Pacific Biosciences of California Q1 2025 Earnings Call Transcript

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Provided by Quartr
May 8, 2025
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Operator

Good afternoon, everyone, and welcome to the PacBio First Quarter twenty twenty five Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Questions. Please also note, today's event is being recorded.

Operator

This time, I'd like to turn the floor over to Todd Freeman, Investor Relations. Relations. Sir, please go ahead.

Todd Friedman
Todd Friedman
Senior Director, FP&A and Investor Relations at Pacific Biosciences of California

Good afternoon, and welcome to PacBio's first quarter twenty twenty five earnings conference call. Earlier today, we issued a press release outlining the financial results we'll be discussing on today's call, a copy of which is available on the Investors section of our website at www.pacd.com or is furnished on Form eight ks available on the Securities and Exchange Commission website at www.sec.gov. A copy of our earnings presentation is also available on the Investors section of our website. With me today are Christian Henry, President and Chief Executive Officer and Jim Gibson, Chief Financial Officer. In today's call, we will be making forward looking statements, including, among others, statements regarding predictions, estimates, expectations and guidance.

Todd Friedman
Todd Friedman
Senior Director, FP&A and Investor Relations at Pacific Biosciences of California

You should not place undue reliance on forward looking statements because they are subject to assumptions, risks and uncertainties that could cause our actual results to differ materially from those projected or discussed. Please review our SEC filings, including our most recent Forms 10 Q and 10 ks and our press releases to better understand the risks and uncertainties that could cause results to differ. We disclaim any obligation to update or revise these forward looking statements except as required by law. We will also present certain financial information on a non GAAP basis, which is not prepared under a comprehensive set of accounting rules and should only be used to supplement an understanding of the company's operating results as reported under U. S.

Todd Friedman
Todd Friedman
Senior Director, FP&A and Investor Relations at Pacific Biosciences of California

GAAP. Reconciliations between historical U. S. GAAP and non GAAP results are presented in our earnings release, which is available on the Investors section of our website. For future periods, we are unable to reconcile non GAAP gross margin and non GAAP operating expenses without unreasonable effort due to the uncertainty regarding, among other matters, certain acquisition related items that may arise during the year.

Todd Friedman
Todd Friedman
Senior Director, FP&A and Investor Relations at Pacific Biosciences of California

A recording of today's call will be available shortly after the live call in the Investors 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. I will now turn the call over to Christian.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

Thank you, and good afternoon, everyone. Today, I'll share our first quarter twenty twenty five results, highlight recent commercial and strategic progress and outline our expectations for the remainder of the year. Following my remarks, Jim Gibson, our new Chief Financial Officer will discuss our financial results and guidance in much more detail. We reported first quarter twenty twenty five revenue of $37,200,000 which is slightly above our preliminary estimate shared on April 9 and consistent with our internal expectations. Instrument revenue for the quarter was $11,000,000 compared lower than compared to the prior year, largely reflecting increased uncertainty in academic funding, particularly in The United States.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

In total, we shipped 12 REVYO systems and 28 VEGA systems, bringing cumulative shipments of to two eighty two Revio systems and 35 Vega systems. To provide more transparency into our customer dynamics, we've introduced new metrics on Slides four and five of our investor presentation, which break out shipment dollars by customer type. While we don't expect to share this segmentation every quarter, we believe it offers helpful context, particularly in light of the current market conditions. As shown on Slide four in our Q1 academic and research institute segment represented the lowest percentage of instrument shipments since the Revvio launch. We believe that this is the direct result of increased funding pressures our customers are seeing with respect to capital equipment purchases.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

By contrast, instrument shipments to our other customer segments have remained largely stable over the past several quarters. Notably, we saw growth among our hospital and clinic customers, reflecting continued momentum for HiFi sequencing in clinical and translational research settings. And despite broader funding headwinds, we continue to attract new customers to PacBio. Roughly half of all Vega and Revvio systems shipped in Q1 went to new instrument customers, further showing the expanding market appeal of our HiFi technology. While macroeconomic pressures weighed on system placements, consumables showed strong growth in the quarter.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

In the first quarter of twenty twenty five, consumable revenue reached a record $20,100,000 reflecting 26% year over year growth and steady utilization across our growing base of Revvio systems. Typical fiscal year end purchasing in Japan also contributed to the strong performance. Notably, unlike instrument shipments, consumable demand from our academic and research institution customers remained stable compared to prior quarters, indicating more resilience in usage driven spend versus capital purchases. Further underscoring HiFi adoption, total petabase output from PacBio long read sequencers increased 37% year over year, highlighting continued scaling across our installed base. Turning to our full year outlook, the macroeconomic environment remains exceptionally challenging.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

Since our April press release, the impact of newly implemented tariffs between The U. S. And China, combined with additional pressure from proposed NIH budget reductions for fiscal year twenty twenty six have introduced incremental risks that could have an impact on revenue in 2025. In light of these developments, we are adjusting the lower end of our previously guided revenue range by $5,000,000 We now expect full year 2025 revenue to be between 150,000,000 and 170,000,000 The environment remains dynamic and should tariff conditions or academic funding further deteriorate, we may face additional headwinds. That said, we are confident in our strategic direction, anchored by strong customer interest in long read sequencing, continued momentum in the adoption of HiFi and a robust innovation map.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

We are also committed to our plan of turning cash flow positive as we exit 2027 and remain focused on disciplined cost management to reduce our cash burn. In response to ongoing market uncertainty and headwinds in the industry, we announced and executed on a restructuring plan in April, designed to narrow our strategic focus and reduce our operating costs. Though reductions in headcount and non headcount related expenses across all functions in our organization, we expect to lower our annualized non GAAP operating expense run rate by approximately $45,000,000 to $50,000,000 by year end. Following these cost reduction measures, we are concentrating our efforts on our highest impact long read platform initiatives. We continue to advance development programs aimed at enhancing our existing platforms such as Revio and Vega, including the future launch of multi use smart cells.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

This innovation is designed to further reduce sequencing costs for our customers to unlock higher sequencing volume while simultaneously improving our consumable gross margins. The development program is progressing quickly and we've demonstrated high quality repeatable reuse results internally. Additionally, we are accelerating development efforts for ultra high throughput long read sequencing system. This next generation platform is expected to significantly increase throughput, enabling human whole human genome sequencing cost at or near price parity with short read technology. I'd also like to provide a brief update on how our restructuring initiative has impacted our short read sequencing strategy.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

While we continue to see strategic value in providing both long read and short read sequencing technologies to the market, the current macroeconomic conditions necessitate focusing our resources and investments on areas where we believe we can achieve the greatest market share gains and hold the strongest competitive differentiation. Based on these criteria, we are prioritizing our HiFi technology and the long read sequencing market and have made the decision to pause development of our high throughput short read sequencing platform. Although we have paused our development of the high throughput short read platform, we remain fully committed to selling the Onso platform and supporting our current Onso customers through ongoing commercial support and consumable supply. Moving on to product updates. In the first quarter, we continued to roll out our new Spark chemistry, which significantly enhances Revio's data output and performance, while reducing the amount of DNA input required.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

Customer uptake has exceeded expectations with nearly 90% of our REVIO reagent kit shipments in the first quarter being Spark Chemistry. And we're certainly pleased with our customers' response. Early adopters like Signios Biosciences, a global leader in genetic testing services, reported yield increases of 46% relative to their experience with the Version one chemistry and emphasized how Spark's lower sample input requirements has unlocked the ability to sequence previously inaccessible samples. Similarly, the University of Bern highlighted substantial productivity and cost efficiency improvements across various genomic research applications. Turning to Vega, early customer response has been very encouraging.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

Users are achieving strong yields, consistently exceeding our specification of 60 gigabases of Hi Fi data per SmartCell and deploying the platform across a wide range of applications. For example, the integrated microbiome resource at Dalyus University is using Vega for microbial genomics and eDNA amplicon sequencing for worldwide client samples, while Elagen is applying to amplicon sequencing in support of DNA synthesis workflows. We're also seeing the adoption in labs for gene editing research and targeted sequencing applications. These early use cases reflect Vega's accessibility, ease of use and versatility, enabling us to broaden our customer base, expand into new markets and bring HiFi sequencing into new labs beyond the traditional large scale whole genome application. Notably, approximately 50% of Vega shipments through Q1 were to new to PacBio instrument customers.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

Looking ahead, we expect to continue ramping Vega manufacturing through the second quarter and reach a run rate production in the second half of twenty twenty five. On the informatics front, we recently announced the licensing agreement with the Chinese University of Hong Kong and the Center for Novistics to integrate advanced deep learning models into our sequencing workflows, significantly enhancing methylation detection accuracy and enabling comprehensive analysis of critical epigenetic markers such as 5MC, 6MA and native 5HMC. The ability to profile five HMC, a dynamic tissue specific marker implemented in brain development, cancer and neurodegenerative diseases opens new opportunities in liquid biopsy, cancer detection and cell free DNA analysis. Several customers including clinical customers like GeneDx and Children's Mercy Kansas City Hospital have recently implemented methylation analysis into their tests and we believe that the addition of these new models will further strengthen our platform's leadership in epigenetic sequencing and help enable clinical researchers to find greater insights from HiFi Genome. Moving on to other recent highlights, we are proud to have been selected as the technology partner for the Davos Alzheimer's Collaborative's North American Dementia Registry Project.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

This initiative aims to build a comprehensive multiomics dataset advancing global understanding of Alzheimer's genetics, especially within diverse and underrepresented populations. We also continue to gain momentum with our new and existing clinically focused customers in the first quarter, especially with the hospital and clinic customer base. Revvio placements in the quarter included leading institutions such as the Lurie Children's Hospital in Chicago, Imagine Institute in France and the Institute of Medical Genetics at the University of Zurich. These institutions anticipate leveraging Revio primarily to improve genetic disease testing capabilities and solve more cases for variant detection previously missed with other technologies. Additionally, we've established a pioneering collaboration with Chula Longkorn University in Thailand to interrogate PacBio to integrate PacBio HiFi whole genome sequencing into their National Newborn Screening Research Program, the first initiative of its kind in Southeast Asia.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

This groundbreaking project aims to leverage HiFi's unique capability to reveal previously undetected genetic variants, significantly enhancing the precision of early life genetic screening. Finally, we are also pleased to share the initial results from our annual customer survey, which shows a Net Promoter Score of over 50, which is widely considered an excellent rating, underscoring our commitment to customer satisfaction, innovative product development and exceptional customer support. We've also had the opportunity to connect directly with customers through our global Prism twenty twenty five event series, our flagship forum for engaging the genomics community and showcasing the future of long read sequencing. Events held across Asia, Europe and The United States have brought together researchers, clinicians and partners to explore the latest PacBio innovations and share real world insights. At each stop, we've seen strong engagement and enthusiasm, particularly around the accessibility of Vega, the performance gains delivered by Spark and the expanding role of HiFi sequencing in clinical research.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

We look forward to concluding this year's series next week in Boston. Lastly, I'd like to introduce Jim Gibson, our new CFO, who joined PacBio on March 31. Jim brings over three decades of financial leadership experience across technology, healthcare and life sciences, including at organizations like Apple, Tesla and Netflix, as they went through significant transformation and growth. We look forward to his leadership financial stewardship as we continue building PacBio into a scalable, profitable and cash flow positive business. With that, I will now hand the call over to Jim.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

Jim?

Tom Nikic
Managing Director, Equity Research at Needham & Company

Thank you, Christian. I'm incredibly excited to join PacBio. The company's strategy and mission resonate deeply with me and I

Jim Gibson
Jim Gibson
CFO at Pacific Biosciences of California

believe we're just beginning to unlock the full potential of what this company can deliver to the life sciences community. I look forward to meeting our customers, partners and investors in the months ahead. Now turning to our financial results. I will be discussing 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.

Jim Gibson
Jim Gibson
CFO at Pacific Biosciences of California

As discussed, we reported $37,200,000 in product, service and other revenue in the first quarter of twenty twenty five compared to $38,800,000 in the first quarter of twenty twenty four. Instrument revenue in the first quarter was 11,000,000 a decrease of 42% from $19,000,000 in the first quarter of twenty twenty four due to lower REVIO system shipments. We shipped 12 REVIO systems in the first quarter of twenty twenty five compared to 28 REVIO systems in the first quarter of twenty twenty four. Additionally, we shipped 28 VEGA systems in the first quarter of twenty twenty five. We ended the quarter with two eighty two cumulative REVYO system shipments and 35 cumulative VEGA system shipments.

Jim Gibson
Jim Gibson
CFO at Pacific Biosciences of California

Turning to consumables, revenue of $20,100,000 in the first quarter increased 26% from $16,000,000 in the first quarter of last year, with annualized revenue pull through per system of approximately $236,000 Finally, service and other revenue was $6,000,000 in the first quarter of twenty twenty five compared to $3,800,000 in the first quarter of twenty twenty four driven by an increase in service contract revenue related to Revio. From a regional perspective, each region reported year over year growth in consumable revenue offset by instrument headwinds. Americas revenue of $16,300,000 decreased 8% compared to the first quarter of twenty twenty four, with the region continuing to be impacted by government funding headwinds and NIH funding uncertainty. For Asia Pacific, revenue of $11,600,000 decreased 9% compared to the first quarter of twenty twenty four. Consumables were particularly strong in the region as REVIO system utilization increased to its highest level since its launch.

Jim Gibson
Jim Gibson
CFO at Pacific Biosciences of California

Complementing the increased utilization, customers in Japan received their typical fiscal year end stocking orders and some customers in China made purchases ahead of potential tariffs. Finally, EMEA revenue of approximately $9,300,000 increased 11% compared to the first quarter of twenty twenty four. Europe in particular saw strong Revio placements in the hospital and clinic customer base. Moving down the P and L, first quarter twenty twenty five non GAAP gross profit of $15,000,000 represented a non GAAP gross margin of 40% compared to a non GAAP gross profit of $12,600,000 or a non GAAP gross margin of 33% in the first quarter of last year. Non GAAP gross margin increased year over year due to improved product mix as consumables, which have higher gross margins, represented 54% of total revenue in the first quarter of twenty twenty five compared to 41% of total revenue in the first quarter of twenty twenty four.

Jim Gibson
Jim Gibson
CFO at Pacific Biosciences of California

In addition, we realized per unit cost savings from both REVIO instrument and REVIO consumables. Non GAAP operating expenses were $61,700,000 in the first quarter of twenty five, representing a 29% decrease from non GAAP operating expenses of $87,200,000 in the first quarter of twenty twenty. Operating expenses in the first quarter included non cash share based compensation of $8,000,000 compared to $17,400,000 in the first quarter of last year. The decrease in both non GAAP operating expenses and non cash stock based compensation was primarily due to the restructuring initiative we implemented in the second quarter of twenty twenty. Regarding headcount, we ended the quarter with five seventy employees compared to five seventy five at the end of twenty twenty four and seven 87 at the end of the first quarter of twenty twenty four.

Jim Gibson
Jim Gibson
CFO at Pacific Biosciences of California

As a result of our restructuring announced on April 9, we expect second quarter ending headcount to be approximately 500. Non GAAP net loss was $44,400,000 representing $0.15 per share in the first quarter of twenty twenty five compared to non GAAP net loss of $71,400,000 representing $0.26 per share in the first quarter of twenty twenty four. We ended the first quarter with $343,100,000 in unrestricted cash and investments compared with $389,900,000 at 12/31/2024. First quarter '20 '20 '5 cash payments included a $5,000,000 license payment. In the first quarter, we recorded several items related to our restructuring that impacted our GAAP results.

Jim Gibson
Jim Gibson
CFO at Pacific Biosciences of California

Our GAAP gross loss of $1,400,000 included $4,300,000 related to the amortization of acquired intangible assets, 4,100,000.0 for a loss on purchase commitments and $7,700,000 related to inventory adjustments related to restructuring. Additionally, we recorded GAAP operating expenses of $427,600,000 which included $381,800,000 of restructuring charges comprised primarily of $359,300,000 of accelerated amortization of acquired intangible assets and $15,000,000 of impairment charges. GAAP operating expenses also included an $18,700,000 decrease in the change in the fair value of the contingent consideration. It is important to note that the amortization of acquired intangible assets and impairment charges are non cash accounting adjustments and do not impact our liquidity, operations or ability to execute on our long term strategy. Now turning to guidance.

Jim Gibson
Jim Gibson
CFO at Pacific Biosciences of California

As we've discussed earlier, we now expect revenues to be in the range of $150,000,000 to $170,000,000 At the midpoint, this represents a growth rate of approximately 4% compared to 2024. As Christian indicated earlier, we lowered the bottom end of our range by $5,000,000 as a result of uncertainty surrounding our ability to shift new instruments into China without significant tariffs. However, this continues to be an extremely dynamic macro environment, especially with respect to trade policy and uncertainty surrounding future NIH funding. Our guidance midpoint still assumes a decline in Rebio shipments from 2024. However, this is offset with growth in Vega and consistent with the first quarter, we expect annual pull through for Rebio Systems to be in the low to mid $200,000 In The Americas, our guidance continues to assume significant uncertainty in the broader academic research community, especially in the near term with accelerating activity in the clinical market anticipated to offset some of the potential headwinds.

Jim Gibson
Jim Gibson
CFO at Pacific Biosciences of California

For Asia Pacific, while we anticipate growth in the region in 2025, the funding dynamics in several countries continue to affect capital purchasing timelines for the Revio platform. Additionally, recently enacted tariffs may increase headwinds further in the region. We continue to expect EMEA to be the fastest growing region in 2025 as population sequencing programs scale, whole genome sequencing in a clinical setting grows and we expand our customer base with Vega. Looking at Q2, we are forecasting limited sales in China after April 10. And as a result, we expect revenue in the second quarter of twenty twenty five to be flat compared to the first quarter of twenty twenty five.

Jim Gibson
Jim Gibson
CFO at Pacific Biosciences of California

Moving down the P and L, we continue to expect the 2025 non GAAP gross margin to be between 3540%, representing an improvement of over 400 basis points compared to 2024 and we expect to exit the year above 40%. We continue to expect cost improvements in both the REVIO system and REVIO consumables. Additionally, we expect Vega cost of goods sold per unit to improve as the platform moves from the pilot manufacturing line to the full production line later this year. We do not directly import any of our materials or components from China, although we do expect that our suppliers have some exposure. Could The U.

Jim Gibson
Jim Gibson
CFO at Pacific Biosciences of California

S. Enact tariffs on certain countries in our supply chain, we could face incremental pressure to our cost of goods in the second half of this year. As of now, our guidance does not factor in a material increase in COGS related to tariffs. Looking at Q2, we expect non GAAP gross margin to be lower compared to Q1, primarily due to product mix as we expect instrument revenue to make up a greater portion of total revenue. As a result of our restructuring, we now expect non GAAP operating expenses to decline 14% to 17% compared to 2024 and be in the range of $240,000,000 to $250,000,000 We expect to continue to realize savings in 2026 and as such anticipate 2026 non GAAP operating expenses to be lower than in 2025.

Jim Gibson
Jim Gibson
CFO at Pacific Biosciences of California

We continue to expect interest and other income to be between $5,000,000 and $7,000,000 in 2025 and the weighted average share count for EPS for the full year to be approximately $299,000,000 Additionally, following our restructuring, we expect our ending cash balance of cash and investments to be higher than previously anticipated and now expect to end the year with approximately $270,000,000 When excluding the $5,000,000 licensing payment in Q1, this implies $115,000,000 cash burn in 2025 or an improvement of $72,000,000 in adjusted cash burn compared to 2024. We remain on track towards our plan to achieve cash flow positive by the end of twenty twenty seven and believe our $343,000,000 in cash and investments as of March 31 will fund us through this transition. I will now hand it back to Christian for some final remarks.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

In closing, we had a nice start to the year, though we remain cautious given the current macroeconomic environment, including uncertainty around academic funding and the potential impact of trade policy developments. By proactively implementing our recent restructuring initiatives, we have emerged as a leaner, more focused organization, positioned to successfully navigate these near term challenges and execute on our long term strategy. As we look ahead, our strategic priorities remain clear. First, we are committed to expanding the adoption of HiFi sequencing by building on the strong early enthusiasm for our Vega benchtop platform and by continuing to enhance our Revvio platform through the ongoing rollout of Spark chemistry. Vega expands Hi Fi's accessibility into a broader and more diverse customer base, while Spark allows Revio users to extract more data from their sequencing runs using significantly less DNA input.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

Second, we remain dedicated to innovation through future product launches such as enabling multi use chip functionality to further reduce sequencing costs. Concurrently, we are advancing our next generation ultra high throughput long read sequencing technology. These initiatives aim to deliver HiFi sequencing at or near price parity with short read sequencing, significantly broadening our market potential. Finally, we are progressing our clinical strategy to improve outcomes and build long term durability into our business. This includes expanding our kitted solutions like PureTarget to genetic testing labs and continuing to drive adoption at hospitals and medical centers around the world.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

With these clearly defined priorities, a streamlined organizational structure and an increased focus on long read innovation, we are very well positioned to deliver sustained growth over the coming years and achieve our goal of turning cash flow positive as we exit 2027. Thank you again for your continued support. We look forward to updating you on our progress in the quarters ahead. With that, I'll turn the call back to the operator to begin the Q and A session.

Operator

Our first question today comes from Matthew Sykes from Goldman Sachs. Please go ahead with your question.

Jake Titleman
Jake Titleman
Analyst at Goldman Sachs

Hi, thank you for taking my question. This is Jake on for Matt. Could you guys talk a little more about the clinical opportunity ahead of you? And how much of this can offset some of the concerns around academic and government, particularly throughout the rest of this year? Thank you.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

Yes. Hi, Jake. Thanks for the question. It is really an exciting opportunity and it really started in 2024 as we got the pure target panel out into the market and had significant customers like Quest and Myriad Genetics and others start to adopt that technology. And what we're seeing is that the ability to see, parts of the genome that short read sequencers can't see has been really appealing to these companies and they're developing LDT tests that sit alongside the short read workflows and are eliminating, other legacy type tests and technologies in their workflow.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

So first and foremost, these tests allow them to do things they couldn't do before using sequencing and they make it more economical. And so when you look at where we are today, we're expanding that, we're continuing to add more genes to these panels, increase the level of multiplex. And what that does is it makes it more appealing to more of these diagnostic type customers where we think we can get more durable revenue. And so we do think that's an area where we're effectively doubling down and really focusing on because we think the revenue opportunity there is significant not just in 2025 but over the next several years. The second aspect of this is in the rare disease world where we continue to see remarkable results using Revvio and now with the Spark chemistry.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

And we're seeing expansions of clinicians and clinical researchers use Revvio in the hospital setting to look at to do research and looking at these rare disease, those rare disease populations and patients. And so we're seeing that we're really seeing that grow aggressively in Europe where we're seeing in The Netherlands, in Sweden, Denmark, other countries. And you just look at our placements in the first quarter of Revio, a lot of them went to that segment. And so we do see this as a way to make up for the potential uncertainty around NIH funding in particular.

Operator

Jacob, we'll take the next Our

Operator

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

Jack Meehan
Equity Research Analyst at Nephron Research LLC

Thank you and good afternoon. I curious if you I had two questions. The first is, within the 2025 guidance, if you could just share any rough expectations for what that might imply for REVIO and Vega placements, what you'd be willing to share? And then second is, appreciate all the the swift actions you're taking. As it pertains to the short read assets, I was curious if this is something I know you're going to support Onso, but is this something you would consider monetizing?

Jack Meehan
Equity Research Analyst at Nephron Research LLC

Is that something you're evaluating? Just any thoughts on that would be great. Thank you.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

Yes. Thanks. Thanks for the question. Certainly, we won't give the specific unit numbers associated with where we see Revvio and Vega, but we did say in the prepared remarks that we do expect Revvio shipments to be down in unit terms year over year. And we do think has a very significant opportunity to grow.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

And I think the timing of Vega was right, was spot on in the sense that having a desktop platform with a lower capital cost in a challenging macroeconomic environment really has given us a lot of great opportunity and we've seen the funnel continue to grow. And so I do fully expect Vega to grow in unit placements perhaps every quarter, but certainly over Q1 levels as we grow in Q2 and we'll kind of update it as we get into the back half. Additionally, what we're seeing of course is that, we're as we achieve manufacturing scale up, the gross margin associated with Vega will improve over the course of the year, which is great for us because we will have a significant cost reduction as we get to production scale moving from the R and D or prototype production line to the operational manufacturing line. And so we would expect not only placements to grow, but profitability or gross margin per system to grow over the course of the year as well. So we're pretty excited about that.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

With respect to short reads, it is a challenge, it is difficult to given the environment to keep advancing both the long and the short read at the same time. And so we did make the tough decision to really double down on long read where we have very significant competitive advantages. And so we are evaluating all of our alternatives with respect to the short read platform. We continue to support our Onso customers in the field. And with the high throughput system, we have made a lot of progress with getting that system developed.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

And so it is in a state now where it could be valuable. And so we'll explore that and as we have more information, we'll certainly share it with you guys. Next question?

Operator

Our next question comes from Kyle Nixon from Canaccord Genuity. Please go ahead with your question.

Alex Vukasin
VP Healthcare Equity Research Analyst at Canaccord Genuity - Global Capital Markets

Hi, everyone. This is Alex on the line for Kyle Nixon. Thanks for taking my question. So I think one place to start would be, if you could just kind of discuss what exactly you factored into your decision to pause the development of the high throughput short read sequencer. Essentially, is it just a mix of competition as well as the poor funding environment?

Alex Vukasin
VP Healthcare Equity Research Analyst at Canaccord Genuity - Global Capital Markets

Thanks.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

Yes. Thank you for the question. I mean, certainly, we in making the decision, we had to consider several things. First, the macroeconomic environment and where our revenues and margins that are needed to fund development are. That was one thing we had to consider.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

Second, we had to consider where are we strongest in the market and where do we see the biggest opportunities when you're evaluating your resources, you want to put them up against projects where you believe you have the best chance to win and the most certainty around winning. And so that was something we considered. And then the third thing very, very importantly, the progress we've made in R and D on the long read side has just been quite frankly breathtaking over the last twelve to eighteen months. You saw that we launched the Spark chemistry last year. In my prepared remarks, we talked about one customer that's seeing 46% increase in throughput per SmartCell.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

That we're seeing consistent improvement across the board relative to where customers were before Spark Chemistry. And so we see the opportunity to add more value to that platform and so we certainly want to keep investing. And then when we start to look at the advances we continue to make in preparing for the ultra high throughput long replatform, things like multi use, things like advances in our next generation SmartCell programs, things have gone perhaps faster than we expected, which means that we could get a new platform to market sooner. And in all of our conversations with our core customers, there's not a single customer that I talked to that says, gosh, I want I would like more throughput and better pricing. And we think that our next generation of products here with the progress that we've made will get us close to price parity with short read genomes and provide very significant amounts of throughput so that even the highest scaled labs in the world could consider long read sequencing as in germline genomics in particular.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

And we believe that we certainly have the technical capability and the market presence to win a significant portion of that germline genetics business say over the next five years. And so those were the decisions those were the factors that went into the decision. It's never an easy decision. We were encouraged by what we've done on the short read side. But when you're sitting in an environment like this right now, you being lean, being focused and prioritizing is absolutely essential and that's what we did.

Alex Vukasin
VP Healthcare Equity Research Analyst at Canaccord Genuity - Global Capital Markets

Thank you very last one for me. So we're essentially six months post Vega launch announcement. Can you just discuss if there's been any cannibalization of Revvio by Vega?

Alex Vukasin
VP Healthcare Equity Research Analyst at Canaccord Genuity - Global Capital Markets

And then

Alex Vukasin
VP Healthcare Equity Research Analyst at Canaccord Genuity - Global Capital Markets

importantly, is your level of confidence in being able to eventually transition Vega customers into more Revvio placements? Thank you.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

Yes, that's a good question. And so you're right, we announced Vega back in November, I believe, early November and we started shipping the product in December. And we've seen very strong demand from a funnel building as well as in this environment to place the number of systems we did in Q1. Was actually quite pleased with that. And I think what we're seeing is, we're not seeing cannibalization of Revvio from Vega, but we are seeing situations where a customer may want is certainly wants a Vega, but they don't have the funds right now and so they decide to get they decide to buy a Vega instead.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

And we've seen that in several cases in Q1 and we continue to see that a bit. But it's not I wouldn't call it cannibalization that, hey, I've decided that Vega is all I need and not Revio. It's I need Revio, but I can't afford Revio right now for funding considerations, but I can get started with Vega and we're seeing that. So I believe that those customers over the next few years as the funding environment improves, we'll see Revios sitting right alongside Vega's and vice versa. In fact, we are seeing customers that have revios by Vegas, for and the reason why they do that is for kind of rapid turnaround or their big is already fully occupied and they want to have additional sequencing capacity available to them.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

And so I do think they're symbiotic. They're not really cannibalizing and so we really haven't seen that. And then I think the last thing is, just would mention, if you look at the funnel, I think our funnel is well over 50 new customers. And so the strategy of broadening our reach through Vega and then ultimately transitioning to getting those customers to transition to Revio over time is certainly working at this point, particularly in this challenging macroeconomic and climate. Thanks, Alex.

Alex Vukasin
VP Healthcare Equity Research Analyst at Canaccord Genuity - Global Capital Markets

Thank you.

Operator

Next question comes from Masso Currico from Stephens. Please go ahead with your question.

Harrison Parsons
Equity Research Associate at Stephens Inc

Great. This is Harrison on for Mason. Good afternoon and thanks for taking the questions. I wanted to start with how much visibility you think you have into the Vega funnel? And how does your confidence in the outlook there compared to that of revenue?

Harrison Parsons
Equity Research Associate at Stephens Inc

Are the error bars there around the Vega placements more narrow?

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

Okay. We'll start there with visibility. Now, it's interesting when you have a lower cost capital instrument, you have many, many more units that are sitting in the funnel. So that gives you many more shots on goal in any given quarter to achieve the unit numbers and as a result the revenue. And so I do think the quarter to quarter visibility is pretty reasonable right now in the near term.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

As you get further out of course, it becomes they become more these are conversations and they progress from quarter to quarter. And so overall, I would say our visibility is pretty strong. We've just had these Prism events that I discussed in my prepared remarks. And in the Asia Pacific with meeting held in Vietnam, there were several POs that or PO commitments that were that came in right during the meeting. And another thing is we've had Bluebird kind of deals come in for Vegas systems that no one was expecting, and they just are coming in.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

And so I think that that's additive to improving your visibility around how you're forecasting. And if you are thoughtful in how you put your forecast together, you certainly have enough to get some reasonable confidence that you can achieve your forecast numbers. And so I feel pretty good about it right now. I think we are just like all of our peers, we're wrestling with trade policy and tariffs and what does that mean for demand outside The United States. As I think most of you know, about half of our revenue comes a little more than half of the revenue comes from outside The United States.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

And so we've done a lot of work on thinking about tariffs from the revenue perspective as well as from the cost perspective. And as we put our guidance together, we tried to certainly consider all of those dynamics.

Harrison Parsons
Equity Research Associate at Stephens Inc

Got it. And sticking to your guidance there, given the fluid market backdrop, could you just speak to some of the upside and downside scenarios of revenue pull through this year? I know there's lots of moving parts there, but what's really baked in into the pull through guide this year? Does it rely on any large scale projects starting up in the back half? And if so, how much visibility do you have into this?

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

Yes. We've taken a very conservative approach where most large type projects would be upside to our forecasts. I think that that's certainly the right way to play that. And the reason why we do that is because the timing of when a large project gets agreed to, contracted, the systems installed and the samples starting to flow can be highly variable. And so when you start to think about it in the context of your financial guidance, you would much rather see that as kind of upside as opposed to core.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

And so we've generally taken that approach. One of the things we pointed out in our deck is that consumable revenue with principally and that's really Revio at this point has been pretty consistent across our customer base. So each customer segment, we haven't seen dramatic changes in consumable usage. And so when you think about our assumptions on the guidance with respect to pull through, we've been using that low 200s to kind of mid 200s pull through assumption in preparing our guidance. And of course, we go a lot more granular than that.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

We look in each territory, we try to look evaluate different account types. And as we continue to place more revios into commercial accounts, diagnostic accounts, clinical accounts, they're pretty consistent users of the product and they're not as project driven. And so that can give you better confidence and certainty around the utilizationpull through levels. And so we tried to show a little bit about that. If you look at our revenue picture, the challenge is really instrument placements in in an uncertain time.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

The second challenge is of course China where right now we're able to ship reagents into the country, but without significant burden of tariffs. Instruments are subject to tariff right now and certainly that's had an impact. And so that will be something that we'll be monitoring and it's the real reason why we lowered the bottom end of the guidance. If China stays shut off and NIH, the NIH budget has a hard time getting approved or has such a massive cut that it will force most people to pause. Those could certainly have an impact on us and we tried to consider it.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

When we gave our original guidance for the year, we gave a pretty wide range knowing this uncertainty and that's why we felt comfortable that we didn't to make significant change to our guidance. The upsides to our plan would be certainly more clinically driven placements of revios, maybe a little bit higher utilization than what we're forecasting And then of course being able to ship instruments into China would be a positive would certainly be a positive tailwind for us.

Todd Friedman
Todd Friedman
Senior Director, FP&A and Investor Relations at Pacific Biosciences of California

You.

Harrison Parsons
Equity Research Associate at Stephens Inc

Great. Does that all make sense?

Todd Friedman
Todd Friedman
Senior Director, FP&A and Investor Relations at Pacific Biosciences of California

Yes.

Operator

Our next question comes from David Wattenberg from Piper Sandler. Please go ahead with your question.

David Westenberg
David Westenberg
Managing Director & Senior Research Analyst at Piper Sandler Companies

All right. Close enough. Thank you very much for taking the question. So, let me maybe just talk about some of the pull through. It's been kind of in that mid-two thousand range.

David Westenberg
David Westenberg
Managing Director & Senior Research Analyst at Piper Sandler Companies

Obviously, the theoretical max is higher than that. And I think you have a lot of good amount of customers that are doing that. So you can talk about maybe some of the strategic plans on getting it up to maybe above $300,000 a placement and what that could do with adjusted some the gross margins if you were able to kind of get that up? And I got a couple more. Thanks.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

Yes. Well, I mean, and foremost, obviously, this is fundamental to the business. You saw gross margins were much higher than expectation in the quarter and that's for a couple of reasons. The first reason is that the product mix is improving and this is what we've talked about over and over again that as consumables become a greater proportion of revenues, we will see significant lift up in gross margins. And so going from the mid-200s to 300,000 plus is front and center.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

And there's probably two or three fundamental things that we need to do. Number one, we need to continue to make the product easier to use out of the gate. So a new customer doesn't take, three to six months to really get up to speed and running at some level of capacity. If we can do that every little bit will accelerate. In fact, Todd, we really need is one more run per customer, per month to change to go from say the mid-200s to 300,000 plus.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

So that's what we're talking about. One more run per customer per month, 12 more runs per customer per year and we're there. So it's driving the early phases of adoption, driving to customers that are high utilization customers like the diagnostic, like the Quest, LabCorp, Myriad's of the world driving rare disease in the hospitals, in other words, making more and more samples accessible. And then the last piece of course, we did some of it last year by significantly reducing DNA input. We opened up Revvio to effectively millions of samples that we could not sequence before because we required too much DNA.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

And so that's that was important because that enabled more projects to get on. And then it's enabling more applications. So for example, at our Prism conference yesterday, they showed great results using FFPE samples on our sequencers, which many people thought that that wasn't really feasible. And at the conference, there was a talk yesterday that showed fantastic FFPE. So adding more applications will drive more opportunities to use the system, lowering DNA input allows more samples to get on, proving the execution and the ease of use to make it easier and then selling to those customers that are really the high runners.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

All of those aspects can contribute to one more run per customer per month and now you're over $300,000 in pull through. And of course, the gross margins are already higher than the instruments. So that will certainly drive the whole picture. So it's very doable. We're making we are making progress on all the key points.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

Now we just need to see we need some time to see it manifest.

David Westenberg
David Westenberg
Managing Director & Senior Research Analyst at Piper Sandler Companies

Got it. I'll just ask maybe a quick one on tariffs here. Has this been able have you had any problems with maybe some of the inputs or cost reductions or see that coming Can you remind us U. S.-based manufacturing versus where you are outside The U. S?

David Westenberg
David Westenberg
Managing Director & Senior Research Analyst at Piper Sandler Companies

And then with regards another regards to tariffs, I do know that one of your competitors has had a tariff surcharge or plans on implementing one. Is there any opportunities assuming you do have more U. S. Manufacturing and won't be subject to much to kind of compete a little bit more on price? Thank you and I'll take it offline from there.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

Yes. I think that so we've been evaluating tariffs from every direction like all of our peers. I'm certainly sure they have been. At this point, we certainly could implement a surcharge. This point, we feel supply chain is in a position where we don't think there's a significant impact and therefore, we don't need to burden our customers with a price increase unless we really start to feel the effects.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

When you think about where our supply chain on chips, on SmartCells, that's a long supply chain. So we carry a fair bit of inventory that won't be subject to tariff for quite a while here. We have most of our inbound products. We don't source a lot from China. So perhaps some of our suppliers do and we will ultimately see some impact for that.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

But so far, we haven't seen a dramatic impact. If we do, we may have to implement a surcharge like others might. But we want to make sure that we continue to grow our opportunity and one of the things we've been trying to do is make the system more economical. And so to the extent we can manage our gross margins within the ranges that we expect and we can ship our products globally around the world, we're going to really support our customers here and continue to grow our business. But if we do see some real challenges, we may have to implement something like that down the road, but we're just going to keep monitoring.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

At this point, we feel pretty good about what we're doing.

Todd Friedman
Todd Friedman
Senior Director, FP&A and Investor Relations at Pacific Biosciences of California

Thank you.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

Thanks for

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

the question, Dave.

Todd Friedman
Todd Friedman
Senior Director, FP&A and Investor Relations at Pacific Biosciences of California

Yes.

Operator

And

Operator

our next question comes from Dan Brennan from TD Cowen. Please go ahead with your question.

William Ruby
Equity Research Associate at TD Cowen

Hi, this is William Ruby on for Dan. Thank you for the

William Ruby
Equity Research Associate at TD Cowen

questions. I've got

William Ruby
Equity Research Associate at TD Cowen

two questions. One would just be if you could just kind of walk through your demand trends in EMEA and your funnel there. And then just a broader question on your long term plans to get to free cash flow positive. What are the key drivers for this? What has to happen for this to happen?

William Ruby
Equity Research Associate at TD Cowen

And how is the current environment impacting your ability to get there? Thank you.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

Yes. Good questions, William. First, EMEA, we expect EMEA to be our fastest growing region for the year. And that's really driven by the rare disease market. We're seeing great uptake in REVIO in EMEA because that's where they really are leading the rare disease charge and leveraging the power of HiFi to drive rare disease and we're seeing that in The Netherlands, we're seeing it in Sweden, we're seeing it in Denmark.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

I believe Zurich an order from Zurich this quarter came in for that exact reason. We're seeing it in Germany. So it's a pretty broad institute in France this quarter had in Q1 had a revio as well. So it's being it seems as though that's accelerating. And if you look at the demand, I think that's in Europe in particular that's really where we're seeing some strong revenue opportunities.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

But we're also seeing big opportunities with the smaller customers, new customers in The UK, which has traditionally driven by Sanger as our biggest customer, but now we're getting traction across the board there. So I think EMEA, we do expect it to be our fastest growing region for the year and we'll see how that's going. With respect to free cash flow, what has to happen for us to get to cash flow breakeven in 2027? There's really a couple of fundamental things. First, we do have to grow from here on the top line.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

So Revio has to continue growing, consumables have to continue growing. Just to reiterate, right, we had an all time record Q1 quarter '20 million '20 point '1 million dollars in consumables. That's going to really help us as we see consistent consumable usage growing in that area. So I think that has to keep going. Second, we have to continue to drive innovation to make Revvio more valuable, so we can continue to drive placements, which will improve our top line.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

And then third, we do expect that the high, the ultra high throughput short long read system will start to contribute to revenue in this horizon and so it's important to get revenue from that as well. So we need to see our revenues grow. We do need to see our gross margin expand, from where we were in 2024. And we do think we have a very strong pathway to make that happen. And you saw Q1, we're off to a great start there, at over 40%.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

So I'm actually really proud of that. And then we have to be tight and manage expenses. You saw we had a significant reduction in spending last year. We have another significant spending this year. We'll get the full benefit of the restructuring in April in through the remainder of this year, but really the whole benefit will be felt in 2026.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

And I think the combo of those is really what sets us up to get the cash flow breakeven by the end of Q4 of twenty twenty seven. You saw that our cash burn this year is roughly what $115,000,000 for guidance, guided cash burn. And so we've made dramatic strides in improving our cash burn and we will continue to do so. And so we have a lot of there's a lot of excitement. We have to grow our revenues from here in order to make all of this work.

Christian Henry
Christian Henry
President & Chief Executive Officer at Pacific Biosciences of California

There's no doubt about that. But we have the products, we have the innovation. And I do think even in this challenging environment, customers are using their sequencers and those sequencers are driving consumable revenue, which is good gross margin. Hopefully that helps.

William Ruby
Equity Research Associate at TD Cowen

Thank you.

Todd Friedman
Todd Friedman
Senior Director, FP&A and Investor Relations at Pacific Biosciences of California

Yes. Cool. So we're at the bottom of the hour here. So we'll wrap up the call.

Todd Friedman
Todd Friedman
Senior Director, FP&A and Investor Relations at Pacific Biosciences of California

Thank you everybody for joining. Looking forward to connecting with you all at the conferences and meetings ahead this quarter. And have a good day. Bye bye.

Operator

Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We thank you for joining. You may now disconnect your lines.

Executives
    • Todd Friedman
      Todd Friedman
      Senior Director, FP&A and Investor Relations
    • Christian Henry
      Christian Henry
      President & Chief Executive Officer
    • Jim Gibson
      Jim Gibson
      CFO
Analysts
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Key Takeaways

  • PacBio reported Q1 2025 revenue of $37.2 million, with instrument revenue down to $11 million due to academic funding pressures while consumable revenue hit a record $20.1 million, up 26% year-over-year.
  • The company narrowed its full-year 2025 revenue outlook to $150 million–$170 million, lowering the midpoint by $5 million to account for new U.S.-China tariffs and potential NIH budget cuts.
  • In April, PacBio executed a restructuring plan to cut annualized non-GAAP operating expenses by $45–50 million, streamline headcount, and focus resources on long-read sequencing with a goal of positive cash flow by end of 2027.
  • Product innovation continues: nearly 90% of Revio reagent kits shipped in Q1 feature Spark chemistry, delivering up to 46% higher yields and lower DNA input, while early Vega adopters report strong performance and roughly 50% of Vega shipments went to new customers.
  • PacBio paused development of its high-throughput short-read platform to prioritize its competitive HiFi long-read sequencing roadmap, while maintaining support and consumable supply for existing Onso users.
AI Generated. May Contain Errors.
Earnings Conference Call
Pacific Biosciences of California Q1 2025
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