PACIFIC BIOSCIENCES OF CALIFORNIA INC

Previous wording

Our focus is on creating some of the world`s most advanced sequencing systems to provide our customers the most complete and accurate view of genomes, transcriptomes, and epigenomes.

Current wording

Our focus is on creating some of the world's most advanced sequencing systems to provide our customers the most complete and accurate view of genomes, transcriptomes, and epigenomes.

Previous wording

•Implement projects to improve our gross margin and drive manufacturing efficiencies;

Current wording

•Improve our gross margin and drive manufacturing efficiencies;

Previous wording

During the second quarter of 2024, we announced plans to reduce certain annualized run-rate operating expenses by the end of 2024, with the intent of better aligning our organizational structure and resources with our strategic initiatives. Our planned expense reduction measures comprise, among other things, workforce reductions, facilities downsizing and a refined pipeline of development activities.

Current wording

During the second quarter of 2024, we announced plans to reduce annualized run-rate operating expenses by the end of 2024, with the intent of better aligning our organizational structure and resources with our strategic initiatives. Our planned and ongoing expense reduction initiatives comprise, among other things, workforce reductions, facilities downsizing and a refined pipeline of development activities, with the majority of the expense reduction activities already initiated during the three months ended June 30, 2024. For the three months ended June 30, 2024, we incurred approximately $18.0 million of restructuring charges primarily related to employee separation costs, accelerated amortization and depreciation for right-of-use assets, leasehold improvements, and furniture and fixtures relating to the planned abandonment of the San Diego office, as well as charges for excess inventory due to a decrease in internal demand relating to the expense reduction initiatives. We also anticipate incurring approximately $8.3 million in additional costs over the remainder of 2024. See Note 6. Restructuring in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.

Previous wording

Key highlights of the three months ended March 31, 2024 consolidated financial results include the following:

Current wording

Key highlights of the six months ended June 30, 2024 consolidated financial results include the following:

Previous wording

•Revenue decreased slightly to $38.8 million for the three months ended March 31, 2024, as compared to $38.9 million for the three months ended March 31, 2023. Revenue was comprised of $19.0 million in instrument revenue, $16.0 million in consumables revenue and $3.8 million in service and other revenue for the three months ended March 31, 2024. The decrease was due to lower Revio unit sales which was partially offset by higher consumable sales.

Current wording

•Revenue decreased to $74.8 million for the six months ended June 30, 2024, as compared to $86.5 million for the six months ended June 30, 2023. Revenue was comprised of $33.7 million in instrument revenue, $33.0 million in consumables revenue and $8.1 million in service and other revenue for the six months ended June 30, 2024. Revenue was comprised of $50.6 million in instrument revenue, $27.7 million in consumables revenue and $8.2 million in service and other revenue for the six months ended June 30, 2023. The decrease was primarily due to lower Revio unit sales, which was partially offset by higher consumable sales.

Previous wording

•Gross profit as a percentage of revenue (gross margin) was 29% for the three months ended March 31, 2024, compared to 25% for the three months ended March 31, 2023. Gross margin increased primarily due to adjustments in the first quarter of 2023 that did not recur in the first quarter of 2024 of approximately $3.5 million relating to excess consumables inventory, partially offset by an increase in amortization of acquired intangible assets.

Current wording

•Gross profit as a percentage of revenue (gross margin) was 23% for the six months ended June 30, 2024, compared to 29% for the six months ended June 30, 2023. Gross margin decreased for the six months ended June 30, 2024 primarily due to the decrease in revenue described above, $4.6 million of restructuring charges, and an increase of $3.6 million in amortization of acquired intangible assets, partially offset by adjustments in the first quarter of 2023 of approximately $3.5 million relating to excess consumables inventory.

Previous wording

•Loss from operations decreased $9.9 million, or 11%, to $81.4 million for the three months ended March 31, 2024, as compared to $91.3 million for the three months ended March 31, 2023, driven primarily by a decrease of $8.4 million of operating expenses, including a $12.3 million decrease in the change in the fair value of the contingent consideration and a $5.5 million decrease in research and development expenses, partially offset by a $3.9 million increase in sales, general and administrative expenses and a $5.5 million increase in amortization of acquired intangible assets.

Current wording

•Loss from operations increased $92.8 million to $257.2 million for the six months ended June 30, 2024, as compared to $164.4 million for the six months ended June 30, 2023, primarily driven by an increase in operating expenses and the decrease in revenue described above, partially offset by a decrease in cost of revenue. Operating expenses increased $84.7 million primarily driven by a $93.2 million goodwill impairment charge, $13.4 million of restructuring charges, and a $9.7 million increase in amortization of acquired intangible assets, partially offset by a $14.3 million decrease in the change in the fair value of the contingent consideration and a decrease in research and development expenses. We anticipate research and development expense and sales, general and administrative expense to continue to decrease for the remainder of 2024 as compared to the prior year driven by our expense reduction initiatives.

Previous wording

•Cash, cash equivalents, and short-term investments were $561.9 million at March 31, 2024, which represents a 11% decrease compared to the balance at December 31, 2023.

Current wording

•Cash, cash equivalents, and short-term investments were $509.8 million at June 30, 2024, which represents a 19% decrease compared to the balance at December 31, 2023.

Previous wording

The median sales cycle for Revio instrument purchases increased more than expected in the first quarter of 2024. We believe this has been caused by, among other reasons, the uncertainty surrounding the funding for new capital equipment, particularly in the U.S. and China; procurement delays; small-to-mid-size existing customers yet to increase their sample volumes to drive an upgrade to Revio; and an increasing proportion of the sales pipeline being comprised of new customers, which have shown they have longer sales cycles compared to existing PacBio customers.

Current wording

The median sales cycle for Revio instrument purchases continues to be longer than expected during 2024. We believe this has been caused by, among other reasons, the uncertainty surrounding the funding for new capital equipment, particularly in the U.S. and China; procurement delays, particularly in the Asia-Pacific and Europe regions; small-to-mid-size existing customers yet to increase their sample volumes to drive an upgrade to Revio; new customers, which have shown they have longer sales cycles compared to existing PacBio customers; and sample volumes materializing slower than expected for some potential Revio customers.

Previous wording

We believe our consumables revenue was also impacted primarily by, among other reasons, slower-than-expected ramp-up in sequencing by our small- to mid-sized customers, many of whom are new to PacBio; sample delays impacting sequencing volume in the quarter at certain large customers; and some service providers in China operating at lower utilization as a result of the difficult funding environment.

Current wording

We believe our consumables revenue was also impacted primarily by, among other reasons, slower-than-expected ramp-up in sequencing by our small- to mid-sized customers, many of whom are new to PacBio; sample delays impacting sequencing volume at certain large customers; and some service providers in China operating at lower utilization as a result of the difficult funding environment.

Previous wording

These factors could continue to impact our revenues and results of operations in future periods; however, the magnitude and duration of these impacts is uncertain and inherently unpredictable.

Current wording

Macroeconomic dynamics impacting the Company in the future may include rising inflation, geopolitical tensions, volatile capital markets, and fluctuating exchange rates. These factors could continue to impact our revenues and results of operations in future periods; however, the magnitude and duration of these impacts is uncertain and inherently unpredictable.

Previous wording

On an ongoing basis, we evaluate our significant estimates, including those related to the valuation of indefinite-lived and long-lived assets. However, these estimates could change in future periods based on events or changes in circumstances, which could result in material impairment charges. Refer to the Critical Accounting Policies and Estimates section of our Annual Report on Form 10-K for the year ended December 31, 2023 for further discussion on the Company's asset impairment assessments.

Current wording

On an ongoing basis, we evaluate our significant estimates, including those related to the valuation of indefinite-lived and finite-lived assets. However, these estimates could change in future periods based on events or changes in circumstances, which could result in material impairment charges. We recorded a $93.2 million goodwill impairment charge for the three months ended June 30, 2024. See additional discussion below in Results of Operations, as well as Note 4. Balance Sheet Components in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information. Additionally, refer to the Critical Accounting Policies and Estimates section of our Annual Report on Form 10-K for the year ended December 31, 2023 for further discussion on the Company's asset impairment assessments.

Previous wording

Instrument revenue decreased $1.7 million, or 8%, to $19.0 million for the three months ended March 31, 2024, as compared to $20.7 million for the three months ended March 31, 2023, primarily due to the sale of 28 Revio systems during the three months ended March 31, 2024 compared to 32 Revio systems during the three months ended March 31, 2023.

Current wording

Instrument revenue decreased $15.2 million, or 51%, to $14.7 million for the three months ended June 30, 2024, as compared to $29.9 million for the three months ended June 30, 2023, primarily due to the sale of 24 Revio systems during the three months ended June 30, 2024 compared to 45 Revio systems during the three months ended June 30, 2023.

Previous wording

Consumables revenue increased $2.0 million, or 15%, to $16.0 million for the three months ended March 31, 2024, as compared to $14.0 million for the three months ended March 31, 2023. The increase in consumable sales was primarily due to higher Revio consumables sales attributable to the growth in the Revio instrument installed base, partially offset by a decline in Sequel II and IIe consumables as customers transition to Revio. We expect Revio consumable sales to increase as the installed base grows. While we expect to see a decline in Sequel II and IIe consumable sales resulting from the product transition, there is uncertainty as to the rate at which these sales will decline.

Current wording

Consumables revenue increased $3.3 million, or 24%, to $17.0 million for the three months ended June 30, 2024, as compared to $13.7 million for the three months ended June 30, 2023. The increase in consumable sales was primarily due to higher Revio consumables sales attributable to the growth in the Revio instrument installed base, partially offset by a decline in Sequel II and IIe consumables as customers transition to Revio. We expect Revio consumable sales to increase as the installed base grows. While we expect to see a decline in Sequel II and IIe consumable sales resulting from the product transition, there is uncertainty as to the rate at which these sales will decline.

Previous wording

Cost of product revenue decreased $2.7 million, or 11%, for the three months ended March 31, 2024, compared to the three months ended March 31, 2023. The cost of product revenue decreased primarily due to lower instrument sales and adjustments of approximately $3.5 million recognized in the first quarter of 2023 primarily relating to excess consumables inventory due to the product transition to Revio, partially offset by higher consumable sales and for the three months ended March 31, 2024. Cost of revenue included share-based compensation expense of $2.1 million and $1.9 million during the three months ended March 31, 2024 and 2023, respectively.

Current wording

Cost of product revenue decreased $5.3 million, or 19%, for the three months ended June 30, 2024, compared to the three months ended June 30, 2023 primarily driven by the decrease in revenue described above, partially offset by restructuring charges of $4.6 million, including charges for excess inventory due to a decrease in internal demand relating to the expense reduction initiatives during the three months ended June 30, 2024. Cost of revenue included amortization attributable to acquired intangible assets of $2.6 million that are related to sales generating activities. Cost of revenue included share-based compensation expense of $1.1 million and $1.2 million during the three months ended June 30, 2024 and 2023, respectively.

Previous wording

Research and development expense decreased by $5.5 million, or 11%, to $43.5 million for the three months ended March 31, 2024, compared to $48.9 million for the three months ended March 31, 2023. The decrease was primarily driven by a decrease in personnel expenses due to restructuring activities in the fourth quarter of 2023 and the transition of recently launched products from development to commercialization. Research and development expense included share-based compensation expense of $5.8 million and $6.7 million during the three months ended March 31, 2024 and 2023, respectively. We anticipate research and development expense to further decrease during 2024 in connection with our recently announced expense reduction initiatives, primarily due to headcount reductions.

Current wording

Research and development expense decreased by $7.7 million, or 17%, to $38.5 million for the three months ended June 30, 2024, compared to $46.2 million for the three months ended June 30, 2023. The decrease was primarily driven by a decrease in personnel expenses due to restructuring activities and the transition of recently launched products from development to commercialization. We incurred restructuring charges of $5.9 million, primarily related to employee separation benefits during the three months ended June 30, 2024. Research and development expense included share-based compensation expense of $4.6 million and $5.4 million during the three months ended June 30, 2024 and 2023, respectively.

Previous wording

Amortization of acquired intangible assets included in operating expenses of $5.5 million during the three months ended March 31, 2024 consists of amortization expense attributable to acquired intangible assets that are not directly related to sales generating activities.

Current wording

Amortization of acquired intangible assets included in operating expenses of $4.2 million during the three months ended June 30, 2024 consists of amortization expense attributable to acquired intangible assets that are not directly related to sales generating activities.

Previous wording

Interest expense for the three months ended March 31, 2024, was $3.6 million compared to $3.6 million for the three months ended March 31, 2023 and was primarily comprised of interest on the convertible senior notes.

Current wording

Interest expense for the three months ended June 30, 2024, was $3.5 million compared to $3.6 million for the three months ended June 30, 2023 and was primarily comprised of interest on the convertible senior notes.

Previous wording

Other income, net for the three months ended March 31, 2024, was $6.8 million compared to $6.9 million for the three months ended March 31, 2023.

Current wording

Other income, net for the three months ended June 30, 2024, was $6.1 million compared to $8.9 million for the three months ended June 30, 2023. The decrease was primarily driven by lower investment income due to lower cash and investment balances.

Previous wording

The change in fair value of contingent consideration during the three months ended March 31, 2024, represents the remeasurement impact of the Apton contingent consideration due upon the achievement of the milestone, while the change in fair value of contingent consideration during the three months ended March 31, 2023, represents the remeasurement impact of the Omniome contingent consideration, which was achieved in the third quarter of 2023. The decrease in the change in fair value of contingent consideration was primarily due to the change in the milestone in the first quarter of 2024 as compared to the first quarter of 2023.

Current wording

Change in fair value of contingent consideration during the six months ended June 30, 2024, represents the remeasurement impact of the Apton contingent consideration due upon the achievement of the milestone.

Previous wording

As of March 31, 2024, we had cash, cash equivalents and investments of $561.9 million compared to $631.4 million as of December 31, 2023. We believe that our existing cash, cash equivalents and investments will be sufficient to fund our projected operating requirements beyond the next 12 months from the date of filing of this Quarterly Report on Form 10-Q for the quarter ended March 31, 2024.

Current wording

As of June 30, 2024, we had cash, cash equivalents and investments of $509.8 million compared to $631.4 million as of December 31, 2023. We believe that our existing cash, cash equivalents and investments will be sufficient to fund our projected operating requirements beyond the next 12 months from the date of filing of this Quarterly Report on Form 10-Q for the quarter ended June 30, 2024.

Previous wording

We approved and began implementing certain efficiency and expense reduction initiatives in the second quarter of 2024. These expense reduction initiatives include workforce reductions, facilities downsizing and a refined pipeline of development activities. The cost-savings initiatives are expected to reduce certain annualized run-rate operating expenses by the end of 2024.

Current wording

We approved and began implementing certain efficiency and expense reduction initiatives in the second quarter of 2024. These expense reduction initiatives include workforce reductions, facilities downsizing and a refined pipeline of development activities and are expected to reduce annualized run-rate operating expenses by the end of 2024.

Previous wording

Factors that may affect our capital needs include, but are not limited to, the pace of adoption of our products, which affects the sales of our products and services; our ability to efficiently manage our operations; the effectiveness of our expense reduction measures; our ability to obtain new collaboration and customer arrangements and maintain existing collaborations and arrangements; the progress of our research and development programs; initiation or expansion of research programs and collaborations; the purchase of patent licenses; the impact of product quality; litigation costs, including the costs involved in preparing, filing, prosecuting, defending and enforcing intellectual property rights; costs of developing new and enhanced products; acquisitions of complementary businesses, technologies or assets; achievement of milestones in connection with acquisitions; and other factors. There can be no assurance that funds will be available on favorable terms, or at all.

Current wording

Factors that may affect our capital needs include, but are not limited to, the pace of adoption of our products, which affects the sales of our products and services; our ability to efficiently manage our operations; the effectiveness of our expense reduction initiatives; our ability to obtain new collaboration and customer arrangements and maintain existing collaborations and arrangements; the progress of our research and development programs; initiation, expansion, or funding of research programs and collaborations; the purchase of patent licenses; the impact of product quality; litigation costs, including the costs involved in preparing, filing, prosecuting, defending and enforcing intellectual property rights; costs of developing new and enhanced products; acquisitions of complementary businesses, technologies or assets; achievement of milestones in connection with acquisitions; and other factors. There can be no assurance that funds will be available on favorable terms, or at all.

Previous wording

In connection with the acquisition of Apton, we entered into an arrangement where we are obligated to pay former holders of Apton's outstanding equity interests $25.0 million upon the achievement of $50 million in revenue associated with a high throughput sequencer using Apton's technology, provided that the milestone event occurs prior to the 5-year anniversary of the closing date of the acquisition, which we may elect to pay in cash, shares of our common stock or a combination of cash and shares of our common stock. See Note 2. Business Acquisitions in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.

Current wording

In connection with the acquisition of Apton, we entered into an arrangement where we are obligated to pay former holders of Apton's outstanding equity interests $25.0 million upon the achievement of $50.0 million in revenue associated with a high throughput sequencer using Apton's technology, provided that the milestone event occurs prior to the five-year anniversary of the closing date of the acquisition, which we may elect to pay in cash, shares of our common stock or a combination of cash and shares of our common stock. See Note 2. Business Acquisitions in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.

Previous wording

Cash used in operating activities for the three months ended March 31, 2024 of $75.7 million was due primarily to a $78.2 million net loss that included non-cash items such as share-based compensation of $19.5 million, amortization of intangible assets of $6.9 million, depreciation expense of $3.2 million, and amortization of right-of-use assets of $1.9 million. This was offset by the accretion of discount and amortization of premium on marketable securities, net of $4.0 million, and $25.3 million in net changes to operating assets and liabilities. Cash flow impact from changes in net operating assets and liabilities was primarily driven by an increase in inventory, as well as decreases in accrued expenses, other liabilities, and operating lease liabilities. These uses of cash were partially offset by decreases in accounts receivable and prepaid expenses and other assets and increases in accounts payable and deferred revenue.

Current wording

Cash used in operating activities for the six months ended June 30, 2024 of $129.9 million was due primarily to a $251.5 million net loss that included non-cash items such as a goodwill impairment charge of $93.2 million, share-based compensation of $36.7 million, amortization of acquired intangible assets of $13.7 million, depreciation expense of $6.7 million and amortization of right-of-use assets of $5.9 million. This was offset by the accretion of discount and amortization of premium on marketable securities, net of $7.6 million and $31.7 million in net changes to operating assets and liabilities. Cash flow impact from changes in net operating assets and liabilities was primarily driven by an increase in inventory, as well as decreases in accrued expenses and operating lease liabilities. These uses of cash were partially offset by decreases in accounts receivable and prepaid expenses and other assets and increases in accounts payable and deferred revenue.

Previous wording

Cash used in operating activities for the three months ended March 31, 2023, of $94.7 million was due primarily to a $88.0 million net loss that included non-cash items such as share-based compensation of $18.0 million, change in estimated fair value of contingent consideration of $12.3 million, depreciation expense of $2.8 million, amortization of right-of-use assets of $1.5 million. This was offset by the accretion of discount and amortization of premium on marketable securities, net of $2.2 million and $43.1 million in net changes to operating assets and liabilities. Cash flow impact from changes in net operating assets and liabilities were primarily driven by increases in inventory, accounts receivable and prepaid and other assets, as well as decreases in accrued expenses, other liabilities and operating lease liabilities. These uses of cash were partially offset by an increase in accounts payable.

Current wording

Cash used in operating activities for the six months ended June 30, 2023 of $136.4 million was due primarily to a $157.8 million net loss that included non-cash items such as share-based compensation of $35.8 million, change in estimated fair value of contingent consideration of $14.2 million, depreciation expense of $5.6 million, inventory provisions of $4.3 million, amortization of right-of-use assets of $3.3 million, and loss on extinguishment of debt of $2.0 million. This was offset by the accretion of discount and amortization of premium on marketable securities, net of $6.1 million and $38.6 million in net changes to operating assets and liabilities. Cash flow impact from changes in net operating assets and liabilities was primarily driven by increases in inventory, accounts receivable and prepaid and other assets, as well as decreases in accrued expenses, operating lease liabilities and deferred revenue. These uses of cash were partially offset by an increase in accounts payable.

Previous wording

Cash used in investing activities for the three months ended March 31, 2024, was primarily due to $191.9 million in purchases of investments and $3.9 million in purchases of property and equipment partially offset by $161.7 million of maturities of investments.

Current wording

Cash provided by investing activities for the six months ended June 30, 2024, was primarily from $351.6 million of maturities of investments partially offset by $303.6 million in purchases of investments and $5.4 million in purchases of property and equipment.

Previous wording

Cash used in investing activities for the three months ended March 31, 2023, was due to $233.3 million in purchases of investments and $3.7 million in purchases of property and equipment offset by $164.5 million of maturities and sales of investments.

Current wording

Cash used in investing activities for the six months ended June 30, 2023, was due to $311.7 million of maturities and sales of investments offset by $476.9 million in purchases of investments, and $6.0 million in purchases of property and equipment.

Previous wording

Cash provided by financing activities during the three months ended March 31, 2024 resulted primarily from $6.9 million from the issuance of common stock through our equity compensation plans.

Current wording

Cash provided by financing activities during the six months ended June 30, 2024 resulted primarily from $6.9 million of proceeds from the issuance of common stock through our equity compensation plans.

Previous wording

Cash provided by financing activities during the three months ended March 31, 2023 primarily resulted from $189.2 million in net proceeds related to the issuance of common stock from the underwritten public equity offering and $7.2 million from the issuance of common stock through our equity compensation plans.

Current wording

Cash provided by financing activities during the six months ended June 30, 2023 primarily resulted from $189.2 million in net proceeds related to the issuance of common stock from the underwritten public equity offering and $9.8 million from the issuance of common stock through our equity compensation plans offset by $6.8 million from the payment of debt issuance costs.

Previous wording

We presented our contractual obligations at December 31, 2023 in our Annual Report on Form 10-K for the year then ended. There were no material changes outside the ordinary course of business to our contractual obligations during the three months ended March 31, 2024.

Current wording

We presented our contractual obligations at December 31, 2023 in our Annual Report on Form 10-K for the year then ended. There were no material changes outside the ordinary course of business to our contractual obligations during the six months ended June 30, 2024.