Earnings call transcript: PacBio Q3 2025 revenue dips, stock reacts positively

Pacific Biosciences of California (PACB) reported its third-quarter earnings for 2025, revealing a mixed financial performance. The company posted a narrower-than-expected loss, with an earnings per share (EPS) of -$0.12, compared to the forecasted -$0.15. However, revenue fell short of projections, totaling $38.4 million against the expected $40.13 million. Following the announcement, PacBio’s stock experienced a notable rise in aftermarket trading, gaining 5.5% to reach $2.11.

Key Takeaways

• PacBio’s EPS exceeded expectations by 20%.
• Revenue fell short of forecasts by 4.31%.
• Aftermarket trading saw PACB stock rise by 5.5%.
• The company launched several new products and partnerships.
• Cash and investments decreased significantly from the previous year.

Company Performance

PacBio’s overall performance this quarter was marked by a decline in total revenue compared to the same period last year, primarily due to a drop in instrument sales. Despite this, the company achieved its highest non-GAAP gross margin since 2022 and reported a record high in consumable revenue. The strategic focus on clinical applications and operational efficiency reflects PacBio’s efforts to navigate current market challenges.

Financial Highlights

• Revenue: $38.4 million, down from $40 million in Q3 2024.
• EPS: -$0.12, compared to -$0.15 forecasted.
• Non-GAAP gross margin: 42%.
• Cash and investments: $298.7 million, down from $389.9 million at the end of 2024.

Earnings vs. Forecast

PacBio’s EPS of -$0.12 beat the forecasted -$0.15, marking a 20% surprise. However, the revenue of $38.4 million fell short of the $40.13 million forecast, a miss of 4.31%. This mixed result highlights the company’s ability to manage costs effectively, even as it faces challenges in meeting revenue expectations.

Market Reaction

Following the earnings release, PacBio’s stock price increased by 5.5% in aftermarket trading, reaching $2.11. This positive movement suggests investor optimism despite the revenue shortfall, likely driven by the better-than-expected EPS and strategic initiatives outlined during the earnings call.

Outlook & Guidance

PacBio narrowed its full-year revenue guidance to $155-$160 million and anticipates a 10% revenue growth in Q4. The company is focusing on expanding its clinical sequencing capabilities and expects stronger instrument placements in the upcoming quarter. The launch of the SparkNx multi-use SmartCells is expected to play a crucial role in future growth.

Executive Commentary

• "Our HiFi technology is fundamentally different than anything else in the market," said CEO Christian Henry, emphasizing PacBio’s competitive edge.
• "We believe SparkNx will help dramatically lower the cost of human genome sequencing to less than $300 per genome at scale," Henry added, highlighting potential market expansion.
• "We are tracking toward a goal of achieving positive cash flows exiting 2027," Henry stated, underscoring the company’s long-term financial strategy.

Risks and Challenges

• Continued revenue shortfalls could impact investor confidence.
• Funding challenges in Americas and Asia Pacific regions may affect growth.
• Cash burn of approximately $115 million expected in 2025.
• Operational expenses need to be managed to achieve cash flow breakeven by 2027.
• Competitive pressures in the genomic testing market.

Q&A

During the earnings call, analysts inquired about the lower average selling prices (ASPs) for REVIO systems and the potential recovery timeline. Questions also focused on the impact of government shutdowns on revenue and the geographic distribution of instrument placements. Executives addressed these concerns, highlighting opportunities in clinical and population-scale programs.

Overall, PacBio’s Q3 2025 earnings report reflects a company navigating challenges with strategic initiatives aimed at long-term growth and market expansion.

Full transcript - Pacific Biosciences of California (PACB) Q3 2025:

Conference Operator: Good day, and welcome to the PacBio Third Quarter twenty twenty five Earnings Conference Call. All participants will be in listen only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Carrie Mendivil with Investor Relations.

Please go ahead.

Carrie Mendivil, Investor Relations, PacBio: Good afternoon, and welcome to PacBio’s third quarter twenty twenty five earnings conference call. Earlier today, we issued a press release outlining the financial results we’ll be discussing on today’s call, a copy of which is available on the Investors section of our website at www.pacb.com or as furnished on Form eight ks available on the Securities and Exchange Commission website at www.sec.gov. A copy of our earnings presentation is also available on the Investors section of our website. With me today are Christian Henry, President and Chief Executive Officer and Jim Gibson, Chief Financial Officer. On today’s call, we will make forward looking statements, including, among others, statements regarding predictions, estimates, expectations and guidance.

You should not place undue reliance on forward looking statements because they are subject to assumptions, risks and uncertainties that could cause our actual results to differ materially from those projected or discussed. Please review our SEC filings, including our most recent Forms 10 Q and 10 ks and our press releases to better understand the risks and uncertainties that could cause results to differ. We disclaim any obligation to update or revise these forward looking statements, except as required by law. We also present certain financial information on a non GAAP basis, which is not prepared under our comprehensive set of accounting rules and should only be used to supplement an understanding of the company’s operating results as reported under U. S.

GAAP. Reconciliations between historical U. S. GAAP and non GAAP results are presented in our earnings release, which is available on the Investors section of our website. For future periods, we’re unable to reconcile non GAAP gross margin and non GAAP operating expenses without unreasonable efforts due to the uncertainty regarding, among other matters, certain acquisition related items that may arise during the year.

A recording of today’s call will be available shortly after the live call in the Investors section of our website. Those electing to use the replay are cautioned that forward looking statements may differ or change materially after the completion of the live call. I’ll now turn the call over to Christian.

Christian Henry, President and Chief Executive Officer, PacBio: Thank you, and good afternoon, everyone. Starting with our top line performance in the third quarter, revenue came in at slightly below our expectations at $38,400,000 primarily due to fewer than expected Vegas shipments in Europe and lower than expected Revio ASPs. However, our consumable revenue was well above our forecast and once again at an all time high, reaching $21,300,000 demonstrating strong progress towards our goal of increasing adoption of our long read sequencing technology. As a result of this strength in consumables, non GAAP gross margins were 42%, our highest level since 2022. Looking at our regional performance, at the beginning of the year, I said we expected EMEA to be our fastest growing region in 2025.

This continues to be the case, and in Q3, EMEA saw growth of 18% on a year over year basis. The growth in EMEA was driven by approximately 50% year over year increase in consumable revenue that was partially offset by the miss in Vega placements. Our strong growth in consumables was driven primarily by our commercial and clinically focused customers. In The Americas, the funding environment continues to be challenging, especially for academic and government research customers who are dependent on NIH and other public budgets. As a result, procurement cycles continue to be elongated.

In the third quarter, we did not see a significant end of government year budget spend in this region. We are anticipating a similar funding environment in 2026. Finally, in Asia Pacific, the funding environment continues to be challenged. However, we achieved our radio forecast for the quarter, albeit at lower than expected ASPs. This was partially offset by exceeding our forecast for consumables in the region, and our largest customers continue to have very high utilization rates and pull through.

Looking specifically at China, we exceeded our expectations and continue to see strength in the region. From a product perspective, we shipped 13 REVIO systems and 32 VEGA systems in the third quarter, bringing our cumulative shipments to three ten and one hundred and five systems, respectively. Approximately 75% of the REVIO shipments were to new customers. We placed several REVIO instruments with key institutions at lower prices, which resulted in lower ASPs for the third quarter. However, we believe these strategic accounts will ultimately drive higher utilization and above average consumable pull through.

For Vega, shipments came in below our forecast, particularly in Europe, as several instruments were stuck in procurement processes that extended beyond the end of the quarter. Encouragingly, we have already received purchase orders for some of those units that were originally forecast in Q3. Vega ASPs continue to be strong and were flat sequentially. We’re confident in the long term opportunity of the Vega platform given its attractive price point and ability to bring new customers into the PacBio ecosystem. Importantly, approximately 60% of the Vega placements went to new to PacBio customers, and we continue to believe Vega will serve as both an entry point and an upsell opportunity for Revio over time.

Turning to consumables. Revenue grew 15% year over year to $21,300,000 in Q3, another record. This performance was supported by broad adoption of our Spark chemistry and steady utilization across our growing installed base. This also led to a roughly 65% increase in total gigabases of sequencing output. Revenue annualized pull through was approximately $236,000 per system, near the high end of our guided range, a sign of durable demand from our customers.

Over the course of the third quarter, our sales funnel improved, particularly for REVIO. Looking forward, we expect to ship more REVIO and more Vega instruments in Q4 than we did in any other quarter this year. As a result, we expect total fourth quarter to grow both year over year and quarter over quarter with approximately 10% sequential growth. Given our Q3 performance, we are narrowing our revenue guidance for the full year of 2025 to the low end of our range and now expect revenue to be between $155,000,000 to $160,000,000 Jim will provide more details on our expectations for the remainder of the year shortly. Reducing our cash burn has also been a key focus this year.

And in Q3, we achieved another quarter of sequential improvement with cash burn totaling $16,000,000 We continue to expect total cash burn of approximately 115,000,000 for 2025, an improvement of more than $70,000,000 compared to 2024. As we continue to recognize benefits from our restructuring, our improvements to gross margin and continued expense discipline, I believe we are well on our way to achieving our goal of reaching cash flow breakeven as we exit 2027. Our team at PacBio continues to advance our core initiatives that will define the next phase of our growth. Let’s start with our clinical opportunity. We are making significant advancements to deliver on our vision to lower barriers to adoption and enable clinicians worldwide to deliver more precise answers to patients and their families.

Yesterday, we announced that the Sequel II cnDX system has received Class III medical device registration approval from the National Medical Products Administration in China through our long standing partnership with Berry Genomics. This marks the first known regulatory approval of a clinical grade long read sequencer anywhere in the world, signaling a new era for precision medicine and high accuracy genomic testing in China. Berry plans to start by launching the Sequel II CNDX system, which will run their recently approved thalassemia test in hospitals throughout China. Berry also intends to expand the use of HiFi technology to more clinical assays like congenital adrenal hyperplasia, fragile X syndrome, spinal muscular atrophy, Duchenne muscular dystrophy and other complex single gene disorders and panels, and has indicated that these assays also work very well on the VEGA system in clinical research applications. High incidence genetic disorders such as thalassemia, spinal muscular atrophy and Fragile X syndrome often involve complex variant types that are difficult or impossible to detect using short read sequencing.

With the Sequel II CNDX system, Chinese clinicians will be able to access all aspects of the genome, capturing single nucleotide variants, insertions and deletions, copy number variants, structural variants, repeat expansions, and of course, methylation with exceptional accuracy. We estimate that the potential testing market for thalassemia alone can be in the hundreds of thousands of samples per year in China. As demand for comprehensive genomic testing continues to grow, we are focused on expanding the potential clinical utility of HiFi sequencing. Earlier today, we were excited to share that the first major study demonstrating the clinical research power of HiFi genomes was published by the HiFi Solve EMEA consortium. This study shows that PacBio HiFi sequencing, combined with paraphase, a dedicated haplotype based variant collar, uncovered all known clinically relevant variants present in the study population, even in the hardest to sequence regions of the genome, demonstrating its readiness to power the future of clinical discovery.

As a result, we believe researchers and clinicians will be able to save time and significant cost by turning to HiFi first. HiFi genomes reveal the complete picture of genetic variation that can truly change how rare diseases are understood and studied. We believe that these findings position HiFi as the clear path forward toward clinical grade genomics. Beyond expanding access and demonstrating clinical utility, we’ve also had several recent wins expanding the use of HiFi in the clinical research setting. First, Children’s Mercy Hospital launched a single test HiFi based assay for genetic disease diagnosis.

This replaces multiple legacy workflows with one comprehensive test, providing faster time to answer and more accurate results for patients and their families. Additionally, Children’s Mercy is expanding the use of HiFi into pediatric oncology. Additionally, in September, we launched the enhanced Pure Target portfolio, a family of products designed to target some of the most challenging regions of the genome. The family includes a carrier screening panel for inherited reproductive conditions, a repeat expansion disorder panel for neurological diseases and a control panel to support custom assay design and validation. These panels are available in twenty four and ninety six sample kit formats to meet the needs of a variety of clinical researchers.

These kits enable labs to replace several specialized tests with one flexible workflow that works for both clinical and large scale screening programs. Several of our customers are leveraging the PURE target portfolio to develop specific assays for carrier screening. Carrier screening is one of the most widely ordered genetic tests worldwide, with millions of couples screened each year. It is a large, durable and highly relevant market because identifying carriers before or during pregnancy can have a profound impact on family planning and medical decision making. Importantly, many of the most medically relevant genes in carrier screening are some of the most challenging to assay with short read sequencing due to pseudogenes, repeats or structural complexity.

HiFi sequencing works to resolve these challenges, providing complete, phased and highly accurate results where legacy approaches often fall short. With our new HiFi based pure target portfolio, we believe PacBio is uniquely positioned to deliver a more reliable and comprehensive standard for this essential area of genetic testing and to support our customers in making carrier screening more accessible at scale. Beyond the clinical research setting, our technology is uniquely suited for large population scale studies. Our HiBi technology and integrated solutions have recently been selected for several of these types of large scale studies. A great example of this is the recently announced Long Life Family Study, a major project led by the National Institute on Aging.

This project will employ REVIO systems with SPARK NEXT chemistry to generate comprehensive genomes and epigenomes from up to 7,800 participants. The goal is to help identify genetic and epigenetic clues underlying healthy aging and exceptional longevity, making this one of the world’s largest long range studies of aging to date. Another example is the Korean Pan Genome Reference Project, which recently selected our HiFi sequencing technology as its primary platform. This study is a landmark national initiative led by the Korea Disease Control and Prevention Agency and part of the National Institute of Health. It will generate the first large scale telomere to telomere quality reference genomes representing the Korean population and integrate the data into the global human pangenome reference consortium.

Specifically, the study of more than 1,000 participants will utilize PacBio’s integrated sequencing solution across the workflow, including HiFi whole genome sequencing, Kinect’s full length RNA analysis, enabling the precise transcriptome profiling and SiFi technology for chromosome scale analysis, detecting structural variants and complex genomic features. By building a more inclusive and comprehensive reference, the initiative is expected to accelerate discovery of population specific variants, help improve insights into unexplained diseases and support the development of precision diagnostics and therapies. HIFUI is an essential component of helping researchers explore the full spectrum of human genomic diversity in these types of large scale studies. Another key example is a new study published by the All of Us Research Program, which is funded by the NIH to amass longitudinal health data and genome sequences of 1,000,000 U. S.

Participants with the goal of advancing precision medicine research and fueling new insights into human health. Powered by PacBiotechnology, this study found that standard short read sequencing only detected half of the disease associated structural variants in their cohort. This revelation shows just how much of the human genome has remained out of view until now and fundamentally redefines what it means to truly see everything in the human genome. Over the past several years, we’ve been very focused on productizing our technology and developing the sample to answer workflows that researchers and clinical laboratories demand. To do this, we have dramatically lowered DNA input requirements and enabled several different sample types, including saliva, buccal and even FFP to our workflows.

We’ve built a PacBio compatible program to ensure robust automation solutions are available to our customers as we scale. And we’ve launched two new long read sequencing platforms and developed a bioinformatics suite that helps our customers take advantage of HiFi technology. With a robust end to end solution in place, we’ve turned our attention to dramatically lowering the cost of sequencing on our REVIO platform through a groundbreaking new chemistry, SPARC NX. Earlier this month at the American Society of Human Genetics Conference held in Boston, we unveiled our new SparkNx chemistry, marking a defining moment for PacBio. We believe that SparkNx will help dramatically lower the cost of the human genome sequencing to less than $300 per genome at scale, making our technology economically competitive with many short read sequencing platforms.

Additionally, SparkNex is designed to improve our methylation calling performance and adds the ability to automatically call methyl hydroxy C, another important epigenetic marker. But we believe the most revolutionary aspect of SparkNEXT is the ability to use the SMART Cell multiple times. The SmartCell is by far the most expensive component of our consumable. By reusing the SmartCell, we can reduce the cost of sequencing for our customers and improve our gross margins simultaneously, a rare win win. Multi use SmartCells will be launched for Revio in a fully automated way, allowing for a seamless customer experience.

Initially, customers will be able to reuse the SmartCell one additional time, and over the near term, we expect to increase the number of uses. More than 100 customers have already demonstrated interest in beta testing SparkNex on Revia. We expect to initiate the beta testing program later this month and then move to an early access phase in 2026.

Conference Operator: This is not like a

Christian Henry, President and Chief Executive Officer, PacBio: typical beta test as the beta test group is paying for the consumables, a strong signal as to the underlying demand for this new chemistry. Once the early access program is complete, we plan to roll out SparkNex to all Revio customers in 2026. We are also continuing to broaden the application of HiFi sequencing. Most notably, we announced a new partnership with Epicycle to integrate their FiberSeq workflow into the PacBio compatible program. FiberSeq enables single molecule mapping of chromatin accessibility, methylation and sequence variation in one asset, adding another dimension of epigenetic insight to HiFi and complementing our existing strengths in the genome, transcriptome and methylome sequencing.

In October, we also announced an expanded partnership with Sequel. Under this agreement, PacBio will distribute Sequel’s LongFlex kit, a scalable, easy to use sample preparation solution designed for HiFi sequencing. LongFlex streamlines DNA shearing and multiplexing, enabling hundreds of samples to be prepared in a single run. By reducing prep bottlenecks, this kit is designed to make long read sequencing more accessible for low pass whole genome sequencing, plasmid sequencing and microbial genomics. Together with our existing workflows, LongPlex gives researchers more choice across high throughput applications and may help accelerate the adoption of HiFi for large scale studies.

Overall, I’m excited about the progress we are making to broaden our footprint and advance our technology to create more value for customers doing high throughput research and clinical sequencing. I’ll now hand the call over to Jim to discuss our financials before I finish with a few closing remarks. Jim? Thank you, Christian.

Jim Gibson, Chief Financial Officer, PacBio: I will discuss non GAAP results, which include noncash stock based compensation expense. I encourage you to review the reconciliation of GAAP to non GAAP financial measures in our earnings press release. We reported total revenue of $38,400,000 in the 2025 compared to $40,000,000 in the 2024. Instrument revenue in the third quarter was $11,300,000 a 33% decrease from the 2024 and a 20% decrease from the 2025. The year over year decrease was driven by lower REVIO unit shipments, partially offset by 32 VEGA systems as we began shipping this platform late last year.

Turning to consumables. Revenue increased to a new record of $21,300,000 in the third quarter, an increase of 15% compared to the 2024. This represented a 12% sequential increase. Annualized revenue pull through per system was approximately $236,000 an increase compared to approximately $219,000 in the 2025 due to increased utilization in our top accounts. Vega consumables grew sequentially with the expansion of the installed base.

As we do with the REVIO, we anticipate providing an expected pull through range for Vega as we get further into the commercial launch and have a more established installed base. Finally, service and other revenue grew approximately 25% to $5,800,000 in the third quarter compared to $4,700,000 in the 2024, driven by an increase in REVIO service contract revenue. From a regional perspective, Americas revenue of $18,100,000 decreased 10% year over year and increased 2% sequentially. The year over year decline was primarily driven by continued caution and academic capital spending, which weighed on revenue demand. We were encouraged by Vega’s momentum as Q3 marked our highest U.

S. Placements to date with 69% going to new PacBio customers. For Asia Pacific, revenue of $9,600,000 decreased 11% compared to the 2024 and decreased 24% sequentially. The year over year decline reflected fewer REVEAL placements compared to the prior year. EMEA revenue of $10,700,000 increased 18% compared to the 2024 and increased 14% sequentially.

The year over year increase was led by approximately 50% growth in consumables, supported by higher utilization and an expanding REVU installed base. Moving down the P and L. Third quarter twenty twenty five non GAAP gross profit of $16,200,000 represented a non GAAP gross margin of 42% compared to a non GAAP gross profit of $13,000,000 or 33% in the 2024. Non GAAP gross margin increased year over year due to improved product mix as consumables have higher gross margins and represented approximately 55% of total revenue in the 2025 compared to approximately 46% in the 2024. We transitioned our VEGA system to full scale production and realized lower per unit manufacturing costs.

Additionally, Revio’s SmartCell manufacturing yields improved and trended above historical levels in the quarter. Non GAAP operating expenses were $53,900,000 in the third quarter of twenty twenty five, representing a 14% decrease from non GAAP operating expenses of $62,400,000 in the 2024. Operating expenses in the 2025 included noncash share based compensation of 10,100,000.0 compared to $17,000,000 in the 2024. The decrease in both non GAAP operating expenses and noncash stock based compensation was primarily due to the recent restructuring initiatives. Regarding headcount, we ended the quarter with four ninety employees compared to five seventy five at the 2024.

Non GAAP net loss was 36,800,000.0 representing $0.12 per share in the 2025 compared to a non GAAP net loss of $46,000,000 representing $0.17 per share in the 2024. We ended the 2025 with $298,700,000 in unrestricted cash and investments compared with $389,900,000 at 12/31/2024, and $314,700,000 at 06/30/2025. Turning to guidance. As Christian shared, we expect a stronger Q4 with revenue growing approximately 10% sequentially. The strength in revenue growth is expected to be driven by more REVIO placements and a continuation of the strength in consumables we have seen over the course of this year.

We are particularly encouraged by the durability of our consumables business and the growing momentum we are seeing in clinical applications. As a result of our Q3 performance, we are narrowing our revenue guidance for the full year 2025 to the low end of our range and now expect revenue to be between $155,000,000 to $160,000,000 Moving down the P and L, we continue to expect to exit the year with non GAAP gross margin above 40%. We expect our ending balance of cash and investments to be greater than $270,000,000 at the 2025. When excluding the $5,000,000 licensing payment in Q1, this implies approximately $115,000,000 cash burn in 2025 or an improvement of more than $70,000,000 compared to 2024. We believe, based on our current assumptions, our $299,000,000 in cash and investments as of September 30 is sufficient to reach cash positive cash flow by the ’7.

I’ll now hand it back to Christian.

Christian Henry, President and Chief Executive Officer, PacBio: Thanks, Jim. Our focus centers on one goal: increasing adoption of HiFi long read sequencing across the sequencing market, especially in clinical applications and large scale whole genome projects. As we close out 2025, I believe PacBio is well positioned to deliver long term value to our stakeholders. Our HiFi technology is fundamentally different than anything else in the market, supporting our mission to enable the promise of genomics to better human health. With the upcoming launch of our new SPARC NX chemistry with multi use SPARC cells, we believe we can dramatically improve the economics for long read sequencing, which will help us penetrate the clinical market and expand our opportunity into large population scale programs.

And finally, we are investing efficiently by focusing on our strategic priorities. This has resulted in meaningful reduction in our cash burn, and we are tracking toward a goal of achieving positive cash flows exiting 2027. We believe our strategy positions PacBio for long term growth, and we are confident in our ability to lead the next era of genomics. With that, we will now open it up for questions. Operator?

Conference Operator: We will now begin the question and answer session. Please limit yourself Our first question comes from Kyle Mixon with Canaccord.

Kyle Mixon, Analyst, Canaccord: Hey guys, thanks for the questions. So on instruments, little less often the quarter, I guess, I heard all the dynamics going on. But I just wanted to break that down into the two products. So with Revvio, ASPs looks like a little bit weaker this quarter like less than $500,000 for sure versus the list price of $599,000 Maybe just talk about what that could be going forward. If you quantify that, that would be great.

And then with the Vega, interesting to see that kind of sequentially declined this early in the launch. How many placements were pushed out to future quarters due to the EMEA challenges? Yes.

Christian Henry, President and Chief Executive Officer, PacBio: Thanks, Kyle, for the questions. I’ll start with REVIO. REVIO ASPs were lower this quarter. And my expectation is fourth quarter ASPs will actually recover. And when we look at where we place the systems, we placed them into some very strategic accounts.

So they ended up with lower ASPs, but we believe that they will have high throughput. And so as a result, you’ll see better consumable usage, which will drive revenue there. So that’s generally a smart decision. And then with respect to Vega, we did have a shortfall Vega. And there was roughly half a dozen or so instruments that were in Europe that were stuck in various stages of procurement.

None of those are lost as opportunities, as I said in the written remarks. Some of them have already gotten through and are now POs. And I don’t know if they’ve been shipped yet or not, but they’ll be shipped in Q4. And so I think that was a temporary issue with procurement processes. I do think that the big opportunity continues to be really strong and the funnels are strong.

So it’s really a question of the timing from quarter to quarter. The one other comment I will make, we did have one revio system that unfortunately failed installation testing, and so it didn’t get recognized. It’ll be recognized in Q4. And that one had a much, much higher ASP, so that would have pulled the numbers up a little bit. We’ll see that in Q4, and that’s really just a timing thing.

Conference Operator: Our next question comes from Doug Schenkel with Wolfe Research. Hi, this is Madeline Mullen on for Doug. I just wanted to touch on the gross margin. It was a little bit stronger in the quarter than I think we expecting, and it was above your full year guide. Can you just sort of bucket out how much of that was mixed versus some of the other things you called out?

It looks like maybe services gross margin was a little stronger this quarter as well. And then thinking how should we be thinking about gross margin as we head into 2026?

Christian Henry, President and Chief Executive Officer, PacBio: Yes. Thank you for the question, Madeline. Gross margin was really strong in the quarter, and it was above our internal forecast. Part of that is really related the shortfall in instruments, of course, because the product mix is really the biggest contributor to pushing gross margins forward. We did see nice our yields in smart cell manufacturing are basically at all time highs right now.

We saw cost reductions, and we’re seeing cost reductions on the Vega system, on the radio system as well. So the production side, we’re really focused on driving costs down, and that’s helping. But the biggest contributor to the outperformance in the quarter was the strength in consumables. We had an all time record for consumables. And coupled with the production costs being better, that bodes really well for us.

When we look forward into 2016, we’re not going give any guidance on gross margin. But we certainly think that as consumables becomes a bigger part of the story, gross margins have a very strong chance of growing even from here. And I think that that’s really the beginning of the story. We’ve made a tremendous amount of progress on the gross margin line in the last four or five quarters. And I do think we’re going to continue improving as consumables continue growing and as instruments get to more normalized revenue levels, the lower production costs.

One thing I will also say is in third quarter, we didn’t see a major impact on tariffs in the quarter, really. However, the Vega system is experiencing some tariff that it’s not material enough to pass on to customers at this point, but we’re watching that.

Conference Operator: Next question comes from Subhanombe with Guggenheim.

Jim Gibson, Chief Financial Officer, PacBio: Hey guys, this is Thomas. You made some initial remarks on funding for ’26, but just can you talk through what your assumptions are at this point for the instrument environment for next year? Just some more color on funding funnel strength, any updated feedback you’ve heard from customer channels would be helpful.

Christian Henry, President and Chief Executive Officer, PacBio: Well, think I said back in September that it does seem like the environment is kind of stabilizing and settling and we’re kind of I think what I said was we’re bouncing along the bottom a little bit here. I don’t think that’s really changed since we made those comments in September. When I talk to customers, I think the funding environment is going to be challenged next year. I think that we’re going to continue to see uncertainty in the academic funding environment. Although the longer we’re stable, the more purchasing agents will be comfortable releasing purchasing and funding, particularly in The United States.

One of the things that we’re doing is we’re really pivoting into clinical and these other areas of our business, and we’re seeing great traction there. You saw a lot of my written remarks today about that. The funding is a lot more robust there. Have a very strong product offering there now. And so I think for us, our expectation for ’26 is that it will certainly in the first half continue to be challenging and perhaps all year, but we’ll give more guidance and color when we get there.

And to keep us growing and moving in the right direction, we’re really moving a lot of our effort and focus into these clinical applications, these clinical customers, and we’re seeing great traction in The United States and in Europe. So I’m excited about that progress we’re making.

Jim Gibson, Chief Financial Officer, PacBio: Next question.

Conference Operator: Our next question comes from Luke Sergott with Barclays.

Luke Sergott, Analyst, Barclays: Great. Thanks for the question guys. I appreciate the update there on Rivio and as you look at the consumables and I know this is not a normal environment for you guys, but any kind of early look that you have from a Vega pull through as we kind of think about the pace here and as you guys place a couple few more instruments in 4Q, what that could look like and then or what you guys are looking for internally? And then I guess on the Spark sequencing down there, can you talk about some of the data fidelity when you’re running multiple runs on the same smart chip? And then from the beta testers on the SparkNx like I know that’s starting in November.

So how many beta testers are you guys looking for? And any early feedback or demand that you can call out?

Christian Henry, President and Chief Executive Officer, PacBio: Yes. So we great questions. You gave me a mouthful. So let’s start here at the top. When we look at Vega, we’ll start with Vega.

We aren’t commenting on Vega pull through yet. I think we want to get a full year under our belt before we start seeing start really trying to set what the target will really be. But your expectations for a product like this, based on others and my experience in the industry, is somewhere between, say, dollars 25,000 and $45,000 a year of pull through per system. We’ll see where we shake out. We haven’t commented on it yet, and we’re just going to wait, and we’ll do that next quarter, perhaps, to kind of wrap up the year or sometime in 2026.

Revya, we were at the higher end of our pull through targets that we established this year. We’re seeing good utilization, steady utilization across the installed base, and the high runner customers are really running their machines. And so I think that’s actually very encouraging. What that means is that I would expect as we place more REVIO systems that, that will be additive to our consumable revenue because we haven’t seen a major drop off in the end customer being a lower throughput customer for REVIO. And so I’m actually quite encouraged by that.

And the two thirty six that we had this quarter, it’s going to bounce around every quarter as it has this year. But I do think customers are utilizing their systems, and I think that bodes well for consumable growth in 2026. When you look at SparkNX and data fidelity, one of the most exciting parts about this is that we’re seeing very consistent levels of throughput from use to use to use and the same high quality, very comprehensive data. So whether it’s the first use or the second use, you get all the methylation, the structural variation, all of the hallmarks of what HiFi brings to the table. With each use, you get very little carryover.

So there’s not a lot of carryover from run to run. That’s one thing customers have asked me a little bit about, and quite frankly, investors, too. And I have to remind people that when we wash this is a fully automated protocol on the Revio system. And when we wash the smart cell for the prepared for the second run, we’re actually all we have to do is clean 25,000,000 single molecules, whereas in other environments or other technologies that are amplification based, perhaps, for example, short read sequencers, you’re looking at billions upon billions of molecules. And so it’s a different paradigm.

Also, customers are running index samples almost exclusively. So we feel very confident and comfortable about reuse, both from a throughput perspective, quality of the data, and the fidelity. And so we’re really excited about that. From a beta testing perspective, in my written remarks, I indicated that there’s over 100 customers that have expressed interest. We’ve signed the first group of customers up already, and they’re going to be receiving their materials here very shortly.

I don’t think I want to tell you describe how many, but customers, because I know there’s a lot of customers that really just want to get going. We’re going to start with a pretty small group of customers here through year end and then expand it as we get into early ’twenty six and manage an early access phase. And then throughout ’twenty six, we’ll expand it so that all customers can get access to this important technology. Next question.

Conference Operator: Our next question comes from Tycho Peterson with Jefferies.

Tycho Peterson, Analyst, Jefferies: Team, this is Lauren on for Tycho. Just a little bit of more clarity around the Spark Chemistry rollout. Are you guys expecting to drive kind of incremental revenue there or primarily improve margins? And kind of what’s the near term target for pull through for REVIO as this Spark chemistry rolls out? And then second around the pure target HiFi assays, which can now cover difficult to sequence genomes.

What are some of the additional clinical or research applications there in addition to carrier screening that you’re targeting for expansion? Thanks.

Christian Henry, President and Chief Executive Officer, PacBio: So with respect to how pull through will be impacted by the Spark Chemist SparkNx chemistry, we’re going to wait and see what that looks like. I’m going to I’ll probably provide more commentary when we get into January, February when after the beta program is completed. So I’m going to pause on that one. But the point of SparkNex chemistry is to drive increased adoption of our technology, more samples coming to our platform and driving revenue growth. That is the principal driver of this, is revenue growth.

We will see a substantial benefit in gross margin as well because the cost of the SmartCell is such a large component of the total consumable cost, every time you can use that SmartCell over, you amortize a pretty significant cost into the next run. So it really is truly a win win situation. Customers are going to get better pricing. We’re going to get better consumable gross margin with the entire point being increasing our market penetration by being very competitive with short read technologies. Because most customers, when you talk to them, they would love to be using long read sequencers in applications where they’re using short reads today, but they’ve always been hesitant because of cost.

This takes that completely off the table, gives them the ability to have a more comprehensive view of the genome, drive deeper insight at much better economics. And so I think that’s going to be a really powerful growth driver for the company. But we’ll comment on the specifics of what pull through might look like. We’ll do that later next year. With respect to PureTarget, our customers are using the PureTarget in lots of different ways.

They’re looking at not only carrier screening, but they’re also using it for single gene type tests where you’re looking at, say, ataxias, for example, or other neurodegenerative disorders. Anywhere where you have a single gene disorder or a multi gene disorder where there’s challenges with respect to looking at them with short reads, that’s an opportunity for PureTarget. And it’s a portfolio of products. It’s not just one kit. It’s several different kits, targeting kits that enable customers to look specifically at carrier screening or other difficult to sequence, repeats, etcetera.

And so it’s a pretty broad portfolio, and it really is helping drive revenue placements into clinical accounts. And it will be an important growth driver for carrier screening, for example, in 2020 fixed revenue and beyond. Next question.

Conference Operator: Our next question comes from Mason Carrico with Stephens.

Mason Carrico, Analyst, Stephens: Hey, good afternoon. This is Ben on for Mason. Could you talk about how the funnel for your population scale programs has evolved? Just wondering if the multiuse announcement has potentially accelerated any existing conversations you’re having or resulted in any new opportunities there? And then just as a quick follow-up on your comment of review ASPs reverting higher in Q4, should we assume that ASP remains stable in 2026?

Christian Henry, President and Chief Executive Officer, PacBio: Yes. Thank you, Mason, the sorry, Ben. Thank you for the questions. Yes, we have the excitement around reuse or multi use and the lower pricing certainly has driven some new conversations just since ASHD on major population scale programs. And so we’ll see how that goes.

The funnel of programs that we’ve been working on, it continues to progress. These take a long time to get done. But I would say the funnel is expanding. And I do feel comfortable to say that some of these are actually going to get across the line here in the near term and really give us an opportunity to grow with these programs. Because these would be very large sequencing programs that would be completely additive to our growth and generally outside of our guidance because the timing of those are always they’re highly variable, so it’s very difficult to provide them into our guidance.

So we’ll keep you posted as we keep moving along. But they are broad in nature. They’re global. And there are new opportunities that have come up even since, say, SHG when we made the announcement. REVIO ASPs were down in the third quarter.

I do think they will recover in the fourth quarter. And I do think ASPs in the first half of next year would be generally in a stable sort of range. The good news is that we’ve taken production costs out of the revio system. So the impact of gross margin perhaps isn’t as bad as people might think. But yes, I do think that we’re going to see stability in the revenue of gross margins I mean, in the revenue ASPs for the foreseeable future, and we’ll go from there.

And the last part of your question, I actually I didn’t get it written down. It was something else with respect to revenue, if I missed it.

Mason Carrico, Analyst, Stephens: No. I I think you got it. It was on the ASPs heading into 2026.

Christian Henry, President and Chief Executive Officer, PacBio: Oh, cool. So thank you. Thank you for taking the call. Yeah. I just wanna make sure I answered all your questions.

Alright. Thanks, Ben.

Conference Operator: Our next question comes from Dan Brennan with TD Cowen.

Dan Brennan, Analyst, TD Cowen: Hey, guys. This is Tom on for Dan here. Maybe just one on your approach to iliac. Think historically when you’ve launched something, it’s taken a while to get integrated into use just as yield things ironed out and etcetera, etcetera. Are you taking any precautions or kind of what time line should we be thinking for is this kind of ready for prime time, given this is going be a much more kind of high throughput flow cell?

And then I’ve got one more follow-up from there. Yes.

Kyle Mixon, Analyst, Canaccord: So I just want

Christian Henry, President and Chief Executive Officer, PacBio: to confirm the question was really trying to understand the thinking around the Spark Next rollout and when it will truly be ready for prime time. Is that what the question was? Because you kind of cut out for part of it.

Dan Brennan, Analyst, TD Cowen: Yes, yes, that’s fine. That’s fine.

Christian Henry, President and Chief Executive Officer, PacBio: Okay, great. Well, yes, so I think we are taking a very measured approach to this for lots of reasons. First, we want to make sure our customers have a fantastic experience with this rollout, and we want to give them time to plan their projects so that they can take full advantage of the lower pricing and more samples can come into the market. We also want to see how the customers actually use the technology. And so that will be happening in the beta program and maybe the first part of the early access program.

The technology and the what we have to do with respect to the instrument, all we have to do is upgrade the software. So the firmware on the system will be upgraded. So that part is actually really straightforward. And so we will see how the market adopts the technology and roll it into early access. And depending on how fast new samples come into the market, we will eliminate the early access part of this.

It’s important to note that we will continue to sell the single use smart cells alongside the multi use smart cells because in some situations, customers may want to use the single use smart cells as opposed to the multi use smart cells. And for certain applications where perhaps they don’t have as much throughput. So the customer will have flexibility in that sort of way. We will be monitoring how samples come into the technology with the whole intent of growing our consumable revenue next year.

Conference Operator: Next question comes from Nathan Folinos with UBS.

Nathan Folinos, Analyst, UBS: Question. We’re over a month into The U. S. Government Shutdown. A lot of agencies have furloughed employees.

I’m just curious if this has had any impact on order volumes, how you’re sort of framing it for Q4 and beyond? And is there any potential uplift if we get things back up and running? Thanks,

Christian Henry, President and Chief Executive Officer, PacBio: Nathan. That’s a good question. When we were thinking about so far, we haven’t seen a material impact from the shutdown. I do think if the shutdown persists, we could see some impact. But the reality is our U.

S. Academic, NIH funded business has been challenged all year. So we’ve been driving our revenue from lots of other sources. And so therefore, the impact would be more muted anyways. I would expect, though, the longer it goes, maybe it doesn’t have that much of an impact in Q4, but perhaps it has a bigger impact in Q1 or Q2 as just the timing of when things get started again.

That said, if the government got back to work and people wanted to catch up, so to speak, you’re right. That could have a positive impact. The guidance we gave for Q4 does not contemplate that positive impact, and but also doesn’t assume the government stays shut down for the rest of the year. But I would say that our revenue isn’t as dependent on U. S.

Government funded sources today as it has been in the past. So the impact is actually not as big anyway, if that makes any sense. Next question.

Conference Operator: Our next question comes from David Westingberg with Piper Sandler.

Carrie Mendivil, Investor Relations, PacBio0: This is Skye on for Dave. First on revenue growth, should we start with flat revenue growth for 2026? I know you mentioned revenue ASPs kind of recovering in Q4 and maybe stable in the 2026, but anything there on revenue growth? And then could you provide some more color on the geographic distribution of revenue placements and consumable sales? Maybe where you anticipate placing more revenue and then the primary research applications that are driving the current demand?

Thanks.

Christian Henry, President and Chief Executive Officer, PacBio: Sure. So we’ll start with we aren’t going to give any real color on 2026 today. So we’ll stay tuned on that. I do think we’re going to see a strong Q4. We’re expecting 10% sequential growth.

And I think that that would be a nice strong year end end of the year and give us some momentum going into 2026. I do think the fundamental aspects of our business, we’ve been increasing our instrument placements, which is likely to drive consumable growth next year. We continue to place instruments at a pretty consistent clip. And so if you just take that onto itself, you would expect that we would be growing in 2026 and not flat. But we’ll give formal guidance in 2026 when we get to that point.

With respect to the geographic distribution of revios, they’re broad. They’re pretty balanced across the world right now. And as we kind of look out into Q4 and beyond, I think that most of the revenues are being placed into commercial and clinical type accounts, not so much NIH funded. I believe in Q3, we only had one system placed in a kind of an NIH type funded environment. So hence my previous comments about government shutdowns and the impact on us.

I do think that that will continue. Do think we’re going to see expanded fleets in ’twenty six as some of our clinical customers continue to scale up, launch their LDPs, and start to drive volume. I think that’s a real source of opportunity for us. Our funnels have been pretty improving in Europe as well. As I said in my written remarks, Europe has been our bright spot of the year in terms of regional growth, and we had a very strong growth quarter in in Q3 despite them missing a few mega instruments.

And so I think that Europe will continue to grow into next year. And as The U. S. Funding environment improves, that will certainly help us get back to a more normalized level. So that’s how I see it right now.

Conference Operator: Our next question and last question of the call comes from Kyle Mixon with Canaccord.

Kyle Mixon, Analyst, Canaccord: Hey guys, thanks for the follow-up. I want to follow-up on the that question, just the last question there about the kind of the growth for ’26. So I think what the Street’s had like mid teens. I know you’re not talking about the actual quantification of it all. But when you think about it like qualitatively, there’s a few factors I would just love for your input on.

And you got the flat NIH budget could be flat, could be recession type actions. You got the impact PopSeq project, you have a bunch of at this point. You have hospital market freezing or its longer sales cycle is due to some competing products coming up soon. Then you have China’s removed the ban for Luminous. I’m wondering if that gives you any more optimism over there.

If you could just comment on these things and how you’re looking at it kind of exiting this year, entering next year, it’d be good to hear. Yes,

Christian Henry, President and Chief Executive Officer, PacBio: Kyle. It’s a nice way you framed it up. I mean, the reality is that if you look at 2025, the contribution of our revenue from kind of NIH funded sources has been really small relative to kind of historical expectation. And so any improvement in NIH is going to help drive growth at all. Even, quite frankly, just certainty about keeping things flat is going to help drive growth for us.

The POPC programs, I do believe some of them are going to go live in 2026, and that will certainly drive our growth as well. As the funding environment improves a little, I do think the sales cycles will shorten somewhat, not elongate further. And I also think that other sequencers that are coming on in the market are actually not going to have a significant impact on us in ’twenty six, principally from the clinical side of the world, because we are already expanding rapidly with the power of long read sequencing, replacing all of these legacy technologies in the workflow. There’s really no other technology out there today that can do as good a job as we can of replacing all the legacy technologies in a clinical lab workflow. And what that means is that we’re going to be more efficient for the lab.

We have great economics already, but the economics of the lab are going to get better, not just from introducing our product, but by eliminating steps in all the other workflows. And I think that’s a really big deal. When you look at China, China, we had a very we continue to do well in China. I think the launch of the Berry CNDX, Sequel II CNDX is very indicative of that’s a market that it has a great opportunity for us in monitoring sequencing. On the clinical side, starting with the single gene tests that Barry is launching.

But we also have a very strong HLA testing business with RA. We have a very strong our service providers in China continue to run very high rates of utilization, which lends itself to expanding their REVIO fleets, some in 2026. So the outlook for China for us is strong, regardless of what happened with Illumina today. I would imagine that probably only helps us in terms of maybe easing the relationship or at least creating a little more certainty around the risk profile associated with doing business in China. So I think there’s a lot of we have made a lot of progress this year, and I think it sets us up really well for growth in ’twenty six.

But we’ll certainly provide a lot more detail and color as we get early into ’twenty six. Right now, our focus is finishing 2025 really strong, driving sequential significant sequential growth of 10% or so, and really preparing to make multi use and SparkNex a really impactful launch. And I know the team’s ready to do it. So that’s where I’ll leave it.

Conference Operator: This concludes today’s conference. Thank you for attending today’s presentation. You may now disconnect.

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