Pacific Biosciences of California : PacBio Q1 2024 Earnings Presentation

PacBio Q1 2024 Earnings Presentation

May 9, 2024

First Quarter 2024 Earnings Call

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Statement regarding‐ use of non‐GAAP financial measures

PacBio reports non GAAP results for basic and diluted net income and loss per share, net income, net loss, gross margins, gross profit and operating expenses in addition to, and not as a substitute for, or because it believes that such information is superior to, financial measures calculated in accordance with GAAP. PacBio believes that non-GAAP financial information, when taken collectively, may be helpful to investors because it provides consistency and comparability with past financial performance. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. In addition, other companies may calculate similarly titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of PacBio's non-GAAP financial measures as tools for comparison.

PacBio's financial measures under GAAP include substantial charges that are listed in the itemized reconciliations between GAAP and non‐GAAP financial measures included in this presentation. The amortization of acquired intangible assets excluded from GAAP financial measures relates to acquired intangible assets that were recorded as part of the purchase accounting during the year ended‐ December 31, 2021. Certain intangible assets contribute to revenue generation and its amortization will recur in future periods until they are fully amortized. Management has excluded the effects of these items in non GAAP measures to assist investors in analyzing and assessing past and future operating performance. In addition, management uses non-GAAP measures to compare PacBio's performance relative to forecasts and strategic plans and to benchmark its performance externally against competitors.

PacBio encourages investors to carefully consider its results under GAAP, as well as its supplemental non‐GAAP information and the reconciliation between these presentations, to more fully understand its business. A reconciliation of PacBio's non-GAAP financial measures to their most directly comparable financial measure stated in accordance with GAAP has been provided in the financial statement tables included in this presentation. PacBio is unable to reconcile future looking non-GAAP guidance included in this presentation without unreasonable effort because certain items that impact this measure are out of PacBio's control and/or cannot be reasonably predicted at this time.

Forward-Looking Statements

This presentation contains "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and the U.S. Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are forward-looking statements, including statements relating to our expectations for future operating results, revenue, revenue mix, margins, guidance, cash burn, goals, operating plans and long-term growth; expectations with respect to the commercial success of Revio and Onso; expectations with respect to development and commercialization timeframes; statements relating to the availability, uses, accuracy, coverage, advantages, quality or performance of, or benefits or expected benefits of using, PacBio products or technologies; the impact of new products and technologies, including the Revio and Onso systems; throughput, scalability, affordability, coverage, run times, data, density, type and cost per genome; pricing, consumable requirements, number of genomes that can be sequenced per year; the use of AI-enable compute in the Revio system and related improvements in yield and accuracy; schedule flexibility and downtime; references that PacBio is the future of sequencing; expected delivery timeframes; expectations regarding competition in the short- and long-read sequencing technologies markets; market sizes, market and revenue growth and market opportunities, as well as our ability to capture market share; and statements relating to PacBio's cost-saving plans and initiatives as well as the expected financial impact and timing of these plans and initiatives. Reported results and orders for any instrument system should not be considered an indication of future performance. You should not place undue reliance on forward-looking statements because they are subject to assumptions, risks, and uncertainties and could cause actual outcomes and results to differ materially from currently anticipated results, including, challenges inherent in developing, manufacturing, launching, marketing and selling new products, and achieving anticipated new sales; potential cancellation of existing instrument orders; assumptions, risks and uncertainties related to the ability to attract new customers and retain and grow sales from existing customers; risks related to PacBio's ability to successfully execute and realize the benefits of acquisitions; the impact of U.S. export restrictions on the shipment of PacBio products to certain countries; rapidly changing technologies and extensive competition in genomic sequencing; unanticipated increases in costs or expenses; interruptions or delays in the supply of components or materials for, or manufacturing of, PacBio products and products under development; potential product performance and quality issues and potential delays in development timelines; the possible loss of key employees, customers, or suppliers; customers and prospective customers curtailing or suspending activities using PacBio's products; third-party claims alleging infringement of patents and proprietary rights or seeking to invalidate PacBio's patents or proprietary rights; risks associated with international operations; and other risks associated with general macroeconomic conditions and geopolitical instability. Additional factors that could materially affect actual results can be found in PacBio's most recent filings with the Securities and Exchange Commission, including PacBio's most recent reports on Forms 8-K,10-K, and 10-Q, and include those listed under the caption "Risk Factors." These forward-looking statements are based on current expectations and speak only as of the date hereof; except as required by law, PacBio disclaims any obligation to revise or update these forward-looking statements to reflect events or circumstances in the future, even if new information becomes available.

The unaudited condensed consolidated financial statements that follow should be read in conjunction with the notes set forth in PacBio's Quarterly Report on Form 10-Q when filed with the Securities and Exchange Commission.

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Business and Commercial Updates

Christian Henry, President and CEO

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Q1 Revenue and FY

2024 Guidance

$38.8M

First quarter revenue; ~flat vs Q1 2023

$170M - $200M

Full-year 2024 revenue guidance1

Today we will:

• Discuss some of the factors that contributed to our previously announced revenue shortfall and revised full-year guidance.
• Discuss the steps we are taking to return to revenue growth and why we are confident in the assumptions underlying our updated financial forecasts.
• Share our re-focused priorities for 2024, which we believe will position us to build PacBio into a sustainable, cash-flow- positive company with the ability to execute in any macroenvironment.

Takeaway:

• While we forecast near-term growth to be lower than our original guidance for 2024, we have never been more confident in the value of our platforms, our long-term growth potential, and our ability to capture market share in the multi- billion dollar opportunity in sequencing.

1Guidance as of 5/9/2024 only

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Instrument shortfall primarily resulted from elongated purchasing cycles

The median sales cycle for Revio instrument purchases increased more than expected in Q1 2024

We believe drivers to instrument shortfall include:

• Uncertainty surrounding the timing of funding for new capital equipment, particularly in the U.S. and China.
• Smaller Sequel II and IIe customers who are planning to upgrade to a Revio are waiting for the samples to drive the upgrade.
• An increasing proportion of the sales pipeline was comprised of new customers in the first quarter of 2024, which have proven to have longer sales cycles compared to existing PacBio customers.

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Consumable revenue +15% year-over-year, but below our expectations

We believe this was primarily attributed to:

• Slower-than-expectedramp-up in sequencing by our small- to mid-sized customers, many of whom are new to PacBio; the time for new Revio customers and new projects to reach full capacity has been slower than previously anticipated.
• Sample delays impacting sequencing volume in the quarter for certain large customers.
• Some smaller service providers in China operating at lower utilization as a result of the challenging funding environment.

More customers than we expected utilized their Revio systems at less than 20% capacity

Revio Installed Base - Utilization, pull-through, and age

Utilization1	0% - 20%	21% - 50%	>50%
Pull Through2	~120K	~270K	~445K
Avg. months	< 4	~ 6	> 6
since install3

1Represents installed base as of 12/31/2023 and does not include customers not connected to SMRT Link
2Represents average annualized pull through for each utilization group for Q1 2024	6
3Average number of months since the system was installed at the customer site as of 12/31/2023

We are implementing several strategies aimed at accelerating instrument and consumable revenue

1. Intense focus on the customer

• Organizing PRISM roadshows: 6 cities, ~1,000 registered attendees, >500 organizations.
• Reducing spans/layers of commercial org, allowing leadership to get closer to/more involved in the sales process.
• Establishing 'tiger teams' to actively work with low-volume customers to accelerate Revio ramp.
• Collaborating with customers to demonstrate the value of HiFi long-read sequencing.

2. Addressing the upfront CapEx barrier

• Implementing promotions that ease customers' upfront capex requirements while preserving PacBio's overall economic value. These promotions have already created more funnel opportunities, which we believe will close this year.
• Focusing our product development on a benchtop platform, which will allow for a lower capex entry and, upon launch, potentially open PacBio HiFi sequencing to hundreds of new global customers.

3. Expanding addressable market and applications

• Investing in developing library prep + informatics solutions that enhance Revio's value proposition, including PureTarget for targeted clinical research applications and Kinnex for transcriptomics, and 16S metagenomics.
• Developing enhancements that we believe will further reduce DNA inputs below one microgram for 30x WGS - potentially opening up more existing samples/new projects to HiFi.

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The demand for and interest in our products indicates the tremendous market opportunity ahead

Long-read data generated1

demonstrates continued market

share gain for long-reads

Revio

Sequel II/IIe

Q1	Q2	Q3	Q4	Q1	Q2	Q3	Q4	Q1
2022	2022	2022	2022	2023	2023	2023	2023	2024

~2.5x data generated

from PacBio sequencers year-over-year

Cumulative Revio shipments (installed base)

			173	201
		129
32	77
Q1 2023	Q2 2023	Q3 2023	Q4 2023	Q1 2024

Fastest installed base ramp

in PacBio history. Installed base equal to the throughput of >3,000 Sequel IIes

Continued adoption by new customers

New

57 Of Revios shipped in Q1 % 2024 went to new PacBio

instrument customers

1As of 3/31/2024; represents total petabases sequenced by customers using Sequel II/IIe and Revio

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Revio customers plan to implement HiFi for large-scale projects and rare disease/cancer research

Selected Revio exclusively over other short and long read technologies to sequence 10,000 whole human genomes as part of their goal to adopt personalized medicine at scale and understand the underlying genetics of health, disease, and treatment outcomes.

In collaboration with University of California, Irvine and the GREGoR Consortium, plans to sequence up to 7,000 human genomes aimed at improving health outcomes for families battling rare diseases over the next three years.

Utilized one of our recently-announced instrument promotions and plans to use HiFi long read technology to improve its testing capabilities in rare disease and cancer.

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Enhancing our software, launching new library prep, and sample prep solutions which make PacBio sequencing turnkey and more accessible than ever

We believe new products can help contribute to a recurring revenue outside the core sequencing reagents and / or drive more sequencing on the platform

Launched Q4 2023		Launched Q1 2024

V13 Software

Adaptive loading

Run preview

Shorter / longer inserts

5 Gb Improvement in SMRT Cell yield for hWGS apps1

Kinnex

Scalable, cost-effective RNA sequencing

Full-length RNA, single-cell RNA, 16S rRNA

160 Customers since Q4 launch1

>$1.5M in cumulative orders1

Nanobind PanDNA Kit

Provides fully-automated and scalable solution

Lowers cost of sample prep

>1,000 customers ordering since acquisition of Circulomics1

Highest revenue quarter for Circulomics products since acquisition2

HiFi Prep Kit 96 and Plex Prep Kit 96

8hr prep time DNA  library

Scalable and compatible with automation

Lower DNA input required

Some of our largest customers are adopting these kits to help them further scale their projects

Repeat expansion panel

Comprehensive characterization of repeat expansions

192 samples per Revio run

w/ TRGT repeat expansion caller & Nanobind = 3-day E2E solution

Interest from customers ranging from pediatric hospitals to large commercial testing labs, biopharma, and academic labs

1As of 3/31/2024

2excludes OEM sales to one large customer

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