Pacific Biosciences of California, Inc.

Good day and welcome to PACBio's fourth quarter and full year 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 your telephone keypad, and to answer your question, please press star then two. Please note that today's event is being recorded. I would now like to turn the conference over to Kelly Gurra with Investor Relations. Please go ahead.

Good afternoon, and welcome to PacBio's fourth quarter and full year 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 Investors 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 form, 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 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. 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. or future periods were 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. The 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. Our fourth quarter results exceeded expectations and were highlighted by all-time record consumable revenue and strong instrument placements for both the Revio and the Vega platforms. Our strength in consumables also drove gross margins higher. We believe that the momentum we built as we exited 2025 will continue in 2026, and that we are well positioned to execute on our strategy to drive both revenue growth and gross margin expansion in 2026. As previously announced, fourth quarter revenue grieved 14% year-over-year and 16% quarter-over-quarter to $44.6 million. Our sequential step-up was driven by increased Revio and Vega sales, as well as record consumables, reflecting meaningful traction across a range of clinical sequencing applications. For the year, we recorded $160 million in total revenue, representing 4% growth over 2024. Consumable revenue drove the majority of our growth, both on a quarterly and full-year basis. In Q4, Consumable revenue grew 15% year-over-year, reaching another record, and in fact, three of the past four quarters were record consumable quarters. We were especially pleased by the 55% growth in consumables for clinical and hospital customers in 2025. Our growth in the clinical market was largely driven by a combination of our whole genome sequencing applications in rare disease and targeted applications that leverage our PureTarget kit. This traction has helped offset the continued significant pressure that our customers are experiencing with regard to the academic funding environment, which has adversely impacted our instrument sales in 2025. Turning to instruments, we shipped 21 Ravio and 42 Vega systems in the fourth quarter, bringing our cumulative shipments to 331 and 147 systems, respectively. Taking a closer look at Ravio, Placements were impacted throughout the year due to the challenging funding environment, particularly in the Americas. That said, we were pleased to see strong momentum in the fourth quarter with an increase in both shipments and pull-through per system compared to the third quarter. In 2025, approximately 20% of Revio orders were for customers who bought more than one system, and these multi-system orders give us confidence that our customers believe they will be scaling up in 2026. We also saw solid ordering trends for our Vega platform in the fourth quarter, particularly in EMEA. Some of the strength in Vega was due to orders that were delayed in the third quarter, but we are also seeing momentum in the Vega sales pipeline, which should result in placement growth in 2026. One of the key strategies behind the development of the Vega platform was to create more accessible hi-fi sequencing platform so we could reach new customers. We're pleased to see that that strategy was working as approximately 65% of the Vega placements in 2025 were to new-to-pack bio customers, demonstrating this instrument is successfully expanding the ecosystem for HiFi long-read sequencing users. From a regional perspective, America's revenue increased 3%, Asia-Pacific revenue increased 4%, and EMEA revenue increased 45% year-over-year in the fourth quarter. Each region benefited from higher Vega instrument shipments and radio consumables, and we are particularly pleased with the strong growth in EMEA as more of our clinical customers shifted from pilot testing to broader clinical adoption. As we look ahead into 2026, we believe that our growth will accelerate as clinical adoption of HiFi continues. However, we are not anticipating that the academic funding environment will improve significantly. Considering these factors, we expect 2026 revenue to be in the range of $165 million to $180 million, representing approximately 8% growth at the midpoint of $172 million. Jim will share more details on our outlook and our underlying assumptions later on. Now, let's take a closer look at our consumable growth over the last couple of years. In 2025, we delivered 19% consumable shipment growth supported by our human-focused markets. When looking at our performance across non-human markets, we have grown in the low single digits, primarily due to funding challenges in the academic segment, as well as the industrial and agricultural markets, which has historically been a meaningful portion of our business. We expect to see growth in the segment accelerate as these end markets start to recover. Within our human-focused markets, we have delivered a strong three-year CAGR of 23%, driven primarily by the launch of the Revio system, which offers greater scale than previous systems, and our focus on driving the adoption of clinical applications, including the launch of our pure target family of products. As I mentioned earlier, we delivered 55% growth in consumables to clinical and hospital customers in 2025. We plan to continue investing in this area in the years ahead with the initial focus on rare disease, oncology, and carrier screening. Rare disease genomics represents one of the largest and most historically underpenetrated opportunities in precision medicine. More than 300 million people globally are living with rare disease, yet for decades, a significant portion of patients have remained undiagnosed or misdiagnosed due to fundamental limitations in existing sequencing approaches. HIFI is increasingly becoming a trusted backbone for rare disease genomics because it delivers highly accurate, comprehensive views of the genome that can capture substantially all classes of variants in a single assay. As a result, researchers and clinicians are now able to move beyond incremental improvements and meaningfully improve diagnostic yield, disease understanding, and therapeutic development. Importantly, this opportunity is still in its early innings. We believe adoption today represents only a small fraction of the potential patient population. But momentum is building as institutions validate the clinical and economic value of long-read sequencing. I'll briefly walk through a few examples that demonstrate the value of HiFi and how it's helping these customers. At University of Washington Medicine, HiFi is being used to study sudden unexplained death in childhood with the goal of preventing the loss of hundreds of children per year. The program has begun sequencing 200 families supported by the Sudden Unexplained Death in Childhood Foundation out of a broader cohort of more than 2,000 families. At Ambry Genetics, HIFI is being implemented in the ONCE study this quarter to assess the impact of long-read sequencing on diagnostic yields in patients with previously negative exomes and genomes. AMBRI expects to enroll approximately 1,000 patients in 2026, highlighting the growing role of HIFI as a diagnostic tool. Through our collaboration with the NLORM and ESPERERA HiFi is being used to comprehensively characterize the genomes of patients across dozens of ultra-rare diseases and to support the development of target antisense oligonucleotide therapies. This demonstrates HiFi's role not only in diagnosis, but enabling truly individualized treatment strategies. And this morning, we announced the addition of HiFi to the IHOPE initiative. which brings long-read genomic sequencing to one of the world's largest equitable rare disease genomic testing networks. With more than 1,000 patients supported annually through 25 clinical sites across 14 countries, HiFi will continue to expand the diagnostic possibilities for thousands of families worldwide. Taken together, we believe these examples illustrate why HiFi is uniquely positioned to become the leading sequencing technology in rare disease genomics. We look forward to continuing to support our customers as these programs scale. As I mentioned, we are also focused on supporting the carrier screening market. The Babies in Focus project aims to sequence at least 2,000 samples across selected long-read technologies. We anticipate that our service partner, Eurofins Genomics UK, will sequence 1,000 of these samples between April and September 2026. using PAC biotechnology. This work is a vital step in demonstrating the feasibility of scaling long-read sequencing for a potential national newborn screening program. We believe our performance in this cohort will help build the evidence base for the UK's 26 to 2030 spending review, positioning our technology for long-term growth within the NHS. Furthermore, the contract includes an optional extension for up to 1,000 additional samples through early 2027, providing a clear path for continued participation in this landmark study. HIFI also delivers a meaningful productivity and economic advantage by consolidating what has historically required multiple sequential tests into a single assay. Today, many rare disease patients undergo years of serial testing, ranging from single gene tests and panels to exomes, short-read genomes, repeat expansions, and methylation assays. This results in long turnaround times, fragmented workflows, and a significant cost for our customers. With HiFi whole genome sequencing, customers can replace many of these individual assays with one comprehensive test that captures substantially all variant classes upfront. This reduces time to answer from years to days, simplifies laboratory workflows, and lowers total testing costs meaningfully, while also generating a high-value data set that can be reanalyzed as new insights emerge. Taken together, this combination of speed, workflow efficiency, and improved economics reinforce why HIFI is increasingly being adopted as a frontline solution in rare disease genomics. We're also making great progress with respect to our population sequencing initiatives. In 2025, we saw studies like the All of Us Study, which published their first data sets on long-read sequencing in October, the Long Life Family Study that is targeting the sequence up to 7,800 samples, and the Asian Pangenome Consortium, which is targeting the sequence more than 10,000 samples, and creating the most comprehensive pangenome reference ever created. We look forward to enabling many more of these large-scale studies in the future. We're also seeing rapid momentum in the scale of data being generated on our HiFi platform, alongside a growing body of peer-reviewed evidence that reinforces its values. In 2025, our customers generated more than 60% year-over-year growth in HiFi data, making HiFi one of the fastest-growing datasets in life sciences. Importantly, this growth has effectively doubled over the past 18 months and is significantly outpacing the broader market. In parallel, cumulative peer-reviewed publications have grown to nearly 12,000, with publication growth accelerating year-over-year. We believe this combination of rapidly expanding data output and evidence is critical, particularly in areas like rare disease where diverse, high-quality data sets are essential to uncover complex biology, improve diagnostic yields, and ultimately drive new insights for patients. Now I'd like to turn to SPARCnex, our next-generation consumable chemistry built around the multi-use smart cells. We believe that Spark Next represents a fundamental step forward in our ability to deliver high-quality hi-fi at a highly competitive price point. By enabling reuse of the smart cell, historically the most expensive component of our sequencing workflow, we can amortize that cost across multiple runs, lowering the price per genome for customers while simultaneously expanding our gross margins. SparkNEXT is designed to deliver the most complete view of the genome with whole genome HiFi sequencing at scale for less than $300 per genome. Importantly, SparkNEXT also increases system throughput, delivering approximately 25% higher output per smart cell as validated through customer-generated data in our beta program. This represents a major inflection point for our business as we deliver improved performance, higher throughput, and better economics all at the same time. Today, we are pleased to share new and encouraging data from multiple customers participating in our Spark Next beta program. On the left, you can see a slide with data showing Spark Next has higher yields than Spark when sequencing high-quality human DNA libraries. The Spark Next runs have longer insert lengths, which likely to contribute to the yield difference and also higher read quality. We continue to evaluate the chemistry across additional sample types and will share the results as they become available. On the right, one of our customers generated data supportive of long read sequencing, providing a higher diagnostic yield, shorter turnaround time, and fewer required tests, making HiFi a great choice for clinical use. Given the success of the early beta program, in a few weeks, we will expand the beta program to more customers, both domestically and internationally. We look forward to launching SparkNEXT broadly later this year. As we look ahead to the launch of SparkNEXT in 2026 and its potential to further strengthen our financial profile, it's important to recognize that this progress is building on a foundation that we have already established. Over the past few years, we have made meaningful improvements in our financial profile with improved non-GAAP gross margins and operating expenses, as well as significantly lower cash burn. Non-GAAP gross margin has improved from 27% in 2023 to 40% in 2025, representing a 1300 basis point improvement since 2023 and 700 basis point improvement in 2025 alone. Non-GAAP operating expenses have been reduced from $355 million in 2023 to $230 million in 2025, representing a 35 percent reduction since 2023 and a 20 percent reduction year-over-year. Cash burn, excluding financings and acquisitions, improved from $214 million in 2023 to $105 million in 2025, representing a 51 percent improvement since 2023 and a 44 percent improvement year-over-year. We ended the year with approximately $280 million in cash and investments. These actions have significantly improved the underlying economics of the business and we believe position us for a strong year ahead as we prepare to launch additional products and drive adoption in the long-read sequencing market. I'd also like to take a moment to thank our team for their hard work and dedication over the last few years, which has made these transformational improvements possible. Last week, we announced the sale of our short-read sequencing assets for net proceeds of approximately $48 million. This transaction meaningfully strengthens our balance sheet and further extends our cash runway. This action is a continuation of the strategic plan we outlined last April to sharpen our focus and concentrate our resources on our differentiated long read sequencing portfolio. We believe this transaction positions us to execute more effectively on our mission to develop the world's most advanced sequencing technologies. With greater flexibility to invest in the areas where we can have the biggest impact, we are now better positioned to accelerate adoption of our long read platforms across attractive growth markets and execute with confidence as we enter our next phase of growth. We remain committed to supporting our current ONSO customers through this period with ongoing commercial support and consumable supply this year. With that, I will now turn the call over to Jim to provide more details on our financial performance and outlook for 2026.