmost complete to Todd Friedman for immoderate closing remarks.

Todd Friedman

All right. Thank you each for joining america today. We look guardant to connecting pinch galore of you later this 4th astatine our respective manufacture events and updating you connected our advancement this year. As a reminder, a replay will beryllium disposable connected our website. And this now concludes our call. Thank you.

Operator

The convention has now concluded. Thank you for attending today's presentation. You whitethorn now disconnect.

Editor: Naga



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