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Hi, welcome to the Canaccord Genuity Growth Conference. I'm Kyle Mixon. I cover Lifestyle and Supplemental Diagnostics for Canaccord. Please welcome me to a Fireside Chat with PacBio. PacBIO offers some of the leading products for long-read sequencing across a range of throughputs. With the company, we have Jim Gibson, CFO. Thanks, Jim, for joining us today. Appreciate it. Great. Good morning, Kyle. Thanks. So, just to start, you reported your second quarter results last Wednesday, so almost a week ago, and maybe just talk about some some of the key factors at play with respect to the financial performance and maybe, of course, the management transition that was announced as well. Sure, all right, Kyle. So again, thanks for inviting us to Canaccord to speak this week. First, so we finished the second quarter with 39 million in revenue, so up sequentially from the prior quarter. Solid consumable revenue, 20 million, so we were happy with that. Instruments at about 13 million in services at six. Services down slightly. We finished a big pop gen study over in Asia year over year, so that slightly decreased our service revenue. We were happy with our growth in consumables, especially related to clinical. We had 67% growth in our clinical business, which is really an area we're leaning into. So we're excited to see that performance. Also really excited with some of the expansion in our fleets. So we had two big deals with two existing customers to expand our fleet with Revio, and then we did a really large deal with a new population genomics initiative that we'll be talking about a little more in Q3 that shipped five Revios, so really excited with that deal as well. So continued strong demand for Revio, we believe primarily driven by the Spark Next launch, which this was also the first quarter of the commercial launch of Spark Next, so we released that in May. So great reception from our customers on that as well, and then I think as important as the company continues to lean in heavily to the Spark next transition, as well as kind of leaning heavily into clinical, We completed the transition to Mark Van Owen as our new CEO. He stepped into that role. We announced that last week. That is something that's been in the works for a few years. He joined PacPy about five years ago, and in that time he ran R&D. He was in charge of successfully launching the Revio, successfully launching The Vega, as well as successfully launching our Spark Next chips, as well our original Spark Chemistry. He also ran operations, so got intimately involved in driving operations, and came from a long history of commercial when he was at Illumina. So we're really excited for Mark. He's really focused on kind of expanding our presence in the clinical markets and really sort of continuing to expand the growth we're seeing in EMEA and the rest of the world. Some of those big successes we're saying in Emea, we wanna replicate in both the US and Asia-Pac. Yeah, okay, well, that was a great recap. You also had a little bit of like a reduction in force, I believe. Correct. about what divisions were impacted and if any additions will be now added that will maybe help optimize the areas that were impacted by this RIF recently. So a couple of things, yeah. So one of the things that we've been impacted by this year and we anticipate somewhat next year is this dramatic increase in compute prices. So one other things we've committed to the street is to get ourselves cashflow positive around the launch of our next tool. So kind of in light of the continued impacts of the compute and memory shortage, as well as slightly slower uptake of Spark Next than we anticipated, we did a targeted reduction in force. And we went and we reduced marketing. So we really, we're now specialized, we're gonna focus on the clinical market. So we think we have a fantastic presence already in academic and government. The plant and animal, we are well known in those areas. So what we've decided to do is have a targeted marketing team focused on clinical, and they're gonna be joining the commercial team. So I think that's one of the things Mark brought to this is he wants to see that as one united team. So in doing that, we reduced marketing fairly substantially. We also reduced our spans and layers. We kind of went through the company and took out some of the folks that were focused more on management than execution. And I think one of things that's important as we move towards continuing our success with Spark Next and the launch of our next tool, we really want people that are hands-on with the business and our customers, quite honestly. So that was what the reduction in force focused on. Part of the reason we did it, as I said, initially 2027 is the area we're really gonna start showing, we believe, some growth overall, especially with the launch of our next tool towards the latter half of 27. And one of the things this reduction in forest allows us to do is really focus on reducing our comp and vent expense. We anticipate 15 to $20 million and decreased expenses related to that. As well as in 2027, we should be on the other side of most of the major spend we have for our new high throughput box. So we believe we're looking at between 30 and $40 million of decreased spend in 27. And that helps extend our cash runway. And it really is about, you know, making sure the company is successful, focused on executing the areas that we're winning in and make sure everyone's focused on that. And that was why it was the perfect time to do the restructuring with Mark's promotion, because that's what he's really focused on. Got it, okay. And he had input on kind of who was, which teams were impacted and things like that, right? Absolutely, yeah. Right, okay, and then on the GPU usage and the memory usage and all that, I mean, what can you do to mitigate that headwind, I guess? So I think right now what we're doing to mitigate it is we actually went out in the markets and bought inventory ahead for the rest of the year. So we secured our supply for the the rest year. Now, one of the areas we've not historically focused on is something that the engineers call the data path, which is how much memory and GPU you actually optimize for. Historically, it's been more of a commodity, so we haven't spent a lot of R&D time finding the best way to maximize that. So what the R&d team now has prioritized, quite honestly, is how to optimize the GPU and less memory in order to keep the performance we want, but not overkill on the amount of memory and compute we supply. So I think that's an area we're really focused on as we exit this year and enter next year on the R & D side. So there's a big focus on that. We're also working with some of our partners on how they analyze and run the data once it's coming off the box to try to make that incredibly more efficient as well. So we're hoping that in 27, we'll make some significant improvements on our demand for memory and compute that goes in our boxes. Is this, are you keeping all this in mind for the next instrument, the ultra-high throughput boxes? Well, maybe that'll have like a more efficient memory usage or something storage. Absolutely, so conveniently, we'd already started with that premise with that box. So now we're trying to push it backwards into our existing boxes. So that was part of the strategy on the next box was how do you get more efficient with compute? How do you actually give the customers the choice of how much compute they apply? So that's one of the things we're really looking at deeply at and one of things, the design parameters we put in for the next block. So we're pushing that back. And hopefully, like I said, we'll see some results on that in early 27. Got it. Going back to the quarter and the consumables growth that you were referencing. you know it was it was impacted quite a bit by the the transition to the Spark Next that's a lower priced you know consumables offering you know it was launching 27 the Revio in May and so as a result you had less you know customers weren't like building inventory of the historical Revio consumables and so they kind of had this impact on the consumables revenue per year or the per box which is the pull through that was like two hundred and two thousand or something per box in the quarter compared to like you know 220 230 is what I think you were kind of guiding to maybe we're getting towards so maybe um maybe I'm gonna kind of walk through me I didn't explain it well enough uh walk through it and then also have have that kind of will shape up going forward as the transition kind of like works its way through sure so yeah one of the things um if people aren't familiar relaunch journey sparknext chemistry in may officially uh that provides three uses for the chip it's also about 35 less on the asp so one of things we did anticipate but we didn't know how much is two things would impact our launch. One would be if some of our largest service providers had to use up their inventory. And on the positive side is about a third of our customers have already converted their software to the Spark Next software, enabling multi-use. And a lot of these bigger customers did start buying Spark Next, but one of the things we weren't anticipating was they're fully running through and eating all of their inventory on hand right now. So we did see a slight lull in Q2 related while they chewed their inventory. The reason we know that's happening is we can see usage. So we see them still continuing to use at a high rate, but they're not refilling, and that's in anticipation of Spark Next. So that was something we did anticipate, not as much as we thought when the first launch happened. And we expect that most of those folks should be through that by the second half of 26, the tail end of 26. The other thing is, obviously, this is 35% less than the standard ASP. So, we knew as customers started to onboard it and to validate their new workflows. There would be a small lull where they brought more samples on. And I think one of the things we're looking at is the utilization we need to kind of get back to revenue parity, if you will, is you need each revenue to run about 10 to 15 more samples a month. That's kind of it to get back to where they were. And with this 35% decrease in cost, we really expect price elasticity will drive those more samples, especially at our largest service providers. And so part of the reason we ended up adjusting our revenue down slightly was anticipating it's gonna take a little longer to people to burn through their inventory, two, to validate the new Spark multi-use workflows, three uses, as well as start getting ramped up kind of in the tail end of 26. Okay. Well, it's been a few months, maybe you've seen some promising kind of developments on the multi-usage side. So any takeaways that give you confidence that the E-Lens is there, the volume will pick up with these multi-use smart cells? Yeah, so it's still, I mean, we just launched at the tail end of May, so we don't have enough data yet to comment about utilization or sample volume. I mean that's what we expect. That's what our customers tell us. We don't enough order volume yet to actually conclude that, but hopefully as we come into Q3, we'll have some good indications of how that's going. Okay, and this will be helpful for like the larger scale projects. I think you mentioned some in your call last week, I guess, and you mentioned, I think, five placements, maybe in the second quarter or in the third quarter, but as a result of this large-scale project. So what's the pipeline for those projects like globally, I guess? How important will that be as a theme for 2027, for example? Well, I Think one of the things, if we kind of go back in history a little bit, at ASG last year, we launched Sparknex and multi-use. And we started having more conversations than we ever had before with a lot of the pop gen studies and larger clinical customers, quite honestly. because the price point was much closer to where short read was so we believed it would drive larger studies and more volume to us so we've had more conversations than we've ever had we talked in q1 how we won the base camp deal which was the company's largest project to date a hundred thousand samples that was enabled by the spark next chemistry and then we just announced in q2 another big popgen study that's we haven't commented on the volume but but another significant size PopGen study enabled by SparkNEXT. They're the group that we shipped a number of revios to. You expect the ramp on that take four to six months. So in 27, we'll start seeing that contribute meaningfully to revenue. And that's kind of the typical timeframe before you start seeing strong contributions. So both Basecamp as well as this new PopGen study we penned should be contributing meaningful revenue in 27. We're not really seeing, really anticipating a lot of that in 26 for those two studies. And then overall, there's, like I said, there are more deals than we've ever had. We're quoting deals left and right with Sparknext as well as Revio. And hopefully, we'll be talking about more of those deals over the next couple quarters. How large are these deals from an annual revenue perspective relative to your guidance, for example? Well, let's see. We are not giving any guidance into 27 yet. But each of These are, each of these would be a material deal, a material amount to our revenue base. Each single deal, yeah. These are substantial. Historically, when PacBio has announced these size deals, it's won 5,000, 10,000 sample deals for a year. These are much larger than this. We're getting 50, 60, 100% of these deal sizes now, as opposed to before when we got 5% of a deal size where people just wanted to try long read. Now they just want long read, so that's one of the big shifts we're seeing as well. Yeah, so are these clinical focused deals primarily or is it kind of research? Basecamp's research with ultimately the goal to drive clinical discovery. This other deal is PopGen with the goal of becoming clinical. Okay. And then I think Basecamp was a competitive process, I believe, but what's happened going head to head versus either other long read or kind of legacy short read or legacy kind of molecular sensing technologies, I guess? So it was a competitive deal. It was interesting because it was a deal primarily driven from the AI angle. So the way they considered the deal was slightly different than you might see with some of the more standard clinical or some of their researchers we've talked with historically. What they wanted was depth of data and quality of coverage and repeatability. So it a competitive a deal. They did look at the different technologies. That's the reason we won. They liked our data depth. They liked the amount of coverage we had. They loved the reproducibility of it. And so that's why we won the Basecamp deal. That is playing in many of the deal discussions we're having now. So many of these groups are coming to us because of those qualities of our data. Especially as they're looking at building brand new data sets. What they don't wanna do is build incomplete data sets then have to go back later and enrich them. So a lot of these people's goal now is to start with the fully enriched data set. So depth, proteomic level, as well as completeness of data. And that's one of the shifts we're seeing in the discussions is people are thinking more about with the tools that are coming out today, do I want the best data I can have when I run these studies? Or do I wanna potentially have to go back two or three years later if I'm using short read and enrich those data sets? And I think a lot of them are now saying, because of the price point of Spark Next, let's start with what we consider the best day to now. So that's the one of things we're saying that's a dramatic difference in some of the conversations of two, three years ago. Yeah. Will you talk more about that as being like a tailwind, a growth driver kind of going forward? Because it sounds like others in the tool space are talking about these, you know, like biology based like foundation models that are powered by the data from some of these vendors. Yeah. Yeah. So, A, one of the primary goals of Mark taking over and leading in a CEO is to really push hard on the differentiation of our data quality and the depth of our data, especially in supporting research like this. Now, one of the benefits we have because of honestly where we're located and the people we associate with are some of the biggest AI labs are our next door neighbors. So there's lots of conversations about what is the best type of data, whether it's proprietary in-house data or publicly sourced data to run these models on. And we believe, as some ofthe publications are also saying, that it's our data type and data quality. So it's an area we're really starting to lean into. It's something that I know everyone's talking about. And I think, quite honestly, the proof's gonna be in what are the discoveries made with the data set. So one of the other things we're excited about is Basecamp just released their Eden model in an on athropic in June. Now our data is just starting to be popular with that. They're really happy with our data sets. So we'll believe we'll be contributing meaningfully over time to some of those discoveries. And they'll be one of first models that show how you can use our data to unlock those pieces of information. All right, one last one on this topic. Any additional ways to reduce friction, to integrate further into those models, like the Eden and so forth? Because that seems like the future. So is there a way to align better, maybe? Well, I think ultimately that is, when we talk about our next release, our high-throughput box, it really is to unlock a couple of things. It's to unlock even better price parity with short read, much higher volumes, so you can actually build these training data sets, and more importantly, we actually potentially diagnose on the other side of this. And three is designing the tools and the variant callers so they can work almost seamlessly with these models. So that's really one of the company's focuses and that's an area Mark's really excited about and one of reasons why the time was right for him to step into the CEO role. It's an era he's extremely focused on. It's in area he's pointed himself at and pointing the company at as we move forward. And it's an are I have a lot of historical bandwidth with both working for Apple and GoDaddy. I led some of their largest data teams. So it's one of the areas I'm most excited about with our company as well as kind of being in that foundational data set that for a lot of us in biotech is gonna be incredibly important over the next decade. Okay, yeah, definitely located in the right area. Yeah, your next door neighbors are working a lot in these companies. They have some interesting conversations over beers on the barbecues, so yeah. So going back to clinical consumables progress that you've had, so grew year over year 67% that's been growing you know 100% it's been it's been obviously very robust growth it's it's not you know the base the the base is not enormous right so maybe just talk about the the mix today that clinical represents of all consumables I believe it was like 15 ish percent most recently yeah okay so some of the teens and that's coming from like Europe non-us right and I think that the key bottleneck may be in the US is just the clinical labs there want higher throughput. So that's why you're launching this box in the relative near term to address that. So how does that, you know, what does the future of the PAC Bioclinical business look like, I guess, kind of relatively soon? Sure, so let's, I'll start with EMEA and talk about why the success is happening there and how we think we can replicate that. So in EME, they've been very forward leaning in using the Revio and now Spark Next, especially with rare disease. And I think one of the big publications that came out in the New England Journal of Medicine highlighted that, how we've always believed that you could use whole genome sequencing to consolidate tests and ultimately, hopefully have a better clinical outcome. And the New England Journal of Medicine just published a research that confirmed that. And that was led out of EMEA, led out Europe. And the reason we're doing well there is, quite honestly, a lot of the single payer systems, as well as some of the smaller hospitals, the Revio has the perfect throughput for some of these localized hospitals. Their reimbursement environment is favorable towards whole genome sequencing. So we're seeing a lot of success there, which once again, we had over 50% growth in EMEA year over year. And it really is the group we wanna copy in. So how do we bring that into the US? So I think there's a couple things we're working in the US. One is it's much larger centralized testing in the U.S., obviously. And so they want higher throughput, number one. And number two is they want a favorable reimbursement environment. So obviously there's reimbursement environment that already exists in the us. And I know a number of our customers are working to get whole genome sequencing reimbursed at the same rate. The other thing is as they validate and bring these tests online. So we have a number of what we call commercial customers in the U.S. that are moving to whole genome sequencing. And they are some of these big testing labs that are probably presenting at the conference this week. And as they bring these LDTs out of the R&D phase and start ramping them internally, they do have a long process. And especially with something like Sparknext, they're going to take a little while to ramp up. But we are seeing growth and interest in those areas. And two of the expansions we had in our Revio fleet were those types of commercial providers in Q2. So they really are leaning in the whole genome sequencing. Okay. And since we haven't touched on like Vega at all, does Vega help this dynamic at all? Maybe like transitioning certain labs, whether research or clinical, to Revio over time or like any kind of impasse in the model really? Yeah. So Vega was created to do one thing, which was really expose people to long-read sequencing at a price point that they could afford. It was the perfect box last year when academic and government in the U.S. contracted. We had a lot of sales there. We're still selling a lot at Vegas and academic and government and around the world. Now, we have been impacted by the A&G, continued to be slow, so Vega hasn't been performing as we had hoped this year. It's still selling well. We had strong sales this quarter. Our ASP is normalized. We did a promotion last quarter. They're back to normal and we're still selling as many boxes. Eighty percent of those customers buying Vega are new to long rate, new to pack bio. So it was built to introduce new customers. And I think one of the things we're excited about with Vega is we do believe it has a space for whether it's targeted genetic testing or other things. We think it does absolutely have a space für that, especially in other areas of the world. And we are now launching Spark Next Chemistry for Vega. That's happening in August. Now, that's not multi-use, but what it does bring is increased output, lower DNA input. So we believe it's going to increase the use cases for Vega dramatically. We've not forecasted an uptick for that, but we do believe that will be one of the tailwinds that drives Vega into the future for us as we continue to penetrate. The other thing we're excited about is a lot of public health labs are starting to buy Vegas now, too, because of what it can see. So that's a new area we've just started focusing in and still see resilience there even with some of the cutbacks okay all right great um and then in terms of the guidance so you cut that by um maybe like 10 ish billion or so midpoint now it's 160 you used to be 170 um in the quarter you didn't exactly i think it was relatively in line it exactly missed by a ton but going forward we have this transition going on it's maybe the ang environment is uncertain like you said what are some factors that made you guys revise the guidance and make you feel comfortable now with this new range sure so i think there was two things fundamentally number Number one was the Spark Next transition. I think we're trying to be a little more conservative in our expectations about how long it's gonna take some of our biggest customers to chew through their inventory. And number two, as they validate these new workflows and actually confirm that the third use actually meets specs. So we're seeing and have factored that in. So that's really what drove kind of the majority of the down, or the, as we decrease the revenue. Number two was Vega, the realization that historically we would see a pretty big uptick in demand especially in ang in the second half of the year we're not necessarily planning or factoring that into our thinking anymore now it could happen but it's not in our guide anymore so the combination of the spark next conversion being slightly slower than we'd anticipated as well as some of the vega not having that demand uptick in the first half of year that we were hoping we would see when we came into the years why we brought the guidance down now again we still think this is eminently doable to it for us we still believe we're having strong demand for revio we're still seeing strong demand of vega placements and we still believe there'll be a dramatic increase in um spark next purchases in the second half of the year we just don't know how much right now okay and then you know obviously that that affects maybe cash burn you have 10 million less revenue at least and then yeah the severance stuff going on as well but however you know in in a year from now let's say or even like end of next year you'll have this like for you know potentially 40 million dollar run rate expense savings due to the the you know you know, the RIF recently, as well as the end of the R&D process for the ultra high throughput, which will, I guess, be announced, like, late next year. So you're looking at it, and then you'll launch that, and you'll have a big 28, most likely as a result of the ramp of that, or, you know—hopefully it's an impact from that. So you'll Have a—you know, I can see the top line being, you Know, much better in 28 as a result of that new product, and Then you have these expenses finally being taken out. So maybe just talk about the progression in the next few years, the medium term in the cash burn and to get to your runways at least a few years from now. So maybe talk about how it gets to break even over time. Yeah, I think there's three things we have to do to get break even and it's kind of business school 101. A, we've got to successfully launch our next box and that's gotta be a portfolio launch, not a replacement launch. And we believe that's what it's gonna be. Two, we have ultimately find a way around the compute and DRAM shortage. Now, I there's capacity coming online. We're not anticipating that. So we're gonna be designing a way out of that to start contributing margin again. Three is Spark Next has to be successful. We have to convert the majority of our customers to that because that drops a lot of gross margin, or that drops of profit to our bottom line as we convert people to multi-use. So if those three things happen, we feel very comfortable with the fact that we'll be cash flow positive in 28. Now we have a lot execution we've got to do to get there, but we believe with the publications, the customers, and the stuff we haven't explored yet on the data path that we're gonna make it. So that's why we, A, did the restructuring when we did it to give us a little more runway. B, give us little more time around to deal with the compute issues as the rest of the world deals with that as well. And B, or C, chart a course to cash flow positive in 28 for the company. All right. And adding a new instrument in 27, 28 won't help gross margin. But how do you think about medium to longer term gross margins that will get you to that break-even point? Yeah, we have to be knocking on the door of 50%, which we think is very realistic once we get through compute, as well as the heavy product mix to consumables. That's a very realistic gross margin for us to achieve. Beyond that, there's obviously a higher ceiling, I guess. Yes. We're going to see that from there. What we're planning is knocking on the door of 50% cashflow positive. That is what we need to achieve. Awesome. I think we can leave it there. Thanks, Jim. Appreciate your time. Thanks. Thanks, everyone.