Pacific Biosciences of California, Inc.

Good afternoon, everyone, and welcome to the PACBio third quarter 2023 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one. To withdraw your questions, you may press star and two. Please also note, today's event is being recorded. At this time, I'd like to turn the floor over to Todd Friedman, Senior Director of Investor Relations. Sir, please go ahead.

Thank you, Jamie. Good afternoon, and welcome to PACBio's third quarter 2023 earnings conference call. Earlier today, we issued a press release outlining the financial results we will be discussing on today's call, a copy of which is available on the investor section of our website at www.pacb.com. or is furnished on form 8K available on the Securities and Exchange Commission website at www.sec.gov. With me today are Christian Henry, President and Chief Executive Officer, and Susan Kim, Chief Financial Officer. On today's call, we will be making forward-looking statements, including statements regarding predictions, progress, estimates, plans, intentions, guidance, and others, including expectations with respect to our growth potential, instrument, and consumable sales, and GAAP and non-GAAP growth guidance. You should not place undue reliance on forward-looking statements because they are subject to risks and uncertainties that could cause our factual results to differ materially from those projected or discussed. We refer you to the documents that we file with the SEC, including our most recent Forms 10-Q and 10-K and our recent press releases to better understand the risks and uncertainties that could cause actual results to differ. We disclaim any obligation to update or revise these forward-looking statements except as required by law. During the call, we will also present certain financial information on a non-GAAP basis. Non-GAAP information is not prepared under a comprehensive set of accounting rules and should only be used to supplement an understanding of the company's operating results as reported under U.S. GAAP. Management believes that non-GAAP financial measures combined with U.S. GAAP financial measures provide useful information to compare our performance relative to forecast and strategic plans, and benchmark our performance externally against competitors. Reconciliations between historical U.S. GAAP and non-GAAP results are presented in the tables within our earnings release. In addition, please note that today's call is being recorded and will be available for replay on the investor section of our website shortly after the call. Investors electing to use the audio replay are cautioned that forward-looking statements made on today's call may differ or change materially after the completion of the live call. Finally, we will be hosting a question-and-answer session after our prepared remarks. We ask that analysts please limit themselves to one question only so we can accommodate everybody in the queue. I will now turn the call over to Christian.

Thank you, everyone, for joining the call today. PacBio achieved another milestone in the third quarter as we grew revenue by 72% year-over-year to $55.7 million, exceeding $50 million in quarterly revenue for the first time in PacBio's history. All three regions, again, posted record quarterly revenue. In the third quarter, we shipped 52 Revio instruments for revenue, which is a record number of instrument shipments in one quarter. This brings our installed base as of September 30th to 129 RevYo systems. We also shipped our first Onso units in the third quarter. I'm pleased with our order momentum and broad customer interest in this new platform. We've received orders from 10 countries across various customer and application types and expect to continue ramping up shipments in the fourth quarter. I look forward to sharing the installed base for the Onso system at a later date as the platform matures and we further scale manufacturing. We also recorded consumable revenue of $16.9 million in Q3. In just its second full quarter on the market, Revio consumables of approximately $9.3 million surpassed SQL 2 and 2E consumables. This ramp was faster than we had originally expected. We shipped well over 9,000 Revio Smart Cells in the quarter, For context, it took SQL 2.2e 11 quarters to surpass 9,000 cells, which further underscores customers' rapid adoption and the elasticity of the new platform. In Q3, Revio utilization increased compared to the second quarter. Our customers used more cells per installed system as they began their ramp into production. In fact, the total data output for the Revio fleet in the third quarter already surpassed the output from the total 500 plus sql 2 2e fleet at its peak the increased instrument utilization resulted in an annualized consumable pull through of 483 000. although it is exciting to see our customers generating more data than ever before i would also say that we are still early in our launch cycle and we do not know if this level of consumable pull through will represent the long-term pull-through of the Revio platform. The continued uptake and adoption of Revio is allowing us to increase our 2023 revenue guidance again this year. We now expect full-year revenue to be between 195 and 200 million, representing 52 to 56 percent growth over 2022 and above the long-term targets we set out at our investor day last November. One of the most important metrics we're tracking for Revio adoption is new customer uptake, as it shows how the platform enables more and more users to migrate from other sequencing technologies onto PacBio. Again, we're pleased to report that over 40% of our Revio system orders in the third quarter were from new PacBio instrument customers. Additionally, we continue to expect a multi-year opportunity for existing SQL 2 customers to migrate over to Revio, as less than 30% of the approximate 300 SQL 2 and 2e customers have ordered a Revio to date. Our new customers include Helix, who ordered a Revio system to strengthen its offering by incorporating native and accurate long reads into its population genomics business, which currently provides an end-to-end sequencing platform for several large-scale programs across the United States. In addition to new customers purchasing the platform, some of our existing customers are already expanding their Revio capacity, like Children's Mercy Hospital in Kansas City, which has recently shared how Revio has enabled them to consolidate tests, increase efficiency, and improve solve rates while accelerating turnaround time. Further, the hospital shared that they can achieve results in just two weeks with five-base HiFi sequencing compared to months using multiple legacy tests. Similarly, we are also collaborating with GeneDx and the University of Washington to study the capabilities of HiFi long-read whole-genome sequencing to improve our ability to understand genetic conditions in pediatric patients. We believe that with HiFi and Revio, our customers may be able to consolidate a menu of different tests onto one integrated, complete, long-read genome. We continue to see strong momentum in the genetic disease segment for HiFi sequencing, as other children's hospitals implemented Revio during the quarter. This includes another leading institution in the Midwest that upgraded from SQL2E to scale whole genome sequencing for its rare disease cohorts, and to implement isoseq to further its research in pediatric and adolescent cancer patients. In large-scale genomics projects, we were pleased to see initial data from researchers at Mohammed bin Rashid University of Medicine and Health Sciences, or MBRU, in developing an Arab pangenome reference, which uncovered over 100 million base pairs of novel sequences compared to other recent pangenome references. PacBio HiFi was a key contributor to unlocking this new data, which is why the team decided to ramp on Revio to begin a larger multi-thousand genome sequencing project this year. One of the hallmarks of PacBio has been our ability to create additional value for our customers by adding new features to our sequencing platforms. With Revio, We are continuing this tradition by improving the performance of our systems in the field and adding valuable new features to the platform later this year. I'd like to spend a few minutes discussing some of these enhancements. In Q3, we rolled out a software update that optimizes the preload feature on Revio. The preload feature enables customers to load their next run onto the instrument while a sequencing run is underway. This gives Revio the potential to always be running and truly enables production scale long read sequencing. Over the past few months, we learned that some of our highest throughput, most industrialized customers were having some challenges using this feature. And as a result, we made some changes to improve the preload function, which was included in this recent software release. Now, customers can preload as expected, allowing high volume customers to potentially further increase Revio utilization. In the fourth quarter, we plan to add several new enhancements to the Revio platform. First, we will incorporate the highly anticipated adaptive loading feature popular on our SQL 2e platform. Adaptive loading tailors the DNA loading to better fit the customer sample, providing a backstop to prevent smart cell overload. This can enable customers to load more DNA more confidently and ultimately achieve higher and more consistent yields. We will also enable support for libraries that are less than three kilobases long, which will position Revio more favorably in applications like AAV, ISO-Seq, and 16S microbial sequencing. Further, it will enable 12-hour and 30-hour run times so users can optimize their runs for shorter and longer DNA inserts. Finally, the update will also include a run preview feature, allowing users to see their run statistics after the first four hours during the sequencing process and enabling customers to better plan for future sequencing runs. We're not just focused on enhancing the sequencing platform, but we are also improving the end-to-end workflow. We believe that by improving the workflow from sample preparation through data analysis, we will enable our customers to truly leverage the power of HiFi sequencing. In the sample preparation process, next year, we plan to release improvements that leverage the technology acquired from Circulomics to improve size selection on the smart cells. This will improve our customers' ability to achieve higher sequencing output with each smart cell and consistently achieve longer read lengths. Additionally, in order to enable our customers to take full advantage of the throughput of Revio, we have collaborated with leading automation providers including Hamilton, Integra, Revity, and TCAN to fully automate sample preparation protocols for both Revio and the SQL 2.2e systems. On the analysis front, earlier this month, we launched the PacBio Whole Genome Sequencing Variant Pipeline, or WGS Variant Pipeline. This standardized computational method consolidates over 10 separate secondary and tertiary analysis tools into a single user-friendly workflow, enabling users with all levels of bioinformatics experience to access hi-fi whole genome sequencing. Over the past few years, I've often discussed our goal to make PacBio more multi-omic company. This is important as multi-omic approaches allow us to better understand the underlying connections from the genome and the epigenome to the transcriptome and the proteome, and ultimately glean greater insights into biology and disease. With the flexibility and increased throughput of Revio, combined with HIFI single molecule detection capabilities, we're starting to see how Revio can be a multi-omic Swiss Army knife of sorts. For example, in a preprint last month, researchers from the University of Washington and other institutions showed how Revio could produce data on four separate high-quality ohms on just one Revio smart cell, the genome, the methylome, chromatin epigenome, and the transcriptome. In analyzing a participant in the undiagnosed disease network, the researchers reported how data from each of the four ohms explained one or more of the participant's genotypes. This study is yet another example of how a synchronized single long read multi-ohmic test can more effectively uncover unexplained rare conditions than multiple one-off tests. In another study, scientists at the University of Dresden and Max Planck Institute used PacBio IsoSeq to look deeper into the transcriptome to understand the impact of alternative splicing on isoform diversity and protein structure and showed that isoforms have a critical role in determining protein structures and biological functions in brain development and concluded that alternative splicing has greater potential to impact protein diversity and function than previously thought independently from changes in gene expression. To address this growing transcriptomics market, we're excited to launch our new Kinex kits, enabling scalable, cost-effective, full-length RNA sequencing on PacBioRevio and SQL2e. With the MOS sequencing method introduced late last year, customers can concatenate smaller inserts into one long insert to dramatically increase output in single-cell RNA experiments. Now, with the expanded and rebranded Kinex kits, we can better address bulk RNA applications, allowing scientists to reveal the role of isoforms for the biology of health and disease, in addition to obtaining the gene expression information. This truly enables this application on Revio, allowing customers to perform large studies, thousands of samples per year, on a single Revia system, thereby providing access to projects in neurology, rare disease, and cancer research, as well as other markets. The Kinex line of kits also includes the 16S kits. The 16S gene is found in bacterial genomes and has long been used to identify, classify, and quantify species and strains in a microbial community sample. At about 1,500 base pairs long, Short-read sequencing has difficulty reading the whole gene, while long-read sequencing would leave unused capacity on the sequencer. With Kinex, customers can concatenate the 16S gene into long libraries for hi-fi sequencing. This puts Revio and SQL2 on par with short-read sequencing regarding cost, positioning Revio to better address the multi-hundred-million-dollar microbial genomics market. These kits further expand our competitive offerings in human genetics, oncology, and microbiology, and we look forward to discussing them more with researchers at ASHG later this week. Before I pass the call over to Susan, I'd like to welcome David Maline to our Board of Directors. David brings extensive experience to our board as a finance leader in various life science and healthcare companies, most recently Moderna Incorporated. And with that, I'll pass the call to Susan to discuss the financials. Susan?