Pacific Biosciences of California, Inc.

Good day and welcome to the PACBio third quarter 2025 earnings conference call. All participants will be in 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 then one on a touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Carrie Mendeville with Investor Relations. Please go ahead.

Good afternoon, and welcome to PACBio's third quarter 2025 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 Investor section of our website at www.pacb.com. or as furnished on Form 8K 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. On today's call, we will make forward-looking statements, including, among others, statements regarding predictions, estimates, expectations, and guidance. 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 10Q and 10K, 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 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. GAAP. Reconciliations between historical U.S. GAAP and non-GAAP results are presented in our earnings release, which is available on the investor section of our website. For future periods, we're unable to reconcile non-GAAP growth 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. A recording of today's call will be available shortly after the live call in the investor section of our website. Those electing to use the replay are cautioned that forward-looking statements may differ or change materially after the completion of the live call. I will now turn the call over to Christian.

Thank you, and good afternoon, everyone. Starting with our top-line performance in the third quarter, revenue came in at slightly below our expectations at $38.4 million, primarily due to fewer than expected Vegas shipments in Europe, and lower than expected Revio ASPs. However, our consumable revenue was well above our forecast, and once again, at an all-time high, reaching 21.3 million, demonstrating strong progress towards our goal of increasing adoption of our long-read sequencing technology. As a result of this strength in consumables, non-GAAP gross margins were 42%, our highest level since 2022. Looking at our regional performance, at the beginning of the year, I said we expected EMEA to be our fastest-growing region in 2025. This continues to be the case, and in Q3, EMEA saw growth of 18% on a year-over-year basis. The growth in EMEA was driven by approximately 50% year-over-year increase in consumable revenue that was partially offset by the miss in Dega placements. Our strong growth in consumables was driven primarily by our commercial and clinically focused customers. In the Americas, the funding environment continues to be challenging, especially for academic and government research customers who are dependent on NIH and other public budgets. As a result, procurement cycles continue to be elongated. In the third quarter, we did not see a significant end of government year budget spend in this region. we are anticipating a similar funding environment in 2026. Finally, in Asia Pacific, the funding environment continues to be challenged. However, we achieved our review forecast for the quarter, albeit at lower than expected ASPs. This was partially offset by exceeding our forecast for consumables in the region, and our largest customers continue to have very high utilization rates and pull through. Looking specifically at China, We exceeded our expectations and continue to see strength in the region. From a product perspective, we shipped 13 Revio systems and 32 Vega systems in the third quarter, bringing our cumulative shipments to 310 and 105 systems, respectively. Approximately 75% of the Revio shipments were to new customers. We placed several Revio instruments with key institutions at lower prices, which resulted in lower ASPs for the third quarter. However, we believe these strategic accounts will ultimately drive higher utilization and above average consumable pull-through. For Vega, shipments came in below our forecast, particularly in Europe, as several instruments were stuck in procurement processes that extended beyond the end of the quarter. Encouragingly, we have already received purchase orders for some of those units that were originally forecast in Q3. Vega ASPs continue to be strong and we're flat sequentially. We're confident in the long-term opportunity of the Vega platform given its attractive price point and ability to bring new customers into the PacBio ecosystem. Importantly, approximately 60% of the Vega placements went to new to PacBio customers, and we continue to believe Vega will serve as both an entry point and an upsell opportunity for Revio over time. Turning to consumables, revenue grew 15% year over year to 21.3 million in Q3, another record. This performance was supported by broad adoption of our Spark chemistry and steady utilization across our growing install base. This also led to a roughly 65% increase in total gigabases of sequencing output. Revio annualized pull-through was approximately $236,000 per system, near the high end of our guided range, a sign of durable demand from our customers. Over the course of the third quarter, our sales funnel improved, particularly for Revio. Looking forward, we expect to ship more Revio and more Vega instruments in Q4 than we did in any other quarter this year. As a result, we expect total fourth quarter to grow both year-over-year and quarter-over-quarter with approximately 10% sequential growth. Given our Q3 performance, we are narrowing our revenue guidance for the full year of 2025 to the low end of our range and now expect revenue to be between $155 million to $160 million. Jim will provide more details on our expectations for the remainder of the year shortly. Reducing our cash burn has also been a key focus this year, and in Q3 we achieved another quarter of sequential improvement with cash burn totaling $16 million. We continue to expect total cash burn of approximately $115 million for 2025, an improvement of more than $70 million compared to 2024. As we continue to recognize benefits from our restructuring, our improvements to gross margin, and continued expense discipline, I believe we are well on our way to achieving our goal of reaching cash flow breakeven as we exit 2027. Our team at PacBio continues to advance our core initiatives that will define the next phase of our growth. Let's start with our clinical opportunity. We are making significant advancements to deliver on our vision to lower barriers to adoption and enable clinicians worldwide to deliver more precise answers to patients and their families. Yesterday, we announced that the Sequel 2 CNDX system has received Class III medical device registration approval from the National Medical Products Administration in China through our longstanding partnership with Berry Genomics. This marks the first known regulatory approval of a clinical-grade long-read sequencer anywhere in the world, signaling a new era for precision medicine and high-accuracy genomic testing in China. Berry plans to start by launching the SQL2 CNDX system, which will run their recently approved thalassemia test in hospitals throughout China. Berry also intends to expand the use of HiFi technology to more clinical assays like congenital adrenal hyperplasia, fragile X syndrome, spinal muscular atrophy, Duchenne muscular dystrophy, and other complex single gene disorders and panels, and has indicated that these assays also work very well on the vagus system in clinical research applications. High incidence genetic disorders such as thalassemia, spinal muscular atrophy, and Fragile X syndrome often involve complex variant types that are difficult or impossible to detect using short read sequencing. With the SQL2C and DX system, Chinese clinicians will be able to access all aspects of the genome, capturing single nucleotide variants, insertions and deletions, copy number variants, structural variants, repeat expansions, and of course, methylation with exceptional accuracy. We estimate that the potential testing market for thalassemia alone can be in the hundreds of thousands of samples per year in China. As demand for comprehensive genomic testing continues to grow, we're focused on expanding the potential clinical utility of HiFi sequencing. Earlier today, we were excited to share that the first major study demonstrating The Clinical Research Power of HiFi Genomes was published by the HiFi Solves EMEA Consortium. This study shows that PacBio HiFi sequencing, combined with Paraphase, a dedicated haplotype-based variant caller, uncovered all known clinically relevant variants present in the study population, even in the hardest-to-sequence regions of the genome, demonstrating its readiness to power the future of clinical discovery. As a result, we believe researchers and clinicians will be able to save time and significant cost by turning to HiFi first. HiFi genomes reveal the complete picture of genetic variation that can truly change how rare diseases are understood and studied. We believe that these findings position HiFi as the clear path forward toward clinical-grade genomics. Beyond expanding access and demonstrating clinical utility, We've also had several recent wins expanding the use of HiFi in the clinical research setting. First, Children's Mercy Hospital launched a single-test HiFi-based assay for genetic disease diagnosis. This replaces multiple legacy workflows with one comprehensive test, providing faster time to answer and more accurate results for patients and their families. Additionally, Children's Mercy is expanding the use of HiFi into pediatric oncology. Additionally, in September, we launched the Enhanced Pure Target Portfolio, a family of products designed to target some of the most challenging regions of the genome. The family includes a carrier screening panel for inherited reproductive conditions, a repeat expansion disorder panel for neurological diseases, and a control panel to support custom assay design and validation. These panels are available in 24 and 96 sample kit formats, to meet the needs of a variety of clinical researchers. These kits enable labs to replace several specialized tests with one flexible workflow that works for both clinical and large-scale screening programs. Several of our customers are leveraging the PureTarget portfolio to develop specific assays for carrier screening. Carrier screening is one of the most widely ordered genetic tests worldwide, with millions of couples screened each year. It is a large, durable, and highly relevant market because identifying carriers before or during pregnancy can have a profound impact on family planning and medical decision-making. Importantly, many of the most medically relevant genes in carrier screening are some of the most challenging to assay with short-read sequencing due to pseudogenes, repeats, or structural complexities. HiFi sequencing works to resolve these challenges, providing complete, phased, and highly accurate results where legacy approaches often fall short. With our new HiFi-based pure target portfolio, we believe PacBio is uniquely positioned to deliver a more reliable and comprehensive standard for this essential area of genetic testing and to support our customers in making carrier screening more accessible at scale. Beyond the clinical research setting, our technology is uniquely suited for large population-scale studies. Our HiFi technology and integrated solutions have recently been selected for several of these types of large-scale studies. A great example of this is the recently announced Long Life Family Study, a major project led by the National Institute on Aging. This project will employ RevioSystems with SPARCnext chemistry to generate comprehensive genomes and epigenomes from up to 7,800 participants. The goal is to help identify genetic and epigenetic clues underlying healthy aging and exceptional longevity, making this one of the world's largest long-range studies of aging to date. Another example is the Korean Pan Genome Reference Project, which recently selected our HiFi sequencing technology as its primary platform. This study is a landmark national initiative led by the Korea Disease Control and Prevention Agency and part of the National Institute of Health. It will generate the first large-scale telomere-to-telomere quality reference genomes representing the Korean population and integrate the data into the global human pangenome reference consortium. Specifically, the study of more than 1,000 participants will utilize PacBio's integrated sequencing solution across the workflow, including HiFi whole genome sequencing connects full-length RNA analysis, enabling the precise transcriptome profiling, and SciFi technology for chromosome scale analysis, detecting structural variants and complex genomic features. By building a more inclusive and comprehensive reference, the initiative is expected to accelerate discovery of population-specific variants, help improve insights into unexplained diseases, and support the development of precision diagnostics and therapies. HIFI is an essential component of helping researchers explore the full spectrum of human genomic diversity in these types of large-scale studies. Another key example is a new study published by the All of Us Research Program, which is funded by the NIH to amass longitudinal health data and genome sequences of 1 million U.S. participants with the goal of advancing precision medicine research and fueling new insights into human health. Powered by PAC Biotechnology, this study found that standard short-read sequencing only detected half of the disease-associated structural variants in their cohort. This revelation shows just how much of the human genome has remained out of view until now and fundamentally redefines what it means to truly see everything in the human genome. Over the past several years, we've been very focused on productizing our technology and developing the sample-to-answer workflows that researchers and clinical laboratories demand. To do this, we have dramatically lowered DNA input requirements and enabled several different sample types, including saliva, buccal, and even FFP to our workflows. We've built a PacBio compatible program to ensure robust automation solutions are available to our customers as we scale. And we've launched two new long-read sequencing platforms and developed a bioinformatics suite that helps our customers take advantage of HiFi technology. With a robust end-to-end solution in place, we've turned our attention to dramatically lowering the cost of sequencing on our Revio platform through a groundbreaking new chemistry, SPARC-NX. Earlier this month at the American Society of Human Genetics Conference held in Boston, we unveiled our new SPARC-NEXT chemistry, marking a defining moment for PacBio. We believe that SPARCnext will help dramatically lower the cost of a human genome sequencing to less than $300 per genome at scale, making our technology economically competitive with many short-read sequencing platforms. Additionally, SPARCnext is designed to improve our methylation calling performance and adds the ability to automatically call methyl hydroxy C, another important epigenetic marker. But we believe the most revolutionary aspect of Spark Next is the ability to use the smart cell multiple times. The smart cell is by far the most expensive component of our consumable. By reusing the smart cell, we can reduce the cost of sequencing for our customers and improve our gross margins simultaneously. A rare win-win. Multi-use smart cells will be launched for Revio in a fully automated way, allowing for a seamless customer experience. Initially, customers will be able to reuse the smart cell one additional time, and over the near term, we expect to increase the number of uses. More than 100 customers have already demonstrated interest in beta testing Spark Next on Revia. We expect to initiate the beta testing program later this month and then move to an early access phase in 2026. This is not like a typical beta test, as the beta test group is paying for the consumables. a strong signal as to the underlying demand for this new chemistry. Once the early access program is complete, we plan to roll out Spark Next to all Revio customers in 2026. We are also continuing to broaden the application of HiFi sequencing. Most notably, we announced a new partnership with EpiCypher to integrate their FiberSeq workflow into the PacBio compatible program. FiberSeq enables single molecule mapping of chromatin accessibility, methylation, and sequence variation in one assay, adding another dimension of epigenetic insight to HiFi and complementing our existing strengths in the genome, transcriptome, and methylome sequencing. In October, we also announced an expanded partnership with Sequel. Under this agreement, PacBio will distribute Sequel's LongPlex kit, a scalable, easy-to-use sample preparation solution designed for HiFi sequencing. LongPlex streamlines DNA shearing and multiplexing, enabling hundreds of samples to be prepared in a single run. By reducing prep bottlenecks, this kit is designed to make long-read sequencing more accessible for low-pass whole genome sequencing, plasmid sequencing, and microbial genomics. Together with our existing workflows, LongPlex gives researchers more choice across high-throughput applications and may help accelerate the adoption of HiFi for large-scale studies. Overall, I'm excited about the progress we are making to broaden our footprint and advance our technology to create more value for customers doing high-throughput research and clinical sequencing. I'll now hand the call over to Jim to discuss our financials before I finish with a few closing remarks. Jim?