Pacific Biosciences of California, Inc. (PACB) Earnings Call Transcript & Summary

Good day. And welcome to PACBio's second quarter of 2026 earnings call. All participants will be in a listen only mode for the duration of the call. And should you need any assistance today, 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. If you'd like to ask a question, you may press star then 1 on your telephone keypad to join the queue. And to withdraw a question for any reason, please press star then 2. Also, please be aware that today's call is being recorded. I'd now like to turn the call over to Kayleen Parrish from Gilmartin Group. Please go ahead.

Good afternoon and welcome to PACBio's second quarter 2026 earnings conference call. With me today are Mark Van Owen, President and Chief Executive Officer, Jim Gibson, Chief Financial Officer, and Christian Henry, PacBio board member and advisor. 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. On today's call, we will make forward-looking statements including, among others, statements providing 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. We review our SEC filings, including our most recent Form 10-Q and 10-K and our press releases, to better understand the risks and uncertainties that could cause results to differ. claim any obligation to update or revise these forward-looking statements, except as required by law. It also presents 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. For future periods, we're unable to reconcile non-GAAP gross margin and non-GAAP operating expenses without unreasonable effort due to the uncertainty regarding, among other matters, certain acquisition-related items that may arise during the year. 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. Earlier today we announced that I am stepping down as President and Chief Executive Officer of PacBio and that Mark Van Owen will lead the company as President and Chief Executive Officer effective immediately. I will remain on the board of directors and become an advisor to Mark as he drives PacBio's strategy forward. Mark joined PacBio shortly after I did, and in that time, he has led the R&D operations and commercial organizations. His deep understanding of the genomics and clinical markets will be invaluable to the company as we move deeper into supporting clinical sequencing around the globe. Additionally, his ability to successfully lead strong teams will ensure that PacBio executes well into its future. I'm proud of what we have accomplished over the nearly six years that I have had the privilege of leading PacBio. We have developed and launched groundbreaking new long read sequencers that have dramatically improved the scale and economics of long read sequencing. These platforms are enabling researchers and clinicians to dramatically improve their ability to understand the impact of genetic variation on disease, moving us closer to achieving our mission of enabling the promise of genomics to improve human health. Finally, I want to thank our employees, customers, and collaborators for their support. I look forward to advising Mark as he leads the company into its next phase of growth and continuing to serve on the Board of Directors. With that, I'll now turn the call over to Mark. Mark?.

Thank you and good afternoon everyone. On behalf of the team, thank you Christian for your six years of leadership. I'm honored and excited to step into this seat and I'm grateful for the support of you, our leadership team and board who have been working closely with to execute the seamless transition. Since joining in 2021 as Chief Operating Officer, I had the pleasure of leading the R&D organization that built the Revio and VEG instruments, and more recently oversaw development and rollout of the multi-use SmartNEXT chemistry. My recent commercial leadership focus has leveraged the strength of our clinical and count engagement, which has proven particularly effective in the EMEA region. Looking ahead, my priorities will be directly built on this foundation, taking what's worked in EMEA and scaling it globally, driving Sparknext adoption across accounts, and growing our understanding of disease biology and biomarker discovery by enabling greater high-fide throughput, cost efficiency, and data access. I'm entering the end of the session. by the multiple catalysts in front of us and confident in what's ahead as we take PacBio into its next phase of growth. Part of that next phase means operating with a leaner team focused on our highest priority growth drivers. I want to address a targeted reorganization we initiated late last week. We are integrating our marketing organization more closely with the rest of our commercial organization to ensure we maximize the growth opportunities we continue to see in the clinical market. This new online structure will sharpen our focus and strengthen our support for our clinical customers. We also reviewed the broader organization to reduce management spans and layers. Importantly, I want to reiterate that none of our key R&D platform projects were impacted by this reorganization. Turning to discuss our recent performance and where I see the business going from here. The second quarter was highlighted by the full global commercial rollout of our new Spark Next chemistry. Access to our Spark Next beta program was in high demand in Q1, and feedback was highly positive as we approached launch. I am pleased to report that customer enthusiasm for Spark Next has remained strong since full launch. In fact, in June, over a third of our install base opted into our new consumer software that facilitates usage of Spark Next, is multi-use capabilities. As a reminder, Spark Next provides significant increase in sequencing throughput per run and new customers are now able to use each smart cell up to three times. This improves the economics for our customers and enables us to compete for substantially larger projects where competitive economics are crucial to winning. Many of our high throughput customers are currently in the process of validating the new multi-use workflows in their own laboratories, and we expect to see them ramping up Spark Next usage over the coming months. As a result, we believe SPARKnext will be a significant driver of volume in the second half of the year and beyond. Against the backdrop of the SPARC Next launch, our organization continued to execute on key priorities, including growing the evidence base of scientific validation for our HiFi platform through multiple significant publications. We believe these speak to the utility of long-lead genome sequencing for rare disease diagnostics. In addition, we continued to make progress commercially. We delivered $39 million in second quarter revenue, a step up from T1. Total revenue was roughly flat year over year, driven by growing consumers and new revenue in VEGA placements as we commenced the full rollout of SPARK Next chemistry. Another benefit of the SPARCnext economics is that we saw several customers expanding the Revio fleet with multi-system orders to take on larger projects and programs. Additionally, we closed and shipped a significant order for several Revio systems to a new population scale customer that we expect to begin sequencing in the third quarter. Looking closer at our consumables performance in the quarter, total consumable revenue for the quarter was $20.1 million compared to $18.9 million the prior year period. We continue to see strong adoption in the clinical market as shipments to clinical customers grew 67% year-over-year and represented a mid-teens percentage of photo consumables shipments. We expect clinical shipments to continue growing as customers move to full commercialization mode across our install base. However, we now expect his symbols pulled through for the full year to be 200,000 to 225,000 per radio system due to the pace of demand we are experiencing today. The narrow range reflects the timing of customer purchases as several accounts that received large Q1 shipments are now working through existing inventory while evaluating the multi-use feature. As we continue to roll out the Spark Next transition into late 2026 and 2027, we anticipate this range increasing. We expect to see the first wave of Spark Next consumers' reorders in the coming months as accounts work through their inventory. Long term, we expect improved cost-per-genome economics should support higher utilization. Turning to instruments, we sold 20 Revio systems in the quarter. As I previously indicated, we had several multi-unit Revium shipments this quarter. These include a single new to PACBio customer, as well as two standing PACBio customers that were looking to further expand their revenue production fleets, which we believe is a testament to the appeal of revenue technology and Sparknext economics to both new and existing customers. These deals, coupled with the Base Camp opportunity we announced in Q1, signal our entry into larger population-level genomic studies which have been unlocked with SPARCnext. Further, we are now seeing specific clinical customers exit R&D mode and move into more routine production sequencing with our HiFi technology. Overall, 60% of revenue placements in Q2 were to new customers, and 45% of revenue placements in Q2 were sold as a part of multi-instrument purchase orders. Cumulative revenue shipments stand at 366 systems. On Vega, we sold 26 Vegas in the second quarter, compared to 38 in the prior year period. Customer conversations remain constructive, but funding uncertainty in the US continues to constrain new orders. There are two observations that speak to our continued conviction on Vega, despite these headwinds. First, Vega ASP has returned to normalized levels, demonstrating that we can drive demand and capture the Vegas system's full value in the market without the promotional pricing offered in Q1. And second, US Public Health Labs, the center we deliberately built out, purchased Vegas this quarter and we expect more consistent utilization from these accounts as they ran. Overall, 81% of Vegas shipments in Q2 went to new customers. Cumulative Vegas shipment stands at 200 systems. Regionally, the media continued to grow, and we expect it will remain our fastest growing region in 2026. America's revenue declined on academic and government funding constraints, while Asia Pacific consumers also declined as customers worked through existing SPARK inventory in preparation for the SPARK Next transition. What's encouraging is the receptionist part next. Customers across the region are actively evaluating it ahead of stepping up to volume purchases. And we expect that evaluation activity to convert into more routine ordering as the year progresses. As a reminder, Spark Next's core advantage is reusing smart cells multiple times. For genome, US list price drops to $345 per 20x HiFi human genome, a 30% reduction versus our previous SPARC chemistry achieved without compromising the accuracy or comprehensiveness that makes HiFi valuable. Expanded methylation detection and advances in deep consensus, our AI powered consensus algorithm developed Google further improves accuracy, run performance, and the biological information generated from each read. Spark Next has changed the map for high throughput revenue of customers who have been waiting for long reach sequencing to become economically viable at scale and feedback has been overwhelmingly positive. In the first full month of full commercial rollout, customers have found that high FI yield is near identical across the first two uses with a slight decline on the third. In June, over a third of our install base opted into our new software that facilitates usage of Spark Next. As these customers continue these evaluations, we expect to see an expansion of Spark Next usage, which will in turn enable more throughput and expand gross margins. We anticipate over half of our install base will have adopted Spark Next software by the end of this year. end of the third quarter and the vast majority to have opted in by year end. We are also ascended to report that we will launch the SPARCnext chemistry on the Vega system later in August. This chemistry will enable higher throughput of up to 90 gigabases per run and lower the DNA input requirements. the SPARCnext chemistry across both instruments for consistency of data quality and operations. Turning to the growing validation of our differentiated technology, two recent publications reinforce that HiFi long-read sequencing delivers better, more comprehensive results than the existing standard of care, which typically requires a multi-test process. scientific validation strengthens our conviction that we can shift the standard of care paradigm entirely, benefiting patients and providers alike. On June 13th, the New England Journal of Medicine published an article called Clinical Long-Rate Genome Sequencing for Rare Disease Diagnostics by Bitter et al. which is one of the strongest pieces of evidence for a thesis on the value of long read sequencing, especially in the clinical setting. Overall, the results were compelling. Concordance between long-read genome sequencing and standard of care was 96.4%. Long-read improved or refined diagnoses in 3.4% of cases, while standard of care only caught variants that long-reads missed in 0.2% of cases. The publication demonstrates that HiFi long-read sequencing is a clinical effective first-tier diagnostic test that improves diagnostic yield while also simplifying the laboratory workflow, reducing turnaround time, and enhancing the overall economics of rare disease diagnostics. Hundreds of millions of people globally have rare disease, and most of them spend years being specialists and being submitted to testing with little resolution to their issues. We believe a publication of this caliber in the New England Journal of Medicine also carries real weight with payers and health systems. It's the kind of evidence that accelerates the transition away from legacy diagnostic workflows to us. The second article was published in Nature Genetics entitled, Near Perfect Genome Sequencing in Medical Genetics by Saba et al. In the article, the authors proposed that long-read genome sequencing should be considered as one pillar of a broader technological convergence, encompassing diploid genome assembly, pangeome references, and AI-driven variant interpretation, turned near-perfect genome sequencing. We also highlighted the potential of near-perfect genome sequencing across post-neuropathic, pre-neuropathic, and oncological settings while also outlining a staged implementation roadmap toward this one-test paradigm. Like the New England Journal of Medicine article, this article similarly supports the move to the one-test paradigm given the diagnostic completeness of long-read sequencing technology like HiFi. Beyond rare diseases, we also announced a preprint from the hyphysol subfertility consortium in Asia Pacific, which marks the first major study from that group. Subfertility affects around one in six couples globally, and yet the genetic evaluation most couples receive today is fragmented. Multiple sequential tests often require months or years of evaluation that frequently result in no definitive explanation. The data demonstrates that high-fibro genose sequencing can provide a complete view of reproductive genetics in a single workflow, representing another long-term clinical opportunity for us. Additionally, our collaboration to run samples for Base Camp research has been going very well. Samples are in-house and we are sequencing and delivering hundreds of samples to Base Camp each week. We expect Base Camp to contribute more meaningfully in 2027 when the majority of the samples will be processed.

I'll now turn the call over to Jim. Jim? Thank you, Mark. I will discuss non-GAAP results, which include non-cash stock-based compensation expenses. I encourage you to review the reconciliation of GAAP to non-GAAP financial measures in our earnings press release. Unless otherwise noted, all growth rates are year-over-year. We reported total revenue of $39 million in the second quarter of 2026, compared to $39.8 million in the second quarter of 2025. The increase in revenue in the second quarter was $12.8 million, a decrease of 9% from $14.2 million in the second quarter of 2025, primarily reflecting a lower average selling price driven by customer mix, including lower price strategic revenue placements to key accounts and fewer Vegas system shipments as academic and government funding concerns. strengths, continued to pressure capital purchases. We sold 20 Revio systems, up from 15 in the prior year, and 26 Vega systems, down from 38, ending the quarter with cumulative shipments of 366 Revio systems and 200 Vega systems. Turning to consumables, revenue of $20.1 million in the second quarter increased 6% from $18.9 million in the second quarter of 2025, with annualized revenue pull-through per system at approximately $202,000. consumables revenue increased primarily due to the growth in the installed base and continued utilization of Revio systems, particularly among clinical customers. Growth was partially offset as customers worked through existing inventory and completed Spark Next's workflow validation prior to the broader adoption. Finally, service and other revenue was $6.1 million in the second quarter, compared to $6.7 million in the second quarter of 2025, reflecting continued growth in REVIA service contracts as our installed base expanded, offset by lower revenue as we completed a population sequencing program. From a regional perspective, America's revenue of $17.6 million was down slightly compared to the second quarter of 2025, as ongoing NIH and broader academic funding uncertainty continued to weigh on capital purchasing decisions. and commercial customer activity remained resilient, and we continued expanding our Vega installed base within public health laboratories. For Asia Pacific, revenue of $7 million decreased 45% compared to the second quarter of 2025, primarily reflecting the conclusion of a significant population sequencing program, continued academic and government funding headwinds, and the lower consumables demand as customers completed SPARC Next workflow validation and work through. existing reagent inventory. EMEA revenue of $14.4 million increased 52% compared to the second quarter of 2025, reflecting continued clinical adoption as hospitals and clinical customers transitioned from pilot programs into routine production, together with growing demand for the Vega platform and a significant strategic multi-system revenue placement. supporting a large-scale national genomics initiative. Moving down the P&L, second quarter non-GAAP gross profit of $13.9 million represented a non-GAAP gross margin of 36%, compared to a non-GAAP gross profit of $15.2 million, or a gross margin of 38% in the second quarter of 2025. Non-GAAP gross margin declined primarily due to previously discussed compute cost inflation and lower manufacturing volumes. In addition, gross margin was impacted by $1.1 million in costs associated with transitioning Vega manufacturing in-house from our contract manufacturer. These transition costs are expected to conclude by the end of 2026. Separately, cash outflows were higher due to strategic purchases of memory components to support future production. Importantly, these purchases are largely timing related, and we now expect to have sufficient memory to support operations through the end of 2026. Non-GAAP operating expenses were $56.1 million in the second quarter of 2026, a 3% decrease from $58.1 million in the second quarter of 2025. Year-over-year decline reflects continued expense discipline across the organization while maintaining investment in our highest strategic priorities. Operating expenses in the second quarter included $8.6 million of non-cash share-based compensation compared to $11 million in the prior year period. Regarding headcount, we ended the quarter with 492 employees compared to 485 at the end of 2025 and 491 at the end of the second quarter of 2025. As Mark discussed, we recently initiated a restructuring designed to further align our cost structure with our strategic priorities. is expected to reduce our workforce by approximately 40 employees and lower our ongoing operating expense base while preserving investment in our highest priority growth initiatives. NON-GAAP NET LOSS WAS $41.9 MILLION, REPRESENTING $0.14 PER SHARE IN THE SECOND QUARTER OF 2026, COMPARED TO A NON-GAAP NET LOSS OF $40 MILLION, REPRESENTING $0.13 PER SHARE IN THE SECOND QUARTER OF 2025. WE ENTERED THE NEXT QUARTER Ended the second quarter with approximately $236.9 million in unrestricted cash, cash equivalents, and investments, compared with $279.5 million at December 31, 2025. Turning to our full-year outlook, given the dynamics that Mark cited, we are lowering our revenue expectations for 2026 to $155 to $165 million. Revised Outlook assumes consumables will remain the driver of growth, supported by continued utilization from clinical customers and the expanding of Revio and Vega installed base. At the same time, we expect Spark Next adoption to build progressively through the second half as customers complete workflow validation and transition existing reagent inventories. academic and government funding, particularly in the Americas, and a more gradual recovery in China than we had previously anticipated. We now expect non-cap gross margin to be in the range of 35 to 37% for 2026. This revised outlook reflects temporary vega manufacturing transition costs of approximately $2.5 million, elevated compute and memory costs, a more gradual SparkNEXT adoption curve, and the margin impact of lower-priced strategic revenue placements. Turning to our cash outlook, we expect to end the year with approximately $175 million to $185 million in cash, reflecting our updated revenue outlook, continued investments in SpartanX, the temporary manufacturing costs, and working capital impacts we discussed today, and the cost reduction initiatives Mark outlined earlier. Non-GAAP operating expenses are expected to be in the range of $215 to $220 million, a reduction of $5 million from the range we guided in Q1 and down from 2025 levels. Looking ahead, we expect cash burn to step down meaningfully in 2027. In addition to the benefits of our restructuring, which we expect to reduce compensation related expenses by approximately 15 million to 20 million next year, we expect to realize approximately 15 million to 20 million of additional annual savings as we move past development spending on our high throughput platform. While these actions significantly improve our cash profile, our outlook also reflects the continued impact of elevated compute costs and a more gradual gross margin improvement than we previously anticipated. As a result, we now expect to achieve cash flow breakeven in 2028 compared to our prior expectation of the end of 2027. Based on our current operating plan, we believe our existing cash resources provide sufficient flexibility to execute our strategic priorities, support the commercialization of our new high-throughput platform, and fund the business through cash flow breakeven.

now turn the call back to Mark for closing remarks. Thanks, Jim. I'm energized about this next chapter for PacBio. The catalysts we've built toward, including SparkNext's full rollout, expanding clinical adoption, and our entry into population-scale genomics are now converging. My focus as CEO is straightforward. Scale is driving growth, sharpen our execution, and run a leaner, more focused organization built around our highest conviction growth drivers. Our staff I've spent five years in this business and I understand both its potential and what it takes to realize it. I'm confident in our team, our technology, and our path forward. With that, we'll open the line. Jim and I are available for questions.

We will now begin the question and answer session. Again, to ask a question, you may press star, then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys and to withdraw a question, please press star, then two. On today's call, we ask that you please limit yourself to only one question during Q&A. If you have additional questions, you may rejoin the queue. With that, we will pause just momentarily to assemble our roster. And our first question here will come from Kyle Mixon with Canaccord Genuity. Please go ahead.

Hey guys, thanks for the questions. Nice quarter. Tristan, it's great working with you. You've passed several years. You know, there's been the highs and the lows, but it's been overall a really impressive job. Mark, congrats on the role. It's going to be great to see how things progress going forward. So thanks guys for everything. Back to the quarter and the questions there. So I guess on the Revios and the Vegas, interesting to see how many are still coming from new customers. I'm just curious how many are clinical customers, You know, that would be interesting to see if most of these new customers are clinical in nature and how that's kind of looking and shaping going forward. Thanks.

Thanks Kyle. It's going to be fun working with you as well. It's really my pleasure. I'm just going to start, just a quick thank you again to Christian and to recognize his contributions to PacBio. His industry knowledge and experience really has transformed PacBio. We've got a portfolio of products. We've got the commercial scale now, workflows and service, clinical markets. and really obviously building off of that foundation. And he's going to be, continue to be a great partner to me as he becomes a member of the board or stays a member of the board and advises me through this transition. You're speaking specifically about the Revue of Indegas, and maybe I'll start with Revue, because it was a good rebound for the Revue, as you can see, we, the majority of those to new customers and some multi-system placements, which I think is a really important part of the Spark Next thesis, Kyle, to make sure that that economic is driving, you know, scaling of existing customers, as well as bringing in new customers. In terms of the clinical adoption, the majority of those are going to clinical accounts. And so we continue to see the momentum in the business there, not just on the growth and consumables, but on the instrument platform. Likewise in the vega, we had a smaller number than last year, but I think consistent with last quarter's overall vega units The majority of these are to brand new customers to PacBio, which again, that was the idea with the data platform launch was to decentralize the high-end by sequencing expose more of the more of the glow to to our technology and so you know We continue to do that and again, Vega is predominantly still smaller targeted applications in terms of applications. I think what we noted there is the, the health labs are starting to pick up big again. So we're starting to see some momentum in wastewater testing and your non-traditional uses of HiFi genome for higher throughput whole genome type applications. So really encouraged by the big and new customer demand as well as the clinical and public health lab adoption of it.

And our next question will come from Suhu Nambi with Guggenheim. Please go ahead.

Thomas on for Subu. Thanks for taking our question. On Revio, you said you placed some boxes to customers doing population scale sequencing. You gave some comments on the consumables timing. Just thinking about those factors and some clinical accounts, can you just walk us through what you're expecting on pull through sequentially from here? just what does the second half look like in terms of third quarter, fourth quarter? Thanks so much.

Yes, on the population genome opportunity that we mentioned, we'll disclose who that is when the timing's right for that. So expect for some further updates there. On the clinical customer scaling, this is where you start to see the scaling with much faster uptake of the conservables. again driven with the SPARCnext economics here again. So we expect those to start to implement and scale through the back half of this year. In terms of the overall timing of the SPARCnext and consumables scaling, you know, we are going through this transition. You saw we were relatively flat quarter over quarter on our consumables revenue. I would expect that to continue through this next quarter and then start scaling as we get through the back end of this year. You know, these Spark Next customers are optimizing their workflows, they're getting used to running our smart cells multiple times and hardening the validation of that. And so I expect this transition to last through this quarter and then start to scale towards the back end of the year.

And our next question will come from Jack Meehan with Opron Research. Please go ahead.

Thanks. Good afternoon, guys. And Mark, congrats on the new role. My question is for Jim. I was wondering if it was possible to talk about gross margins for memory. How much of your supply is locked in now for the second half in 2027? And can you talk about what any incremental headwinds could be if the spot pricing holds? Maybe just on the positive side, you've talked about the multi-use smart cells potentially improving pack-by-over-us margins. When do you think that's going to start to show up? Thanks.

Sure, thanks Jack. So first, let's talk about the memory impact and its implications for this quarter and going on. From the standpoint of supply, we are supplied through the end of 2026 based on our current forecast. So we have memory coverage, GPU coverage through then. We'll probably enter the market to start purchasing more memory tail end of this year. So as we're looking, and part of the reason we've adjusted our gross margin guidance down to 35 to 37% is we do expect the memory impact to persist through the rest of this year. We don't have good visibility into 27 yet. That's part of what drove some of the actions that Mark talked about in the previous session. restructuring. Number two is the other piece that's actually impacting our margins for the rest of this year is the transition cost with the vegas. So one of the things we're really trying to do is cut costs in the long term as we insource manufacturing and bring down a number of suppliers. So part of that transition we're incurring some uninspected costs. However, it's allowing us to accelerate that transition to Vegas or in-house manufacturing. So that's something we are doing to help us look a lot better moving into 27. And then third part of your question is, as Mark mentioned, we do expect the SparkNEXT ramp to increase more in the latter half of the second half of the year, so that will be offsetting some of those persistent memory costs and those transition costs. So we're excited to get the transition behind us. I think we're excited to see memory stabilize. I don't think we're going to necessarily see a decrease in memory, but I think one of the fluctuations in spot markets and how that's impacting our supply chain. So that's part of the reason we have some of the unanticipated impacts in the latter half of the year. But I think some of the early indicators are that's starting to stabilize. So...

Thank you. And our next question will come from Mason Carrico of Stevens. Please go ahead.