Good day, and welcome to PACBIO's second quarter of 2026 earnings call. All participants will be in a listen only mode for the duration of the call. And should you need any assistance today, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. If you'd like to ask a question, you may press star, then one on your telephone keypad to join the queue. And to withdraw a question for any reason, please press star, then two. Also, please be aware that today's call is being recorded. I'd now like to turn the call over to Kayleen Parrish from Gilmartin Group. Please go ahead.

Good afternoon, and welcome to PACBio's second quarter 2026 earnings conference call. With me today are Mark VanOwen, President and Chief Executive Officer, Jim Gibson, Chief Financial Officer, and Christian Henry, PACBio board member and advisor. 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 8K, 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. On today's call, we will make forward-looking statements, including, among others, statements providing 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 Form 10-Q and 10-K in 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. 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 effort due to 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 caution 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. Earlier today, we announced that I am stepping down as President and Chief Executive Officer of PacBio, and that Mark Van Owen will lead the company as President and Chief Executive Officer effective immediately. I will remain on the Board of Directors and become an advisor to Mark as he drives PacBio's strategy forward. Mark joined PacBio shortly after I did, and in that time, he has led the R&D operations and commercial organizations. His deep understanding of the genomics and clinical markets will be invaluable to the company as we move deeper into supporting clinical sequencing around the globe. Additionally, his ability to successfully lead strong teams will ensure that PacBio executes well into its future. I am proud of what we have accomplished over the nearly six years that I have had the privilege of leading PacBio. We have developed and launched groundbreaking new long-read sequencers that have dramatically improved the scale and economics of long-read sequencing. These platforms are enabling researchers and clinicians to dramatically improve their ability to understand the impact of genetic variation on Disease, moving us closer to achieving our mission of enabling the promise of genomics to improve human health. Finally, I want to thank our employees, customers, and collaborators for their support. I look forward to advising Mark as he leads the company into its next phase of growth and continuing to serve on the board of directors. With that, I'll now turn the call over to Mark. Mark?

Thank you, and good afternoon, everyone. On behalf of the team, thank you, Christian, for your six years of leadership. I'm honored and excited to step into this seat, and I'm grateful for the support of you, our leadership team, and board who have been working closely with to execute the seamless transition. Since joining in 2021 as Chief Operating Officer, I had the pleasure of leading the R&D organization that built the Revio and Vega instruments, and more recently oversaw development and role of the multi-use Sparknext chemistry. My recent commercial leadership focus has leveraged the strength of our clinical account engagement, which has proven particularly effective in the EMEA region. Looking ahead, my priorities will be directly built on this foundation, taking what's worked in EMEA and scaling it globally, driving Sparknext adoption across accounts and growing our understanding of disease biology and biomarker discovery by enabling greater HIFI throughput, cost efficiency, and data access. I'm energized by the multiple catalysts in front of us and confident in what's ahead as we take BackBio into its next phase of growth. Part of that next phase means operating with a leaner team focused on our highest priority growth drivers. I want to address the targeted reorganization we initiated late last week. We are integrating our marketing organization more closely with the rest of our commercial organization to ensure we maximize the growth opportunities we continue to see in the clinical market. This new aligned structure will sharpen our focus and strengthen our support for our clinical customers. We also reviewed the broader organization to reduce management spans and layers. Importantly, I want to reiterate that none of our key ROZ platform projects were impacted by this reorganization. Turning to discuss our recent performance and where I see the business going from here. Our second quarter was highlighted by the full global commercial rollout of our new Sparknext chemistry. Access to our Sparknext beta program was in high demand in Q1, and feedback was highly positive as we approached launch. I am pleased to report that customer enthusiasm for Sparknext has remained strong since full launch. In fact, in June, over a third of our install base opted into our new instrument software that facilitates usage of Sparknext, particularly its multi-use capabilities. As a reminder, Spark Next provides a significant increase in sequencing throughput per run, and new customers are now able to use each smart cell up to three times. This improves the economics for our customers and enables us to compete for substantially larger projects where competitive economics are crucial to winning. Many of our high-throughput customers are currently in the process of validating the new multi-use workflows in their own laboratories and we expect to see them ramping up Sparknext usage over the coming months. As a result, we believe Sparknext will be a significant driver of volume in the second half of the year and beyond. Against the backdrop of the Sparknext launch, our organization continued to execute on key priorities including growing the evidence base of scientific validation for our HiFi platform through multiple significant publications. We believe these speak to the utility of long-lead genome sequencing for rare disease diagnostics. In addition, we continue to make progress commercially. We delivered $39 million in second quarter revenue, a step up from Q1. Total revenue was roughly flat year over year, driven by growing consumables and new revenue and vega placements as we commenced the full rollout of Sparknext chemistry. Another benefit of the Sparknext economics is that we saw several customers expand their revenue fleet with multisystem orders to take on larger projects and programs. Additionally, we closed and shipped a significant order for civil revenue systems to a new population-scale customer that we expect to be in sequencing in the third quarter. Looking closer at our consumables performance in the quarter, total consumable revenue for the quarter was $20.1 million compared to $18.9 million the prior year period. We continue to see strong adoption in the clinical market as shipments to clinical customers grew 67% year-over-year and represented a mid-teens percentage of photo consumables shipments. We expect clinical shipments to continue growing as customers move to full commercialization mode across our install base. However, we now expect two symbols pulled through for the full year to be $200,000 to $225,000 per radio system due to the pace of demand we are experiencing today. The narrow range reflects the timing of customer purchases as several accounts that receive large Q1 shipments are now working through existing inventory while evaluating the multi-use feature. As we continue to roll out the Sparknext transition into late 2026 and 2027 we anticipate this range increasing. We expect to see the first wave of Sparknext consumers reorders in the coming months that accounts work through their inventory. Long term we expect improved cost per genome economics should support higher utilization. Turning to instruments, we sold 20 Revio systems in the quarter. As I previously indicated, we had several multi-unit Revio shipments this quarter. These include a single new to PacBio customer, as well as two standing PacBio customers that were looking to further expand their Revio production fleets, which we believe is a testament to the appeal of Revio technology and Sparknext economics to both new and existing customers. These deals, coupled with the base camp opportunity we announced in Q1 signal our entry into larger population level genomic studies which have been unlocked with Sparknext. Further, we are now seeing specific clinical customers exit R&D mode and move into more routine production sequencing with our HiFi technology. Overall, 60% of revenue placements in Q2 were the new customers and 45% of revenue placements in Q2 were sold as a part of multi-instrument purchase orders. Cumulative revenue shipment stand at 366 systems. On Vega, we sold 26 Vegas in the second quarter, compared to 38 in the prior year period. Customer conversations remain constructive, but funding uncertainty in the US continues to constrain new orders. There are two observations that speak to our continued conviction on Vega, despite these headlines. First, Vega ASP has returned to normalized levels, demonstrating that we can drive demand and capture the Vegas system's full value in the market without the promotional pricing offered in Q1. And second, U.S. Public Health Labs, the segment we've deliberately built out, purchased VEGA insurance this quarter and we expect more consistent utilization from these accounts as they ran. Overall, 81% of VEGA shipments in Q2 went to new customers. Cumulative VEGA shipments stands at 200 systems. Regionally, EMEA continued to grow and we expect it will remain our fastest growing region in 2026. America's revenue declined on academic and government funding constraints, while Asia-Pacific consumables also declined as customers work through existing SPARK inventory in preparation for the SPARK Next transition. What's encouraging is the reception of SPARK Next. Customers across the region are actively evaluating it ahead of stepping up to volume purchases, and we expect that evaluation activity to convert into more routine ordering as the year progresses. As a reminder, Spark Next's core advantage is reusing smart cells multiple times. Per genome, US list price drops to $345 per 20X HiFi human genome, a 30% reduction versus our previous Spark chemistry, achieved without compromising the accuracy or comprehensiveness that makes HiFi valuable. Expanded methylation detection and advances in deep consensus, our AI-powered consensus this algorithm developed with Google further improves accuracy, run performance, and the biological information generated from each read. Spark Next has changed the math for high-throughput revenue customers who have been waiting for long-read sequencing to become economically viable at scale, and feedback has been overwhelmingly positive. In the first full month of full commercial rollout, customers have found that high-fi yield is near identical across the first two uses, with a slight decline on the third. In June, over a third of our install base opted into our new software that facilitates usage of Sparknext. As these customers continue these evaluations, we expect to see an expansion of Sparknext usage, which will in turn enable more throughput and expand gross margins. We anticipate over half of our install base will have adopted Sparknext software by the end of the third quarter, and the vast majority to have opted in by year-end. We are also excited to report that we will launch the Sparknext chemistry on the Vega system later in August. This chemistry will enable higher throughput of up to 90 gigabases per run and lower the DNA input requirements, harmonizing the Sparknext chemistry across both instruments for consistency of data quality and operations. Turning to the growing validation of our differentiated technology, two recent publications reinforce that hi-fi long-read sequencing delivers better, more comprehensive results than the existing standard of care, which typically requires a multi-test process. The scientific validation strengthens our conviction that we can shift the standard of care paradigm entirely, benefiting patients and providers alike. On June 13th, the New England Journal of Medicine published an article called Clinical Long-Read Genome Sequencing for Rare Disease Diagnostics by Bitter et al., which is one of the strongest pieces of evidence for our thesis on the value of long-read sequencing, especially in the clinical setting. Overall, the results were compelling. Concordance between long-read genome sequencing and standard of care was 96.4%. Long-read improved or refined diagnoses in 3.4% of cases, while standard of care only caught variance that long-reads missed in 0.2% of cases. The publication demonstrates that Hi-Fi long-read sequencing is a clinically effective first-tier diagnostic test that improves diagnostic yield while also simplifying the laboratory workflow, reducing turnaround time, and enhancing the overall economics of rare disease diagnostics. Hundreds of millions of people globally have rare disease and most of them spend years seeing specialists and being submitted to testing with little resolution to their issues. We believe a publication of this caliber in the New England Journal of medicine also carries real weight with payers and health systems. It's the kind of evidence that accelerates the transition away from legacy diagnostic workflows to us. The second article was published in Nature Genetics entitled Near-Perfect Genome Sequencing in Medical Genetics by Saba et al. In the article, the authors proposed that long-read genome sequencing should be considered as one pillar of a broader technological convergence encompassing diploid genome assembly, pangeome references, and AI-driven variant interpretation turned near-perfect genome sequencing. They also highlighted the potential of near-perfect genome sequencing across postnatal, prenatal, and oncological settings while also outlining a staged implementation roadmap toward this one-test paradigm. Like the New England Journal of Medicine article, this article similarly supports the move to the one-test paradigm given the diagnostic completeness of long-read sequencing technology like HiFi. Beyond your diseases, we also announced a preprint from the HiFi Solve Subfertility Consortium in Asia-Pacific, which marks the first major study from that group. Subfertility affects around one in six couples globally, and yet the genetic evaluation most couples receive today is fragmented. Multiple sequential tests often require months or years of evaluation that frequently result in no definitive explanation. The data demonstrates that HIFO genome sequencing can provide a complete view of reproductive genetics in a single workflow, representing another long-term clinical opportunity for Additionally, our collaboration to run samples for Basecamp research has been going very Samples are in-house, and we are sequencing and delivering hundreds of samples to Basecamp each week. We expect Basecamp to contribute more meaningfully in 2027 when the majority of the samples will be processed. I'll now turn the call over to Jim.

Thank you, Mark. I will discuss non-GAAP results, which include non-cash stock-based compensation expenses. I encourage you to review the reconciliation of GAAP to non-GAAP financial measures in our earnings press release, and let's otherwise note that all growth rates are year-over-year. We reported total revenue of $39 million in the second quarter of 2026, compared to $39.8 million in the second quarter of 2025. Instrument revenue in the second quarter was $12.8 million, a decrease of 9% from $14.2 million in the second quarter of 2025, primarily reflecting a lower average selling price driven by customer mix, including lower-priced strategic Revio placements to key accounts and fewer Vegas system shipments as academic and government funding constraints, continued to pressure capital purchases. We sold 20 Revio systems, up from 15 in the prior year, and 26 Vega systems, down from 38, ending the quarter with cumulative shipments of 366 Revio systems and 200 Vega systems. Turning to consumables. Revenue of $20.1 million in the second quarter increased 6% from $18.9 million in the second quarter of 2025, with annualized Revio pull-through per system at approximately $202,000. Consumables revenue increased primarily due to the growth in the installed base and continued utilization of Revio systems, particularly among clinical customers. Growth was partially offset as customers worked through existing inventory and completed Sparknext's workflow validation prior to the broader adoption. Finally, service and other revenue was $6.1 million in the second quarter, compared to $6.7 million in the second quarter of 2025, reflecting continued growth in revenue of service contracts as our installed base expanded, offset by lower revenue as we completed a population sequencing program. From a regional perspective, America's revenue of $17.6 million was down slightly compared to the second quarter of 2025 as ongoing NIH and broader academic funding uncertainty continued to weigh on capital purchasing decisions. Clinical and commercial customer activity remained resilient, and we continued expanding our Vega install base within public health laboratories. For Asia Pacific, revenue of $7 million decreased 45% compared to the second quarter of 2025, primarily reflecting the conclusion of a significant population sequencing program, continued academic and government funding headwinds, and the lower consumables demand as customers completed Spark Next workflow validation and work through existing reagent inventory. AMIA revenue of $14.4 million increased 52% compared to the second quarter of 2025, reflecting continued clinical adoption as hospitals and clinical customers transitioned from pilot programs into routine production, together with growing demand for the VEGA platform and a significant strategic multi-system revenue replacement supporting a large-scale national genomics initiative. Moving down the P&L, second quarter non-GAAP gross profit of $13.9 million represented a non-GAAP gross margin of 36%, compared to a non-GAAP gross profit of $15.2 million or a gross margin of 38% in the second quarter of 2025. Non-GAAP gross margin declined primarily due to previously discussed compute cost inflation and lower manufacturing volumes. In addition, gross margin was impacted by $1.1 million in costs associated with transitioning Vega manufacturing in-house from our contract manufacturer. These transition costs are expected to conclude by the end of 2026. Separately, cash outflows were higher due to strategic purchases of memory components to support future production. Importantly, these purchases are largely timing-related, and we now expect to have sufficient memory to support operations through the end of 2026. Non-GAAP operating expenses were $56.1 million in the second quarter of 2026, a 3% decrease from $58.1 million in the second quarter of 2025. The year-over-year decline reflects continued expense discipline across the organization while maintaining investment in our highest strategic priorities. Operating expenses in the second quarter included $8.6 million of non-cash share-based compensation compared to $11 million in the prior year period. Regarding headcount, we ended the quarter with 492 employees compared to 485 at the end of 2025 and 491 at the end of the second quarter of 2025. As Mark discussed, we recently initiated a restructuring designed to further align our cost structure with our strategic priorities. This action is expected to reduce our workforce by approximately 40 employees and lower our ongoing operating expense base while preserving investment in our highest priority growth initiatives. Non-GAAP net loss was $41.9 million, representing $0.14 per share in the second quarter of 2026, compared to a non-GAAP net loss of $40 million, representing $0.13 per share in the second quarter of 2025. We ended the second quarter with approximately $236.9 million in unrestricted cash, cash equivalents, and investments, compared with $279.5 million at December 31st, 2025. Turning to our full-year outlook, given the dynamics that Mark cited, we are lowering our revenue expectations for 2026 to $155 to $165 million. Our revised outlook assumes consumables will remain the driver of growth, supported by continued utilization from clinical customers and the expanding of Revio and Vega installed base. At the same time, we expect Sparknext's adoption to build progressively through the second half as customers complete workflow validation and transition existing reagent inventories. We continue to assume no meaningful recovery in academic and government funding, particularly in the Americas, and a more gradual recovery in China than we had previously anticipated. We now expect non-cap gross margin to be in the range of 35% to 37% for 2026. This revised outlook reflects temporary Vega manufacturing transition costs of approximately $2.5 million, elevated compute and memory costs, a more gradual Sparknex adoption curve, and the margin impact of lower-priced strategic revenue placements. According to our cash outlook, we expect to end the year with approximately $175 million to $185 million in cash, reflecting our updated revenue outlook, continued investments in SPARK next, the temporary manufacturing costs, and working capital impacts we discussed today, and the cost reduction initiatives Mark outlined earlier. Non-GAAP operating expenses are expected to be in the range of $215 to $220 million, a reduction of $5 million from the range we guided in Q1, and down from 2025 levels. Looking ahead, we expect cash burn to step down meaningfully in 2027. In addition to the benefits of our restructuring, which we expect to reduce compensation-related expenses by approximately $15 million to $20 million next year, we expect to realize approximately $15 million to $20 million of additional annual savings as we move past development spending on our high-throughput platform. While these actions significantly improve our cash profile, our outlook also reflects the continued impact of elevated compute costs and a more gradual gross margin improvement than we previously anticipated. As a result, we now expect to achieve cash flow breakeven in 2028, compared to our prior expectation of the end of 2027. Based on our current operating plan, we believe our existing cash resources provide sufficient flexibility to execute our strategic priorities, support the commercialization of our new high-throughput platform, and fund the business through cash flow breakeven. I will now turn the call back to Mark for closing remarks.

Thanks, Jim. I'm energized about this next chapter for PacBio. The catalysts we've built toward, including Sparknext's full rollout, expanding clinical adoption, and our entry into population-scale genomics are now convergent. My focus as CEO is straightforward. Scale is driving growth, sharpen our execution, and run a leaner, more focused organization built around our highest conviction growth drivers. I've spent five years in this business, and I understand both its potential and what it takes to realize it. I'm confident in our team, our technology, and our path forward. With that, we'll open the line. Jim and I are available for questions.

We will now begin the question and answer session. Again, to ask a question, you may press star, then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. And to withdraw a question, please press star, then 2. On today's call, we ask that you please limit yourself to only one question during Q&A. If you have additional questions, you may rejoin the queue. And with that, we will pause just momentarily to assemble our roster. And our first question here will come from Kyle Mixon with Canaccord Genuity. Please go ahead.

Hey, guys. Thanks for the questions. Nice quarter. Tristan's great working views past several years. There's, you know, there's been the highs and the lows, but it's been overall a really impressive job. Mark, congrats on the roll. It's going to be great to see how things progress going over, so thanks, guys, for everything. Back to the quarter and the questions there. So I guess on the reviews in the Vegas, you know, interesting to see how many are still coming from new customers. I'm just curious how many are clinical customers. You know, that would be interesting to see if most of these new customers are clinical in nature and how that's kind of looking and shaping going forward.

Thanks, Kyle. It's going to be fun working with you as well. It's really my pleasure. And I'm just going to start just a quick thank you again to Christian and to recognize his contributions to FACBio. His industry knowledge and experience really has transformed FACBio. You know, we've got a portfolio of products. We've got the commercial scale now, workflows and service, clinical markets, and, you know, really honestly building off of that foundation and he's going to be you know continue to be a great partner to me as as he becomes a member of the board or stays a member of the board and advises me through this transition. You're speaking specifically about the revios in Vegas and maybe I'll start with revio because it was it was a good rebound for the revio as you can see we we should 20 revios this quarter. The majority of those to new the customers it's the multi-system placements which I think is a really important part of the Sparknext thesis, Kyle, to make sure that that economic is driving, you know, scaling of existing customers as well as bringing in new customers. In terms of the clinical adoption, the majority of those revenues are going to clinical accounts. And so we continue to see the momentum of the business there, not just on the growth and consumers, but on the instrument platform. Likewise, in the Vega, we had a smaller number than last year, but I think consistent with last quarter's overall Vega units. The majority of these are to brand new customers to PackBio, which, again, that was the idea with the Vega platform launch, was decentralize the high-five sequencing, expose more of the globe to our technology. And so, you know, we continue to do that. And again, Vega is predominantly, you know, still smaller targeted applications in terms of applications. I think what we noted there is, you know, the health labs are starting to pick up Vega. So, we're starting to see some momentum in wastewater testing and in your non-traditional uses of HiFi genome for higher throughput whole-genome type applications. So, really encouraged by the big and new customer demand as well as the clinical and public health lab adoption of it.

And our next question will come from Subu Nambi, with Gogenheim. Please go ahead.

This is Thomas on for Subu. Thanks for taking our question. On Revio, you said you placed some boxes to customers doing population-scale sequencing. You gave some comments on the consumable timing. Just thinking about those factors and some clinical accounts, can you just walk us through what you're expecting on poll through sequentially from here? Just what does the second half look like in terms of third quarter, fourth quarter? Thanks so much.

Yeah, on the population genome opportunity that we mentioned, you know, we'll disclose who that is when the timing's right for that. So, you know, expect for some further updates there. On the clinical customer scaling, this is where you start to see the scaling with much faster uptake of the consumables, again, driven with the Sparknext economics here again. So we expect those to start to implement and scale through the back half of this year. In terms of the overall timing of the Sparknext and consumable scaling, we are going through this transition. You saw we were relatively flat quarter over quarter on our consumables revenue. I would expect that to continue through this next quarter and then start scaling as we get through the back end of this year. You know, these Spark Next customers are optimizing their workflows. They're getting used to running our smart sales multiple times and hardening the validation of that. And so I expect this transition to last through this quarter and then start to scale towards the back end.

And our next question will come from Jack Meehan with Opron Research. Please go ahead.

Good afternoon, guys. And, Mark, congrats on the new role. Well, my question is for Jim. I was wondering if it was possible to talk about gross margins for memory. How much of your supply is locked in now for the second half in 2027? And can you talk about, like, what any incremental headwinds could be if the spot pricing holds? Maybe just on the positive side, you know, you've talked about the multi-use smart cells potentially improving PacBio gross margins. When do you think that's going to start to show up?

Thanks, Jack. So first, let's talk about the memory impact and its implications for this quarter and going on. So from the standpoint of supply, we are supplied through the end of 2026 based on our current forecast. So we have memory coverage, GPU coverage through then. We'll probably enter the market to start purchasing more memory tail end of this year. So as we're looking, and part of the reason we've adjusted our gross margin guidance down to 35% to 37% is we do expect the memory impact to persist through the rest of this year. We don't have good visibility into 27% yet. That's part of what drove some of the actions that Mark talked about in the restructuring. Number two is the other piece that's actually impacting our margins for the rest of this year is the transition costs with the Vega. So one of the things we're really trying to do is cut costs in the long-term as we insource manufacturing and bring down a number of suppliers. So part of that transition, we're incurring some unanticipated costs. However, it's allowing us to accelerate that transition to Vega to our in-house manufacturing. So that's something we are doing to help us look a lot better moving into 27. And then the third part of your question is, as Mark mentioned, we do expect the Sparknext ramp to increase more in the latter half of the second half of the year. So that will be offsetting some of those persistent memory costs and those transition costs. So we're excited to get the transition behind us. I think we're excited to see memory stabilize. I don't think we're going to necessarily see a decrease in memory, but I think one of the things we've been impacted by is the fluctuations in spot markets and how that's impacting our supply chain. So that's part of the reason we have some of the unanticipated impacts in the latter half of the year. But I think some of the early indicators are that's starting to stabilize. So thank you.

And our next question will come from Mason Carrico with Stevens. Please go ahead.

Hey, guys. Thanks for taking the question here. So on Spark Next, I guess could you just talk about the early signals and signs, I guess, that you're seeing from customers on whether that 30% to 40% cost reduction is expanding sample volumes to more than offset that pricing discount and how we should be thinking about, you know, maybe the sequential pacing of that playing out as we get into the back half of the year?

Yeah, thanks, Mason, for the question. So this Spark Next launch is critical for us to establish both ourselves in these larger scale programs, which we're seeing the indication of with some of these multi-system revenue deals, but also for that gross margin expansion that you talk about. The 30% price decrease I do expect us to overcome here as we work through the growth in the back half of this year. And so, you know, I think the timing is relatively short term. You know, we mentioned that we've already seen, you know, a third of our customers upgrade the software to enable the Sparknext, and so the demand is there. We have seen in AsiaPAC the drop in consumables in the second quarter was them burning down their Spark inventory and getting ready to take on the shipments of Sparknext at scale. So the early indicators are there and the excitement is there, as well as the opportunity for involvement in some of these larger projects. So we've looked for that gap to be closed as we work through this quarter and then exit at the back end of this year.

And our next question will come from Dan Brennan with TD Cohen. Please go ahead.

Hi. Pradeep on for Dan. This transition phase with the Sparknext chemistry on Revio with the, you know, with the existing inventory and the validation phase, do you similarly expect that with Vega consumables a few months after launch or not so much because that's a different base of customers? Thank you.

Yeah, I don't expect the same dynamic with Vega, mostly because Vega utilization is less than that of the review, and so I don't think you'll see the same impact on utilization with Vega. I think what you'll see with Vega is an opportunity for the Sparknext to expand the application set that Vega is used for. In this launch, we're increasing the throughput of Vega to be able to deliver 90 gigabases of yield. versus the 60 with the on-market version of Vega. And so we do think that that increase in data is going to enable people to start thinking about larger panels of genes, larger amplicon sets, you know, the occasional whole genome, whether that's human or non-human genome. So more than anything, I think the Sparknext on Vega with the higher throughput and the lower DNA input requirements is going to open up the applications that we see on that and drive utilization.

And our next question will come from David Westenberg with Piper Sandler. Please go ahead.

Hi. This is Skyon for Dave. Thanks for the question. Maybe just more generally, as the industry is shifting now towards multiomics, can you talk about the advantage of PacBio's long-read technology? Kind of what are you seeing from your biopharma partners? What are they looking for and where are the demands there?

So, this is where I really do believe that we are most differentiated. You know, we have the most comprehensive clinical genome or whole genome, you know, that lets us look at, if you think about multinomics in the sense of different varying classes. And so we're seeing a lot of interest in the repeat expansions and the structural variation that you see and then the diploid genomics that lead to the publications like the near-perfect genome paper. You know, the methylation is starting to expand in knowledge and the reference that's around that and the methylation signatures are starting to expand the desire for the methylation that comes with our genome analysis. So, you know, in the multi-omics sense of the DNA, we're starting to see a lot of progress, including that in chromatin architecture. In the RNA world, you know, the desire for isoforms and looking at the impact of isoforms across development and conditions is continuing to increase, which is driving the transcriptomics field into more of a transcriptomics rather than gene expression field. And so the combination of DNA and RNA is working really well for us. This is, you know, when I talk about how important it is for us to drive our data into better data sets and model training in the future, it is the comprehensiveness and the multi-omic nature of the data that makes this so attractive to people. Now, how can they look at something that's going to be future-proofed so that they can go there and use our data for AI model development, as we've seen with the base deal and work there? So, comprehensiveness and quality in multiomics is only becoming more and more prevalent in the conversation that we have with biopharma and or just the biology research community.

And our next question will come from Tycho Peterson of Jefferies. Please go ahead.

Hey, team. This is Lauren on for Tycho. Mark, congrats on the new role. Thanks for taking the question. Mine is around the guidance. So, you lowered it since last quarter, but that's despite having the Spark Next launch on both systems now. ramp in the back half of the year, new population-scale customer, accelerating Revio placements. Could you just talk about what's not showing up in these positive signals that resulted in the confidence to come down?

Yeah, thanks for the question. I do believe that the guidance that we provided, $155 million to $165 million, does reflect the confidence in our ability to execute. You know, while we do see the traction and a lot of positivity, you know, this is in the context of the Spark Next transition. And so I think, you know, because of that, I think it's appropriate that we have this guidance range on the revenue side. You know, the impact on the cost of compute that Jim was talking about is real. And while we're looking at different ways to mitigate that, and we've done some pre-purchasing of that, you know, I do think that the guidance on the gross margin is also better reflected with just the uncertainty that we have and some of the real headwinds that he fixed there. So to me, it's the Sparknext transition headwinds and the cost of compute headwinds that we just want to make sure that we're properly accounting for. And because of that, you know, we've ended up lowering, you know, or extending, sorry, our expectations on the cash flow flow break even to 2028. And so I think we take a really balanced view given the backdrop of what we're working through over the backdrop of this year.

And again, if you have a question or follow-up, you may press star and then want to join the queue. Our next question will come from Luke Sergat with Barclays. Please go ahead.

Great, thanks. Thanks, Mark. Congratulations. Long time coming. Christian, I hope we still see you at AGBT. Perennial on the dance floor out there. I guess just on the commercial rework, what spurred the changes and what's the new look going to be like? I mean, I understand that you want to be more focused and agile for the clinical customers, but you guys have AI customers now. You have POPC customers. Just what other investments are you going to need to make? Or, you know, what's that structure going to look like?

Yeah, thanks, Luke. And I'm sure we'll play some beer pong. You know, the clinical team is doing really well. And it's really leveraging what we're seeing in Europe and the clinical traction we're getting in Europe. And how can I more effectively take that out in a really, really, really positive combined motion into the rest of the world? So the restructure was a lot around the marketing organization to really focus them on the clinical workflows, the clinical marketing, how we're going to drive the understanding of the usefulness of HIFI around that clinical market. And so it is really alignment of marketing and sales motions and sales moving towards that clinical opportunity that we're really starting to see the early stages of success in Europe and then expanding that. So don't expect a massive change. We're going to continue to always support the plant and animal and the research community if the research budgets start to unlock here. But it's really just the education and awareness that's required right now for us to focus on that clinical opportunity. When you talk about biopharma and data strategies, you know, those are large, lumpier deals that are handled more in a business development or corporate development piece of the company. And so I don't see that as a major distraction. I really think it's just a united force on making sure that we're stepping into this clinical opportunity that I see ahead.

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