Pacific Biosciences Of California, Inc. Q3 FY2025 Earnings Call

Good day, and welcome to the PacBio Third Quarter 2025 Earnings Conference Call. 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.

Good afternoon, and welcome to PacBio's Third Quarter 2025 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. 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 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-K 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 a 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. 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 a 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.

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 $38.4 million, primarily due to fewer than expected Vega shipments in Europe and lower than expected revenue on ASPs. However, our consumable revenue was well above our forecast and once again at an all-time high reaching $21.3 million, 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 revenue 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 310 and 105 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 $21.3 million in Q3, another record. This performance was supported by broad adoption of our SPRQ Chemistry and steady utilization across our growing installed base. This also led to a roughly 65% increase in total gigabases of sequencing output. Revio 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. 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 million to $160 million. 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. In Q3, we achieved another quarter of sequential improvement, with cash burn totaling $16 million. We continue to expect total cash burn of approximately $115 million for 2025, an improvement of more than $70 million compared to 2024. As we continue to recognize benefits from our restructuring, 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 Solves EMEA Consortium. This study shows that PacBio HiFi sequencing, combined with Paraphase, a dedicated haplotype-based variant caller, 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 costs by turning to HiFi first. HiFi genomes revealed a 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. In September, we launched the enhanced PureTarget 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 24 and 96 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 PureTarget 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, safe, and highly accurate results where legacy approaches often fall short. With our new HiFi-based PureTarget 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 positioned for large population scale studies. Our HiFi 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 SPRQ-Nx 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-read studies of aging to date. Another example is the Korean Pangenome 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, a 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. 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. HiFi 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 million U.S. participants with the goal of advancing precision medicine research and fueling new insights into human health. Powered by PacBio technology, the 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 FFPE to our workflows. We've built the PacBio Compatible program to ensure robust automation solutions are available to our customers as we scale. Additionally, 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, SPRQ-Nx. Earlier this month at The American Society of Human Genetics Conference held in Boston, we unveiled our new SPRQ-Nx chemistry, marking a defining moment for PacBio. We believe that SPRQ-Nx will help dramatically lower the cost of human genome sequencing to less than $300 per genome at scale, making our technology economically competitive with many short-read sequencing platforms. Additionally, SPRQ-Nx 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 SPRQ-Nx is the ability to use the SMRT Cell multiple times. The SMRT Cell is by far the most expensive component of our consumable. By reusing the SMRT Cell, we can reduce the cost of sequencing for our customers and improve our gross margins simultaneously, a rare win-win. Multi-use SMRT Cells will be launched for Revio in a fully automated way, allowing for a seamless customer experience. Initially, customers will be able to reuse the SMRT Cell one additional time. Over the near term, we expect to increase the number of uses. More than 100 customers have already demonstrated interest in beta testing SPRQ-Nx on Revio. We expect to initiate the beta testing program later this month and then move to an early access phase in 2026. This beta test group is paying for the consumables, which signals strong underlying demand for this new chemistry. Once the early access program is complete, we plan to roll out SPRQ-Nx 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 EpiCypher to integrate their Fiber-seq workflow into the PacBio Compatible program. Fiber-seq enables single molecule mapping of chromatin accessibility, methylation, and sequence variation in one assay, adding another dimension of epigenetic insight to HiFi and complementing our existing strengths in genome, transcriptome, and methylome sequencing. In October, we also announced an expanded partnership with seqWell. Under this agreement, PacBio will distribute seqWell's LongPlex Kit, a scalable and easy-to-use sample preparation solution designed for HiFi sequencing. LongPlex streamlines DNA sharing 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.

Thank you, Christian. I will discuss non-GAAP results, which include non-cash 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 $38.4 million in the third quarter of 2025 compared to $40 million in the third quarter of 2024. Instrument revenue in the third quarter was $11.3 million, a 33% decrease from the third quarter of 2024 and a 20% decrease from the second quarter of 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 $21.3 million in the third quarter, an increase of 15% compared to the third quarter of 2024. This represented a 12% sequential increase. Annualized Revio pull-through per system was approximately $236,000, an increase compared to approximately $219,000 in the second quarter of 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 $5.8 million in the third quarter compared to $4.7 million in the third quarter of 2024, driven by an increase in Revio service contract revenue. From a regional perspective, Americas revenue of $18.1 million decreased 10% year-over-year and increased 2% sequentially. The year-over-year decline was primarily driven by continued caution in academic capital spending, which weighed on Revio 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 $9.6 million decreased 11% compared to the third quarter of 2024 and decreased 24% sequentially. The year-over-year decline reflected fewer Revio placements compared to the prior year. EMEA revenue of $10.7 million increased 18% compared to the third quarter of 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 Revio installed base. Moving down the P&L, third quarter 2025 non-GAAP gross profit of $16.2 million represented a non-GAAP gross margin of 42%, compared to a non-GAAP gross profit of $13 million or 33% in the third quarter of 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 third quarter of 2025 compared to approximately 46% in the third quarter of 2024. Additionally, Revio SMRT Cell manufacturing yields improved and trended above historical levels in the quarter. Non-GAAP operating expenses were $53.9 million in the third quarter of 2025, representing a 14% decrease from non-GAAP operating expenses of $62.4 million in the third quarter of 2024. Operating expenses in the third quarter of 2025 included non-cash share-based compensation of $10.1 million compared to $17 million in the third quarter of 2024. The decrease in both non-GAAP operating expenses and non-cash stock-based compensation was primarily due to the recent restructuring initiatives. Regarding headcount, we ended the quarter with 490 employees compared to 575 at the end of 2024. Non-GAAP net loss was $36.8 million, representing $0.12 per share in the third quarter of 2025 compared to a non-GAAP net loss of $46 million, representing $0.17 per share in the third quarter of 2024. We ended the third quarter of 2025 with $298.7 million in unrestricted cash and investments compared with $389.9 million at December 31, 2024, and $314.7 million at June 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. 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 million to $160 million. 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 million at the end of 2025. When excluding the $5 million licensing payment in Q1, this implies approximately $115 million cash burn in 2025 or an improvement of more than $70 million compared to 2024. We believe, based on our current assumptions, our $299 million in cash and investments as of September 30 is sufficient to reach cash positive cash flow by the end of '27. I'll now hand it back to Christian.

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 improve human health. With the upcoming launch of our new SPRQ-Nx chemistry with multi-use SMRT 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 a meaningful reduction in our cash burn, and we are tracking toward a goal of achieving positive cash flows by the end of 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?

Our first question comes from Kyle Mikson with Canaccord.

So on instruments, a little soft in 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 Revio, ASPs looks like a little bit weaker this quarter, less than $500,000 per share versus the list price of $599,000. Maybe just talk about what that could be going forward. If you could quantify that, that would be great. And then with Vega, interesting to see that kind of sequentially decline this early in the launch. How many placements were pushed out to future quarters due to the EMEA challenges?

Yes. Thanks, Kyle, for the questions. I'll start with Revio. Revio ASPs were lower this quarter. My expectation is fourth quarter ASPs will actually recover. When we look at where we placed 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. As a result, you'll see better consumable usage, which will drive revenue there. So, that's generally a smart decision. With respect to Vega, we did have a shortfall in Vega. There were roughly half a dozen 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 purchase orders. I don't know if they've been shipped yet, but they'll be shipped in Q4. I think that was a temporary issue with procurement processes. The opportunity continues to be really strong, and the funnels are strong. So it's really a question of the timing from quarter to quarter. One other comment I will make, we did have one Revio system that unfortunately failed installation testing, so it didn't get recognized. It will be recognized in Q4, and that one had a much higher ASP, which would have pulled the numbers up a little. We'll see that in Q4 and that's really just a timing thing. Yes, I think we're ready for the next question.

Our next question comes from Doug Schenkel with Wolfe Research.

This is Madeline Mollman on behalf of Doug. I wanted to discuss the gross margin, which was stronger this quarter than expected and exceeded your full-year guidance. Can you break down how much of this was due to mix versus other factors you mentioned? It seems like services gross margin was also slightly better this quarter. Looking ahead to 2026, how should we consider gross margin?

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 related to the shortfall in instruments; the product mix is the biggest contributor to pushing gross margins forward. We did see nice yields in SMRT Cell manufacturing and realized cost reductions on the Vega and Revio systems. The production side is focused on driving costs down, and that's helping. 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. Looking forward into 2026, we won't provide guidance on gross margin, but as consumables becomes a bigger part of the story, gross margins have a strong chance of growing. We've made significant progress in the last four or five quarters and will continue improving as consumables continue growing and instruments get to more normalized revenue levels. One thing to note is in the third quarter, we didn't see a major impact on tariffs; however, the Vega system is experiencing some tariff implications that are not material enough to pass on to customers at this point, but we're watching that.

Our next question comes from Subbu Nambi with Guggenheim.

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 and any updated feedback you've heard from customer channels would be helpful.

Well, I mentioned back in September that the environment seems to be kind of stabilizing and settling, and 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 will be challenging next year. We're going to see uncertainty in the academic funding environment. Although the longer we're stable, the more purchasing agents will be comfortable releasing purchases and funding, particularly in the United States. We are pivoting into clinical applications, and we're seeing great traction there. You saw a lot of my written remarks today about that. The funding is much more robust in that area. We expect '26 to continue to be challenging, particularly in the first half, but we'll provide more guidance as we approach that time. To keep moving in the right direction, we're focusing on clinical applications.

Our next question comes from Luke Sergott with Barclays.

I appreciate the update there on Revio. But 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 think about the pace here, and as you place a few more instruments in Q4, what that could look like? And then on the SPRQ-Nx, bringing the cost of sequencing down there, can you talk about some of the data fidelity when you're running multiple runs on the same SMRT chip? And then from the beta testers on the SPRQ-Nx, like, I know that's starting in November. How many beta testers are you looking for? Any early feedback or demand that you can call out?

Yes. Great questions. You gave me a lot to respond to. So, let's start with Vega. We aren't commenting on Vega pull-through yet. We want to get a full year under our belt before we start making comments on what the target might be. Your expectation for a product like this based on others is somewhere between $25,000 and $45,000 a year of pull-through per system. We’ll see where we shake out; we haven’t commented yet. For Revio, we were at the higher end of our pull-through targets so far this year, with good steady utilization across the installed base. This means that I would expect as we place more Revio systems, that this will be additive to our consumable revenue since we haven't seen significant drop-off in lower throughput customers. In terms of SPRQ-Nx and data fidelity, one exciting aspect is we're seeing consistent levels of throughput and high-quality data use after use. The carryover is minimal. This is a fully automated protocol on the Revio system, and when we wash the SMRT cell for the second run, we're cleaning 25 million single molecules. This gives us a high level of confidence in the data fidelity. We've had over 100 customers express interest in beta testing SPRQ-Nx on Revio, and we're signing the first group up now. The beta program will begin soon, and we’ll gradually expand it as we go into early 2026. I don’t want to specify the number of beta testers yet; we want to ensure a well-managed rollout. We'll keep you posted as this unfolds. Yes, that’s where I’ll stop for now.

Our next question comes from Tycho Peterson with Jefferies.

This is Lauren on for Tycho. Just a little bit of more clarity around the SPRQ chemistry rollout. Are you guys expecting to drive kind of incremental revenue there or primarily to improve margins? What's the near-term target for pull-through for Revio as the SPRQ chemistry rolls out? And then around the PureTarget 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?

With respect to how pull-through will be impacted by the SPRQ-Nx chemistry, we're going to wait and see what that looks like. I'll probably provide more commentary when we get into January, February after the beta program is completed. The point of SPRQ-Nx chemistry is to drive increased adoption of our technology and bring in more samples to drive revenue growth. Additionally, we expect substantial improvement in gross margin as the cost of the SMRT Cell is a large component of the total consumable cost. It's a win-win situation. Customers will benefit from better pricing, and we'll benefit from better consumable gross margins. The main objective is to increase market penetration by being competitive with short-read technologies. Most customers are eager to use long-read sequencers for applications where traditional short reads are used but have hesitated due to costs. This change eliminates that barrier, giving them the ability to gain a deeper understanding of the genome at better economics. As for PureTarget, our customers are exploring various applications, including not just carrier screening but also single-gene tests for conditions like ataxias or neurodegenerative disorders, where there are challenges with short reads. It's a broad portfolio of targeted kits that help drive Revio placements into clinical accounts and an important growth driver for carrier screening in the revenue coming in 2026 and beyond.

Our next question comes from Mason Carrico with Stephens.

This is Ben on for Mason. Could you talk about how the funnel for your population scale programs has evolved? Just wondering if the multi-use announcement has potentially accelerated any existing conversations, or resulted in any new opportunities? And then just as a quick follow-up on your comment of Revio ASPs reverting higher in Q4. Should we assume that ASP remains stable in 2026?

Yes, thank you for the questions, Ben. The excitement around the multi-use and lower pricing has driven new conversations since ASHG on major population scale programs. The funnel of programs is progressing; they take a long time to finalize. However, I think the funnel is expanding, and I feel confident that some of these will get approved soon, providing us the opportunity for growth since these would be large sequencing programs outside our usual guidance. The Revio ASPs were down in Q3, but I expect they will recover in Q4. Generally, ASPs will stabilize in the first half of next year. We have reduced production costs for the Revio system, which might mitigate assumed impacts on gross margin. I believe we can expect stability in Revio ASPs for the foreseeable future.

Our next question comes from Dan Brennan with TD Cowen.

This is Tom on for Dan here. Maybe just one on your approach to AI. I think historically, when you've launched something, it's taken a while to get integrated into use just as yield things are ironed out, etc. Are you taking any precautions or kind of what timeline should we be thinking for when this is ready for prime time given this is going to be a much more high-throughput flow cell? And then I've got one more follow-up from there.

So, I just want to confirm the question was regarding the thinking around the SPRQ-Nx rollout and its readiness for market. Yes, we are taking a very measured approach for several reasons. First, we want our customers to have a fantastic experience with this rollout, allowing them time to plan projects and take full advantage of the lower pricing for more samples. We also want to monitor how customers utilize the technology. This will happen in the beta program and the early access phase. Upgrading the instrument requires just firmware changes, which is straightforward. We will see how the market adopts the technology during early access and will eliminate that phase once we get a sense of incoming samples. Importantly, we will continue offering single-use SMRT Cells alongside the multi-use SMRT Cells to give customers flexibility based on their needs. We will be closely monitoring customer usage, aiming for a boost in consumable revenue as we enter next year.

Our next question comes from Nathan Bolanos with UBS.

We're over a month into the U.S. government shutdown, and many agencies have furloughed employees. I'm curious if this has impacted order volumes, how you're framing it for Q4 and beyond? Is there potential uplift if we get things back up and running?

Thanks, Nathan. That's a good question. So far, we haven't seen a material impact from the shutdown. If it persists, we could see some impact. However, our U.S. academic NIH-funded business has faced challenges throughout the year, so we've driven revenue from other sources. Therefore, the impact may be muted. I would expect to see a bigger risk in Q1 or Q2 as the timing of processes continues. If the government returns, it could have a positive impact, but our Q4 guidance does not expect that uplift and does not assume prolonged shutdown beyond this year. Ultimately, our revenue isn't as dependent on U.S. government-funded sources today, which results in a lesser impact.

Our next question comes from David Westenberg with Piper Sandler.

This is Skye on for Dave. First, on revenue growth. Should we expect flat revenue growth for 2026? I know you mentioned Revio ASP kind of recovering in Q4, maybe stable in the first half of 2026. But anything there on revenue growth? Could you provide more color on the geographic distribution of Revio placements and consumable sales? Where do you anticipate placing more Revio and the primary research applications driving current demand?

We aren’t providing specific color on 2026 today, but we expect strong Q4 with approximately 10% sequential growth. We believe this will help build momentum for 2026. The fundamental aspects of our business include increasing instrument placements, likely driving consumable growth next year. We continue placing instruments consistently. Most Revios are now found in commercial and clinical accounts, not significantly within NIH funding. We believe we only placed one system in an NIH-funded environment during Q3. Therefore, the impact of government shutdowns is lower than in the past. As for geographic distributions, our funnels have improved in Europe, where we've seen significant growth, while the U.S. funding environment shows promise. I believe expansion in clinical customer fleets will create opportunities for us well into next year.

Our next question and last question of the call comes from Kyle Mikson with Canaccord.

I want to follow up on the question about growth for 2026. The Street had mid-teens growth in mind, and I know you're not quantifying it yet. But qualitatively, could you provide some factors that could influence it? You've mentioned NIH budget challenges, POPSEQ projects going live in 2026, potential market freezing, competitive products coming soon, and China lifting the ban for Illumina. How do you see these factors shaping your outlook as we approach next year?

Yes, Kyle. You've framed it nicely. The contribution from NIH-funded sources has decreased significantly compared to historical expectations, so any gains in NIH can still drive growth. Some POPSEQ programs may launch in 2026, which will also help with growth. As the funding environment gradually improves, sales cycles should shorten without further shifts. I don’t anticipate new sequencers having a significant impact on our business in 2026, particularly in the clinical area, because we are already experiencing rapid expansion by replacing legacy technologies with long-read sequencing. Additionally, we are well-positioned in the Chinese market, where the launch of Berry CNDx - Sequel II CNDx has created new opportunities. We continue to have a robust HLA testing business. The outlook is positive, and we’re prepared for growth in 2026 while aiming for a strong finish in 2025. We are targeting a 10% sequential growth, and the team is ready to execute the launches. That's where I'll leave it.

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