Pacific Biosciences of California, Inc.

went to brand new customers, and one third were to LDT diagnostic or hospital labs, encouraging signs that Hi-Fi is gaining share in these labs, replacing a number of legacy technologies. This is especially true in genetic and rare disease testing. A few recent examples include Variantix, a diagnostics lab based in Boston and a new to PAC Bio customer that is seeking to improve key genetic disease assays by using Revio and PacBio Hi-Fi sequencing in lieu of legacy sequencing technologies. GeneDx also added another Revio to its fleet in the second quarter and plans to incorporate our pure target chemistry to further advance key tests. Additionally, we placed additional Revio systems into hospital systems in northern Europe where Hi-Fi is being used to advance the understanding and improve solve rates for rare disease at scale. Turning to Vega, the PacBio team has built a robust platform. We're extremely pleased with the system's continued momentum and strong performance in the field. In the second quarter, nearly 60% of Vega shipments were to new PacBio customers. And since launching in very late Q4 last year, Vega has brought over 40 new laboratories into the PacBio ecosystem, a number we expect to grow into the future. Importantly, Vega is not just broadening our customer base, it's also expanding the range of applications Hi-Fi can support. We're seeing strong adoption among smaller labs and new market segments. And approximately 70% of Vega customers are using the platform for non-whole genome applications, including small amplicon sequencing, targeted panels, and microbial genomics. That's exactly the kind of accessibility and versatility we designed Vega to deliver, and it's performing exceptionally well. Customer runs consistently exceed our specifications across a range of insert sizes, with Hi-Fi read lengths and yields often surpassing expectations. At the Charles University in Prague, for example, one researcher shared how switching to Vega has significantly improved his lab's scientific output. By eliminating months of troubleshooting associated with incomplete short read data, he's able to double his publication rate while significantly improving data quality, starting projects with complete chromosomes from the outset. With its lower capital cost, compact footprint, and integrated analysis tools, we believe Vega is opening new segments of the genomics market to pack bio, including labs and institutions that were previously out of reach for long read platforms. Miami University in Ohio is another great example. Researchers at the institution shared that the system was intuitive to operate with streamlined informatics capabilities, and they plan to use the platform across a wide range of applications, including single cell, epigenetics, and immunology. They also noted that Vega is more cost effective than the leading low throughput short read next generation sequencing platform, with run costs that align well with the funding models common in many academic and translational research settings. We're also seeing growing momentum in population scale and multiomic initiatives around the world. In July, PacBio HiFi technology powered the first Arab human pan genome, published in Nature Communication. This study uncovered millions of previously undetected variants, reinforcing the importance of long read accuracy when it comes to capturing genetic diversity and improving reference genomes. We believe studies like this demonstrate why highly accurate long read sequencing is foundational to large scale population genomics programs, especially those seeking to expand inclusion across historically underrepresented groups. We also recently announced that PacBio has joined the 1000 Genomes Long Read Project, a major global effort that is expanding beyond its original nanopore only design, to now include HiFi based sequencing. As part of this next phase, PacBio plans to contribute full length isoform RNA data from roughly 1000 samples using our Connex RNA kits and Revio system. The program's leaders specifically selected Connex for its data quality, isoform resolution, and throughput, offering what we believe is a clear advantage over existing short read and long read transcriptomic methods. With simplified PrEP, low RNA input requirements, and scalable output, Connex is uniquely suited for large scale multi-population studies. This collaboration highlights how researchers are increasingly turning to HiFi and Connex to drive deeper insight into gene regulation and transcript diversity at population scale. As previously mentioned, we're also seeing continued progress in clinical sequencing applications as well. Quest Diagnostics, for example, announced that its Athena Diagnostics Division is using PacBio HiFi sequencing to enhance its Ataxia movement disorder panel. Built on Revio and powered by our peer target chemistry, this assay can detect repeat expansions and complex variants that can be frequently missed by conventional short read tests. It's a clear example of how HiFi sequencing is making its way into routine clinical workflows, enabling more comprehensive and accurate testing. We're also expanding our clinical footprint internationally. Recently, we announced a new agreement with Howri Gene, a leading genomics distributor in China, with deep expertise bringing long read sequencing into clinical use. Howri has already played a pivotal role in advancing HiFi-based testing in the region. They launched a HiFi-based HLA typing product in 2022, and they've since deepened collaborations with major blood centers to expand national research efforts in rare blood classification, antigen mapping, and applications that demand the high resolution, allele level accuracy that HiFi uniquely provides. Through this partnership, we expect to further grow our clinical presence in the transfusion medicine and hematology markets in China. In translational research, we were honored to be selected by Target ALS to support the largest global ALS genomic study utilizing HiFi sequencing to date. This project is expected to use Revio to generate whole genome data from thousands of ALS patient samples, aiming to uncover the complex genetic contributors to this devastating disease and generate the largest long read open access database for ALS. ALS presents a challenging genetic landscape marked by structural variance, repeat expansions, and non-coding elements, many of which are invisible to traditional sequencing. We believe HiFi's length and accuracy make it particularly capable of resolving these difficult regions, helping researchers discover new links between genetic variation and disease progression. And because the data from the study will be made broadly available, it has the potential to accelerate discoveries that lead to better diagnostics, new therapeutic targets, and ultimately hope for people living with ALS. And beyond HiFi adoption, we're also helping define the next generation of genomic benchmark. Earlier this week, a study published in Nature Methods introduced the Platinum Pedigree Benchmark, the most comprehensive family-based variant data set ever released. Developed by scientists at PacBio alongside collaborators at the University of Washington, University of Utah, and others, this benchmark characterizes not just simple variants, but also complex and repeat rich regions that have traditionally been excluded from reference data sets. This resource was used to retrain Google's deep variant AI model, resulting in a 34% reduction in erroneous variant calls genome-wide, with even greater improvements in the most difficult regions. It's a powerful validation of how HiFi data is improving the performance of AI-based tools and reinforcing PacBio's position as a leader in sequencing accuracy. Looking ahead, we're also making strong progress in the development of our multi-use smart cell capability, a key innovation that will allow customers to run a Revio smart cell, the most expensive component of our consumable, multiple times. This is a major step towards reducing the cost for genome for our customers, and at the same time, improving our own gross margin. We believe this capability will help unlock larger scale projects, increase flexibility, and create more value for customers doing high throughput research and clinical sequencing. We look forward to sharing more about this innovative technology at a later date. I'll now hand the call over to Jim to discuss financials before I finish with a few closing remarks.

Jim? Thank you, Christian. I'll be discussing non-GAAP results, which include non-cash stock-based compensation expense. I encourage you to review a reconciliation of GAAP to non-GAAP financial measures in our earnings press release. As discussed, we reported $39.8 million in product, service, and other revenue in the second quarter of 2025, served at $36 million in the second quarter of 2024. Instrument revenue in the second quarter was $14.2 million, a decrease of 4% from $14.7 million in the second quarter of 2024 due to lower Revio unit shipments, partially offset by 38 Vega systems as we commenced shipping this platform late last year. We ended the quarter with 297 cumulative Revio system shipments and 73 cumulative Vega system shipments. Turning to consumables, revenue of $18.9 million in the second quarter increased 11% from $17 million in the second quarter of 2024, with annualized Revio pull-through per system of approximately $219,000. Vega consumables continue to grow sequentially with the expansion of the installed base, and we anticipate providing an expected pull-through range at a later date once there is a larger and more established install base. Finally, service and other revenue grew approximately 57%, 6.7 million in the second quarter, paired to 4.3 million in the second quarter of 2024, driven by an increase in Revio service contract revenue and revenue related to a large population sequencing program in Southeast Asia. From a regional perspective, America's revenue of 17.7 million decreased 15% compared to the second quarter of 2024, with the region most affected by government funding headwinds and NIH funding uncertainty. We're pleased to see Vega making progress with this customer base, as over half the systems went to academic or government customers. For Asia Pacific, revenue of 12.6 million increased 53% compared to the second quarter of 2024, driven by increased Revio and Vega placements and increased revenue from a population sequencing project in Southeast Asia. EMEA revenue of 9.5 million increased 35% compared to the second quarter of 2024. Building off momentum in the first quarter, the region continued to see strength in Revio placements in the hospital and clinical researcher customer base and growing demand for the Vega platform. Moving down the P&L, second quarter 2025 non-GAAP gross profit of 15.2 million represented a non-GAAP gross margin of 38%, compared to a non-GAAP gross profit of 13.2 million or 37% in the second quarter of 2024, primarily due to higher consumable margins. Consumable margins improved in the quarter as a result of lower Revio consumable per unit costs. This was partially offset by lower instrument margin as we worked towards shipping our production rate of the Vega systems in the second half of 2025. Non-GAAP operating expenses were 58.1 million in the second quarter of 2025, representing an 18% decrease from non-GAAP operating expenses of 71 million in the second quarter of 2024. Operating expenses in the second quarter of 2025 included non-cash share-based compensation of 11 million compared to 16.1 million in the second quarter of 2024. The decrease in both non-GAAP operating expenses and non-cash stock-based compensation was primarily due to the restructuring initiative we implemented earlier this year. Regarding headcount, we ended the quarter with 491 employees compared to 575 at the end of 2024 and 581 at the end of the second quarter of 2024. Non-GAAP net loss was 40 million, representing 13 cents per share in the second quarter of 2025, compared to a non-GAAP net loss of 55.2 million, representing 20 cents per share in the second quarter of 2024. We ended the second quarter of 2025 with 314.7 million in unrestricted cash and investments compared with 389.9 million at December 31st, 2024 and 343.1 million at March 31st, 2025. Turning to guidance, as discussed earlier, we are maintaining our revenue guidance midpoint but narrowing the range to 155 million to 165 million as we believe the prior downside scenario to China in 2025 has been significantly mitigated while the upside case continues to be pressured by the academic funding environment. Like last quarter, this continues to be an extremely dynamic macro environment, especially with respect to trade policy and uncertainty surrounding future NIH funding. Our guidance midpoint assumes consumable revenue grows in the mid-teens compared to 2024, partially offset by a mid-teens decline in instrument revenue. Consistent with the first half of 2025, we expect annual pull-through per revue system to be in the low to mid 200,000s. In the Americas, our guidance continues to assume significant uncertainty in the broader academic research community, especially in the near term, with accelerating activity in the clinical market anticipated to offset some of the potential headwinds. For Asia Pacific, we continue to anticipate revenue growth in the region in 2025, though we expect a slight sequential decline in Q3 compared to Q2 due to modest tariff-related order acceleration in the first half of the year. We continue to expect EMEA to be the fastest growing region in 2025. As population sequencing programs scale, whole genome sequencing and clinical settings grow, and we expand our customer base with Vega. Looking at Q3 revenue, we expect revenue to be roughly flat on a sequential and -over-year basis, partially due to a sequential decline in APAC after a strong Q2. Moving down the P&L, with the first half of 2025 coming in better than we expected, and per unit cost reductions expected on the revue instrument and consumables, in the big system in the second half, we are raising our 2025 non-GAF gross margin guidance range, and now expect it to be between 37% and 40%, and we continue to expect to exit the year above 40%. As mentioned, we are operating in an environment with trade policy uncertainty, and if the U.S. enacts tariffs on certain countries in our supply chain, we could face incremental pressure to our cost of goods in the second half of this year. As of now, our guidance does not factor in a material increase in COGS related to tariffs. We continue to be focused on our spend, but we now expect non-GAF operating expenses to be in the range of 235 million to 240 million. We expect to continue to realize savings in 2026, and as such, anticipate 2026 non-GAF operating expenses to be lower than in 2025. We now expect interest in other income to be between 6 million and 8 million in 2025, and the weighted average share count for EPS for the full year to be approximately 298 million. We continue to expect our ending cash, balance of cash and investments to be approximately 270 million at the end of 2025. When excluding the 5 million licensing payment in Q1, this implies 115 million cash burn in 2025, or an improvement of 72 million in adjusted cash burn compared to 2024. We remain on track towards our plan to achieve positive cash flow by the end of 2027, and believe our 315 million in cash and investments as of June 30 will fund us through this transition. I will now hand it back to Christian for some final remarks.

Close, I wanna come back to the core of why we believe the company is positioned to deliver long-term value to its stakeholders. I find technology is fundamentally different from anything else in the market. It enables researchers and clinicians to read native single DNA molecules at lengths of up to 25 kilobases with exceptional accuracy while simultaneously detecting epigenetic modifications such as -methyl-C and -methyl-A in the same sequencing run at no additional cost. We believe no other platform matches this level of biological insight at scale. With Spark Chemistry, Connects RNA kits, Pure Target panels, and our upcoming multi-use smart cell capability, we're delivering true -to-end solutions, reducing barriers to adoption through improved cost efficiency, higher throughput, and workflow simplicity. Together, these innovations are setting the stage for broader adoption in clinical and population scale genomics. We believe that we are well on the path to supporting not just tens of thousands of genomes, but ultimately hundreds of thousands to even millions of genomes. And we're doing this with focus and financial discipline. By investing efficiently and narrowing our strategic priorities, we've meaningfully reduced our cash burn and are on track toward our goal of becoming cashflow positive as we exit 2027. That's the opportunity ahead. That's why we've refocused on long read innovation. And that's why we believe PacBio is well positioned to lead the next chapter of genomic medicine. With that, I'd like the operator to begin the Q&A portion of this call.

We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question is from David Westenberg with Piper Sandler. Please go ahead.

Hi, great job on the quarter and thanks for taking the question here. I want to start off with the tough macro situation in the US. Are you seeing it impact just instruments? Are you seeing any kind of differences in consumable behavior, either by stocking or even putting off? And then I just wanted to follow up on that one and just ask, you know, the Senate definitely sounds like they support NIH and will not allow the cuts to go through. Are you hearing the actual labs feeling that way or do they really need to see the proof in the pudding here?

Yeah, thanks, David. And appreciate the kind words on the quarter. We're proud of what we accomplished in Q2. It is, you know, the macro continues to be tough in the US and that certainly impacts instruments. In fact, you know, most of our Revio placements were to commercial type providers and not academic customers in the quarter. And I think that's going to continue until we get some more clarity around NIH. Consumables is a little bit different. You know, what we're seeing is consumable utilization across the board has been, you know, basically pretty healthy and even trending up in some modest increments here and there. But what we don't, what it's always difficult to know is what experiments are customers putting off because of the NIH uncertainty? And there certainly is some of that. But, you know, so far in the United States, that hasn't hurt our consumable revenue. And, you know, we think the back half of the year will continue to look strong on the consumable front. With respect to, you know, the government and NIH, you know, I do think customers are cautious. They are skeptical of the government right now in general because of all the upheaval. When I talk to, you know, funding bodies and administrators, the people making the decisions, you know, there's still is confusion. There's still is high levels of uncertainty when funding will happen. And so, you know, we've heard the same thing you have that the Senate is very supportive of the NIH. We believe that, you know, the cuts probably won't be as dire as perhaps has been outlined earlier in the year, but we will have to wait and see. Where I want to leave this, at least with the NIH, is the reality is the rest of the business across the world is growing extremely strong. You know, we saw our international growth at 45%. In fact, EMEA individually grew 35% in the quarter and APAC grew 53% in the quarter. So these are really strong results and they're really driven by, in EMEA, well, actually in both territories, increasing adoption and utilization of Revio with Vega driving, you know, with Vega driving our ability to land and expand across a much broader array of accounts than we ever could. So, you know, we're very encouraged by the portfolio right now, and we just have to figure out, you know, how to keep moving in the US in this tough macro. Got it. I

wanted to follow up on Vega because I think instrument revenue probably beat all of us. Can you talk about the dynamics? I mean, before Vega, I think, you know, we had this conversation about over capacity in the market. You did mention 60% are new to new customers. So I'm curious if these were predominantly actually ones that were outsourcing to large institutions in the past, and you actually are seeing that dynamic where, you know, instead of sending it out to insourcers, they're insourcing it and, you know, you're seeing not this kind of over capacity. So supply and demand are more in equilibrium today than maybe a few years ago or a few quarters ago.

Yeah, I think that, you know, it's always, you know, when you look at the new customers, most of the time, those customers probably have done some experiments that have been outsourced to get them into long reads, but not always. And it's really the array of applications, microbial, small amplicon sequencing, targeted panels, things like that, that, you know, where Vega is a perfect fit. And so they can, you know, those customers can implement it in their lab with much faster turnaround than if they were to outsource it. At $169,000 list price, you know, it's a great bargain. And in fact, you know, if you look at Vega compared to low throughput short read sequencers, leading short read sequencers, it's actually cheaper to run Vega than it is to run those other low throughput platforms. And so we're seeing some customers saying, hey, I've always wanted to get into long reads, and now I'm surprised at how inexpensive it is and how easy it is to use, as I kind of pointed out in my prepared remarks. And so I do think there's a bit of balance in the market relative to a few quarters ago, as you kind of said. And this has been the strategy that we outlined in 2021, quite frankly, that you have a suite of sequencers that meet the customers where they are with a combination of throughput, cost, and relative performance, but all of them with the hallmark of packed bio Hi-Fi, highly accurate, epigenetics in every run for free, and single molecule sequencing so that you can do a lot more with the product. So we'll see.

Thanks for the question, Dave. Gary, we'll take the next question in the queue.

Next question is from Jack Meehan with NetFront Research. Please go ahead.

Hey guys, good afternoon. Wanted to talk about clinical customer adoption. It felt like in the script, you made a lot of progress on that front over the last few quarters. Is it possible to get a rough estimate of how much of your consumables are coming from clinical now and just how that growth rate compares to the overall?

Yeah, I mean, right now, it's roughly 15% of our consumables are coming from those clinical customers, and that's a figure that's growing. And we expect to see that continue to grow. Most of these clinical customers are still in validation phase, and developing their assays and preparing them for prime time. A few of them, like Quest, have launched products, which is super exciting to see. So I do think 15% as a proportion probably will grow over time here and will be a key driver of consumable growth overall.

And when you factor in translational clinical research, too, like the ALS program we're part of, that's not included in the 15%. Got 15% is mainly CX and LDT labs or direct in hospitals for genetic disease. If you add in clinical research on top of that, it's a much larger figure. Got it.

And then the Revio pull through in the quarter, I know it can bounce around a little bit, step down from one queue, the guide assumes it picks up. I was just curious, the dynamics around pull through in the quarter, do you think any of the funding issues might have impacted that? And also how did the SPARC rollout kind of influence overall consumables revenue? Thank you.

Yeah, so if we think about pull through, as always, it does bounce around from quarter to quarter. And in the quarter, it did step down a little bit from Q1, but in Q1, we had the Japan impact, for example, that had a very significant bump to, if Japan was year end and therefore we had an inordinately high number of consumables going into Japan in the quarter. And so that kind of helped boost abuse Q1. Q2, we really, it was a pretty normalized quarter, I suspect that it's kind of bouncing around in the range. I don't expect it to, I do think it'll continue to bounce around in that range through the rest of this year. And probably, a key change point will be, as we were talking about before with clinical, is as these bigger customers start to use it in groups, routine ways, I suspect that might have an impact on it. If you look at Spark, the Spark chemistry has been quite remarkable actually. We were seeing up to a 33% improvement. So that's basically lowering the cost per sample for our customers and enabling more samples to get on the system. Could that have a modest impact in the short run? Perhaps, we're seeing probably at this point though, over 90% of our runs are with the Spark chemistry. And so any pull through impact from that will probably normalize itself out over, say this quarter, next quarter. We're kind of seeing all of that adoption effectively happening now. So we'll start to see a normalized rate from it, if that makes any sense.

The next question is from Kyle Mixon. The next question is from Kyle Mixon with Canaccord. Please go ahead.

Hey guys, thanks for the questions. Congrats on the quarter. I'm gonna ask a multi-part question. The first is on the clinical, just to follow up to Jack. You said 33%, or I guess a third of the Revio placements were to LDT or hospital labs, and you're replacing Legacy Tech. I would just want to ask if these labs are typically using multiple long-rate technologies. I'm curious if you're winning -to-head or permanently displacing Legacy short or long-rate. And then secondly, on the placements, I mean, the insurance for great in the quarter, as Dave said before, how are you thinking about placements going forward? Was there any pull forward, I guess, from areas besides Asia, for example, in the second quarter?

Kyle, can you repeat the second part of the question again, because I didn't quite, I didn't get it all written down actually.

Yeah, I just asked to up front to avoid being taken off. So just insurance placements going forward, given it was, you were ahead of expectations, and we start expectations in the second quarter. And I was thinking there might have been a pull forward or an acceleration from three Q to two Q. So just thinking about a run rate for placements going forward, if we should use the second quarter as a good basis.

Okay, fair enough. Okay, we'll start with the clinical labs. So these, many of these labs are using multiple technologies, multiple sequencing technologies. Most of them certainly use short read sequencing technologies. And what's happening is that they're implementing our technology alongside the short read sequencing technology to help them get answers that they couldn't get. And we're replacing, you know, legacy molecular biology techniques, such as various PCR, Southern blot, other things. In some of the labs where we've won head to head, we are replacing other long read technologies, which is exciting. But in many labs, they're running, you know, they're definitely running multiple technologies. What we're hearing from our customers is now that we've achieved the innovation with PureTarget and with Spark Chemistry, the economics of running Revio in a clinical setting are, you know, fit within their envelopes. And the accuracy and the performance of our system and the ease of informatics is significantly better than other long read technologies, which will help them be more efficient, save money and get better answers to patients. And so, you know, we're very, very excited about what's happening in the clinical accounts. And, you know, we've designed our products to be very, very robust and very easy to use with clinical, you know, with clinical aspirations. And given the track, given the, where most of the team has come from, you can imagine that's kind of just ingrained in what we're all about. So very excited about that. If you look at instrument placements into the back, into the back half of the year, you know, we expect to see Vega continue to grow. And, you know, we don't think we've hit the steady state placement rate by any stretch. You know, we do think there's a lot of opportunity there. The sales funnel continues to grow. One of the things that we're really excited about with respect to Vega is that we're seeing the sale cycle be much faster than Revio. And we're seeing lots of opportunities crop up in the first month of the quarter, for example, and close in intra quarter, which, you know, isn't that common, quite frankly, with Revio. And so the velocity of sales of Vega is helping us. And I do expect to see it grow in the back half. You know, Vega will be dependent to, I mean, Revio will be dependent on how NIH funding kind of emerges. We still see tremendous amounts of opportunity internationally. And as we've said, even as we said back in February, you know, we thought Europe would be our fastest growing region this year. We continue to believe that. A lot of that is based on rare disease work with Revio. So I think that, you know, we will see our forecasts now are kind of flattish on Revio sorts of placements as a baseline. And maybe we'll do a little better some quarters, a little lower some other quarters, if that helps.

Yeah, that was perfect. You have a next question, Gary?

Yeah.

The next question is from Doug Schenkel with Wolf Research. Please go ahead.

Hey, thanks for taking the questions. So my first question is just on, it's not really trying to get it back long because that's

what we need. Mr. Schenkel, your phone is breaking

up.

Doug, you broke up. Can you start over for us?

Is that any better, guys?

Yes, it is, actually.

Guys, can you hear me now? We can. Okay, very sorry about that. So thanks for picking the questions. The first one is on, I was gonna say backlog, but it's not really backlog. It's, you know, almost like the activity that's really close to officially getting an order on Vega and on Revio. I'm asking because I'm just wondering, like, how close you are to getting orders that you think would turn into orders and ultimately revenue, if we got a good, or better than bad, or better than worst case NIH funding scenario. I'm wondering if, like, if there's any way to quantify almost the pent-up demand that exists pending resolution. And I'm also wondering if that's a potential source of revenue upside this year, or if that's something we should be contemplating as we look ahead to 2026.

Yeah, Doug, that's, boy, that is a crystal ball question. No question about it. And thank you for that. The, you know, Todd and I were actually just talking about that before the call, looking at the third quarter, looking at the third quarter forecast and where we are right now. And the, what's really interesting is that the number of, you know, near forecasted opportunities is significant, much more, much bigger than what we normally see. And I think I would probably care, and I'm speaking principally of Vega, by the way. And I would characterize that as probably what you're trying to get to. And I can't give you a number, really. I don't think that really makes sense. But you are right that we're seeing a lot of opportunities that are near opportunities that we will set our, you know, not in the official forecast, but are near the forecast. And so depending on, you know, for example, let's say that there is a budget flush in the third quarter, some of those could probably come to fruition, which would likely be a source of upside for us. We're not anticipating any budget flush. You know, I don't think that it, you know, until we get some resolution on what's going on with the NIH, it's difficult to know, but it certainly could be a source of opportunity. We're also seeing that outside, you know, even outside the United States, the, because the sales funnels are, you know, improving overall. And so what will be interesting for us to execute on in the second half is how do we accelerate those near opportunities into real opportunities that close that may not be completely dependent on NIH. They might be, they might be dependent on other macro factors. And I do think that that's a source of potential upside for 2025 and certainly sets the stage for 2026.

Okay, super helpful. One technology roadmap question. You've talked about development of reusable smart cells, understanding those would help reduce costs for customers. I'm just wondering, you know, which type of customers, you know, essentially which customer class do you think would be more open to this? You know, is this something that you think could work on the research side, but as you think about clinical endeavors, is it really less relevant in that category? Thank you.

Yeah, Doug, no, we've had lots of conversations with all kinds of different customers, and customers are really excited about it, whether it's clinical customers or research customers. So we think it will be a broad adoption of this capability. Now, we're gonna be very thoughtful about how we roll this technology out because it is real innovation, and you know, the industry hasn't seen this before in a meaningful sort of way. And so, you know, we will focus on our higher volume, high throughput customers likely first, because they'll get the most benefit out of it. The way we will implement the technology will be in a very automated way, so it's very customer friendly and simple, consistent with everything we try to do here at PacBio. And so, you know, we do think that that will really help, those higher throughput customers, both on the clinical side and on the research side. And, you know, the beautiful thing about this technology is not only does it lower the cost per sample for our customers, it substantially increases our gross margin at the same time. So it's one of those unique innovations that provides a double win, lower prices and higher gross margins, which is what we're looking for.

Thanks, Doug. The next question is from Subu Nambi with Guggenheim Securities. Please go ahead.

Hey guys, thank you for taking my question. You saw really strong performance outside the US, and I know you're assuming status quo for the TADF environment, but how much growth internationally is factored into your guidance with respect to TADFs, and is there any risk that our performance internationally could be a risk to guidance?

Yeah, Subu, that's a great question. We've considered, we have been thoughtful about how we think about tariffs. And so we're not saying tariffs, we're out of the woods on tariffs, and so we've taken a pretty conservative view on that. In spite of that, you know, we've seen substantial growth in the first half, and we think that will continue in the second half. Especially with respect to China, we've been, you know, the situation continues to be volatile and none of us really know where the answers are. So we have built our guidance around more conservative cases than less, but perhaps not as conservative as we were last quarter is the best way to see that. And the reality is we're already halfway through the year. So when you were looking into Q2, starting with Q2, if you remember when we gave the guidance then, we were still all trying to grapple with liberation day and what China was saying, what we were saying and China was saying and what the US was saying about China. We think it's a little bit more clear now, but not much. So we didn't overreach on that at all. We're still taking a very conservative view with our guidance.

Perfect, thank you so much,

Nick. Yeah. The next question is from Tyco Peterson with Jefferies. Please go ahead.

Hi, team, this is Priya on for Tyco. Just a question on pricing. Are you able to take price to account for tariff dynamics? I know one of your competitors had called out a 5% tariff charge. So I was wondering what your thoughts are on pricing there.

So we have not adjusted pricing for any tariff dynamics and quite frankly, we're not really seeing any tariff impacts. And so at this point, and so I think that's masked as just a price increase, not a tariff surcharge. I think if we really were seeing tariff, a significant impact from tariffs, we would certainly have to evaluate whether or not whether we either change our price or add a surcharge as others will do. But at this point, I don't think we've seen any substantial impact to merit kind of evaluating that, but we would if we needed to.

Awesome, thank you.

The next question is from Mason Kerico with Stevens. Please go ahead.

Hey guys, a lot's been asked here, but maybe I'll just stick to one. You've highlighted how some of these larger scale projects like the Estonia Biobank has helped to strengthen Europe. How concentrated I guess is 2025 revenue in these types of initiatives? And do you see similar opportunities, similar POPC projects on the horizon that could sustain a media growth into 2026?

Yes, that's a great question, Mason. Thank you so much. So you're right, the larger scale like the Estonia project has helped buoy some of the growth in Europe. But one thing I'll point out is in the second quarter, the European team placed Revios into several hospitals in the Nordic region for the next year. Rare disease, routine clinical rare disease, starting with translational research, but really moving into what you could consider national programs for rare disease. And so the growth in Europe has actually been much broader based than just the Estonia project. It has been with principally in what we're seeing in this rare disease in the hospital setting. So this is all clinical and it's happening throughout the Nordics and into the continent of Europe itself. And so we're actually pretty excited about that. Looking at the rest of the world, there are several POPC programs that are percolating around and moving forward, whether that's the precise program continuing on in Singapore, programs in Thailand, programs in other parts of the world as well. These are all significant opportunities and I wouldn't be surprised if in 2026, some of these projects actually start driving PacBio's revenue growth. We haven't, I don't wanna report on anything, any projects we don't have yet, but I do think that there's a lot of substantial opportunity and these are principally outside the United States where there's funding available. So stay tuned on that and I look forward to keeping you posted.

Perfect, thanks.

Yeah. The next question is from Luke Sergot with Barclays. Please go ahead.

Hey, this is Jake, I'm for Luke. Thanks for the question. So you mentioned not being able to supply some customers with Spark regions at the end of one queue, so you had some back orders. Have those capacity constraints been addressed and could you quantify how much of two queue consumable revenue was pushed out from one queue if it was material?

Yeah, I mean, I think we had, we did have some back order in two, one, and we resolved a lot of that during the quarter. A lot of it was the sequencing, the reagents. And so what we did in two queue was we increased the batch sizes of our production, which has helped us kind of get our arms around delivering on time to these customers. We still have some back order here and there, but it's not really a material push into queue three at this point. I think we've solved the vast majority of the issues.

Great, that's helpful, thank you.

Yes.

The next question is from Tom Stevens with Cowan and Company. Please go ahead.

Hi all, thanks for taking my question here. Just another one on the reusable flow cell. So, are you guys still committed to scaling throughput longer term or has the model switched to kind of consistent throughput, but much higher gross margin? And then I've got another follow up on kind of your unit costs.

Yeah, no, so consistent with our strategy, our objective is to deliver not only lower costs and higher gross margin, but also higher throughput. Our objective is to get close to price parity with short read sequencing, and at the same time, get close to parity with the scale of short read sequencing too. We think the future will require both for us to achieve both of those aspects. We're starting with, we have our programs in place to develop a higher throughput sequencer. You can imagine we're always working on those kinds of projects. And then at the same time, we are developing the multi-use smart cell that will enable lower prices. And so the combination will enable us to be successful at competing for the millions of samples that are available in the market for us to go after. So we've got both going on.

That's really helpful. And then just a quick one on kind of unit costs. You've obviously made really, really good progress here in a kind of low revenue environment. Have you changed how you guys are perceiving the long-term gross margin outlook, given kind of the effective unit cost cuts you've been able to make in the last couple of quarters, or is this just executing on a plan you guys already had in place?

Well, I think we haven't updated our long-term gross margin guidance and perhaps we'll do that at another time. But of course our objective is to dramatically increase our gross margins from here. And part of that is making fundamental innovation improvements, both on the smart cell side and on the instrument side. And we're making progress every quarter on driving the cost of instrumentation down, increasing the yields of smart cells. We had near record yields for smart cells in the second quarter, which is helping push us forward. And so what we're doing is we're putting all of the fundamental cost improvements in place. And then as we scale, we'll get the economies of scale benefits, which will be a further push to help gross margins. But we haven't updated the guidance for the long run. But at this point, we're laser focused on exiting, exiting the year, exceeding 40%. And then I'm sure we'll communicate at the right time the next rung on the ladder up in 26. But I do think there is substantial opportunity to significantly increase gross margin here over the next few years.

Thanks, Christian, appreciate that.

Yeah.

The next question is from Yuko Oku with Morgan Stanley. Please go ahead.

Hi, this is Jason Long for Yuko. Lots have been asked, I'm just gonna stick to one. So I just wanna understand the type of applications on Vega. How similar or different are those applications compared to the main ones on Revio? Are the applications similar enough where Vega customers could transition to Revio in the long run if they need higher throughput? Or are some applications just more economical to run on Vega? Thank you.

Yeah, that's a great question. So the great thing about our technology, the applications are applicable across the instrument portfolio. Some may choose, for example, microbial applications, 60 gigabases of sequencing, of Hi-Fi sequencing is pretty, is a substantial amount of sequencing. But if they need more scale, we have multiplex technologies that will allow them to multiplex more samples and take advantage of the throughput of Revio. And so it really becomes, it really becomes what is the scale of samples that the customer's looking at? And how, and what is the flow of samples in their labs? And so, for example, you don't really get, and this happens with other vendors too, where it requires an incredible amount of samples to get on a low cell, for example, in order to get the lowest price per sample that you can. We would face the same, some of the same things, some of the same challenges on Revio in certain very small genome applications. So if you have a lot of samples, it'd be no problem. And if you have a lot of samples consistently, it'd be even easier. But it is such that they, the customers can easily go from Vega to Revio and Revio back to Vega, depending on what their needs are at the specific time.

Great, appreciate the color.

Yeah, so we're at the top of the hour, so we'll wrap it up here. Thank you everybody for all the questions. We look forward to connecting with you at several conferences later this quarter, and when we report our Q3 results next quarter. Have a good one.

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