Great. Good morning, everyone. I'm Matt Sykes, the Life Science Tools and Diagnostics Analyst at Goldman Sachs. I have the pleasure of being joined from PacBio, Jim Gibson, CFO, and Todd Friedman, Senior Director of IR. Jim, Todd, thanks for being here. Really appreciate it. Thanks, Matt. Maybe starting off, maybe just give everyone a brief background on the company and remind everyone kind of what some of the key priorities for PacBio are for this year. Maybe revisit the quarter if you feel that's necessary. Yeah. I'll give it a start. Thanks, Goldman Sachs, for hosting us here. Yeah, just to kick it off, PacBio, we've historically been focused on long-read sequencing. Our HiFi technology has the ability to read the genome at long-read lengths, talking 15,000-20,000 base pairs long. What that does is that it allows you to see the genome in ways that other technology can't. It allows you to look at structural variation of the genome. It allows you to understand the long tandem repeats of the genome. It allows you to sequence areas of the genome that are difficult to sequence using other shorter-read technologies. Why that's important is a lot of disease and a lot of genetic variation is often caused by structural variation or these long-repeat regions. It is important when you're studying human genomics and genetics to understand the variation in these regions of the genome. Historically, that's really what the foundation of our technology has been on. That's really what we've been focused on over the past now 15 years of commercialization and really bringing that product to the forefront of the sequencing landscape. Our focus has been to really drive down the cost of long-read sequencing and increase the throughput. If you think about why hasn't long-read sequencing historically been adopted at scales of other NGS technologies, it's really because of those two gating factors. With our Revio technology today, we've made significant progress forward in bringing down the cost of a long-read genome, from $3,000-$4,000 per genome just a few years ago to now $500 a genome. Getting real close to cost parity at short-read sequencing, as well as the throughput. Using the Revio platform, you're able to sequence 2,500 genomes a year using our technology. Just a few years ago, our prior-generation technology, we were capped at about 90 genomes a year. We've made significant advances. Looking forward, just continuing to press on those advances, increasing the throughput to tens of thousands of genomes and lowering the price per genome down to just a couple hundred dollars. Those development activities are progressing well. Got it. Thanks, Todd. Jim, maybe before we start getting into some questions, one question I usually like to ask people who recently joined companies, and you've been at PacBio for about six weeks now. One, why move to PacBio? What attracted you about the company? Two, kind of any early observations from your brief time so far? Yeah. Thanks. And thanks again for Goldman Sachs for having PacBio and me here today to talk. I think first, what attracted me to PacBio is one of the nice things about living where I live in Silicon Valley is you get to work with companies that are always pressing the leading edge of technologies and different things to really kind of move whole industries forward. I've, over the course of my career, gravitated towards companies that were at the front end of those changes. I think PacBio really stood out because it's done a lot of the hard work, as Todd said, over the last 15 years, really developing and establishing long-read as a technology, making it commercially viable. It's really sitting now at the crux of establishing itself as a mainstream technology for next-generation sequencing. I had the opportunity to join at what I think is the perfect time, which is they've launched the Revio. As Todd said, 2,500 genomes a year at about $500. Just launched the Vega, which is a great tool for kind of gaining access to those new clinical and biopharma customers. In the pipeline, in the near term, is high throughput and multi-use. Things that are really going to establish the company's presence in the clinics, and not just in the research centers, but in the clinics, in pharmaceutical development, those places that I've been at other companies where we were the customers of those tools. I understand the value of having that technology available. It is a great management team, and the technology is fantastic. I think the other thing I'd like to talk about is what's so fascinating about our company is it's really bringing together the best of semiconductor technology, software technology, optical technology, and chemistry. Throughout my career, I've worked in all those various industries, and it's really satisfying to see kind of the confluence of all that technology come together to really unlock science over the next 5-10 years. Got it. Maybe just pivoting towards the first quarter results, you had a nice top-line beat with strengths in consumables. How would you characterize consumable strengths from an end market perspective? What was driving some of that growth? Maybe put it into some context in terms of where you're seeing that. Sure. Yeah. As you said, we had $20.1 million in consumable revenue, and that was 26% year-over-year growth. It was a record for PacBio, so the best consumable quarter we've had in the history of the company. It was, as expected, pull-through on Revio was in line with our expectations for $200,000-$250,000 annualized per box per year. It was across the board we saw strength. Whereas we've been seeing headwinds in academia with regard to large-scale CapEx purchases, we've actually seen consistent usage across all of our customer base, even in the academic accounts that have been affected by the capital budget constraints that we've been seeing over the past couple quarters. We've seen their usage continue and their utilization continue. We've also been seeing strength in the clinical end market. Those are children's hospitals. Those are genetic testing labs that are starting to implement our technology for their genetic tests. Strength there. It is still early for Vega, so that product is still getting up and running as we establish that install base. Good uptake on the Spark chemistry as well. We launched our Spark chemistry in the fourth quarter of 2024. This chemistry enables a 33% increase in output. Importantly, it also reduces the amount of DNA input required from 2 micrograms down to 500 nanograms. That is important because it opens up a lot more sample types to long-read sequencing. Earlier, I said two of the major hurdles for long-read sequencing have been throughput and cost. Actually, DNA input has always been a gating factor for long-read sequencing. As you have longer strands of DNA, you require a lot more DNA, actually. That precluded some samples, like HelpX samples or FFPE. Now, with the lower input requirements, it opens up the doors to a lot more sample types. We're seeing more samples come on to PacBio sequencers. Pretty broad-based usage across consumables in the first quarter. We've continued to see that steady utilization, actually, throughout this quarter, too. Got it. I do want to touch on the Spark Chemistry for a bit. Just looking at consumables, can you maybe break out the consumable growth in terms of price versus volume, just given your ongoing transition with the new Spark Chemistry? Yeah. So it's pretty early. The first quarter was the first full quarter with Spark Chemistry. Actually, 90% of the Revio consumables we sold were Spark reagents. That ramp was actually faster than we expected. Actually, we were not able, at the end of the quarter, to supply some customers. We had some backorder. Consumables could have actually been a little bit stronger in the first quarter. The uptake was much faster than we anticipated, which is great. Shows customers are really interested in the increased throughput that Spark offers. Yeah, Spark has been positive in that regard. Jim, anything to add? No. I mean, I think it's ease of use, as Todd was saying. The increase in yield has been huge on Spark Chemistry, that 33% yield increase on data provided. I think, as Todd mentioned, I mean, just the adoption shows that our customers are incredibly excited with our new Spark Chemistry and the work we're putting into our chemistry, quite honestly, especially as we try to get Revio and Vega tuned up and executed even better. Got it. So shifting to the U.S. academic and government sector, you mentioned it earlier. Maybe just walk us through, one, your exposure to NIH direct, your exposure overall, USA& G, and then what are you assuming in your guidance from an end market perspective in terms of growth for this year in that segment? Yeah. It's always hard to pinpoint exactly what is NIH exposed. I mean, our estimates have been anywhere from 15% to low 20% of total company is tied to NIH. If you look at total academic, it's higher than that. Not all academic spending is dependent on NIH spending. There's other grants. There's philanthropy. There's foundations. Other sorts of funding outside of NIH. When you factor in all of academic, that's probably around 45% or a little bit less than half of our total customer base, is that academic and research customer base. Yeah, what we've seen is that from a capital perspective, this year has been challenged. Revio is $500,000. That is a little bit more difficult for some of these academics now to get funding for that instrument. On the flip side, Vega has been a nice hedge to that. The lower-cost platform, the sales cycles have been a bit faster. Customers are finding it easier to get funding for a piece of equipment that's under $200,000 versus $500,000. We're seeing traction in Vega a little bit more in the academic setting because of that price point. Yeah. Got it. I think maybe just something to add is one of the things we're noticing, and Todd mentioned this, is our utilization is staying consistent with our academics. They're still running samples and still running their experiments. Though we're capitally challenged, the consumables are still being used by these institutions. How are you thinking about sort of, I mean, your exposure is global. One thought that I've had is that the U.S. kind of sees some level of decline in funding. Maybe Europe, even China will actually step up and take advantage of the situation. A lot remains to be seen. Do you expect other regions to maybe ramp up academic research spending? Have you seen a divergence in that end market regionally outside of the U.S.? Not yet, but I think that could happen. I mean, looking at Q1, academics were low across the board in terms of capital spending. I think that's a possibility. If it continues to be challenged in the U.S., I think you could easily see a scenario where you have some of the leading institutions in Europe start to pick up spending to help fill that gap. I think there's always the drive for researchers to find results and to find the next cutting-edge breakthroughs. Whether that's at U.S. institutions or institutions elsewhere, that's not going to change their drive to find the next genomic insight or the next cure or the next biological discovery. I think that is inherent in the scientists and researchers. I think that will be there, whether it's U.S. academic funded or elsewhere. How have you been successful in terms of using alternative sources of sort of financing, whether it's kind of equipment financing, whether it's reagent rental? I'm just talking about academic and government. I mean, CapEx has been constrained pretty much across the board. Maybe talk a little bit about your efforts to offer more flexible types of ways to purchase instruments and reagents and how that's been successful for you, if at all. Yeah, sure. We've offered a few different alternatives. Still the most popular is the straight CapEx purchase, followed by the consumable purchase. We do offer flexible options. We call our Run Revio or Vega Access deals, where we'll reduce the cost of the upfront CapEx. In return, we increase the consumables on the back end. When you look at the life of that instrument purchase, the economic value is pretty much the same. You're just shifting the upfront cost to the consumables on the back end. We've had some good traction with that. I'd say maybe 10% of our total deals fall within that category. Most are the traditional instrument purchase followed by consumable purchases. There are certain one-off deals where we could get creative with some type of rental model. Those have to be pretty strategic deals. Still largely the CapEx purchase is what we're focused on. Just shifting over to the clinical market, you've seen some recent traction in that market. One, talk about your progress within the clinical market. Can this strength offset perhaps some headwinds across whether it's US academic or maybe some areas of biopharma? Yeah. I think that's a key area to hedge against the academic is clinical. Clinical usage tends to be a bit more sticky. That's the ultimate goal, to get more clinical in terms of our end customer base. Right now, it's roughly 15% of our end customer base is DX or LDT or hospital-type customers, what we classify as clinical. We're seeing some good traction there. Customers like Myriad Genetics, they're implementing a carrier screen test using our PureTarget assay. We've talked about Quest Diagnostics. They're implementing an assay using our PureTarget test. Children's Mercy Kansas City is using us as one of their frontline tests for genetic disease. Radboud in the Netherlands, they're using HiFi as their primary test for screening for genetic disease testing. We're making some tangible progress across genetic disease testing, across carrier screening, targeted panels for difficult-to-sequence genes. That's what our PureTarget test is really great for. In China, despite all the noise going on in China around tariffs, we're actually making some real progress there. We just signed a distributor agreement with a company called HaoRei. They plan to use Vega to really distribute to HLA testing labs throughout the region. There are blood labs throughout China. They want to use Vega to do HLA testing. Why long-reads offers a unique advantage there is HLA variants are often difficult to read using short-read. You get a much better answer with long-read. You get better matches and better results for transplant diagnostics when you use long-read sequencing. Berry Genomics wants to use Vega across the region for their thalassemia test. We are seeing different types of clinical applications all over the globe. It's pretty exciting. Got it. Maybe shifting to Vega, which has been a pretty good story lately at the outset. You had 28 systems shipped in Q1, up from 7 in the prior quarter. So some really good ramp sequentially there. How would you frame the early innings of sort of the Vega instrument launch versus your expectations in the environment that we're in? I should always caveat with that. For sure. And it's exceeding our expectations. It's the customer base. Over 50% of our customers so far have been brand new PacBio customers, which is that was really the intent of this product, is a lower throughput instrument so that you get more customers coming into the PacBio ecosystem that ultimately are going to progress through and Revio customers or ultra-high throughput customers. We are ramping up manufacturing. We shipped as many as we could in Q1 that were coming off the line. We are going to ramp that up a little bit in Q2. Expect the second half to ramp even further. All the while, as well, we are driving down the cost to manufacture the platform. We're going to see improving margins on the Vega as well as we get into the second half of the year and get into full manufacturing run rate, which we probably won't get into until later this year. For now, what we expect is we did 28 in Q1, ramping up from that in Q2, and then further ramp in the second half. We're seeing outside of that, what's been really positive to see is the number of applications that are utilizing Vega. We see biopharma taking more interest in long-read sequencing because of the price point and the throughput of Vega. It really falls in a sweet spot for a lot of these biopharma customers. Metagenomics, we're seeing customers use it for. We're seeing customers across microbiology for 16S sequencing. We're very pleased with the number of new customers and the broad range of applications. I think you mentioned this earlier, but I'm going to ask you again in terms of any expectations for Vega pull-through in the future. Is it just simply too early, or is there a way we should think about it? Yeah. I'd say, yeah, it's really early. We expect it to be a low-throughput instrument. That's as much as I'll say right now. It's just still way too early. Got it. Shifting over to Revio, obviously the environment for capital-intensive instrument purchase has been challenged, as we've talked about. Thinking about what's in your control, how can you kind of reinvigorate growth for Revio, assuming this market environment doesn't improve dramatically, which if it does, that will take care of a lot of what you would need to do. I'm just curious, kind of like controlling the control roles, and how can you actually generate additional demand for Revio in this environment? Yeah. Part of that is, I think our Spark Chemistry did a great job with that. Innovation R&D spend, right? Yeah, exactly. Spark makes it a more competitive platform, right? It lowers the cost per genome. It increases the throughput. It makes it a more powerful platform. It enables you to put more samples onto the platform. That is going to help drive different opportunities this year. It is the push into clinical as well. Showing the clinical use cases on the increased diagnostic yield that long-read gives you in genetic disease sequencing. The more we prove out those proof points and continue to show that, it is going to drive more demand. On top of that, innovation that is to be launched that we are working on is we are developing multi-use smart cells. The ability, right now, you sequence using a smart cell on our platform. It is a disposable. You throw it out after you use it. We're developing a technology that enables you to use that several times. Right then, that lowers the cost even more to the end customer and further driving the value proposition of Revio. Development of that technology, we think, helps further differentiate the platform. Got it. Looking at Revio pull-through, you're guiding to the low to mid-200 range for the full year this year. Maybe talk through what some of the biggest barriers are for the system in driving pull-through improvements. Is it a function of kind of competitors driving down maybe cost of short-reads? They're still not seeing that transition over to long-read, or is it more macro-related? I think a big part of it is macro. A lot of it, most of our customers are still research customers, right? Research customers are dependent on different projects and different grant funding coming in for their projects. They'll see a bolus of samples coming in and money coming in, and they'll spend a lot of money. Then there's sometimes a lull between their next project. It's working to decrease that lull time in between to drive more consumables at the customer. Ultimately, the way we think about it is, how do we get to $300,000, right, pull-through? That comes down to one extra Revio run per instrument per month. Trying to work with our customers and find different ways to bring more samples onto the sequencer to get that one extra run per month. After that, you're looking at a 300K-type pull-through number. It's working more closely with them post-sale to drive more projects onto the Revio platform. Okay. Got it. In the last quarter, you announced the development of an ultra-high throughput long-read sequencer, which you talked about earlier, while pausing development on your expected high-throughput short-read system. Maybe just talk through the rationale there, and any kind of color on timing for the high-throughput long-read system would be helpful. Sure. Let me take this because I've got an interesting outside perspective. I was actually really excited to see the company do that for the simple reason that I think our opportunity right now is in high-throughput long-read. That's where our leadership position is. I think even if the company wanted to keep spending the money, it's distracting for a company to launch two projects or two products simultaneously. I think the company, PacBio, we've made the right decision in pausing development of the high-throughput short-read tool while we focus on enabling what Todd was just talking about, which is multi-use, which gets us much closer to cost parity with short-read, as well as high-throughput, which gets us much more equivalent to sample throughput for clinics. I think the company focusing that and making our priority over the next two years is absolutely the right decision. We still have the technology. We still have short-reads sitting there in the bank. If the markets start to switch or the funding environment changes, we can take that off the shelf and start developing that again. We have to keep focus on the lead that we have currently with long-read and execute on that over the next two years. Got it. Yeah, I thought it made sense. I mean, you built your business on long-read. Long-read will be a place. It's a more challenging time now because long-read is sort of, for some customers, nice to have, not need to have. As the environment opens up and funding comes back, particularly on the biopharma clinical side, it's probably going to you're going to see that. Given your expertise, you want to kind of keep that core competency. Maybe just, I guess, Jim, staying with you, talk a little bit about the path to profitability and maybe kind of walk us through that assumptions and bridging cash to cash flow positive exiting 2027, I think, is what you had said. How are you thinking about what level of top-line growth would be needed under these assumptions to get there? Obviously, if things recover, it makes it a lot easier for you. Just under the current, let's just assume the current environment kind of stays fairly consistent, what sort of top-line growth do you think we bridge to that cash flow positivity? Sure. I think there are three areas we are focused on. They are really kind of bread and butter of any company. The first is, how do we grow the top line? I think one of the things we are really excited about is what Todd was talking about. As we crack into the clinics and we crack into biopharma and we really sort of unlock the $3 billion-ish whole genome market, we have about 2%-3% of that market right now. Even if we just get to 5% through establishing more use cases with our Spark Chemistry or multi-use or lower sample sizes, we do not even have to grow the market for us to see outsized growth as a company. With the path, with Revio being our 2,500-a-year sample tool to 10,000-plus samples with our high-throughput, we believe that's a very realistic place for us to move to support top-line growth, even if the market itself isn't seeing overall growth. Two is, we have a very realistic path on gross margin enhancement. I think two reasons. What Todd was talking about, which is, as consumables continue to become a bigger part of our revenue proportionately, we have much higher gross margins on our consumables. That helps draw more money to the bottom line. That's a critical part of us as we do that. In addition, as we bring things like Vega out of sort of the R&D production to true production level, the costs start to drop for us there dramatically. Three is, with Revio, there's a couple of things we're working on. As we get better with the chemistry and as we get better data with that, we can do things like adjust the GPU requirements for our Revio tool. That is one of the biggest pieces of the cost, quite honestly. We can continue to drop money to the bottom line there through gross margin enhancement. First is just taking a smallish, larger portion of an already existing huge market. Two is just executing on these cost-to-goods sold savings we have and through multi-use and others. Three is really sort of thoughtful spend on everything else. The first thing was prioritizing long-read. Putting the short-read on the shelf freed up a significant amount of money that we are spending in R&D and still allowed us, quite honestly, to invest more in long-read. Not only did we decrease our R&D spend by not going after short-read, but we've increased our R&D spend on long-read to create more distance. Two is just smart spending. I've talked about this in a couple of other meetings. I think when companies are launching lots of products or money is easy, you're just not as efficient as a company. You don't need to be, right? Now, we as a company, we've gotten the revolutionary technology launched. Now we're really focusing on doing it well. How do we execute as a business efficiently? That's something we've got 500-plus employees that know what they're doing. We know where we want to go. We're going to be as efficient as humanly possible as we execute over the next years and not waste money, quite honestly. Yeah. I mean, it's a trick, right? You have to learn from these times and run a lean operation. The trick is, don't go back to not running a lean operation when things get better. Actually use the. That's exactly. Never waste a crisis, as they say. Exactly. Keep the discipline. Exactly. Just digging a little bit deeper, you did mention some, you made some comments on gross margin, but I just want to dig a little bit deeper. You highlight expectations to exit Q4 this year at greater than 40%. Maybe give us just some color around the gross margin drivers for this year. You mentioned a few. If there's any more additional ones, but what is your gross margin target in order to get to that positive free cash flow by 2027? Yeah. I'll take the first question. Yeah, I think we guided about 40%+ as we exit the year. We believe that's absolutely realistic for a few reasons, which I highlighted. One is, as we shift more to consumable mix. Two is, we realize the benefits of multi-use. As both our customers realize the cost benefits of multi-use, and we realize the gross margin benefits of multi-use. Three is absolutely executing on the switch in the Revio cost profile by more effective GPUs, as well as getting Vega into production. Going forward, it's that continuing as we move, and then we get multi-use more mainstreamed and get the high throughput, we're going to see some significant cost-to-goods sold decreases as well as our gross margin increases. Honestly, it's leveraging the same sales force. It's leveraging the fact that we've already done the biggest pieces of investment in the core technology now. It's realizing sort of our next-generation SMRT Cell rollout, which will give us big cost effectiveness on scale. These are all just iterative deliverables on our current technology, which is why we feel they're very realistic for us to execute on and get to cash flow neutral and cash flow positive in 2028. Yeah. I think 2025, it's about Vega costs coming down in the second half, consumables gaining as a percentage in the second half of the year, and taking cost out of the Revio. There are some costs that are yet to come out of the Revio. Those lower-cost Revios are actually in our inventory today, and we're going to be shipping those very soon. Looking past 2025, it's multi-use chip and going to the ultra-high throughput platform. As you get to a high-throughput platform, a denser chip will mean that we could price it in a way that is expanding our gross margin while reducing the cost per genome. Got it. On the cost front, last quarter, you talked about the expectation of lower annualized OpEx run rate by approximately $45-$50 million by the end of this year. Maybe can you talk through some of the areas of focus on the cost outside of things and how you're striking the balance of remaining prudent in spend while also trying to maintain a competitive edge on long-read sequencing? I mean, it's always that tricky balance. Sure. I'll start. You've mentioned it. We've targeted a $45-$50 million decrease in overall spend. We believe most of that will be realized first in 2026 as we've annualized that spend. We did it in a couple of ways. One is we paused the development of our high-throughput short-read. That was probably 50% of the savings as we sort of paused that development. We took some of those savings and reinvested back in long-read. The rest was we did some changes in the span of control in our sales force. We're really focused on feet on the street right now, honestly, just being more efficient, having people out there, not having that middle layer that was managing our sales force. That enabled us to free up some dollars. Three was just some reductions across the business. That is the efficiencies I was talking about. Now that we are focused, now that we are delivering in these areas, let us focus our resources inside the company on that. That is how we believe we are going to realize these savings going forward. One of the things to realize is one of our significant pieces, at least from our OpEx, is non-cash, stock-based comp and others. We feel there is a realistic path to us to significantly reducing our run rate, moving it an extra, and then sort of holding it steady or reducing it even more into 2027. Maybe just talk about the balance sheet. I mean, you guys have done some pretty smart refinancing, pushing some of these things out. I actually think it's a bit underappreciated by investors what you guys have actually done on the balance sheet. Maybe just give us, for context, kind of what shape is the balance sheet in today? What does the runway look like? If you are getting that cash flow positive, it doesn't sound like you'll need to do much more, but just kind of maybe give us sort of your thoughts on balance sheet and any kind of needs going forward. Sure. I'll start. Todd's got more of the details. I think right now we're sitting in a great position with cash. We exited last quarter with about $350 million on the balance sheet, which is what gives us the confidence that we have the money we need to execute on our R&D plan and continue to grow. I think, as you highlighted, we do have debt sitting on the balance sheet. It's four or five years out before it matures. We believe that if we execute as we talked about and come out of 2027 cash flow neutral, moving into cash flow positive, we'll be in a very good position to readdress our debt from a position of strength, meaning do we equitize some of that debt? Do we renegotiate it into more favorable terms? Or do we retire some of that debt? We think by that time, if we continue to see the growth we're doing, our debt will be more aligned with our revenue coming in as well. We feel good about if we execute on the business over the next two years, we'll have many options in how we deal with the debt coming out of 2027 into 2028. I know, Todd, you've been looking at this in detail. Yeah. I think one thing you could just look from the past couple of years is we're very proactive about it. We've done two deals now to push out the duration and reduce the amount of debt. As Jim mentioned, we're over four years from the nearest maturity. The deal that we did in the fourth quarter of last year was one where we reduced the principal by over $200 million and extended the duration 18 months. It is something that the management team talks about every week. It is something that, if you just look at what we've done in the past, and it's part of our strategy going forward, is to really handle that debt well in advance of it becoming due. Got it. With that, we're out of time. Jim, Todd, thank you very much. Really appreciate it. Thank you, Matt. Appreciate it. Thanks, Matt. Thanks, Matt.