Pacific Biosciences of California (PACB) Q2 2022 Earnings Call Transcript

Pacific Biosciences of California (PACB -7.82%)
Q2 2022 Earnings Call
Aug 03, 2022, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to the PacBio second quarter fiscal year 2022 earnings call. All participants will be in a listen-only mode. [Operator instructions] After today's presentation, there will be an opportunity to ask questions. [Operator instructions] I would like now to turn the conference over to Mr.

Todd Friedman, director of investor relations. Please go ahead.

Todd Friedman -- Director of Investor Relations

Good afternoon, and welcome to PacBio's second quarter 2022 earnings conference call. Earlier today, we issued a press release outlining the financial results we will be discussing on today's call, a copy of which is available on the Investor's section of our website at www.pacb.com or as furnished on Form 8-K available on the Securities and Exchange Commission website, at www.sec.gov. With me today are Christian Henry, president and chief executive officer; and Susan Kim, chief financial officer. Before we begin, I would like to remind you that on today's call, we will be making forward-looking statements, including statements regarding predictions, progress, estimates, plans, expectations, intentions, guidance, and others, including expectations with respect to collaborations, cash flow, and product and technology launches.

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. These risks and uncertainties, as well as other risks and uncertainties, are more fully described in our press release earlier today and in our Form 8-K, Form 10-Q, Form 10-K, and other filings with the Securities and Exchange Commission. We disclaim any obligation to update or revise these forward-looking statements, except as required by law. During the call, we will also present certain financial information on a non-GAAP basis.

Management believes that non-GAAP financial measures, taken in conjunction with U.S. GAAP financial measures, provide useful information to compare our performance relative to forecasts and strategic plans, and to benchmark our performance externally against competitors. Reconciliations between U.S. GAAP and non-GAAP results are presented in tables within our earnings release.

In addition, please note that today's call is being recorded and will be available for audio replay on the Investor's section of our website shortly after the call. Investors electing to use the audio replay are cautioned that forward-looking statements made on today's call may differ or change materially after the completion of the live call. I will now turn the call over to Christian.

Christian Henry -- President and Chief Executive Officer

Good afternoon, everybody. We appreciate you joining us today. On today's call, I'll provide an update on our 2022 revenue outlook, highlight the results for the second quarter of 2022, discuss some recent business and commercial successes, and then we will have Susan will get into our financial results and guidance in much more detail. September will mark my two-year anniversary at PacBio, and in that time, we have undergone a remarkable transformation.

First, we've been able to build a talented and experienced team to lead the company and execute a strategy, that will leverage our technology and commercial scale to serve our customers around the globe and drive growth. We also acquired Omniome and Circulomics adding core products and technologies to our portfolio. As a result of these acquisitions and through our aggressive product development investments, we expect to be the first company to commercialize both highly accurate long read and short read technologies, providing our customers with the right product for their application of interest and, as a result, serving the entire genomic sequencing landscape. Additionally, we believe that our portfolio will create significant value for our customers, as we provide them with the capabilities required to discover novel biology, with unprecedented detail at compelling scale and economics.

We have not only invested in developing new technologies, we've also continued to improve our highly accurate Sequel IIe platform to provide even more customer value. For example, just this past quarter, we launched the ability for our customers to look at epigenetic markers, with each sequencing run for no additional cost. Compared to various short-read sequencing technologies, this feature dramatically simplifies the ability to see epigenetic markers, because the workflow doesn't require multiple sequencing runs with different sample preparations to capture all the data. We've also collaborated with leading organizations to show how highly accurate, long reads can transform clinical research.

I think you'll agree that the PacBio today looks a lot different than it did two years ago. There is no question, though, that we're operating in an uncertain macroeconomic environment. These macro issues do not change our nor our customers' enthusiasm for PacBio sequencing. However, we are finding that these factors broadly play a role in customer purchasing patterns, and their ability to operate at scale, especially as our business is currently dependent on large capital purchases.

As a result, we have reevaluated our current outlook for the year, to take these macroeconomic factors into account. Specifically, we expect EMEA to be lower than our original forecast, as we see the region to be most affected by longer purchasing cycles. In addition, foreign exchange headwinds and increased competition are expected to have a greater impact there than in other parts of the world. We're also seeing that some of our larger customers in the region are ramping their utilization to pre-Omicron levels at a slower-than-anticipated pace, due to staffing shortages, among other things.

We believe this has and will continue to have an impact on our consumables revenue for the remainder of the year. In China, the second quarter was impacted more than we expected from COVID lockdowns, and we expect it to take longer for customers to ramp back to pre-lockdown levels, in addition to ongoing risk of localized lockdowns that could be reintroduced. For example, lockdowns at certain customer locations prevented us from installing newly acquired Sequel IIe systems, which had an impact on consumable revenue in China. Excluding China, we are quite pleased with the performance in the rest of APAC, especially in Japan, where commercial investments made in 2021 are driving significant opportunities and growth for the region.

As China returns to a more normal operating environment, we believe our strengthened commercial team will be able to drive diversified growth throughout APAC. In the Americas, recession fears, volatile capital markets, and a growing number of sequencing entrants are slowing purchasing patterns as well. However, the region remains mostly resilient, as it posted record revenue and grew over 50% compared to the second quarter of last year, as we're growing in multiple markets; from human genome to gene editing, to microbiome. The strength and diversity of our customers in the U.S.

market gives me confidence that other regional headwinds are only temporary and will reaccelerate going into next year and beyond. Considering these broader issues, we have reexamined our full-year forecast, and we now expecting 2022 revenue to be in the range of $138 million to $145 million, or about 8% year-over-year growth at the midpoint. We expect an improving environment throughout the balance of the year with both third and fourth quarter growing sequentially, both in total revenue and instruments placed. In fact, consumable shipments are off to a strong start for the quarter, with July being the strongest month one of any quarter this year.

While lower than we previously forecasted, I want to reiterate that we believe this is primarily due to macroeconomic factors, in particular outside of the United States, which we do believe to be transitory. Our market opportunity has not changed, and we remain committed to our strategy to become a multi-platform company, enabling the most complete and accurate view of the genome. I am confident in our strategy, and I am excited about our progress, in developing our revolutionary long and short-read platforms, which we believe will be key drivers of our growth. Also, our balance sheet remains strong.

At quarter-end, we had $899 million in cash and investments. And today, I am reaffirming our belief that, even in spite of the short-term macroeconomic challenges we've seen, we have the capital required on our balance sheet to execute on our current development and commercialization plans, which we believe will enable us to reach positive cash flow. This is a top priority for the company. Susan will expand further on guidance a little later, but first, I'd like to highlight the results of our second quarter.

We reported $35.5 million in revenue in the second quarter, representing 16% year-over-year growth, which was in line with our guidance for sequential growth. Q2 was our sixth consecutive quarter of double-digit year-over-year growth, and as I previously mentioned, our Americas region posted record revenue. In Q2, we were pleased to see that about one-third of our Sequel IIe placements were brand new PacBio instrument customers across all of our target markets. This demonstrates that we continue to grow even amid higher comps, a maturing product cycle, and broader macroeconomic factors.

We've continued to see momentum in human applications as well, with over 40% of our revenue in the first half to customers working on human genomics, compared to just over a third of our revenue in 2021. This includes applications in genetic disease research, where highly accurate long reads can help better understand complex genomic variation. For example, another top-tier children's hospital in the United States, received its first Sequel IIe's in the second quarter to accelerate its studies into genetic disease. Notably, the customer cited our newly released methylation detection capability as a key differentiator in deciding to purchase these systems.

Additionally, we shipped Sequel IIe's to multiple genome centers in the second quarter, in support of whole genome research initiatives in the United States. And, in Japan we provided Sequel IIe's to a large-scale service provider in support of ongoing and upcoming cancer research initiatives in the country. Our customers continue demonstrating the power of PacBio HiFi sequencing, through numerous publications and preprints. Notably, the Human Pangenome Reference Consortium, or the HPRC, posted several preprints, describing the first human pangenome reference this past quarter.

HiFi directly assembled this reference from 47 genetically diverse individuals. The transition from the single, linear reference commonly used today, to a pangenome reference, represents a paradigm shift in human genetics. It improves variant calling and resolution of complex regions, such as tandem repeats, segmental duplications, and is more representative of a diverse population. Before building this reference, researchers first benchmarked the best sequencing approaches and determined that highly accurate long reads were the best-suited technology.

Further, this is a shifting of the sequencing paradigm toward a fully phased, six-gigabase genome versus the commonly used three-gigabase genome, which the HPRC shows HiFi is uniquely suited to assemble. In plant and animal genomics, studies showed a sustained use case for HiFi, as accurate, long reads are best suited for assembling highly complex genomes. In a preprint last month, researchers from Utah State and other universities compared long read technologies and showed that 'HiFi reads consistently outperform all other data types for both plants and animals and may represent a particularly valuable tool for assembling complex plant genomes. Moving to microbiology, BioPark, a service provider in Korea, purchased a Sequel IIe in the second quarter to advance human microbiome and drug-resistance microbial research with funding from the Korean government agency.

Other emerging applications, like AAV gene vector sequencing, with our latest protocol and on-instrument workflow, continued to drive placements, as we delivered multiple Sequel IIe's to customers working on vector validation and research. In the second quarter, we've progressed our product development to enable more applications, better data, and higher levels of automation and standardization, all while making great progress toward future product launches. We've released custom, targeted, and enrichment capabilities as part of our collaboration with Twist Bioscience. These panels can provide customers a cost-effective and high-throughput way to sequence particular genes of interest, delivering comprehensive detection of single nucleotide variants, structural variants, and indels for any genomic interval, including difficult-to-sequence or difficult-to-map regions of the genome.

We also reformatted and relaunched our Nanobind extraction technology from our Circulomics acquisition, to be integrated with HiFi, allowing for a more seamless sequencing workflow. As it was only launched a few years ago, most of our instrument customers have not yet used the Circulomics' Nanobind extraction. This integration opens up the opportunity to get the differentiated product into more customers' hands, and fully recognize the synergies between the two technologies. Also, on the workflow side, we've partnered with iLAC and the Robotic Biology Institute to develop fully automated end-to-end workflows for PacBio's Sequel II and IIe HiFi long-read sequencing systems by employing advanced robotics.

And in the backdrop of these enhancements, our field performance of SMRT cells continues to improve, as part of our most recent chemistry and software release earlier this year. In fact, the average yield per SMRT cell is hitting records with over 30% more gigabases of output per cell than we saw in 2021. This on-market improvement enables customers to do more sequencing with Sequel II than ever before. We made excellent progress toward the launch of new products, such as our Kitted MAS-Iso-Seq solution, which remains on track for commercial release in the fourth quarter.

Early access customer sites have been identified and will begin using the product later this quarter. The commercialized kit is expected to have a higher and more robust throughput than the original MAS-Iso-Seq method outlined in a preprint last year, with reduced library preparation time and reagent use. The solution will come with a SMRTLink workflow, to produce isoform-level single-cell data, compatible with tertiary analysis tools, and will enable the size and scope of experiments that have driven the breakout growth we've seen in single-cell genomics. Meanwhile, early adopters of the MAS-ISO-Seq method, particularly in the oncology and neuro disease research space, tell us that they can now see critical, full-length isoform information missing from their short-read single-cell data.

If we move to our Sequencing by Binding platform development, we shared some exciting data at AGBT around SBB's exquisite accuracy and variant calling performance. After speaking with customers, we left the conference feeling even more invigorated about how SBB's unparalleled accuracy can accelerate genomic discoveries. Our team remains on track for commercial launch in the first half of next year. We're in active discussions with potential beta sites and we anticipate beginning our full beta program in the next few months.

We are also engaging with potential partners across the ecosystem, to ensure the system is user-friendly and compatible at launch. Meanwhile, our in-house systems continue to sequence incredibly well, achieving accuracy scores with over 90% of the bases at or above Q40, and the system has demonstrated both single-end 200 base pair read lengths and two by 150 paired-end read lengths. And lastly, I'm pleased that we reached an agreement with Invitae in June that provides a roadmap and incentives for them to accelerate their sequencing on PacBio HiFi and still leverages their expertise in our development of our ultra-high throughput sequencers. I believe these new technologies will be even more important in Invitae's refocused business, as they aim to deliver the most comprehensive genomes.

Turning to other organizational updates, today we unveiled our first ESG Highlights Report. The report showcases our approach to environmental sustainability, social justice, and responsible governance and outlines our progress in these areas. Over the coming years, we expect to continue to invest in our ESG program, as a key component of our long-term business strategy. And finally, we look forward to welcoming our new chief commercial officer, Jeff Eidel, later this month.

I've personally worked with Jeff for over a decade, and his knowledge and experience in genomics will drive significant value across PacBio. Now, with that, I'll hand to call off to Susan to talk about our financial results in more detail. Susan?

Susan Kim -- Chief Financial Officer

Thank you, Christian. As discussed, we reported $35.5 million in product and service revenue in the second quarter of 2022, which represented an increase of 16% from $30.6 million in the second quarter of 2021 and 7% sequential growth, compared to $33.2 million in the first quarter of 2022. Instrument revenue in the second quarter was $15.6 million, an increase of 9% from $14.3 million in the second quarter of 2021. In the second quarter, we modified our agreement with Invitae and recognized $3.7 million in instrument revenue related to Sequel IIe's delivered to Invitae in the quarter.

We delivered a total of 36 Sequel II and Sequel IIe Systems during Q2, growing the installed base to 460 systems as of June 30, 2022. Turning to consumables. Revenue of $14.6 million in the second quarter grew 19% from $12.2 million in the second quarter of last year and Sequel II and IIe consumables represented approximately 86% of total consumable revenue in the second quarter, with the rest from older systems and other consumables. Annualized pull-through per system on the Sequel II and IIe installed base in the second quarter was approximately $120,000.

Headwinds from pandemic-related lockdowns in China continued through most of the second quarter. Additionally, new customers have been taking longer to get up to full speed, as supply chain constraints have affected other inputs in customers' workflow, such as servers and automation equipment. Finally, service and other revenue grew to $5.3 million in the second quarter, compared to $4.1 million in the second quarter of 2021, reflecting our growing installed base. From a regional perspective, Americas had a record quarter with revenue of $21.7 million and grew 51% compared to the second quarter of 2021.

We shipped Sequel IIe's to a growing and diverse set of customers in the quarter, including AnimalBiome, which is implementing PacBio HiFi and has plans to leverage concatenation for 16S sequencing in their industry-leading direct-to-consumer pet microbiome tests. Human germline applications, though, were the primary driver with nearly half the region's instruments delivered to customers in this focus area. Asia Pacific revenue of $8 million reflected a 18% decline over the prior-year period, primarily due to China, which was 30% lower compared to the second quarter of 2021. We were pleased to see that revenue growth in other APAC countries helped to offset some of the lower revenue in China.

Finally, EMEA revenue of $5.8 million was 12% lower compared to the prior-year period and was impacted by broader macro dynamics, which slowed customers' capital purchases. In addition, the region had an FX headwind of approximately 7% when compared to Q2 2021. Moving down the P&L, GAAP gross profit of $16.2 million in the second quarter of 2022 represented a gross margin of 45.7%. Excluding amortization of intangible assets, second-quarter 2022 non-GAAP gross profit of $16.4 million represented a gross margin of 46.2%, compared to a GAAP and non-GAAP gross profit of $13.8 million or 44.9% in the second quarter of last year.

The increase compared to the second quarter of last year was partially driven by a multi-instrument order at higher ASPs, as well as greater consumable and service revenue volume due to a growing installed base of Sequel II/IIe's in Q2 2022. GAAP operating expenses were $84.2 million in the second quarter of 2022; excluding change in fair value of contingent consideration of $5.4 million, non-GAAP operating expenses were $89.6 million. This represents a 74% increase from non-GAAP operating expenses of $51.3 million in the second quarter of last year, reflecting growth in headcount, operating expenses related to the acquisition of Omniome, increased R&D spend, and increased travel, as we transition out of the pandemic remote environment. In terms of headcount, we ended the quarter with 782 employees, compared to 728 at the end of 2021.

GAAP and non-GAAP operating expenses in the second quarter included a total non-cash stock-based compensation of $18 million, compared to $13.9 million in the second quarter of last year. GAAP net loss in the second quarter of 2022 was $71.4 million, or $0.32 per share. Excluding amortization of acquired intangibles and change in fair value of contingent consideration, non-GAAP net loss was $76.6 million, representing $0.34 per share compared to a GAAP and non-GAAP net loss of $41 million or $0.21 per share in the second quarter of 2021. Now, turning to our Balance Sheet; we ended the second quarter with $899 million in unrestricted cash and investments, compared with $963 million at the end of the first quarter of 2022.

Inventory balances increased in the second quarter to $36.1 million, representing 2.3 inventory turns, compared with $29.6 million at the end of the first quarter of 2022, representing 2.8 inventory turns. Similar to last quarter, the decline in inventory turns reflects our strategy of increasing safety stock levels to manage global supply chain risk, to continue to ensure we have the necessary materials on hand, to meet our customer demand. Accounts Receivable decreased in the second quarter to $27.1 million, reflecting a DSO of 70 days, compared with $27.9 million at the end of the first quarter of 2022, reflecting a DSO of 71 days. Long-term deferred revenue declined approximately $23 million and current deferred revenue increased approximately $21 million for a net change of approximately $2 million in Q2, primarily as a result of a multi-instrument order from Invitae in the quarter, as well as future credits awarded to Invitae via the amendment to the co-development agreement.

Moving to guidance, we are updating our expectation for full year 2022 revenue to be approximately $138 million to $145 million, or 8% growth at the midpoint. While we continue to see increasing customer enthusiasm for our technology and products, broader macroeconomic dynamics including rising inflation, global supply chain constraints, volatile capital markets, and lockdown restrictions associated with COVID-19, have lengthened customer sales cycles, particularly for capital purchases. Therefore, we expect to ship fewer instruments this year, than we originally expected. With respect to consumable revenue, lockdowns in China have led to lower-than-previously anticipated consumable revenue in the region, as customers have difficulty accessing labs, as well as lower sample volume from which to sequence.

In addition, placing instruments with more new customers has lowered our average consumable pull-through, and a lower than previously forecasted installed base has lowered consumable revenue estimates for the year. On a quarterly basis, we expect the third quarter revenue to be slightly higher sequentially, as we expect higher Sequel IIe placements and pull-through to be partially offset with lower ASPs. We expect non-GAAP gross margin to be 44% to 45%, slightly lower than our previous guidance range, reflecting lower revenue volume and increasing costs associated with ongoing global supply chain constraints and rising inflation. For opex, we have significantly reduced the pace of hiring in the second half of the year relative to our previous forecasts.

However, we continue to make excellent progress on our next-generation platforms and will continue to prioritize these investments. As such, we now expect non-GAAP operating expenses to be between 350 and $360 million. We expect that slowing our pace of hiring will translate into lower run rate of operating expenses entering 2023, while still giving us flexibility to make appropriate investments in R&D and commercial, to fuel our growth in '23 and beyond. Interest and other expense is unchanged and expected to be approximately $15 million for the full year, reflecting interest expense and amortization of debt issuance costs for our convertible notes issued in 2021.

We expect the weighted average share count for purposes of EPS for the full year to be approximately 225 million shares. With that, I will turn the call back to Christian. Christian?

Christian Henry -- President and Chief Executive Officer

Thank you, Susan. I hope your takeaway from our prepared remarks today is that PacBio remains extremely well-capitalized and well positioned to execute on our strategy, despite the short-term volatility and uncertainty we see in the market. We sit in front of a huge multi-billion-dollar market opportunity, with multiple technologies that we believe will uniquely position us, to provide customers with products capable of delivering genomic insights, unimaginable with the current status quo of sequencing. We look forward to engaging with our customers at ASHG in late October.

And with investors, we hope to connect at the many conferences lined up in Q3, and we're hosting our first Analyst Day in November, which we will be sharing details about next month. Now, with that, I'd like to turn it back to the operator, so that we can begin the Q&A.

Questions & Answers:

Operator

Thank you. We'll now begin the question-and-answer session. [Operator instructions] Our first question comes with Ross Osborn with Cantor Fitzgerald. It appears Mr.

Osborn has disconnected. So, our next question comes with Kyle Mikson with Canaccord. Please go ahead.

Kyle Mikson -- Cantor Fitzgerald -- Analyst

All right. Great. Thanks, guys, for the questions. I hope you're doing well.

So, just want to talk about the guidance, not a huge surprise. I thought a lot of the factors that you called out, Christian, makes sense. But maybe could you just break down the guidance assumptions, maybe like quantitatively, when you think about the macro factors like China lockdown setbacks, inflation, supply chain. Just want to understand anything -- how you're thinking about that, maybe in the near term here? And then also maybe for Susan on the product breakdown, you didn't really quantify that instruments can pull through.

How could that really trend in the second half of the year as well? Thanks.

Christian Henry -- President and Chief Executive Officer

Sure, Kyle. So, I'm not going to break down the delta and guidance based on -- I'm not going to try to ascribe a value specifically to each macroeconomic factor. But qualitatively, what we're seeing, is that the Americas is actually doing extremely well. But we did -- in the first -- if you look back on the first half, the first part of the year, we had COVID impacting consumable pull-through, which we saw the numbers have been lower than what they've been historically.

But overall, the Americas has done extremely well and compensated and will continue to compensate primarily for the weakness in Europe. That's actually the area where we have the most -- where we've had the most impact, and it's a number of different things. It's absolutely -- the currency headwind is significant. We had, I believe, over $0.5 million of currency impact in the quarter, principally driven -- and if you look at the economy on a year-over-year basis, principally driven from EMEA.

We also have COVID still being -- having an impact in EMEA and the inflation/fears of recession/ kind of the situation in Ukraine, all of those different at-- all of those different factors are just slowing the purchasing process now. The good news is that our demand and our funnel looks very encouraging. And so, if you look at the balance of our written remarks -- on balance, all things considered, the company is actually doing -- I'm pretty happy with what -- how the company is doing. But I do think Europe is going to continue to be challenged for the rest of this year, and I think that's really the big driver of why we think we wanted to reduce the guidance going forward.

China continues to be, I think, a bit choppy. I do think we saw -- in the quarter, we saw some -- at the end of the quarter like we expected to see some improvement in China. We talked about that on our last call last quarter about the notion that we thought the lockdowns would maybe start to side in the June-ish time frame. I think that's true, but what we're finding it is a bit lumpy and I think that -- what's interesting is the knock-on effect of not being able to get into the labs.

I talked about it in my written remarks, the whole concept of -- we had several instruments that we had shipped to customers in China at the end of Q1, that we just couldn't install in Q2 because they were locked down. Now those instruments are now installed. People are starting to ramp back up a little bit, and so I think the back half is encouraging. But the balance of all these factors made it prudent for us to reduce our outlook for the rest of this year.

Hopefully, that helps, Kyle.

Kyle Mikson -- Cantor Fitzgerald -- Analyst

Yes. I mean, that was a great, Christian. Susan, did you want to talk about like instruments as far as pull through maybe, how that could trend? Or if not, it's fine, we could just move on.

Susan Kim -- Chief Financial Officer

No, happy to, Kyle. I was trying to unmute. So, just to give you an idea, so we talked a lot about the fact that there's a lot of enthusiasm by our customers in terms of our technology, which is great. Our pipelines continue to be strong.

So, because -- mostly because of the macroeconomic dynamics that we talked about, sales cycles have lengthened. Having said that, some of the orders that we had forecasted in Q2, is pushing into Q3 for capital purchases. And then in Q3, you do have the government fiscal year-end, which is going to help on the back end. So, we do see that interim placements in Q3, we expect to be sequentially higher in Q3, relative to Q2.

You also have the fiscal year-end associated with the calendar year-end. And so, we further believe that Q4 will be higher interim placements relative to what we have seen in Q2. So, we can model that out in terms of what it means for instrument revenue. Also based on consumable shipments, especially for what we had seen in July, we're off to a great start.

While I don't believe that consumable pull-through will return to the levels we saw in 2021, I do believe that the second-half consumable pull-through will be sequentially higher than what we had seen in the first half, just based on how we're tracking for the month of July. But again, probably lower than what you're used to seeing at the end of 2021.

Kyle Mikson -- Cantor Fitzgerald -- Analyst

OK. That was great. Thanks so much, guys. And I guess, Christian, I'm just thinking about like the issues that could be maybe internal or like specific to PacBio? You didn't really mention anything there, which was obviously positive, but some of your peers in this sector have had some leadership changes on the commercial team in recent quarters.

Those have kind of appeared to lead to consistent execution in some cases. Your execution has been pretty good recently. But I'm just kind of wondering, what gives you confidence that you can like basically smoothly transition with Jeff as the new Chief Commercial Officer? And is there any like structure or strategy change of the new kind of commercial leadership now that he has been appointed?

Christian Henry -- President and Chief Executive Officer

You know, it's a great question, Kyle. And I think the one reason why I have a lot of confidence is, first, I know Jeff, and Mark knows Jeff, and we've worked with Jeff for a very long time, so we know what kind of leader he is and what kind of capabilities he brings to the table. And then on top of that, the other thing is that I'm a former chief commercial officer. Mark is a former chief commercial officer.

And we're still -- we're about 800 people, but we're not that big a company. We are intimately involved in all aspects of the business. And so, I think we will be important to that transition, in the sense that we have been -- we were very closely tied to our prior CCO, and helping to manage the activities of the business, and to the point of even negotiating larger deals and really being engaged with the team. And so, that will continue with Jeff.

The other thing I would say is, Jeff also knows all of the general managers of the different regions and has worked with the general managers in the different regions for many years as well. And so, he comes in as a highly respected, capable executive, and he will come in and evaluate the organization as he sees it. And we may or may not make any changes. I really like the fact that we have created a scaled commercial organization, that can operate all around the world.

We talked about sales in Korea. We talked about expansion in Japan. Our European business has covered better than ever, although the performance isn't quite what we wanted. And then in Americas, we're growing at 50% and that's because we have a highly capable team.

And when you think about the backdrop of emerging competition, we're extremely well positioned there, because we have great products already. We have new products on the horizon. We have a team in place and the launch products, that we can launch immediately at scale. And I just think that gives us a significant leg up and Jeff as an executive is going to fit right in.

Kyle Mikson -- Cantor Fitzgerald -- Analyst

That was great. I almost forgot, Christian, your background. So, he has two great sequencing CCOs to learn from that. That's great.

I'll ask a final one here, just kind of lumping two thoughts in at the end here. So, the first being, you mentioned, Christian, there's a growing number of new sequencing entrants that pressured the Americas results, from what I understand, there's no like pure-play long-read companies that are going to market any time soon. Could you just talk about that a bit? Is that more on the short read side, I guess? And then secondly, ASP was obviously pretty high this quarter. In the past, public labs, trade-in programs, those dragged down ASP.

What should we expect going forward, I guess?

Christian Henry -- President and Chief Executive Officer

Yes. Those are good questions. I think that regardless of whether the entrants are long and short read, the excitement about and buzz about the sequencing industry and space is encouraging everyone to stop and look at the totality of what problems they're trying to solve, and how they -- what technologies can help them solve them. And so, I think the emerging entrants definitely creates some conversations.

What's so great is that we've been -- we have what we believe is the best long-read platform in the market, and it's -- the data is becoming more and more clear every day that our short-read technology that we'll bring to market next year, have some serious advantages over these emerging competitors and the existing incumbent. So, I've been in several sales discussions just this quarter already, where we're talking about bundled sales. I want to buy the long-read sequencer because I want to do a highly accurate whole genome sequencing. I want to buy the short-read sequencer because it goes -- I can look exquisitely deep with exquisite sensitivity and therefore, I can find the answers, the needles in a haystack.

And I think that's going to serve us -- I do think that's going to serve us really well. And going forward, we continue to have some trade-ins from Sequel I to Sequel IIs, which impact ASP. That will change in any given quarter. The APAC region has been extremely successful, with some promotional programs to make those conversions, and I think EMEA and the U.S., and AMR are trying to emulate some of that.

So, there'll be probably some of that. But you're right, ASPs in the quarter were generally pretty strong, and I think that that has to do somewhat with product mix as well. We're selling to commercial customers in some places, for example, in AAV. They typically have more capacity to buy the equipment.

And so, that helps. So, I think it's the customer mix in any given quarter, that will help or hurt the ASP. What's really important, is that we build the installed base and as Susan pointed out, we have 460 units out there now, which is I think a real accomplishment in the short time that I've been the CEO, and I'm looking forward to cracking through the 500 barrier soon. So, hopefully, that helps a little bit, Kyle.

Kyle Mikson -- Cantor Fitzgerald -- Analyst

Yep. Perfect. Thanks, Christian. Thanks, Susan.

Operator

Thank you. The next question comes with Julia Qin with JPMorgan. Please go ahead.

Unknown speaker -- JPMorgan Chase and Company -- Analyst

Hi. Thank you for taking a question. This is Amy calling on Julia. So, I have a couple of questions.

So, the first one is related to the guidance. I want to go back to the China market. Do you guys have any idea like what's the outlook for the China market? Do you have any signs that when will the market bounce back?

Christian Henry -- President and Chief Executive Officer

Well, I know -- Julia, I don't think we have a crystal ball. And so, therefore, we're taking more conservative views on China. As I think folks on the phone know, we -- historically, China has been a significant part of our revenues, as we grow globally, that we will be less reliant on China. But we do see lots of opportunity going forward in the second half of the year and into next year.

But the timing of potential lockdowns and other macroeconomic factors, I think we can't predict that, and so we've taken a conservative view. We didn't break out -- we're not giving guidance by region. I don't want to move down that pathway, but we have taken a pretty conservative view on China and APAC as a whole -- as we said, APAC as a whole, though, is getting buoyed by improvements in Japan and the rest of APAC. And what's so encouraging about that, if you look at the growth in the U.S., plus the growth outside of China, you're really starting to see a step-up, where as China improves, we can accelerate our revenue growth.

And then if we can see Europe return to some sense of normalcy, then I think we're really positioned well for long-term growth. On top of that, the product just keeps getting better. And I think the Sequel's unique platform, although it has been around for quite a while, as I said, we've improved the output of that platform with our latest release byte. We're seeing, what, 30% improvements in the actual output and throughput of the system.

So, customers are getting more value. They're getting the ventilation capability. So, for free with every single run, they get more data than ever before, and more types of data that positions us very well against competitors and encourages others to get engaged with us on the long-read platform. So, overall, the outlook looks really, I think, strong for the company, but we do have to recognize that we are in a pretty uncertain environment.

And therefore, from a guidance perspective, we would rather be thoughtful and considerate of these headwinds. And as -- if we do a little bit better because the headwinds are less, then we'd be sure to tell you. But I think we're trying to take a pretty conservative view on how we think about the world right now.

Unknown speaker -- JPMorgan Chase and Company -- Analyst

OK. Yeah, that's very helpful. So, my next question is relating to the pipeline. So, first is for those -- new high-throughput platform, right? So, what kind of updates are we going to see and when? And how should we think about those updates? The second is with the short read platform, the Omniome platform.

So, the spec looks very impressive, like I'm very impressed by the accuracy. So, I'm just curious, like based on your initial market research and market intelligence, what's the customers' appetite to pay a premium for just higher accuracy in their day-to-day works? Thanks.

Christian Henry -- President and Chief Executive Officer

Yeah. OK. Well, maybe I'll address the short-read platform first, and then I'll talk about the long-read platform. With respect to SBB, we were -- we were, quite frankly, enthusiastic about the response at AGBT and how customers really came up to us, and really, we're excited about getting involved, getting into beta program, feeding the data for themselves because they see -- they see this as the next paradigm in short read resequencing.

The accuracy matters a lot. And the reality is, that accuracy can actually make costs more effective because it's not about the cost per gigabase, which is the traditional way in which sequencing companies have talked about, the consumable cost, how much -- what's your cost per gig. And the reason why they have that is everyone's accuracy has kind of been in the same range. if your accuracy is fifteenfold better than the incumbents in the world, the discussion needs to turn to price per answer, because with higher accuracy, you need less coverage.

With less coverage, you can turn a mid-throughput sequencer into a higher throughput sequencer, and therefore, you can operate at higher multiplex and lower price per answer. And I think that's going to be an important message for us to drive as we get these products into the market. And so, I'm really excited about that. I don't -- in other words, I don't believe our pricing is going to be higher than others when you look at all the factors of getting to an answer, not just processing some sequencing.

So, if you move to the short read side, and of course, stay tuned because we'll be getting into the beta phase of our development program, in the next couple of months. And so, I suspect we'll likely have some updates at ASHG, which is at the end of October, and we're well on our way to getting this product out the door. And so, I'm very excited about that. If you look at the long-read side, the Sequel IIe, as I said in the last couple minutes, has really made dramatic improvements over the last few years.

But you're right, we do have new products and new ideas and new technologies in development. And we haven't said publicly when those would launch. And I'm not going to do that on this call. We will do that in a good time.

But what I can tell you is that, when I joined the company, I said that we would embark on a strategy to drive product development, so that we could get kind of on the range of orders of magnitude of improvement in terms of throughput on long-read sequencing, so that our customers could operate at higher scale and leverage the power of long reads across larger sample cohorts. And I also said that we would be going for achieving the $1,000 genome or better -- and I'm happy to report today, that our development programs and our research is definitely showing us that we have the capabilities to do that. And so, we -- at the right time, we will talk about these next-generation research programs in much more detail, and we'll share it then. But for now, we keep focused on the Sequel IIe platform.

It's a great platform. Like I said, we're not that far away from having 500 units in the installed base, and we keep adding value to it. And so, that's what's -- that's going to be front and center commercially here, over the next couple of quarters.

Unknown speaker -- JPMorgan Chase and Company -- Analyst

OK. Yes, that's very helpful. Thank you very much.

Operator

Thank you. Your next question comes with Tejas Savant with Morgan Stanley. Please go ahead.

Tejas Savant -- Morgan Stanley -- Analyst

Hey, guys. Good evening. Christian, just following up on your remarks there on the product pipeline. Obviously, it's a point of investor focus here.

I know you don't want to commit to specific timelines just yet. But is there an interim instrument that you think needs to be launched before you get to that sub-$1,000 price point? Or do you feel confident just given what you said about your internal efforts that you can get there with the next version of the Sequel?

Christian Henry -- President and Chief Executive Officer

Yes. I do think at a fundamental level, Tejas, that we have the technology now to deliver the $1,000 genome and without incremental steps. One of the strategies here, of course, is to develop a multiproduct portfolio with -- on the long read platform side, that offers customers much more flexibility than we have historically, so that customers that are sensitive to the capital cost, offering a low capital cost, offering with high-value consumables, customers that are doing extremely large cohorts, having the capability to run lots of samples, with a reasonably sized lab at under that $1,000 genome 'price point.' And then that middle ground where you're doing a diversity of applications or you're looking at lots of seeds, but you have high multiplex, and you can use kind of that mid-throughput system. That's still fundamental to our strategy long term.

And the good news is that we are thinking much more modular than we've ever thought about before. And I think that will give us a range of products and capabilities and also improve -- lower the cost of the customer, but also improve the company's ability to serve those customers and drive growth in gross margin, which ultimately drives us to cash flows.

Tejas Savant -- Morgan Stanley -- Analyst

Got it. Super helpful. And then one, on the instrument and consumable side of things. On the instrument side, Susan, just a quick point of clarification.

That $3.7 million you mentioned, I think, on Invitae, was that for instruments placed in this quarter, or was that sort of a payment for instruments in past quarters? And then on the consumable side of things, Christian, to your point around higher throughput applications coming through as you launch the new version of the Sequel here. Do you expect sort of getting back to that $175,000 pull-through range at perhaps the back half of '23, is that a reasonable assumption? Or do you think it's really contingent on the new box being launched and getting some decent traction with customers?

Susan Kim -- Chief Financial Officer

Yeah, maybe I can take --

Christian Henry -- President and Chief Executive Officer

Yes, maybe, Susan, do you want --

Susan Kim -- Chief Financial Officer

Yes.

Christian Henry -- President and Chief Executive Officer

Yes.

Susan Kim -- Chief Financial Officer

Real quick, on the $3.7 million for Invitae, that is because of a handful of Sequel IIe's that Invitate purchased in Q2, that they took delivery in Q2.

Christian Henry -- President and Chief Executive Officer

Right. And then -- and Tejas, with respect to pull-through expectations, it's probably not appropriate for me to speculate on that yet. But you could imagine, if we had platforms that had more throughput, and you could do more runs per year, for example, or many more samples per year, that you would be able to drive the consumable pull-through number up. But I'm not going to speculate as to the timing or the level yet because I think it's premature.

And with the Sequel IIe, if we get specific on the Sequel IIe, we've been running, what, $115,000, kind of in the low $115,000, $120,000 range. We are expecting to see that improve a little, particularly as some of the instruments that have shipped in the last six months finally start getting ramped up to speed, and some of our customers that have had significant staffing challenges are finally starting to resolve some of those. And so, I think it will improve. But I think as Susan said, we don't necessarily expect it to get back to the level that it was at Q4.

And that's partially because, the mix of customers. We're reaching more customers than ever before because of our commercial scale. And not every customer is going to be running the sequencer 24 hours a day, seven days a week. And so, it will -- and as you tend to get to the -- toward the end of a product cycle, you're reaching the lower edge of those of those customers, so to speak, that may not be -- they may need the technology and want to use the technology, but they may not be thinking of the same scale of projects.

And so, I do think it's going to be -- I do think it's likely to be better in the second half than the first half, but I don't think it's going to return to Q3, Q4 levels of last year, anytime soon.

Tejas Savant -- Morgan Stanley -- Analyst

Got it. Appreciate the color, guys. Thank you.

Operator

Thank you. Your next question comes from Dan Brennan with Cowen. Please go ahead.

Dan Brennan -- Cowen and Company -- Analyst

Great. Thank you. Thanks for taking the questions. I had one on Europe and China and then one on the pipeline.

Maybe Christian, just to start on Europe and China. So, on Europe, could you just unpack a little bit more of kind of what the issues are there? You kind of talked about staffing, competition, macro utilization, and things like that. But could you just give us a sense of what were the kind of biggest issue, if you will? And I know you talked about the issue being transitory, but I believe you also talked about utilization being pressured for the year. And then a similar question on China as well.

It sounded like you're flagging mostly the inability to get into labs to do installations. So, presumably, this improves. So, I'm wondering if you can give some flavor on maybe what the exit rate is and kind of how things have paced in July? And then I have a follow-up on the pipeline.

Christian Henry -- President and Chief Executive Officer

Yes, sure. So, with respect to EMEA, when you look at -- if you just kind of dive into Q2, we had several instruments in the near-term funnel that we are in, what we call our commit bucket, that didn't -- that ultimately for whatever reason, the purchasing cycle got extended. And as a result, the revenue didn't happen. The deal didn't go away, but the deal didn't get across the finish line in June.

And so, that's what we mean by extended purchasing cycles. And I do think that that was an impact in EMEA. Another impact in EMEA has been in some of our flagship accounts, they've had significant turnover and not -- and as a result, haven't been running the sequencers as much. And so, that affects the consumables.

In other parts of -- other parts of both, on the continent and in the U.K., we've had purchasing agents or tenders extend longer than we expected or purchasing folks just taking more time, because quite frankly, there's a lot of uncertainty with respect to their funding and the actual cost of the sequencer because of the FX changes, and they moved a lot in a very short window. And so, those are the things that have impacted us in EMEA, and that's why when you look at those each individually, don't give me significant concern, that this is a systemic long-term problem. This is a problem because of the environment we sit in. And we think that it will resolve itself.

And in fact, the customer I was referring to, with lots of turnover, they've actually started running their sequencers again in July. And that -- so we saw -- and I said in my general comment -- I'm not going to make July specific comments about any particular region, but we did see a strong July in consumables, and we're off to the best start of any first month of any point this year. So, that's an encouraging sign that things are going OK. In China, I don't want to give you the impression, the sole reason was, we didn't get some systems installed that could have been running consumables.

That's more of an illustrative example of the totality of the lockdowns, how they not only impact our customers acquiring samples because most of our business in China is through service providers, who rely on their customers to provide them with samples so that they can sequence them. And the lockdowns had a pretty far-reaching effect. They weren't able to get samples from their customers. They weren't even able to go into the lab to run the sequencer.

Our sales folks weren't able to get out into the community to be selling. So, the impact of COVID is pretty broad, it's not just one little piece. But lastly, I think it was -- and maybe it was Kyle, actually, who talked about supply chain. The one thing I do want to give a shout-out to is our internal supply chain folks have worked really hard to keep us with product to ship.

And as you saw, Susan pointed out, we have a little bit higher inventory levels than we've had, and that's because -- partially because of pricing of the inflationary impact on us, but also because we have really worked hard to make sure that we have product for our customers. And as a result, we're carrying a little bit more inventory. So, I said a lot there, Dan. Hopefully, that helps you a little bit.

And then you said you had another question.

Dan Brennan -- Cowen and Company -- Analyst

Thanks, Christian. That was helpful for sure. Maybe just one on the pipeline. Obviously, we'll hear more about it next year in terms of getting below $1,000 on a long-lead genome.

How do we think about, as the pace of the price cuts on the short REIT side, continuing we see what happens this fall with Illumina, like as that gap really widens, even though you're going to shrink it again, is the gap still going to be wide enough, such that that dilutes maybe the uptake or the impact of, say, $800 or $900 long-read genome?

Christian Henry -- President and Chief Executive Officer

I mean, we'll have to see how the world unfolds. But I believe very strongly that it won't. And the reason is, today, not only is the price per genome significantly different on our platform versus a short read platform but also the throughput is a lot lower than what you can do on a short read platform. So, really, it's a combination of not just the pricing, but the throughput.

And as we narrow the gap on both, I do think you see accelerated adoption because, one, you can do the large projects using long read. Two, everyone is seeing, now we talked about the pangenome, the HPRC, in my written remarks. The reality is, is that the reference genome now is changing, such that it will demonstrate that short reads are insufficient for whole genome sequencing. They just are.

And I think that, as we get the economics and throughput improve, it will completely change the paradigm. And on top of that, if we can continue to deliver epigenetic information, telomere-to-telomere sequencing, with SNVs and Indels and all the structural variation at very highly accurate levels, why -- you would have to do multiple assays, which in the -- even if the short read sequencer was charging a $100, let's say for their sequence, you'd still have to run another sample prep to get the epigenetic data, for example. And I'll just it, the second you do that, you're actually more expensive than what we're talking about here, as we kind of break through the $1000 genome barrier. And so, for us, I'm very encouraged about the progress we're making in R&D, about the state of the market, and the state of the market being the proof points of why long reads matter.

One of the core strategies that I had coming into the company was, to do enough collaborations so that everyone could see the power of HiFi sequencing and the power of long reads versus short reads. I think all of those proof statements are becoming overwhelming, quite frankly. And now it comes, it's incumbent for us to get the products to market that will enable, enable the scale and the economics that will make a dent in that short read market, so to speak.

Dan Brennan -- Cowen and Company -- Analyst

Got it. Thanks, Christian.

Christian Henry -- President and Chief Executive Officer

Yes.

Operator

This concludes our question-and-answer session. I would like now to turn the conference back over to Todd Friedman for any closing remarks. Please go ahead.

Todd Friedman -- Director of Investor Relations

Thank you. As a reminder, replay of this call will be available in the Investors section of our website. Thank you all for joining us today. This now concludes our call, and we look forward to updating you on our progress in the third quarter.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Todd Friedman -- Director of Investor Relations

Christian Henry -- President and Chief Executive Officer

Susan Kim -- Chief Financial Officer

Kyle Mikson -- Cantor Fitzgerald -- Analyst

Unknown speaker -- JPMorgan Chase and Company -- Analyst

Tejas Savant -- Morgan Stanley -- Analyst

Dan Brennan -- Cowen and Company -- Analyst

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