Ladies and gentlemen, thank you for standing by, and welcome to the Pacific Biosciences of California Inc. First Quarter 2021 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. Please be advised that today’s conference might be recorded. I would now like to hand the conference over to your host today Todd Friedman, Director of Investor Relations. Please go ahead.

Thank you. Good afternoon, and welcome to the Pacific Biosciences first quarter 2021 earnings conference call. Earlier today, we issued a press release outlining the financial results we will be discussing on today's call, a copy of which is available on the investors section at our website at www.pacb.com or as furnished on the Form 8-K available on the Securities and Exchange Commission website at www.sec.gov. With me today are Christian Henry, President and Chief Executive Officer; Susan Kim, Chief Financial Officer; and Mark Van Oene, Chief Operating Officer. Similar to last quarter, we are hosting our conference call from a number of different locations, so please bear with us if there are any technical issues or pauses. Before we begin, I'd like to remind you that on today's call we will be making forward-looking statements, including providing predictions, estimates, plans, expectations, and other information. You should not place undue reliance on forward-looking statements because they are subject to assumptions, risks, and uncertainties and may differ materially from actual results. These risks and uncertainties are more fully described in our press release issued earlier today and in our filings with the Securities and Exchange Commission. We disclaim any obligation to update or revise these forward-looking statements. In addition, please note today's call is being recorded and will be available for audio replay on the Investors section on our website shortly after the call. Investors electing to use the audio replay are cautioned that forward-looking statements made on today's call may differ or change materially after the completion of the live call. I'll now turn the call over to Christian.

Thank you, Todd and good afternoon everybody. Thanks for joining us today. I’ll start today's call with an overview of our first quarter results and business highlights, then Susan will provide some more detail on the financials and some thoughts regarding the second quarter. PacBio had the strongest first quarter in its history delivering record quarterly product and services revenue of $29 million in the first quarter, an increase of 86%, compared to the first quarter of last year. Revenue also grew 7% sequentially, and exceeded our expectations. The strong quarter was driven in part by record Sequel II and IIe placements as we delivered 41 new Sequel II and IIe systems growing our install base to 244 units as of March 31. Our new placements included 10 Sequel II’s and 31 Sequel IIe’s. Two quarters into the launch of the Sequel IIe, we continue to be pleased with its reception and through new purchases and instrument upgrades, about a third of the Sequel II install base is now.

Thank you, Christian. As discussed, we achieved record revenue in the first quarter of $29 million, which represented an increase of 7% from $27.1 million in the fourth quarter of 2020, and an increase of 86% from $15.6 million in the first quarter of 2020. Instrument revenue in the first quarter was $14.9 million, an increase of 10% sequentially from $13.6 million in the fourth quarter and more than tripled the instrument revenue of $4 million recorded in the prior year quarter.

Thank you, Susan. When I started as CEO back in September, I set three key strategies that I believe will drive growth at PacBio. The first core strategy is to expand our commercial footprint throughout the globe. This new footprint will help us reach more customers and help drive the benefits of HiFi sequencing into the community. Over the past several months, we've made substantial progress in this area, including the hiring of new commercial leadership and expansion of our sales force. We are well on our way to more than doubling our sales force, which is already helping us reach more customers than ever before. Second, it's essential that we expand our capabilities and product development so that we can build a multi-product portfolio that gives our customers flexibility on how they leverage the power of HiFi sequencing. We’re making strides in this area as well. We now have several programs in progress, which are designed to improve the throughput of our sequencers, drive the cost of HiFi sequencing down, and greatly simplify our end-to-end workflows. These advancements will make HiFi more accessible than ever and will power our growth. Finally, we believe that whole genome sequencing will be an essential tool that clinical researchers will use to understand and treat disease. We expect that highly accurate cost-effective HiFi reads will truly enable this market. As a result, our core strategy is to continue partnering with leading institutions such as Children's Mercy of Kansas City, and Invitae to develop solutions that demonstrate the power of highly accurate long read sequencing, using HiFi to enable this opportunity. In closing, we're off to a strong start for the year. During the quarter, we achieved record product and services revenue, expanded our gross margin, and I'm encouraged by the progress we've made against our core strategies that I've outlined. I want to thank our customers, employees, and partners for their support. And I look forward to updating you on our progress next quarter. With that, I'd like to open up the call to questions.

Thank you. Our first question comes from the line of Kyle Mikson with Cantor Fitzgerald. Your line is now open.

Thanks. Hi, guys. Thanks for taking the questions and congrats on this nice quarter here.

Thanks, Kyle.

Sure. I’m wanting to start with, I guess, Labcorp. So, 50% of all the submissions in the first quarter, so would that kind of imply that you're thinking that the share from PacBio platform sequence, COVID samples was close to that? I mean, we just want to understand how to think about the share from PacBio in the last, you know, couple of months, can you help us kind of get to that number or at least directionally?

Sure. So, right now Labcorp is using PacBio for all of their COVID surveillance sequencing. So that's indicative of what Labcorp is doing is indicative of what we – our percentage. Of course, on a global basis, you know, we're still a small percentage of the total surveillance that's going on, but our share is increasing because sequencing in the U.S. is accelerating, and, you know, in fact, Labcorp plays a significant role in that. So, we see the opportunity to continue to be growing for us. But you know, as of March 31, our data suggests half of the data in the U.S. was based on Labcorp, which is essentially ours.

Got it. And the 41 placing was impressive. And you call that a few, you know, lumpy, I guess, wins in the quarter. But, could you just kind of speak a little bit more to what Labcorp represented maybe what Invitae vastly represented, if at all? And then I guess Sanger has completed their installs in the quarter, but just any other like large multi-tool orders? You mentioned a few, but you know, was it generally pretty, you know, was there any, like huge orders or, you know, just a few there that had, you know, some ones here or there?

Well, I think we highlighted – yeah, go ahead Kyle, if you want to add to that.

Just trying to think about the sustainability of this 41 number as we go to the second quarter and beyond.

Yeah, I think that's a good – that's exactly the point. I think with respect to COVID, for example, Labcorp took several more systems, and so that revenue would be one-time infrastructure and wouldn't repeat in the second quarter. But we did have several multi-system – multi-unit system orders, you know, around the world, we highlighted Labcorp. We highlighted that Sanger, I think there were over some in Asia as well. And so, I think our business is, you know, we definitely have some multi-unit orders helping us in Q1, which helped the overperformance. And as we expand our sales force, you know that should help us cover, you know, the ones and twos, but also continue to drive multi-unit orders into the future. And so, it's kind of a balance from quarter-to-quarter as we grow here how to think about system places. But yes, you're right. We were very happy with the number for Q1. You know, I do think it shows that the Sequel IIe was really an important launch for the company. And I think that, you know, the growth in Sequel IIe placements is sustainable. And it's something we're shooting for.

Perfect. That’s helpful. And the International, you know, orders and kind of wins this quarter were solid, and that's an area that PacBio wasn’t as strong in it in the past, right? And so I'm just wondering if the recent expansion of the commercial team has paid any dividends thus far? I know, it's pretty early, you've hired, you know, a few handfuls of abrupt split, has that taken shape? Has that benefit kind of taken shape just yet? What are you kind of expecting, you know, a few quarters out from that team internationally speaking?

Yeah, I think, I don't know how much the actual new reps are really contributing. As we've talked about in the past, it takes a few quarters to get people up to speed. But what has happened is, in – particularly in Europe, we really have some great folks on the ground there. And now that we're starting to see an acceleration, so, we added reps, for example, in Germany, and our sales leaders based in the UK, and he's really driving, you know, driving business across the region. And so, I think in the quarter, I was especially pleased with how EMEA really started coming together. And I think it will only improve from there now that we have a very intense focus on the infrastructure, and then adding the people. Asia continued to perform exceptionally well. As they said, in my prepared remarks how, you know, we're always worried about the Lunar New Year, and how that would slow business down, but the APAC team, you know, really helped the service providers, keep their machines going and helping to drive demand there. And so, we saw nice growth. We hired a country manager, who started now in Japan. So that will start building out that, you know, that Japanese infrastructure, which we basically have none. And so, we're at the point where you're just starting to see the low hanging fruit and the opportunity, and my belief is that, as you get into the back half of the year, and we continue to build this team, it will help us drive our growth.

That was great. Thanks. Thanks a lot, Christian. Just one last question for me, I guess. So, regarding the plans for the sub $1,000 genome in the next five years, you mentioned that the plan is, I guess, in the works to kind of get throughput up and costs down. But is there any like specific range or threshold even though you kind of confidently think that payers will reimburse? I ask this because a competitor announced about a month ago committed to reduce costs to what’s called $500 range or so for customers? And obviously, you'd have to compete with that price point. I'm curious of your thoughts around that dynamic.

Well, I mean, I do believe that price will be important to payers, but what will be more important will be value. And if we can come to market with a solution that provides more value, then I think we have a better chance at sustainability of price, whether that's at $500 or something slightly above $500. But I do think, as we've been saying, you know, for the last few quarters here, we believe our solution will drive us substantially below $1,000. And we believe that customers are willing to pay somewhat more for a more complete, more accurate genome, particularly when it's in a clinical setting and having a complete view is so critical to managing the outcome of a patient. And so, I, you know, I'm actually very encouraged about the progress we're making on the R&D side to enable that promise, but I think structurally in the market, when we get these products to market, we will be very competitive. And I think it'll be compelling.

Yeah, there seems to be a lot of enthusiasm hearing that this week at the rare disease event that you guys are hosting that. So, I'll leave it there. Thanks for taking the questions and congrats again.

Thanks, Kyle. Appreciate it.

Thank you. Our next question comes from the line of Doug Schenkel with Cowen. Your line is now open.

Hi, good afternoon. Thanks for taking my questions. So, combining Q1 revenue with what you talked about directionally for the second quarter, it looks like you're targeting just under $60 million in first half revenue, you know, if we back that out of where consensus is for the year, it looks like you'd have to generate in the second half or so to get to the street numbers. Does that seem reasonable? I know you at the beginning of the year said you expected things to be, you know, more back end loaded this year. But is that type of ramp acceptable in your mind, does that make sense? And if so, what are the key drivers to kind of bridge that? I mean, some of that's going to be normalization or pull through per instrument on a growing installed base. But I'm wondering, you know, specifically what you're expecting in that construct from things like surveillance testing, as well as pop-gen contributions?

Yeah, Doug thanks for the question. And it's a good one. And I think, conceptually, if you do the math, you're exactly right, as my expectation is that the back half is stronger than the front half with respect to the ability to grow? And why do I feel that way? I think, first and foremost is lead generation activities that are going on now are at all-time records for the company. And so, you know, we have put in pretty intense focus on – and on these earnings calls, we talk a lot about the sales reps, but we also invested a lot in – since I started back in September on formalizing and improving our processes for lead generation, and defining how to reach out and communicate with customers. And so there's so much more to a sale than just the sales rep, you know, being out there. And so, what's encouraging to me is, I see that we're achieving record levels of lead generation, or very significant numbers of leads coming in. And, you know, the objective, of course, is to get those through the funnel and our areas where I think we will see growth, I do think surveillance will continue to be an opportunity for us. And as you heard on my prepared remarks, we're going to develop a kit for COVID, which I think is a really big deal for the company because historically the company hasn't developed kitted applications. And so, you know, as part of our strategic planning and thinking, we have thought carefully about, okay, we believe, you know, we believe viral surveillance or pathogen surveillance will be a market for us long into the future, so, let's start by getting a COVID kit out there and develop that core competency. So that we can leverage that capability over not just this year, but next year and into the future. And so, I know that's not exactly on your guidance number, so to speak, but those are all important components of how we drive into the market. The other piece is, you know, I do think there's significant opportunities in Europe. We're just – I mean, as you heard, we just shipped our first system ever into Italy. Just to put it in perspective. Now, Italy's not the biggest country in Europe, but it just shows you how early we are in our commercial ramp relative to our peers and so, you know, as we build out and structure these territories and drive the discipline of our commercial operation, you know, that will help us accelerate pushing things across the goal line sooner, and I think will help drive our growth.

Okay.

Hey, Doug.

Oh, sorry.

I just wanted to add a couple comments related to what Christian was saying. So, I think one of the things that we saw in Q1, which was great for us, was the interest of customers and the Sequel IIe as Christian had mentioned. And then we also had some high profile multi-instrument orders from customers. And I expect to see some of that throughout the rest of the year. The timing of which quarter-to-quarter can vary, but we do have a good pipeline of multi-instrument orders from customers. So, that's very promising. The one thing that you have to keep in mind is, we are ramping and investing in the commercial organization. It usually takes up to two quarters for a sales rep to become productive. And then there's still the time to close orders as well, within some of our markets, it can take longer to close an order, so anywhere from 6 months to even 18 months. And so that also needs to flow through, we're investing – as Christian mentioned, we're investing in marketing, we're generating more leads. And so we're certainly building the infrastructure to accelerate growth over the long-term, but quarter-to-quarter there is some variability in exactly what that looks like, within 2021 is still a little bit variable. And it's the reason we didn't give guidance for 2021.

Okay, understood. Susan, just one very quick follow-up on part of what you described. I know, I think at least in partial response to the last question, you talked about, you know, a few multi-order placements in the quarter. Is that why the ASP was a little bit lower for the instruments relative to the second half of last year? And if so, is the expectation that the ASP for instrument normalizes back to second half of the year levels as we look ahead over the balance of the year?

Yeah, that's a very good question Doug. So, volume and ASPs are certainly what impacts our gross margins. And as you had noted, sometimes when we have multi-instrument orders from customers, the average ASP for that quarter can be slightly below our total average on a run rate basis. But as I had mentioned earlier, we still anticipate that we're going to have more multi-instrument orders. So, that's going to be probably the highest variability quarter-to-quarter in terms of averages. So, do I think that Q1 was all the multi-instrument orders in the year? No. We're going to see more in 2021.

Yeah, Doug, at the end of the day, we, you know, I do think ASPs will fluctuate a little from quarter-to-quarter. And we're probably somewhere between where we were in Q1 and where we were in the back half of last year. You know, the strategy here right is to drive the install base. And – either that's through multi-unit orders or and the reason why that's so critical, of course is to get everyone running consumables, but also really pushing HiFi chemistry so that we develop new applications. And so, it's part of a broader strategy on how to not only to grow the top line, but to grow the application capability and create that snowball effect over the next several years. So, that's how to think about it, I think.

Yeah, no, it's totally and I apologize for stepping on there a little bit Christian, but I was going to kind of say the same thing that if you got to make a slight trade off on ASP, you know, in exchange for multi-unit placements and getting more instruments out there, that's more than an acceptable trade off, I would think. Maybe last one before I hand it off to others. As you mentioned earlier on this call and was, kind of, a point of emphasis on the last quarterly call, you have well over a billion dollars in cash on the balance sheet. You know, a lot of that came in from SoftBank, the other $900 million investment and that was positioned to really accelerate growth initiatives for the company, the investment, and of course, having a strong balance sheet puts you in a good position to be a little bit more nimble, and maybe a lot more aggressive. Is there anything more you can share at this point on strategic priorities and timelines? You know, reasonable timelines, you know, with wide, of course, on where we may hear more from you on what you, you know, essentially the follow through on the cash you’ve raised?

Yeah. No, that's a good question, Doug. I think – so, right now, what we've done, you know, in the very short-term, right is, number one, we've accelerated even further our commercial initiatives for 2021. And that means pulling all of the hiring forward. That means pulling, starting to really seriously evaluate real infrastructure in Europe. So, we don't have any, we have no facilities. We have no, you know, no warehouse space or anything like that in Europe right now. And the truth is, if you want to really grow in Europe, you need to look European, and you need to be able to have local warehousing and local application labs and things like that where you can get much closer to your customers. And so, you know, the first thing is, is kind of the blocking and tackling associated with some of that expansion, and we'll use some of that, we'll use some of that capital this year on that. Now, those are reason, you know, relative to the billion dollars, of course, that's small. The second is, is focusing on driving the R&D portfolio. Now, we've been fortunate that the arrangement we set up with Invitae, you know, they are paying for most of the development on the new platform for them. So, you know, but we are accelerating, spend around the edges, particularly in our around the workflow. So, we're very focused on sample prep and trying to create end-to-end solutions and create the ecosystem that's really going to drive growth over the next five years. So then the last part, of course, which is the part you're probably most interested in is, kind of looking at external opportunities, and whether that's collaborations or partnerships or acquisitions? And we are evaluating lots of different opportunities, as I've said before, I think they come into two different camps. You know, the first camp is kind of horizontal, in the sense of thinking about are there assets out there that we can use to acquire or collaborate or partner with to fundamentally give us a competitive advantage or create growth opportunities in the front-end? And I think that we're in evaluating lots of those different kinds of opportunities. And then also, the other side of horizontal, of course, is, are there informatics opportunities? You know, in the past, we've been very successful at integrating opportunities to, kind of round out the product portfolio. And there's adjacencies and we're looking very carefully at, are there, you know, our objective is to be the world's most advanced, you know, solutions company for biology. Like that's really where we're going, way beyond just long read sequencing. And I think there are opportunities out there in the market. But we also have to be patient, and we have to focus on how do we build our – how do we make sure that we execute exceptionally well on our core business? How do we – we finished, we've basically built out our executive team now. And so now we can start evaluating some of these things. Timing is impossible to predict, because you can have a vision, but there's lots of different factors in the way. And so, I guess the one thing I'll leave you with Doug is that we are looking at a lot of different opportunities, but we're going to be patient, and we're going to make sure that we do the right thing, if that helps.

That is fantastic. Thank you for all that detail. And I really appreciate all your time and help. Have a good night.

Thanks, Doug. Good to talk to you.

Thank you. Our next question comes from a line of Tycho Peterson with JP Morgan. Your line is now open.

With surveillance low single digit millions in the first quarter, how do you think about the run rate over the next couple quarters there? And then, you know, Christian, you flagged the $1.7 billion national surveillance funding that Biden's set aside, I think they're going to build six centers of excellence. How do you feel like your position as that gets up and running?

I think – Tycho it's good to talk to you. We, you know, I think our run rate with respect to surveillance will – you know, we definitely had some infrastructure built in the first quarter. But I think that that can be offset with other infrastructure builds as you get, you know, into the year and we acquire some other customers, etcetera. So, you know, my expectation is, it is kind of in that, you know, low single-digit kind of number right now as we see it. I think that, you know, there's no question that our solution is very compelling. And we are getting good traction, particularly with Labcorp, of course, and so as these centers of excellence start to form up, I think we have opportunities to be part of the solution there. You know, there’s also the reality is that we are still the emerging fish in the pond, so to speak. And I think that, that, you know, we have to demonstrate consistently that our solutions are, you know, not only better than our competitors but more economically viable. And I think we can do that. The other thing is Tycho, we've been building, you know, we just recently hired, for example, a Vice President focused in government affairs, and we didn't have that capability before. And so now we have, you know, now we have much greater access to government entities and areas, and I think that will help us in the dialogue and discussion. So, I think we will have a seat at the table. And I do think it's a real opportunity for us.

And on economically viable, you mentioned, you know, surveillance of, you know, influenza, pathogen, some of these other markets, I mean, are we at a point now, where you think it can be cost competitive to be sure?

I believe we can be, yes. I mean, I do think we have to, we have to demonstrate, you know, end-to-end solutions and protocols, but I think the bones are in place. And as we develop kitted products and show that we can do that, not only can we be, you know, cost competitive, but we also have opportunities, because today, when you think about the COVID opportunity for us without a kitted product, you know, we're really just capturing the sequencing portion of the opportunity, which is, you know, is quite small relative to the total dollars associated with prepping the sample prep and the other pieces.

Tycho, you know, right now, the sequencing isn't, you know, the big value driver, it's the kit, and it's, you know, there's both the supply constraints right now on the kits, which we need to overcome by kitting it. But there's also the value that you get in that complete kit, and so I think it can be competitive against other approaches, because the sequencing isn't the barrier for us right now or the cost of the sequencing isn't?

Okay, that's helpful. You've mentioned a new HiFi protocol, reducing sample requirements by 3x, how meaningful is that, and do you think that, you know, opens up new markets, new opportunities, I mean you flood blood? But I'm just curious what you actually think that means in terms of real-world adoption?

Yeah, Mark, why don't you take that one?

Yeah, I don't know how much attention it's received Tycho, but I'm glad you pointed out. So, first of all, I will say that the team is focused on delivering advancements now across all of the portfolio from sample prep through downstream analysis, and, you know, this HiFi sequencing in software releases is, I think, just a great example of the focus. You know, the reduction in input was from 15 micrograms down to 5 micrograms. You know with 5 micrograms, I do see us getting into more sample types now. So, you know, beyond blood, but getting the tissue biopsies and cell lines, and so accessibility and lower input applications have been a challenge for us. But I think it's also, you know the speed of it, of this new Polymerase does help with accuracy. And so again, it further pushes, the number of HiFi reads that are at or above that 99.9% accuracy for whole-genome sequencing. The workflow I think is going to help us get this into more hands, it's a much simpler workflow, and we worked with Children's Mercy to make sure it was automation-friendly as well. And some of the other things that, you know you don't even really think through is, you know some of the adaptive loading opportunities we’ve built in this, and so now you can reduce overloading on a smart cells just actively monitoring the Polymerase that are binding to the bottom of the ZMWs. So, we can really help customers load and get the most out of their chips. So, you know, again, I think it's a great example of what we can do and being down to five micrograms will enable more of these tissue types or sample types to be used.

Okay, that's helpful. I think Doug had mentioned in one of his questions, you know, we did hear from Illumina the other day about some newer programs, Egypt and Japan that are kind of coming to the surface, can you just talk a little bit about whether you're in the mix on some of these newer popsy programs, and you know, how you think about the long lead component to the extent their newer initiatives getting off the ground?

Yeah, I think, as you know, some of our team has a lot of experience in popsy and it’s helping us kind of position the company such that we can get portions of these projects. Now, the reality is that our platform to get majority share of a project is probably not reasonable at this point in time, but getting a small percentage of samples, kind of like with The All of Us program, for example, right? We’re sequencing a small fraction of the total, but it's meaningful for us as the long read and it's meaningful because it also puts HiFi front and center in terms of being the highest performing, you know, chemistry, for sequencing. And it sets us up as we launch new platforms. And so we are, you know, we're seeing most of the same opportunities as our friends, but, you know, our expectation as we capture, you know, smaller portions of those types of programs. And, you know, the one in Japan you talk about, I mean, the reality is, we didn't have any infrastructure over there, and we're just starting that build out. So, I don't know how much access, you know, we will add to that particular program, specifically.

Okay. And then last one for Susan, just, I want to go back to kind of the 2Q guidance for a minute. If I go back to last quarter, you'd obviously guided, you know, for the first quarter to be down slightly and you had the, kind of benefit of the multi-system orders. Just so we're clear, the reason why the 2Q guidance would be flat is, is because just the timing of some of the system orders or is there another, kind of component that's kind of weighing on the outlook?

Well, I think there was a lot of strength in Q1. And so, you know, we talked about the multi-instrument order, but also I will reiterate from our call. We also benefited from the backlog of projects that had been slowed down because of COVID in 2020, and it started to ramp in Q4, and it was even stronger in Q1, such that we had the highest utilization on our install base. So, consumer revenue also helped us in Q1 as well. So, looking forward, that's the largest reason for the flat-to-modestly higher in Q2.

Okay, thank you.

Thank you. Our next question comes from a line of Tejas Savant with Morgan Stanley. Your line is now open.

Hey, guys. Good evening. So, first on the quarter question, just a couple of quick cleanup questions. Can you quantify, you know, what the impact was on consumables from the Lunar New Year, just to give us a sense for what the true underlying consumable spend was here? And then, Susan, to the remarks you just meant on the consumable side on backlog projects and catch up, is that a catch up element that you saw in the first quarter, some of these labs opened up and travel restrictions eased up, and you could just install those units, which, you know, essentially committed to in 4Q itself?

So, I’ll start. You know, Tejas, I don't have the exact numbers. Like, it's very difficult to quantify exactly a Lunar New Year effect, because it's really just a couple of weeks, and you start to question whether or not, you know, whether or not they make it back up during the quarter. I think what we were trying to emphasize is, you know, Lunar New Year was typical, but the demand from our service providers some of their backlog, and also the basic expansion is more than offset that. And actually looking forward, some of the same service providers have very substantial backlogs still, and so, you know, my expectation is, they're going to be running pretty significantly for most of the year.

Got it. Okay. And then once one of the consumables line, you know, should we – is it fair to essentially assume $165,000 as the new floor on the pull through on the Sequel? I mean, it sounds like, you know, even in Q3 last year, you were around $160,000. So, it should only, sort of increase from that level in the quarters, and then perhaps even the years to come.

I think it's going to bounce around to be honest with you. And the reason why I think it's going to bounce around is, you know, we'd expect to place a lot of systems. And, you know, you saw we had 41 in the quarter. So that will go into the denominator, you know, as we do the calculations for this quarter, and you know, that it takes time. The multi-system units to existing customers, those will probably ramp up reasonably quickly. But for new customers, you know, we said we have a lot of new customers in the quarter. It might take three or four months for them to start ramping up to whatever normalized utilization that we can expect from them. And so, I think my, at least from my perspective, I think the number is going to bounce around a little bit. But you know, kind of in that $160,000 to $200,000 range seems like a pretty reasonable way to be thinking about it. But it will be dependent every quarter on the denominator as much as the numerator. You know, the one thing I would point out that Susan pointed out in her remarks was we had record utilization of systems. And I want to be very clear, you know, when we calculate pull-through, that's just a number of, you know, revenue and systems installed, when we talk about utilization, we have software and capability to monitor the vast majority of our installed base and see, you know, how often they're running smart cells and how they're. So, we'd look at that very carefully because it's an early warning system to figure out, hey, we should make sure we call that customer to place a reorder or while they're really – something's changed, they must be doing a new project or something. And what we had in the quarter was records across the board. And that's actually really exciting. It means people are using their systems, they're getting great data, and I think it bodes well for the future.

Got it. And then one on the Invitae collaboration, Christian, now that it's been a couple of months, I mean, and you mentioned so the teams working closely together, what are your incremental learnings, particularly in terms of, you know, the technical feasibility challenges that you need to address here? And then, as you work towards that sort of sub $1,000 price point that you mentioned, right? And then also, in terms of the milestones that we should be really sort of hanging our hats on to track progress, you know, before Invitae gets access to that first unit in-house? Is there anything that you, sort of intend to share along the way that will help us kind of like just measure progress there?

You know, I'm going to ask Mark to talk about the progress of Invitae because he is this project sponsor internally, and he's very close to it. But with respect to milestones, as we, you know, as we reach, you know, reasonable technical milestones. So, for example, you know, probably early sequencing data, things like that, I suspect we will want to share some of that. But we haven't defined, you know, explicitly for investors what those milestones are, we're very focused on, you know, serving our customer Invitae. But Mark, why don't you give a little color on, you know, the progress of the project?

Yeah, happy to Christian. So obviously, you know, we just announced this in the middle of January, but I was happy to see how quickly we jumped on this together. And so the teams did start working together right away. And as a reminder, you know, a lot of this or almost all of this is leveraging the core technologies and HiFi sequencing that are already in market, or were already in development. So, I don't see this as major miracles required, it is scaling and hardening the development of this. We have been meeting with Invitae regularly across a number of work streams. And this is an entire workflow to meet production whole genome sequencing needs. And so while we're building and scaling the sequencing technology, we're learning a lot about their front-end, you know, how they do their DNA extraction, how they do their live, you know, to ensure that together, we're going to go and build a front-end that's going to get the DNA and great DNA under the new sequence we're building. I would say, we've also learned a whole bunch of the overall software informatics that a production lab needs and what Invitae is using to make sure we have seamless integration into their lab, and their interpretation engine and future reporting capabilities. So, I’d say, you know, the work stream is across all of these different fronts are really going well. And you know, I don't expect just to deliver a great product to Invitae with this, but this is going to hurt in the complete whole genome workflow for us to take and broadly commercialize. In terms of milestones, you know, Christian, I will have to on what we want to share along the way. But just, you know, a reminder, this is leveraging core technologies, and it's a multi-year project.

Got it. And very helpful, Mark. Thanks, guys. Appreciate the time.

Thank you.

Thank you. Our final question comes from a line of Steven Mah with Piper Sandler. Your line is now open.

Great. Thanks for the questions and congrats on the quarter.

Thank you.

So, two quick ones on clinical, could you update us on the partnership with Berry Genomics to get China FDA approval for Sequel II?

You know, Berry continues to work diligently and we're working with them and, you know, from my perspective, the project is still on track. And so, you know that will be our first – that will be our first foray to clinical anywhere in the world. And, you know, the team at Berry is doing a great job of getting our system ready. We have an internal team that's helping assist with the project as well. So, I think it's going pretty well.

Okay, great. And then the second part was, I know, you said that you would continue to partner on the clinical side, but given that early on, based on some of your comments, it looks like a long read HiFi sequencing seems to be unlocking new clinical applications. So, given that, any plans to develop your own clinical programs, given the balance sheet cash flexibility?

You know, at this point, as part of our core strategy, we're, we really believe we need to work with others and really enable our customers and be the, you know, be the preferred partner. We think that's a strategy that will endear us to many more customers than otherwise. And so right now, our real focus is on, on how do we do these partnerships and collaboration. That being said, you know, we may have to develop some, you know, deeper capabilities, for example, with cleared instruments and potentially cleared kits, because our customers may, you know, may demand that, but at this point in our strategy, that's not a core focus. The core focus really is collaborating, leveraging others core competencies. Well, we build-out our core competencies in executing on the core business, if that makes sense.

That make sense. And last one from me.

You know what, we've obviously spoken a lot now about Invitae, and also Berry Genomics, but, you know, I would just, you know, also still just highlight groups like Children's Mercy, you know, for rare disease and how we can partner there to improve our clinical abilities. But even a surgeon, you know, I think what they're doing with, and long reads is also another great example of a clinical partnership approach to getting some long read products into market.

Yeah, appreciate the color.

Good point.

And last one to me, I know, we're way over time. So, speaking about Children's Mercy, Kansas City, it looks like that the new HiFi software release was developed in collaboration with them, did you guys leverage Children's Mercy's existing database to rare variants or other expertise there? And if so, was there any share at IP with Children's Mercy?

It's not – it's really more of the core technology. So, it's not, it's more, you know, how the software actually, you know, how the software actually runs. And it's not so much trying to create shared IP on variants, for example. It's really more leveraging their expertise to make sure we create the best product we can for all of our customers.

Okay, great. Thanks. Appreciate it. Thank you.

Yeah. Thank you.

Thank you. This concludes today's question-and-answer session. I will now turn the call over to Todd Friedman for closing remarks.

Thank you all. As a reminder, replay of this call will be available on our website in the investor relations section, as well as through the dial-in instructions contained in today's earnings release. Thank you for joining the call today. This concludes our call, and we look forward to updating you on our progress in the second quarter.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.