Hey, everybody. I'm Doug Shankle from Wolfe Research. I lead our tools, diagnostics, and labs effort here. It's my pleasure to welcome Jim Gibson, Chief Financial Officer of Pacific Biosciences. Thanks for being here, Jim. Of course. My pleasure. Always love coming to New York. We were talking about dinner last night. Yes. Now we're getting hungry already. Yes. For those of you who don't know PacBio, PacBio is a leading provider of long-read sequencing technology solutions. The company really has two major instruments that are in focus right now: the Revio and the more recently launched Vega. I think over the next half hour, what we want to do is first, you know, talk about really momentum into year-end. I want to unpack Q3 a little bit. It wasn't that long ago you reported, even though it feels like it was a little while. I just want to make sure we go through some loose ends, think about momentum into next, into the year-end. That'll transition us into our second topic, which is really, you know, how we should think about the outlook for 2026, and, you know, some high-level objectives for the next year. Third, I'd love to just talk about the product pipeline and how we're thinking about the outlook for product extensions and new moves. And then we'll close with some higher-end, or not higher-end, loose-end items on things like what's going on with the different end markets and how things are evolving and what hopefully is a better policy environment. That's the framework. Before we get into that, Jim, you joined PacBio, and I think this is month eight on the job. You joined PacBio earlier this year. The environment, I think it's getting a little bit better, but you kind of entered in the eye of the storm, you know, really tough environment. The company, you know, is in the midst of, I think what has been a successful, but you're still in the midst of transitioning from being as a company really focused on growth almost at all costs to more responsible growth, balancing growth with, you know, operating discipline, getting the margins higher, and actually extending the runway. I guess my first question is, what brought you to PacBio? And then I, I have a couple follow-ups from there. Sure. Good question. I've been fortunate. I've worked in Silicon Valley for about 30+ years, and I've been fortunate to work at a bunch of companies that had cutting-edge technologies but were always the first in those areas. I worked at, boy, I worked at one of the first fabless semiconductor companies back in the day at Gibson Technologies. I worked at Tesla in the early days, and we were trying to sort of carve our way into the car market, Apple, Netflix. I think one of the areas I worked as well, I worked at Affymetrix when it was one of the first gene expression companies. One of the things that all those companies had in common was an incredible technology that was really at kind of the pushing all the incumbents out of the way and establishing the reason why their technology mattered and was, quite honestly, the better solution going into the long term. I think PacBio really checked all those boxes for me. It has an incredible technology. I think as we'll talk today, a lot of our customers now are publishing data that really shows how important long-read is, especially if you're trying to uncover things that haven't been seen before, diagnose things you can't diagnose. It really felt like the right time to come. The part of me, and it's the, a part of me that the same reason I love riding a mountain bike up a mountain is it's, it's much more satisfying when you have to push through something to get to the top. That feels like where PacBio is right now, quite honestly. It's pushing through something as it's getting ready to get to the top. I was fortunate because I'd worked with Christian in the past to come join Christian again at PacBio. I've been actually really happy here. The other thing that made me really excited about it, even though it was a very difficult decision, is I think one of the things that I've noticed at the companies I've been at in the past that were very successful is when they picked something and focused on it, especially if it was the thing they were really good at, much higher chances of success. That is what feels like PacBio is doing right now. It sort of exited the short read, though it's still supporting the onset, and really focusing on where it differentiates itself, which is long-read. That was the other thing that I was excited about because it's, in my mind, if you're going to do something really difficult, you really have to focus on it and make sure people understand why and deliver for your customers. That is what PacBio is doing now. What I hear there is, you know, be best at something, which I think PacBio is when it comes to long-read, focus on what you're best at. I think that the third thing when I think about PacBio is, you know, having the operational prowess and by extension the runway to get through what has been a difficult environment. Where do you think PacBio is on that journey? And is the company in a spot now where you feel comfortable that it can more aggressively play offense again? Yeah, so I think the, you know, we are fortunate because we have a pretty good war chest. You know, we're sitting, you know, almost at $300 million right now. So we have a nice war chest. We've decided to focus that money on next-generation products and long-read. We believe, in fact, we know we've picked the right horse to back in long-read, especially with some of the new publications coming out showing our differentiated technology. I think the other thing that's really interesting for us as well as we focus on long-read and look at our long-term chances is I think one of the big people keep talking about what are the big unlocks that are going to happen to get the tools market moving again and all these other things moving again. I think one of the biggest unlocks for us, quite honestly, is as companies start investing in AI and the server farms start to come on, being able to bring the compute and the solutions over to long-read and a much better data set is going to be one of those things that forces a lot of companies and biopharma companies to have to go back and re-enrich their data sets. Quite honestly, the best data is our data. I think there's going to be really this compelling push over the next few years. I think the second reason I joined is I've run a number of some of the biggest data teams. I ran the biggest data team at Apple at the time, the finance business intelligence team. One of the things I'm convinced at is the best data ultimately wins. Now with the price of compute coming down and some of the LLMs that they're starting, some of the frontier models they're focusing on, I think people are really going to see the value of what PacBio can do. I think we're actually hitting the exact right time. As long as we focus our $300 million on supporting our customers and getting those prices at parity with short-read, we're in the right place right now. All right, I want to take a step back and just think about, or talk about some of the recent developments in terms of the quarter and then, how the environment may be evolving heading into year-end. First on the quarter, Q3 results were a smidge light of expectations. I think it was $38 million in revenue versus $40. A lot of that was attributed to Vega and really I think timing dynamics. Correct. Can you walk through what really drove those delays? At this point, can we confidently say it was just timing? It's not cancellations. It's no change in the market. Yeah, so I think, you know, we were really excited coming out of Q2 for Vega. We had a great Q2 on Vega. In fact, Q3 Vega, though we were light, and that is what caused the majority of our miss, we had the best Vega quarter we had ever had in the Americas, which once again kind of shows us the right instrument for the right time in the capitally constrained Americas. In Europe, we had been continually excited. We kind of ran into some of the timing we believe related to the summer vacation. The reason we feel confident kind of coming out of Q3 talking about that is a number of those customers we were talking about that things got stuck in tender, those deals actually landed in Q4 and closed. Okay. I think part of the reason we felt comfortable talking is we already saw that, and those deals have already landed. We feel good coming in with a Vega, momentum going into Q4. Once again, the other thing was we had the one instrument that we had delivered we could not complete acceptance on. That literally, if we had gotten acceptance on that one instrument, we would have basically made the quarter, which is very frustrating. That almost never happens. That almost never happens. It's the, yes. Once again, made us feel confident talking about feeling with 10% sequential growth is what we guided coming into Q4. Excellent. On the Revio side, revenue, or actually ASPs were down in the quarter, largely due to the approach you're taking with certain customers. I wouldn't call it broad discounting, but correct me if I'm wrong. Can you just talk about the promotions you're running and strategically why this makes sense to do at this point from a pricing standpoint? Yeah, so I think a lot of tool companies right now are talking about moving away from academics into clinical and are going about it in different ways. I think one of the things we're really excited about is we released Pure Target. We've been talking with a number of clinical and rare disease customers around the world, and we've been talking to them for a long time. I think with the publication, a lot of the recent data and the fact that we're really trying to make inroads into clinical, especially in advance of the Spark NX launch and the Pure Target launch we just did, we had a number of anchor accounts that we had targeted that were very important for us. We had decided long ago that we were going to get into those accounts. Those accounts all came in, in Q3. They had different discounts than we would typically do. We're not offering discounts like that anywhere else. Those aren't standard programs, just things we do for some of these anchor accounts. We're really excited with the customers we got, both in Europe and the Americas related to that. We're anticipating higher than normal utilization in all those accounts, which is part of the reason we felt comfortable slightly discounting out of the norm. This is very tactical and. These are, it's very, we would say it's tactical, it's strategic, but executed tactically in this quarter or last quarter, yes. You have good visibility on ultimately what those accounts could turn into. We do, yeah. Okay, that's great. And I imagine those can be almost, you know, white paper case studies for, you know, if those customers are doing well, you know, it potentially opens up other fast followers for similar applications. Is that a good way of thinking about it? Absolutely, what we believe, yes. You did talk about fourth quarter guidance, which calls for a 10% sequential increase in revenue. The way you get there is you recapture some of the placements that slipped out of Q3. Maybe Revio ASPs actually normalize a little bit, but I guess it's possible you could be strategic and tactical again in the quarter. Certainly, I wouldn't think that would be a, it's either a tailwind or it's neutral relative to Q3. Is there anything else we really need to happen to get that level of sequential improvement, or does the math get you there with what I just described? You have got the basics. I mean, that is what we are guiding as we believe we are going to continue to, we are going to have a good, really good Vega quarter in Q4. We have really good visibility into our pipe in Q4 for Revio's, more so than we had at the beginning of the year. We are feeling a lot of, and part of the reason for that is coming out of ASHG and the Spark NX launch, which was really, we have been talking for a while about getting close to cost parity with short-read. Now that we have got Spark NX out there and we are doing early access, people are seeing it and believing it. I think some of the customers that are maybe a little hesitant and wanted to see us deliver that were considering Revio's now see Spark NX, see the path, and are much more apt to talk to us, especially as they move into the end of the year with their budgets. I think that was the other thing that we felt more confident about in guiding up in Q4 10%. The third thing is we really are with the original Spark chemistry. We're seeing more and more, we're seeing utilization get higher. We're seeing our pull-through increase. We had a really nice pull-through in Q3. We expect that to continue, especially now that we're getting Pure Target out in the market as well with more clinicals. That's steady usage. We just launched that. We expect to start seeing that in Q4 and really taking off in 2026. All of that together is what makes us feel really comfortable with that 10% sequential increase in Q4. The new product launches that you just described and the early use that you're seeing in the field associated with those, ultimately, how should we think about those? Do they get existing customers to spend more on platforms or, and maybe it's both, but I would say, you know, is it that, is it what I just described, or is it actually expanding the customer base and who you can target? We're seeing both types of customers talk to us now. I think early access when we launch, so we're talking Spark NX now, which is really multi-use combined with better chemistry. We were talking to customers, ASG. Those are existing customers. These are customers that have huge sample volumes potentially and have always talked to us about if you could get prices closer to this and if you could automate. These are things we'd consider doing with you that historically they'd not considered doing with us. We had over 100 customers once we announced that sign up for early access. We're going to do a very small number of those. The reason why is we have to be very thoughtful about how we understand the usage. Does usage actually increase? Because the multi-use is time-bound, the chips expire after a certain amount of time. People have to schedule, make sure their samples are queued up. It is all automated once it is on the system. A number of our existing customers are ones we are talking about, but quite honestly, some of the new Revios we are talking that are in the pipe are to brand new customers. Ones that historically had not considered long-read because of the cost are now looking at this as a viable alternative for their, to, run their new experiments and their studies. We are seeing both types of customers coming to us. Are there, is it, it may be too early, but I'm curious, are there certain applications where you're seeing customers show, you know, more interest in multi-use? Yeah, so I think. Or repeat use? Yeah, yeah. I think historically, and Mark and Christian have talked about this over the last quarter, we've always, a lot of the pop gen studies where they're trying to get really good data sets, historically we've won very small pieces of those. Now when they're talking to some of these big studies coming up, they're much more interested in getting large chunks of these studies, both because of the Spark NX getting the cost closer to short-read with the throughput of Revio, as well as the path that we've now communicated that ultimately we're going to deliver an ultra-high throughput. We're actually much more in contention now for a lot of these pop gen studies than we were ever before. In addition, when, and you know, once again, Christian and Mark talk about this as well, for some of the centralized labs, you know, as they start to look at our test as a flex test for carrier testing or different ataxia screenings, once we can get Spark NX running and get those costs closer to parity and actually get our throughput up, they're considering moving much larger sections of their testing over to us. That is an area we're really trying to execute on. the pricing. Mm-hmm. I believe, and as always, correct me if I'm wrong, but the reusable SMRT Cell is about the, the pricing I think is about 40% below legacy. Is that not the right way to think about it? You get about 30-40% support there. 30–40%. Depends on how they're using it and, you know, what their volume would be, yeah. What gives you the confidence that that's the right magnitude of price reduction to drive enough elasticity in the market to make it make sense? I think honestly we're relying somewhat on Christian and Mark's experience launching these products a lot with Illumina. They've understood the dynamics of the environment previously, but we're also trying to be very thoughtful about how we move it into the market. Part of the reason we're doing early access isn't necessarily to test the functionality of the product. We're actually pretty comfortable with the performance of the product. It's to understand the impact on sample and utilization. We're really running early access as a test to see some of our higher volume customers, how do they actually use it? Do we see utilization increase? Do we see them bringing more samples? We're trying to be very thoughtful about that. Right now we're trying to price it in a way to understand that we can get that sweet spot of increased utilization, but not leaving so much margin on the table or revenue on the table that those decrease for us. Christian has also spoken about the fact we may run the program all through 2026 until we fully understand that. That gives us some flexibility on how we ultimately price it. You know, I'm excited to get it out there. I would love to see, you know, I'm definitely more about getting the people up and running and getting them to use it. Like I said, Christian and Mark are very thoughtful about how they want to roll this out and ultimately price it. I conceptually talked about this with Christian at ASHG, and it's definitely not something that is, at least from what I've heard, in the plans, but it's interesting with a reusable chip. I thought of this, Jim, because you talked about, you know, turning it off after a certain amount of time. You have a little bit more flexibility with different pricing schemes, right? I mean, instead of it just being a price per gig like we're used to, you do have the opportunity where you could, if customers liked it, change it to almost like a duration of use model. I mean, it's interesting. I guess the question is, over time, is it right to think of this approach as giving you a lot more flexibility with pricing than what we've seen traditionally? We believe so. We believe, you know, I think one of the things that gives PacBio a distinct advantage is its SMRT Cell. I think one of the things, there's thousands of publications about all the different ways you can use SMRT Cells for testing. I think one of the things we're really excited about is this is that first proof of concept of you can use the cell over and over again. It actually does give us some very interesting ways to think about the usage and the pricing going forward. Right now we're talking about it traditionally. Yep, yep. I think that's the way we'll view it through early access, but it does give us some really interesting ways to think about it going into the future. People talk all the time about how do you make sure you're not commoditized and how do you make sure other things happen. We're both looking at the value of the data, but also the value about core technologies like SMRT Cell. Like how do we start partnering these things together that really allows us to differentiate into the future? SMRT Cells is a key piece of that equation for us. Right now, think about it as traditional volume-based pricing is the simplest way for us to think about it right now. What's the sweet spot on volume-based pricing where we share that savings and that margin increase with us is how we're looking at it. I would love to start thinking about some different ways to do that in the future. One way or the other, this can be very accretive at the gross margin level. Is that correct? Absolutely, yeah. I mean, you know, the simplest analogy I use, 'cause I worked there for so long, was the Apple camera. This is a 12.5-megapixel camera. Think about two of these cameras getting tossed out every single time by one of our customers. That is by far our most expensive component of our product on the consumables. We are going to find a way to reuse these over and over again. Yes, it makes it cheaper for the customer and it makes it much more margin accretive for us by two uses or more uses for us. Right now, the street is at around 40% gross margin for next year. You know, when I think of increasing utility of the instruments, acknowledging reusable flow cells or SMRT Cells, it'll, it's, you know, we'll see what the pacing is. You've been making pretty meaningful improvements at the gross margin line. When I think about what we've talked about in terms of new instrument placements, more use, the flexibility we're talking about, would you, would you be disappointed if you're not meaningfully above 40% gross margin next year? I think, you know, one, so I'll officially say we're not guiding it to 2026. Now I'll step away from that and talk about some of the things that I'm excited about for next year. I think as we exit with 40% this year, which is what our expectations are, there's a number of reasons why I believe that in order for us to get to cash flow positive in 2027, we have to continue to deliver on gross margin improvement. There's a number of things we have available to us that are going to allow us to do that. We believe we'll see those in 2026. The first, quite simply, is product mix. Mm-hmm. The more consumables we sell at 60%+ gross margin, the more we lift our gross margin. We believe that multi-use, through Spark NX, will help us in both those cases. We believe it is going to increase revenue and increase gross margin and make it a higher percentage of our total product mix. Two is now that we have got Vega fully transitioned to full manufacturing line, we are making those cheaper than we were historically. We will see a lot of that benefit manifest for the full year in 2026, whereas we only saw that for one quarter in 2025. The third is Revio is now completely insourced. We are doing all of Revio inside as well for the first time. We will see a full year of benefits of Revio being built in-house and not outsourcing certain components of that next year as well. We have a lot, a lot of things that are allowing us to feel comfortable on our ability to execute on the manufacturing side. The fourth piece is, I talked about the most expensive component of our consumable is the SMRT Cell. Another thing we're seeing is our yield on those SMRT Cells has actually improved dramatically over the year, and we expect that yield to hold going into next year. We have a number of factors working in our favor. Now, on the opposite side of that is we've got to control ASPs. We can't let ASP degradation start to bring that down. I don't want to give too much of that back if we don't have to. We have to be thoughtful about that. As we land and start thinking about how to guide into 2026, we'll be pulling both those pieces together as the sales force will probably want to do whatever it can to get tools out there. We sit there and try to be thoughtful about how we price and deliver next year. I took us to gross margin, and that was super helpful in walking through the pushes and the pulls. At moving below that line, do you still expect operating expenses to decline in 2026? I think that's something we've talked about with the company here and there. I think what drives that is really just the fruits of the company's labors on the restructuring that you really undertook over the last several quarters. Does that actually mean in dollar terms OpEx could come down next year? Yeah. Right now we're planning on flat to down is how we've guided earlier, especially coming out of our restructuring that we did in Q1, mostly headcount related. Now, an area that we are investing heavily in is the next, ultra-high throughput machine. One of the things we may decide tactically to do is potentially increase some of that one-time expense to get that machine out. Right now we're not planning on that. That's not built into the forecast. Right now we anticipate operational efficiency. We're basically holding headcount. We are spending wisely. We're going to, you know, choose where we spend our money on different conferences and things. I anticipate our spend should be flat to down. Now, Christian, who is aggressive, may push hard to do things like in our product R&D cycle to accelerate certain things. We may make a tactical decision to potentially increase in certain areas. Right now I feel very comfortable that the changes we made this year hold into next year and allow us to contain our costs and still let us deliver and execute like we need to. I could see where there might be an opportunity if revenue and/or gross margin are tracking a little bit ahead of the band. You might be able to use some of that upside to reinvest in what you're describing. We'll talk about that with all you guys first. We got, yeah, okay. Yeah. Moving to the top of the P&L on the revenue side, POPSEEK, you know, and, and you've made a number of announcements the past year in places like Korea, the Middle East, Thailand. What does the timeline typically look like between when we, you know, hear about one of these programs, you make an announcement, and when you actually see this turn into revenue? And, and more to the point, could these turn into 2026 revenue drivers for the company? Yeah. So I think, you know, right now, the three big announcements we had with the long life extension we talked out of WASU with 7,800 samples, but also epigenomics as well. That will begin in 2026. That will be part of our forecast into 2026. We have the Korean Pangenome Project as well, which will also begin kind of middle to late 2026, depending on sample volumes becoming available, as well as the Thailand newborn screening program. Those are three that we anticipate coming online in 2026. Now we had some larger studies end this year, so we'll have to figure out whether that's an increase or a net neutral. Some of the things we're excited about is I think I spoke a little earlier about the fact we're actually talking to many more of the bigger POPGEN studies coming out as well. There will be a question, you know, if we get those deals, can we potentially deliver some products, some machines, some instruments, or consumables for those as well? We haven't gotten any of those yet, but if they happen, that would be a potential way for us to get some wind at our back. We're not forecasting now because they're really hard to forecast, those deals. Those are things that, you know, some of the folks we're talking to already have those samples banked. If you get that, that could bring revenue into 2026 as well. Maybe a segue into the policy environment. I think when actually around the time when you were joining, when you joined the company, you know, there was talk about NIH funding being down 30-40%. As we sit here today, it seems more normal. Normal does not mean the money's flowing in a huge way, but it means you're at a continuing resolution and it's probably going to be flattish. If that is the world we're in, obviously that's going to be better for PacBio than it would have seemed earlier this year. I guess the question is, as consensus builds around that, not necessarily in our community on the investment side, but amongst your customers, are you seeing any improvements in dialogue? We have continued, we have been having continued dialogue with a number of the academic and NIH-funded customers throughout this. Most of them have been hesitant to do anything because of everything you have just talked about. They do not know if they are going to get their grants. They are not sure if their checks can even show up in the mail. Some of the things I think ultimately that we are excited about is honestly, it cannot get any worse for us. Right. I think we were, I think we talked about in previous years, we could ship sometimes 10 Revios a quarter to academics. For the last two quarters, we've shipped one Revio in each quarter to an academic. I think from our standpoint, almost anything's better than what we've been seeing. We are continually in discussions with a number of these academics. They too are understanding the value of moving to long read, especially with some of the things we're talking about Spark NX. They do want to buy our machines. They want to see the money show up or their grants get approved first. I think, again, as we think about guiding into 2026, I'm conservative. I don't want to commit to anything past what we've seen historically, but there is the chance that if things stabilize and get better, that would actually be wind at our back again. Because again, you can't get much worse than one Revio a quarter when they were your largest customer set for a couple of years. You're fairly balanced in terms of your geographic revenue mix. To the extent that funding improves outside the U.S. and/or programs move from the U.S. to other geographies, I would think you're well positioned. Is that the right way to, to think about it? Yeah. I think one of the, the bright spots for us this year has really been EMEA. Yep. We've really seen some nice growth there. It's 18% last quarter plus a 50% growth in consumables. Again, we're seeing because a lot of the countries, they're single payer systems, they're embracing our technology faster than in the U.S. We've seen a lot of positive signs coming to Europe, and we expect that to continue, quite honestly, I think. In Asia-Pac, which has also been an area, it's been, it's a mix there. It's different environments. One of the things we're really excited about there is, you know, the new deal with Barry Genomics, for instance. We're still, you know, one of the bright spots in Asia-Pac for us has been China. Especially with the Barry Genomics announcement we just had. We still feel that those are going to be areas that we're going to rely on for growth. Historically, we have not invested huge amounts in our sales forces in those areas. That's an area we're talking about now. You know, you see the success about some of our customers that have heavily invested, or sorry, some of our competitors that have heavily invested in other GEOs and how well they're doing with what we believe are technologies that aren't as suited for some of the things these customers are trying to solve. We think we compete very nicely there. That's one of the things we're talking about in 2026 is how do we increase growth in those two GEOs? That'll help you in both application and markets, you know, and as you talked about Europe and Barry, I think to some degree those have been or will be important contributors to growth on the clinical side, which is now up to what, about 15%. 15%. Yeah. I think, you know, a couple recent examples of that is, Radboud just announced, who's one of the preeminent testing in the Nordics. They just announced that they're going to move all of their genetic sequencing over to HiFi because they had just run or had published a recent study that said they were able to find 93% of the structural variants that short reads can't. They are just converting all of their testing over to that. We continue to expect those types of successes, especially in Europe with single payer systems. You know, I had briefly spoken about China with Barry coming out with the approval of the first long-read sequencer in genetic testing with the thalassemia test. They're also queuing up tests on, oh boy, Fragile X, as well as Duchenne muscular dystrophy. There are other tests that they are queuing up as well. They are doing that on the Sequel IIe. They also recognize that in China, the Vega is actually a better instrument ultimately. We are seeing a lot of positive signs about clinical growth in areas around the world. Ultimately, to get that clinical growth in the U.S., you need two things. You need pricing, you need proof that it works, which we have got, and then you need ultra high throughput. That is why we are continuing to invest in those areas as well. That's great. All right. We're going to have to leave it there. That was a really nice update and overview. Thank you very much. Thank you. Appreciate you having me. Thank you, everyone.