Welcome to the PacBio Second Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star 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. To withdraw your question, you may press star, then two. Please note, this conference is being recorded. I would now like to turn the call over to Todd Friedman, Head of Investor Relations. Please go ahead. Thanks, MJ. Good afternoon, and welcome to PacBio's Second Quarter 2023 Earnings Conference Call. Earlier today, we issued a press release outlining the financial results we will be discussing on today's call. A copy of which is available in the investor section of our website at www.pacb.com, or as furnished on Form 8-K, available on the Securities and Exchange Commission website at www.sec.gov. With me today are Christian Henry, President and Chief Executive Officer, and Susan Kim, Chief Financial Officer. Before we begin, I would like to remind you that on today's call, we will be making forward-looking statements, including statements regarding predictions, progress, estimates, plans, intentions, guidance, and others, including expectations regarding our financial guidance and operating plans, our Revio and Onso systems and their commercialization plans, the future ability, availability, uses, accuracy, coverage, advantages, quality, or performance of, or benefits or expected benefits of using PacBio products or technologies, including our Revio and Onso systems, expectations with respect to our acquisition of Apton Biosystems and its products and technologies, and expectations with our respect to customer demand of our products and technologies and growth in our business. 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, including those inherent in developing and commercializing new products. We refer you to the documents that we have filed with the SEC, including our most recent forms, 10-Q and 10-K, and our recent press releases, to better understand the risks and uncertainties that could cause actual results to differ. We disclaim any obligation to update or revise these forward-looking statements except as required by law. During the call, we will also present certain financial information on a non-GAAP basis. Non-GAAP information 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 US GAAP. Management believes that non-GAAP financial measures, combined with US GAAP financial measures, provide useful information to compare our performance relative to forecasts and strategic plans, and benchmark our performance externally against competitors. Reconciliations between historical US GAAP and non-GAAP results are presented in tables within our earnings release. For future periods, we are unable to reconcile the 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, including amortization of developed technology. We will also discuss our recently announced acquisition of Apton Biosystems. For more information, we have posted a presentation which can be found on our investor section of our website at www.pacb.com. Please note that today's call is being recorded and will be available for audio replay on the investor section of our website shortly after the call. Investors electing to use the audio replay are cautioned that forward-looking statements made on today's call may differ or change materially after the conclusion of the live call. We will be hosting a question and answer session after our prepared remarks. We ask that analysts please limit themselves to one question so that we can accommodate everybody in the queue. I will now turn the call over to Christian. Thank you, everyone, for joining our call. In today's prepared remarks, I'll update you on several aspects of our business. First, I'll discuss PacBio's record performance in the second quarter and highlight our commercial activities. Second, I'll comment on Revio field performance and customer uptake in its first full quarter since launch. Next, I'll highlight our recent commercial launch of Onso and our acquisition of Apton Biosystems, which was announced earlier today. Then Susan will take us through the financials and guidance in more detail. Finally, at the close, with half the year behind us, I'll share how we are executing against our 2023 priorities I set forth at the beginning of the year. Starting with Q2 performance, the rapid adoption of Revio drove another record quarter for PacBio, as we grew revenue by 34% compared to the second quarter of last year. We exceeded $40 million in quarterly revenue for the first time in our history, with each region posting record revenue. The team did an excellent job of scaling, manufacturing, and ramping installations, which enabled us to ship 45 Revios for revenue and brought our install base to 77 Revio systems as of June 30th. Additionally, we exited the quarter with a healthy backlog of Revio instruments. Revio's momentum and our ability to meet customer demand have further increased our confidence to raise our revenue expectations for 2023. We now expect full year revenue to be between $185 million and $190 million, representing 44%-48% growth over 2022. A diverse set of customers have demonstrated their commitment to Revio, and we have now received orders from approximately 100 different customers to date, including several multisystem orders, Revio Onso bundles, and steady interest from new customers.... In fact, about 45% of instruments ordered in the second quarter came from new to PacBio customers. These included a university in the Southeast United States that had previously used an alternative long-read technology due to the throughput constraints on the Sequel IIe platform. Requiring scale, reproducibility, and accuracy, the customer decided to reexamine the sequencing landscape and decided to invest in Revio. They now aim to leverage HiFi on several research projects, with an emphasis on structural variation and its link to human disease. New customers in the quarter also included the Medical University of Innsbruck, which marks the first Revio in Austria. The customer plans to consolidate multi-approach workflows used to analyze difficult genes, which included short-read sequencing, Sanger sequencing, and PCR, and streamline it into targeted long-read panels utilizing HiFi sequencing. New customer orders in the quarter also included a first instrument order in Indonesia from the YSDS Foundation. The group collaborates with academic institutions and hospitals across the country to promote genomic research and improve health. They ordered the Revio Onso Bundle to match the best-suited sequencing approach with the appropriate sequencing application. They plan to use long-reads in human whole genome sequencing to build a genomic repository across the diverse Indonesian population, as well as metagenomics and targeted applications in difficult-to-sequence genes. The customer plans to leverage the accuracy of sequencing by binding on Onso to develop targeted panels for liquid biopsy. Revio's increased throughput, accuracy, and direct methylation detection continue to expand the long-read sequencing into population genomics programs. In the second quarter, Sampled, a leading genomic service provider and biorepository based in New Jersey, received its first Revio and expects to start sequencing a cohort of samples for a large-scale population genetics program funded by the Department of Veterans Affairs. In the second quarter, the All of Us program released data from over 1,000 PacBio genomes. This is an important milestone, as more long-read data entering the public research realm can unlock discoveries, prompting more research and interest in long-read genomes. Exactly the type of flywheel effect we've been talking about that can accelerate HiFi adoption. Customer utilization and Revio field performance in the second quarter indicate a strong start to the product launch. Customers are ramping up their Revio usage, with approximately $6 million of our total $13.7 million in consumables revenue attributable to Revio during the quarter. This strength is from higher anticipated utilization from early customers and some customers building a working inventory of consumables in anticipation of larger projects to come. It was also encouraging to see customers place larger standing consumables orders during the quarter. This demonstrates that customers also anticipate a continual flow of samples to keep their Revio busy for quarters to come. As a reminder, our utilization and ordering trends, though positive, are early and represented the first wave of Revio customers. I expect that we will better understand normalized Revio pull-through sometime next year. Regarding field performance, on average, customers that are sequencing libraries 15 kb and up continue to hit our specification of approximately 90 gigabases per SMRT Cell. The hard failure rate continues to improve and is well below our launch targets. Later this year, we anticipate launching system updates that will add more functionality and further improve performance. Overall, Revio is proving to be reliable in the field. As customers ramp up their sequencing on Revio, it's exciting to see the first wave of scientific publications that this new instrument has powered. In one preprint, researchers from Washington University and the University of Maryland began sequencing on Revio and noted that, quote, "Highly accurate long-read WGS on the PacBio Revio system is consistent and can generate 30x genome coverage in one SMRT Cell," end quote. They also found consistency across SMRT Cells in coverage, detection of variation, methylation, and de novo assemblies. In another preprint, researchers from the International Weed Consortium, a group of 24 institutions, reported that sequencing of 80 plant species with Revio, and they describe how this enabling pangenomic analysis with the goals of developing sustainable and effective weed control methods, and to provide insights about the environmental threats that can greatly reduce crop yields. As a third example, a benchmark study by the All of Us Consortium demonstrated that sequencing data, assemblies, and variant calling from Revio were essentially identical to Sequel II HiFi datasets, but required only one Revio SMRT Cell instead of three Sequel II SMRT Cells. Additionally, this study compared the latest PacBio, HiFi, and Nanopore methods. Consistent with previous reports, they observed that Nanopore data resulted in a much higher error rate in indel calling than HiFi data, and that certain variant classes had lower precision with duplex Nanopore data compared to standard Nanopore data. Customers are pleased not only with Revio and its game-changing throughput and economics, but also with the quality of service that PacBio provides. With that, I am pleased that our annual customer survey was completed in the quarter, resulting in a final Net Promoter Score of 62. This demonstrates our commitment to delighting our customers. We look forward to continuing to offer best-in-class support to all of our customers around the globe. Switching gears from long-read to short-read, I'm excited to announce that earlier today, we shipped our first commercial Onso system. The sequencing by binding, or SBB chemistry, which is at the core of the Onso system, was the early-stage technology we acquired from Omniome less than 2 years ago, with the promise of delivering customers an extraordinary level of sequencing accuracy. I congratulate the entire team at PacBio for developing this technology into a highly differentiated platform, designed to offer customers sequencing accuracy of 90% of bases at Q40+ levels, or 1 error in every 10,000 bases, a specification that we believe no other sequencer currently advertises. This is truly monumental- a truly monumental moment for PacBio, as it's our second sequencer launched in less than 6 months. We believe it positions PacBio as the only sequencing company to offer systems specifically designed for both long and short-read sequencing, and marks the next step in our strategic journey to becoming a multi-platform, multi-omic company that aims to deliver solutions across the genomics ecosystem. One of the first Onso systems is going to the Translational Genomics Research Institute, or TGEN, an early collaborator who found that SBB demonstrated the ability to accurately detect ultra-low variants without the need for high complexity error correction in a broad range of applications, including infectious disease and liquid biopsy. Now that we are shipping commercially, we plan to scale manufacturing throughout the second half of 2023. Additionally, PacBio expects to complete the installation of this Onso instrument and ship related consumables later this month. The milestone payment associated with PacBio's acquisition of Omniome will be triggered once both the Onso instrument and related consumables have been shipped. Onso is expected to address a significant portion of the short-read sequencing market, particularly where researchers are looking to find and understand very rare variants. As these discoveries are made, we believe that these researchers will then want to scale their experiments, which will require a highly accurate, high throughput, short-read sequencing platform. Therefore, our strategy is to develop a multi-product portfolio with both mid and high throughput short-read platforms based on our SBB chemistry. As a result of our strategy, I'm pleased to share that earlier today, we announced that we entered into an agreement to acquire Apton Biosystems, a Bay Area-based company developing a high throughput short-read sequencer using state-of-the-art clustering, chemistry, optics, and image processing. In working with Apton for the past few months, we've found that Apton's sequencing platform is capable of generating SBB quality data in a high throughput sequencing system. As a combined company, we expect to integrate and further optimize the extraordinary accuracy of SBB chemistry with Apton's advanced optics and imaging technologies to develop a differentiated high throughput sequencer. When launched, we expect this platform to deliver billions of reads per flow cell, sequencing output on par with other high throughput offerings, while providing differentiated accuracy and compelling economics. Increasing density and throughput is one of the key development challenges in launching a high throughput sequencer, and Apton will give us a significant head start in that development. We are bringing over several talented engineers and scientists from Apton's lean organization, and have already started planning the development of this next generation sequencer. Of course, many of you may be wondering how this acquisition will impact our operating expenses going forward. Developing a high throughput short-read sequencer has always been on our product roadmap, and the acquisition will accelerate our development of a high throughput sequencer, and is likely to reduce our overall R&D expenses required to develop the system. Therefore, we remain committed to delivering on our long-range targets while keeping OpEx under 5% compound annual growth through 2026, and this acquisition is not expected to deviate PacBio from that target. In fact, Susan will discuss shortly that we expect operating expenses to be lower than previously anticipated in 2023. With that, I'll pass the call over to Susan to discuss our financials. Susan? Thank you, Christian. As discussed, we reported $47.6 million in product, service, and other revenue in the second quarter of 2023, which represented an increase of 34.1% from $35.5 million in the second quarter of 2022. Instrument revenue in the second quarter was $29.9 million, an increase of 91.6% from $15.6 million in the second quarter of 2022. The continued momentum of Revio primarily drove the increase in revenue, as we shipped 45 Revio systems for revenue in the quarter. We ended the quarter with an install base of 77 Revio systems. Higher ASPs in the quarter were in part due to the lower customer loyalty discount extended to customers, in addition to more new customers who ordered their first Revio in Q2 relative to Q1. Turning to consumables, revenue of $13.7 million in the second quarter declined 5.7% from $14.6 million in the second quarter of last year, with approximately 44% of consumable revenue coming from Revio systems and the remainder from other systems and other consumables. We expect Sequel II and IIe as a percent of total consumables, to decline throughout 2023 as we continue shipping Revio and customers transition to the new platform. Service and other revenue was $3.9 million in the second quarter, compared to $5.3 million in the second quarter of 2022. From a regional perspective, as Christian mentioned earlier, all regions posted record revenue in the second quarter. Americas revenue of $24.0 million grew 10% compared to the second quarter of 2022. Increased instrument placements with higher ASPs more than offset a year-over-year decline in consumables and services related to customers transitioning to the new platform. Instruments include continued adoption from children's hospitals, as SickKids became the first customer to receive a Revio in Canada, and plans to utilize HiFi long reads for its cystic fibrosis variant calling project. For Asia Pacific, revenue of $12.9 million grew 61% over the prior year, with both instrument and consumable revenue growth. We are pleased to see such strong performance from all regions, in addition to China achieving record revenue in the quarter. Additionally, we're excited to have onboarded a new distributor, DKSH, who will provide improved sales, marketing, and after-sales support in Southeast Asia, as well as best-in-class supply chain and warehousing. We're seeing progress with the new distributor, as they have already booked an order for a Revio Onso Bundle in the quarter. Other customers in APAC are showing signs of initial interest in the Onso platform, with over 50% of our Onso orders coming from the region. EMEA revenue of $10.7 million grew 87% over the prior year period, driven by instrument growth, which included customers like the University of Oslo, who's been a PacBio user for over a decade, and with Revio, they intend to scale their services to scientists and researchers across the country. Moving down the PNL, a GAAP gross profit of $15.5 million in the second quarter of 2023 represented a gross margin of 33%, compared to a GAAP gross profit of $16.2 million in the second quarter of 2022, which represented a gross margin of 46%. Second quarter 2023 non-GAAP gross profit of $15.7 million represented a non-GAAP gross margin of 33%, compared to a non-GAAP gross profit of $16.4 million or 46% in the second quarter of last year. Gross margin declined year-over-year, due in part to instrument mix, as Revio instruments sold during the quarter had a lower margin, primarily due to loyalty discounts provided and higher initial manufacturing costs. Non-GAAP gross margin in the second quarter improved sequentially from the first quarter, largely due to higher average selling prices from lower average customer loyalty discounts, in addition to more new customers who purchased their first Revio system. While we expect gross margin to expand during the remainder of the year, gross margin could fluctuate depending on the pace at which Sequel II, IIe demand declines, Revio ASP improves, and unit manufacturing and material costs decline. GAAP operating expenses were $88.7 million in the second quarter of 2023, compared to $84.2 million in the second quarter of 2022. Non-GAAP operating expenses were $86.7 million in the second quarter of 2023, representing a 3% decrease from non-GAAP operating expenses of $89.6 million in the second quarter of 2022. The increase in GAAP operating expenses primarily reflect an increase in the fair value of the contingent consideration liability during the second quarter of 2023 of $2.0 million, related to the milestone payment to Omniome shareholders, compared to a decrease of $5.4 million in fair value of contingent consideration in the second quarter of 2022. Non-GAAP operating expenses declined year-over-year, primarily driven by lower R&D expenses, resulting from the transition of Revio from development to commercialization, partially offset by increased sales and marketing expenses, primarily related to increased investment in the commercial organization. Regarding headcount, we ended the quarter with 818 employees, compared to 793 at the end of Q1 2023, and 782 at the end of the second quarter of 2022. Operating expenses in the second quarter included non-cash share-based compensation of $16.7 million, compared to $18.0 million in the second quarter of last year. GAAP net loss in the second quarter of 2023 was $69.8 million, or net loss of $0.28 per share, compared to a GAAP net loss of $71.4 million in the second quarter of 2022, or net loss of $0.32 per share. Non-GAAP net loss was $65.6 million, representing $0.26 per share in the second quarter of 2023, compared to a non-GAAP net loss of $76.6 million, representing $0.34 per share in the second quarter of 2022. Turning to our balance sheet items, we ended the second quarter with $829.9 million in unrestricted cash and investments, compared with $874.9 million at the end of the first quarter of 2023. The change in cash primarily reflects our operating loss, with interest income offsetting expenses associated with our convertible note exchange. Inventory balances increased in the second quarter to $67.6 million, representing 2.0 inventory turns, compared with $62.0 million at the end of the first quarter of 2023, representing 2.1 inventory turns. The increase in inventory primarily reflects purchases of Revio and Onso instrument and consumables inventory. Accounts receivable decreased in the second quarter to $24.0 million, compared with $29.6 million at the end of the first quarter of 2023, resulting in our DSO of 51 days declining in the second quarter, compared to a DSO of 56 days in the first quarter of 2023. Turning to guidance. As discussed earlier, given the continued momentum in Revio, we are increasing our guidance for 2023. We now expect revenue to be $185 million-$190 million, representing a growth rate of approximately 44%-48% compared to 2022. This represents an increase of $10 million at the midpoint. Our guidance assumes modest sequential growth in Revio system placements in the third and fourth quarters. Moving down the PNL, we expect 2023 non-GAAP growth margin, which will exclude the amortization of intangible assets, to be in the range of 32%-34%. We expect margin expansion beyond 2023, as Revio placements will help drive a mix shift toward higher margin consumables and higher volume and manufacturing efficiencies, driving lower unit costs. We now expect non-GAAP operating expenses to grow less than previously expected, at 3%-4% growth compared to 2022. As mentioned earlier today, PacBio acquired Apton for upfront consideration of approximately $85 million in an all-stock transaction, consisting of approximately 6.3 million shares of PacBio common stock, plus an additional $25 million in stock or cash at PacBio's option, payable in connection with the achievement of $50 million in cumulative revenue related to the commercialization of a high-throughput sequencer based on Apton's technology, for an overall transaction valued up to approximately $110 million. We expect the go-forward development expenses related to the acquisition to be absorbed within the non-GAAP operating expense growth guidance of 3%-4% compared to 2022. Additionally, we expect interest income to more than offset interest expense for the remainder of the year. PacBio expense expects to complete the installation of the first Onso instrument and ship related consumables later this month. The milestone payment associated with PacBio's acquisition of Omniome will be triggered once both the Onso instruments and related consumables have been shipped. As a reminder, this commercial milestone represents $200 million, with approximately half being paid in cash and half in equity. We expect the weighted average share count for EPS for the full year to be largely unchanged at approximately 255 million. I'll hand it back to Christian for some final remarks. Christian? Thank you, Susan. With half the year now behind us, I wanted to provide a status update on our 5 strategic priorities for 2023. Our first goal was to drive rapid adoption of Revio by converting existing Sequel II and IIe customers and attracting new customers. In the first half of this year, 40% of our system orders were to new PacBio instrument customers, and looking at the pipeline in the second half, we continue to expect about 40% to be new customers, which exceeds our expectations. Further, as shown by our ramp in Revio consumables and decline in Sequel II consumables, customers are eager to begin sequencing on the new platform. Our second goal was to demonstrate Onso's extraordinary level of accuracy in the field and show how it can transform research in needle-in-a-haystack applications. As discussed earlier, we've heard excellent feedback from our early collaborators and beta sites about the quality of data they get from Onso and how that can translate into improved research. With one beta customer telling us he's had several runs with raw quality scores above Q50, a level he has not seen using alternative sequencing technologies. With the beta program complete and commercial shipments underway, we look forward to getting Q40 plus accuracy into more customers' labs and continuing to hear customer success stories. While commercializing Revio and Onso was a top priority this year, it was just as important that we drive our development efforts toward the next generation of long-read and short-read sequencers. We continue to make progress on future long-reads, shifting R&D resources from Revio onto the development of our benchtop long-read and our ultra-high throughput long-read systems. Further, Apton now gives us significant head start in developing the high throughput version of Onso, which will allow us to address one of the largest parts of the sequencing market. As I've been communicating, I expect PacBio to deliver new and differentiated instruments at a much faster cadence than the organization had previously delivered. Next was expanding partnerships across the ecosystem and workflow to drive SBB and HiFi customer adoption. Earlier this year, we launched the PacBio Compatible Program and signed on nearly 20 partners across extraction and library prep, automation, sample prep, and secondary and tertiary analysis. We expect to sign several more partners this year. We've already seen several examples where these collaborations have led to increased PacBio sequencing. Last, certainly not least, is our drive toward being our goal of being cash flow positive during 2026. On top of executing on our product launches, the PacBio team has done an excellent job on improving our financial position. We achieved record revenues in the second quarter with an expectation of 46% growth this year at the midpoint of our updated guidance. As discussed, we also expect operating expense growth for the year to be 3%-4% over 2022 levels, which is below our 5% compound annual growth target through 2026. Additionally, we further strengthened our financial position in the second quarter by exchanging a significant portion of our notes due in 2028, and extending the duration of our debt while lowering our coupon payment. As you can see, it's been an exciting and rewarding first half of the year for us at PacBio, and we look forward to sharing more as the year progresses. With that, I'd like to open up the call to questions. Operator? Thank you very much. We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw from the question queue, please press star then two. As mentioned, in the interest of time, please limit yourself to one question only. If you have a follow-up, you may then reenter the queue. At this time, we will pause momentarily to assemble our roster. Today's first question comes from Matt Sykes with Goldman Sachs. Please go ahead. Hi, good afternoon. Thanks for taking my questions. Congrats on the quarter. Maybe I just want to start out with sort of a high-level question on the Apton acquisition. Christian, you talked about, you know, being able to leverage the scale-up of Onso customers eventually into high throughput. I'm also wondering, does this open up an additional market for you within short read that, that Onso cannot address and that you think has the growth and the size that would warrant the investment that you're making in terms of R&D and development? Yeah. Matt, thank you for the question, and thank you for the congrats on the quarter. This certainly opens up more of the market to us, and that's why this is. That's why if you go back and look at our core strategy from the get-go, has been: How do we develop multi-product, multi-omic portfolio, so that we can reach customers at different levels of demand and optimize our solutions for the problems that each kind of customer is solving? Onso does a great job of reaching the mid-throughput part of the market, particularly given how strong the accuracy is. It in effect, for fewer reads, you can actually get more work done because the accuracy is so high. We're going to deploy, we're going to deploy that same kind of chemistry, the SBB chemistry, on the Apton platform, and that will let us get to the very high end of the market. We, we believe that once we develop this system, we'll be capable of delivering a product that delivers billions of reads per flow cell per run, with very competitive economics with anything else out there. You're, you're exactly right. That's part of the strategy, is that Apton will enable us to reach part of the market that perhaps Onso couldn't get to, and really round out our offering in, in the short read space. The next question comes from Kyle Mikson with Canaccord. Please go ahead. Hey, guys, thanks for taking the questions. Congrats on the quarter and the acquisition, and congrats to John Hanna over there at Apton, congrats to all you guys. I guess just two-part questions. The first on the guidance, would you mind just talking about, Christian and Susan, what you're sort of baking in terms of the, the macro environment in the second half of the year? It, it is kind of evolving, it's quite fluid, but you guys seem to be a little bit more optimistic. Then secondly, on Apton, I mean, I guess just, you know, what, what does PacBio kind of bring to the table to enable Apton to go from, like, this kind of stealth mode situation, to kind of competing with, you know, these, these leading and emerging companies in, in high throughput short read, like Illumina and Ultima? Thanks. Sure. Kyle, thank you very much for the questions. You know, starting with the guidance, you know, we were looking at our forecasts, and we were evaluating our performance year to date. You know, what we're really seeing in the market is that Revio is really driving, Revio has a lot of momentum. We have a very strong backlog position, so just starting from that position of strength, I think helps us in the economic backdrop. One thing that was surprising to me is how fast our Revio customers are starting to utilize their systems and driving the consumable revenue. So that encourages us as we kind of look into the back half of the year. The, the world around us, you know, Revio is certainly, you know, it's nice to have a, a new, very powerful product in the early part of its product cycle in maybe what could be conceived as a pretty tough macro environment, particularly in, say, in China, for example. The truth is, we've seen very strong demand, and we continue to see strong demand. If you look at China specifically, of course, you know, we have a small customer base, and so I don't, I don't think we're as impacted yet by any of those, you know, macro headwinds that perhaps some of the larger companies are seeing. you know, we, we looked at what we've done to date, looked at the backlog, looked at the, the order forecast, looked at the fact that we're gaining so many new customers with Revio, and that new customer acquisition really is what's gonna help propel the growth, not only in 2023, but 2024 and beyond. That's, that's kinda how we thought about it. You know, if we move on to Apton, you know, PacBio brings so many things to Apton. We bring scale, we bring commercial channel, we bring deep experience on how to execute and build, create products. In fact, we've demonstrated that, right? I mean, in less than two years from the Omniome acquisition, we've got the, we've got the product to market, and it's a dynamite product. We're really excited about it. Revio, of course, we've, we've talked a lot about Revio over the last 6 months, and, you know, here's a company we're able to deliver both products within quarters of each other to the market, and so I think the Apton team kind of saw that. What, what really is exciting is the fact that the Apton instrument and that, and that capability exists already. In fact, in our diligence, we have demonstrated that SBB chemistry works right on the platform out of the gate. What's so great about that is, it accelerates our product development dramatically, because we can start on day 1 with a working instrument that we can now optimize the chemistry for, and we can optimize the instrument to make it consistent with our industrial design, our expertise, our manufacturing capability, and so we can very significantly speed up the development. I think that, I think we bring a lot to the table. You know, I do... I've built a great relationship with John, and, you know, he's coming across as well as part of the acquisition. We're just really excited today. Given the fact that the Omniome, you know, the Onso product is getting out the door, we do have resources to be able to take this product on without absorbing a lot more PNL, which I think is exciting. The next question comes from Jack Meehan with Nephron Research. Please go ahead. Thank you. Good afternoon. First is on consumables. Is it possible to share sort of a range of SMRT Cell utilization you're seeing per Revio in the field? I understand the consumables can be lumpy, but thought the data generation could be a good early proxy for that. Then second, just maybe more broadly, Christian, is it possible to call out, like, where you think you might be gaining share with Revio versus areas that were legacy short-read? How does that compare to your, you know, expectations a few months ago? Sure. Thanks, Jack, for the questions. You know, with respect to consumables, we're not gonna, we're not gonna break those things out right now. As you can imagine, we're still really early in our launch. What I can tell you is that the utilization metrics have been at what we expected or even a little bit above what we expected, and so we're seeing our customers get off to a good, good start, which means they understand how to use the system, they've got projects, and they're, and they're going for it. As I said, in my prepared remarks, you know, we've been seeing more and more standing orders come in. This is huge for us because as we scale as a company, it allows us to optimize our manufacturing so that we know when we're gonna need to be shipping consumables, and we know those projects are out there. I, I know, I know the whole world wants to know, you know, is the consumable pull-through, what is that number gonna look like, and how fast are we gonna get to kind of our steady state? I would say we're certainly on the upward slope of that curve right now, but we're not really prepared to make remarks on, you know, where, where that curve is gonna end up, other than to say that, you know, we're off to a good start, probably a little bit better than what we expected. With respect to, you know, Revio gaining on the short-read space or market share in general, you know, the one thing we'll... I'll just repoint to our, in our prepared remarks, you know, we did have one significant win in the quarter that I, that I highlighted, where there was another long-read technology entrenched in the account, and they are converting basically the vast majority of their business to Revio because they see the utility of the product versus other approaches. With respect to short reads, I think what we're seeing is that in population scale, programs in particular, you're seeing us start to take share in the sense of a project that was once... going to be completely a short-read project, is now the scientific design, experimental design, is be thinking through how do we integrate long reads into that and taking a portion of, of those? We've seen several examples of those already, just in the first, you know, first little bit here of the Revio story. We're seeing in our funnels, actually, major opportunities to take tens, tens of thousands of samples from in these kinds of programs, and we'll see how that goes, you know, over the course of the year. But, but I think what I think what you're seeing is that the comprehensiveness of HiFi, coupled with the performance of Revio and the simplicity and the ease of use, and the informatics burden, is really putting us in a position to make significant gains here. That's been the strategy all along, and here we are starting to really execute on it. Hopefully, that helps. The next question comes from Dan Brennan with TD Cowen. Please go ahead. Great. Thanks, thanks for the questions. Congrats on the quarter. Maybe just a multi-parter. Just Christian, you talked several times throughout about the very strong backlog. Sounds like book-to-bill could have been notably above 1. First question would be any, any color there? Secondly, I know Susan talked about Revio placements up modestly quarter-over-quarter. Just wondering, any color on what drives the pacing? Is it manufacturing capacity? Is it customer readiness? Is it the size of your funnel? You know, could you accelerate it further? Then the final one would just be on, in, you know, implied in the revenue outlook. While you're not going to give a pull-through number, could you just help us think through the mix between instruments and consumables? Sure. Thanks, Dan, for the questions. One thing, we, we are talking about orders, and I've been making a point of this over, since JP Morgan, actually, that we're, we're not going to talk about orders. We did have orders come in on our expectations for the quarter. We are in a healthy backlog situation, as we talked about. Now, backlog is both, you know, it's a blessing, of course, because it gives us some predictability on our revenue, but also every instrument that sits in backlog does not generate consumable revenue and does not propel us forward in terms of long-term growth. Our strategy is to try to whittle that backlog down over, over time, which you'll see us start to do. And we've got manufacturing now basically to a steady state, where we can deliver on, on what we expect to deliver for the remainder of the year. And we'll see at the end of the year or, or basically as we go forth, when we need to increase capacity, if, if we need to increase capacity, et cetera. The Revio pacing itself, you know, Susan did say a modest increase, sequentially, kind of moving forward. You know, I think we're just taking a, a very straightforward approach to kind of continuing to build the business, continuing to serve our customers well. We've been doing some hiring with, the field support teams to make sure that we can address issues in the field. You know, when you look at how we push this business forward, we really are trying to think in totality of how do we create amazing customer experiences so that customers get great data, which create the flywheel for more leads for instruments, for more pull-through down the road. You know, when we think about how we deliver for the rest of the year, we try to think through those things. As far as manufacturing goes, specifically, you know, I do think we have capability right now to do pretty well over the course of the year, and we always can increase capacity down the road if we need to. Finally, with respect to product mix, you know, the product mix is going to be really important in 2024. 2023, as we've been saying all along, is going to be a very instrument-heavy year, we'll start to see customers ramping their, their Revios. We still, you know, we still have some questions about how fast Sequel II ramps down and Revio ramps up, that, that's an area where we're watching and we're trying to understand. Q2, though, you know, we saw the Revios growing quite a bit and the Sequel II starting to ramp down, basically in line with our expectations, maybe Revio is a little bit, a little bit higher than we expected in the quarter. I suspect we'll probably see some of those trends, you know, continue through the rest of the year. It's a very instrument-heavy year, going to continue to be, Revio consumables are starting to really shine. The next question comes from Sung Ji Nam with Scotiabank. Please go ahead. Hi, thanks for taking the question, and congrats on the quarter and the acquisition. Just on the sequencing coverage for Revio, I, I don't know if it's too early to tell or, you know, I, I realize it also depends on the application, but, you know, I was wondering if you might be seeing more of your customers, especially maybe for the population scale, you know, projects, taking advantage of lower coverage, you know, given that that could provide more attractive economics? Just kind of curious what, what trends you might be seeing there. Thank you. Thank you, Sung Ji. That's actually a great question, and I appreciate it. You know, with traditional short-read sequencing, 30X coverage is, is kind of the benchmark. The truth is that customers always are making their own coverage decisions based on the application. If you compare 30X short-read sequencing with PacBio sequencing, you know, I do think more and more every single week, customers are, are seeing that, you know, less than 15X coverage can get you very significant performance relative to 30X coverage. As a result, you're right, the economics get even better. If we just use 15X, and you use $995 list price, which is what our list price is for, a genome on Revio, you know, at list, it's, it's basically a $500 genome. You know, the, the economic gap between long and short reads is really shrinking quickly when you look at it on coverage metrics and thinking about your experiment. There's no question that the population scale customers are thinking through that and leveraging that ability to get great low coverage and very high accuracy comparable with 30x. Now, in other applications, customers are still gonna wanna do 30x or perhaps even more, perhaps in some oncology, some rare disease, you know, where you're trying to make a decision about a patient or trying to understand a translational research situation. In those cases, I suspect they might be doing different coverage models other than that. It was important for us to start really helping the world understand that you don't need 30 X coverage, and, or 30 X coverage in long reads is very different than 30 X coverage in short reads. I do think, I'm actually really thrilled that the world's seeing that, and some of our best customers are actually promoting that. That's a great reason for you to be getting into long reads. The next question is from Luke Sergott with Barclays. Please go ahead. Great. Thanks, guys. I guess the first one, I just kind of wanna get a sense of the timing and the strategy there from Apton. I understand how it fits in the portfolio, et cetera, I just, you know, you guys are in the midst of the biggest launch of the company's history between the two instruments. You know, is there a risk there that you could be biting off more than you could chew from an organization? I know that, Christian, you know, you'll drive them hard enough. Just kind of thinking there from a timing perspective, why not build up some cash, get a successful launch out there, and then do the deal? It was still an early-stage seed round, I guess. My second one is, as you think, you know, I know you're not gonna give any, you know, orders or placements, but it sounds like the orders were less than the shipments, and you guys burned down some backlog. Is there, is there something from the April time frame where you were kind of going, you know, not, not full bore there? Just any kind of color on the pacing of the orders that have been coming in. Yeah. Luke, thanks for the questions. First of all, with respect to Apton, and then I'll get to the, I'll, I'll get to the backlog. You know, with respect to Apton, we have had this strategy to build out a multi-product portfolio in short reads. We think it's fundamental to address the entirety of the market and to really maximize the value of SBB chemistry. We have built a team that is, is highly capable of, of executing, and we'll still be working on. You know, anytime you launch a new platform, you're still working on that platform for a bit of time after. But the, the Apton technology is far enough along. They've been working on it for many years. It's far enough along where there, you know, we already have working systems. You know, the deal's gonna close shortly here, we'll have systems in San Diego and in Menlo Park, so that we can start optimizing the chemistry right away. We think that's really, really important because, as we start to gain some momentum with Onso and SBB chemistry, in particular, we wanna convert that momentum into routine usage, perhaps in liquid biopsy applications, for example. Routine usage is gonna require high throughput. It's just there's not no two ways about it. We believe that there's a market window where we can get a new high throughput product to market in a window that will make it highly competitive with anything else out in the world. Time is certainly of the essence. You are right, we're, you know, pushing the team hard, but I actually think I'm not pushing. I think everyone is pushing me just as hard, which is just such a great place to be, because the company's never been in that position before. Now, you know, the best time to plant a tree is 30 years ago, and the next best time is today. With this acquisition of Apton, it really gives us an incredible head start to accelerate the development, get, get a high-throughput product to market, have a complete portfolio, allows us to drive not only revenues, but stronger gross margins, and really go to customers with a complete offering. We're thrilled with, with getting this done today, and quite frankly, we need to get it done today to keep pushing on our, our long-term goals. With respect to the backlog, you know, as I said a few minutes ago, our orders for the quarter ended up where we were expecting them. You know, we're on track for our year with respect to orders. Our objective is to burn down some of that backlog. We are actively trying to, trying to do that over the course of the year so that we can get more consumable revenue sooner. Consumable revenue sooner means gross margins get better faster. Gross margins get better faster increases our ability to drive to cash flow positive, which is a really important consideration for the company right now. I don't think I go into a single strategic planning meeting without talking about cash flows as the first, first, first item on the agenda. Maybe it's because I'm an old CFO, but I, I do think it's critical to create sustainability here in, in the face of increasing growth, and I think we can do. The next question comes from Rachel Vatnsdal with JP Morgan. Please go ahead. Great. Thank you for taking the questions, and congrats on the strength this quarter. I wanted to dig into some of your comments on the gross margin line. Guidance now assumes non-GAAP gross margins of 32%-34% for the year. You also mentioned that that gross margin line could fluctuate based on Revio ASP and consumables on Sequel II and IIe. Can you just walk us through what's actually contemplated in that gross margin guidance for the year? Then how should we think about the levers impacting that gross margin progression into 2024? Thank you. Susan, do you want to cover the, what's going on in 2023, and I'll kind of work into 2024? Yeah. Yeah. Happy to. This year, we have baked in for gross margins, the ASP trends for Revio. Also in addition, manufacturing efficiencies with manufacturing the Revio instrument. If I start on the ASP side, you see that, just in terms of calculation, the ASP has improved, in Q2 relative to Q1. Given the backlog and, and the funnel we have ahead of us in terms of orders and instruments we expect to ship, we do expect that the ASP for the Revio instrument will be consistent with where we were in Q2, or slightly better than Q2. That was baked into how we estimated our gross margins. Also with respect to manufacturing the instrument, our manufacturing team has done a great job of improving efficiencies with building that instrument. One measurement we have is touch time on building that instrument, and that touch time has been coming down. It's come down in Q2 relative to Q1, and we are baking in incremental improvements in those efficiencies to build the Revio instrument, which is helping our gross margins. In our gross margins for the year 2 are the Revio consumables, and we are improving in terms of yields and how we're doing there, which incrementally reduce the cost to manufacture consumables. All of that has been factored in when we guide our, our year. Yeah, so that's, that's helpful, Susan. When you think about it, you know, anytime you have a launch year, you, you certainly have lower gross margins. We also had, you know, the complexity of a pretty fundamental product transition with Sequel to Revio and also kind of the lingering effects of COVID. Unfortunately, we did have... You know, we have had higher write-offs in the 1st quarter in particular, which impacted our gross margin expectations for the year. Susan's right. As we continue to drive costs out of the system, that's going to help our gross margins, particularly in 2024. Also, ASPs will, will likely kind of achieve steady state by the end of this year and into 2024, in on Revio. So I think that those are really positive signs and positive signals that are going to help drive gross margins up. Finally, you know, perhaps most importantly of all, is the fact that the Revio instrument can drive much higher consumable pull-through, and therefore, the product mix will start to change. I would imagine, you know, later this year and into 2024 and probably into 2025, too, that you start to see more of a traditional mix of consumables to instrumentation, which will also very significantly help our gross margin over the next few years here. We're, we're managing it aggressively. I think the team's doing a good job, but we have a lot of work to do. The next question is from Tejas Savant with Morgan Stanley. Please go ahead. Hey, guys, good evening. Thanks for the time. Question, I know you don't want to comment on Revio orders and backlogs, maybe, maybe I'll, I'll take a different tack on that question, because I think it's an important one. Can you help us sort of frame historically, at what point in a product sort of launch cycle, would it be normal to see the backlog start to come down? Any color on what kind of a backlog are you looking at, you know, in terms of where you'll be at year-end heading into 2024? Then my second question really is on the Onso side of things. You know, I know you've excluded it sort of prudently from the 2023 guide here, but as we think about that Onso ramp in 2024, any, any sort of like thoughts on how you see that infecting, based upon your feedback from early customers? Thank you. Thanks, Tejas. So starting with, you know, kind of the, the backlog and, and kind of traditionally, what happens when you have a new product cycle, oftentimes you first go to your existing customers and drive, you know, drive heavy orders in that way, and then you work to new customers. So the order book would look like a bit of a... Yeah, you know, kind of an increasing curve and then a plateau, and then another increasing curve. Right now, I would say we're kind of in the, you know, we're still at the tail end of the increase and starting to be in that plateau phase. What that means is that new customers are starting, are really taking notice. They wanna see how the data is from the best customers. They wanna make sure the system, you know, the system is working as intended. If you look at our sales funnels, our sales funnels continue to grow and, and be strong globally. You know, I, I do think our objective is to whittle the backlog down some. I do think that we see incredible opportunities for demand to... As a result, we've raised our guidance significantly this year. You know, we're off on a, on a, on a, a whole new trajectory as a company. I, and I think that's really what we're seeing right now. Very excited about the order book, excited about, we, you know, we do have a super healthy backlog that continues, you know, to propel us forward. We've gotta, we've gotta start whittling that backlog down so that we can make sure we get the consumable pull-through and the consumable revenue, which will drive our gross margins, as I said before. Now, the Onso ramp, you know, what's amazing about Onso is that it's an instrument that we can reach with the same sales team and the same call point. Since we have a global organization, we can, you know, we've seen a lot of opportunity and I think the majority of the early orders actually are coming out of Asia, for example. We're seeing strong demand in Asia, strong demand in Europe, and this is where the emerging companies, you know, just don't have the capability that we have and the scale. I would expect us in. You know, we'll go through the ramp in 2023 of manufacturing and, and making sure the product's robust in the market and, and providing our world-class service and support so that we get great data sets out there. We've seen a lot of momentum building in the, in the sales funnel, and that's why it was so important for us to, you know, get across the goal line. As I said, back in June, we had, you know, some validation and, and verification challenges that we were working through. You know, we've largely worked through those now, and we're scaling manufacturing. We're very happy. You know, the runs that happened over the weekend for the first shipments here were fantastic. We're really excited about where, where that product is going. When you look at 2024, you know, we're gonna leverage our scale and really, and really press our advantage scale-wise with a product that I think is has excited a lot of customers, and so we'll see how we do. The next question is from Ross Osborn with Cantor Fitzgerald. Please go ahead. Congrats on the quarter, thanks for taking our questions. Maybe just one for us on the long-read market broadly. Historically, I believe the company's view is that you and Oxford do not overlap as much as people think. Was this still the case in the quarter? In terms of new customers to PacBio, were they new users to long-read, or did you perhaps see more conversion from Oxford this quarter? You know, Ross, those are good questions. It is difficult to, you know, I would say customers use multiple technologies, and so when you start to say, you know, conversions, you, you have. It's not, it's a little more nuanced than that, you know? I do think when you look at scaled users, the example we pointed out in our opening remarks was really a scaled user moving from Nanopore to Revio because of the capabilities of Revio. You know, in the past, we just never had the throughput or the economics to be truly competitive, even though we had higher accuracy, easier, easier to use, workflows, et cetera. The reality is, we just, scientists couldn't do the experiments they wanted to do. Now, with Revio, we're actually penetrating all over the market with, you know, with a product that really, that really meets our customers' needs. I would say that, I would say that, broadly speaking, we, you know, for, for high-throughput scaled users, it's competitive, but we are, we are seriously making inroads. There's a part of the long-read market that Nanopore Technologies serve that we don't serve, and that's the kind of single-use, 1,000-dollar, low, low throughput part of the market, which we're not really that engaged with because that's not where our focus is. I would say, in the areas where we are focused, we are highly competitive, and, you know, both I think we already lead that part of the market, but we're gaining traction as well. Today's final question comes from John Sourbeer with UBS. Please go ahead. Hi, thanks for taking my question here at the end. I guess now that you're, you know, 2, 2 quarters into the Revio launch, just how are you thinking about the, the upgrade cycle from here, from the Sequel to... You know, is it 3 to 2, 2 to 1, 1 to 1? Any, any color there. And then I guess a follow-up on the Onso: Just any color on the, on the backlog mix on what are standalone Onso orders versus Revio Onso combo packages? Thanks. John, that's a good question. I still believe that in the long run, it's, it's more, more likely to be closer to 1 to 1 Revio to the Sequel II install base than, say, anything else. I think in the early days, we have seen, you know, probably more in the 3 to 2 or even 2 to 1 kind of range, but I think that's because, you know, the system's 15 times more capable than the Sequel II, and so people are scaling into the platform. You know, I'm leveraging a lot of gray hair and a lot of experience with launching platforms that are significantly more powerful than their predecessors. So far, it seems like in my experience, almost every single case, you've seen a dramatic... You know, ultimately, say, a couple of years post-launch, that, that old install base largely does turn over to the new products on close to a one-to-one basis. It's still too early to see, but I don't think our view has changed any since, since our last quarter, last, our last call, last quarter. Lastly, with respect to, with respect to the Onso platform, you know, I don't have the numbers right in front of me, but it probably is about half, right? A little, maybe a little bit less, a little bit less than half are bundled deals of the orders we have so far. But I don't have the numbers right in front of me. My expectation is, I, I think it's a really powerful, unique offering that PacBio has and no other company has, the ability to have highly accurate short reads and, and highly capable long reads, you know, in a bundled arrangement where you can. You know, your technology doesn't drive your experiment. What kinds of applications and what kinds of answers you're looking for drives what your decisions are. Given our ability to, you know, to work very closely with our customers, perhaps maybe in a different way than others, you know, I do think can give our customers a lot of confidence that when they come to PacBio, we're going to serve them, and, you know, really focus on, on meeting their needs with great technology. Thank you for the question. The only one thing I was going to add, John, is with respect to the. We gave the statistic that there are 100 customers that have ordered a Revio system. If you compare that even to the install base of Sequel II, that's about a third of the customers who have a Sequel II. The, the vision that the Revio will access more and more of the market and more new customers, even by the fact that the number of orders coming from new customers is 40%, and we expect that to be the case going forward for the next couple of quarters. We are accessing more of the market, and so the install base of Revio, we expect it to be much larger than the Sequel II. Sure. Well, perhaps that's a great place for us to wrap up for today. Yeah, sounds good. Yeah, thank you all for joining us today. This, this will conclude our call, and a replay of today's call is available on our investor section, and we look forward to updating you throughout the quarter and the rest of the year on our progress. Thank you. The call has now concluded. Thank you for attending today's presentation. 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