Image source: Pacific Biosciences of California.

Pacific Biosciences of California (NASDAQ:PACB) is now two full quarters into the launch of its Sequel system, and the company is finally turning the new product into the growth platform investors hoped it would be. That doesn't mean the company is making money yet, but there's at least a path to profitability as more systems are installed and customers begin using consumables. Here's what investors should know about second-quarter results, released after the market closed on Thursday. 

Pacific Biosciences of California results: The raw numbers


Q2 2016 Actuals

Q2 2015 Actuals

Growth (YoY)


$20.7 million

$24.9 million


Net income

($18.5 million)

($11.9 million)


Earnings per share




Data source: Pacific Biosciences of California earnings release.

What happened with Pacific Biosciences of California this quarter?

The numbers above may look like they're headed in the wrong direction, but they don't tell the whole story for Pacific Biosciences. Here are a few metrics from earnings that give a peek into what's happening at the business.

  • Contractual revenue dropped 74% to $3.6 million, which was a big driver of the decline in revenue. Long-term, this will continue to be less and less of the business.
  • Product and service revenue, which is where investors want to see long-term growth, was up 51% to $17.1 million in the quarter, as Sequel system shipments ramped up.
  • During the quarter 26 instruments were shipped and 25 new orders were received. Backlog currently stands at 50 units. Management has been holding back ramping up sales as it qualifies mass production of Sequel SMRT Cells, so we could see orders pick up in coming quarters.
  • The high-volume SMRT Cell supplier has begun shipping pilot product to customers, and management expects to move to this supplier from a prototype supplier by the end of the year.
  • Recently released software contains a number of improvements, and is expected to provide customers with more accurate readings. In previous quarters, management has said that bugs will need to be worked out as the Sequel system launches, and that's a big reason early shipments were limited.

What management had to say

A lot of the discussion in the conference call was around management beginning to loosen the reigns on the Sequel system, now that it's becoming more confident in performance and moving to a high-volume supplier. This should lead to an acceleration in bookings and installs going forward. 

New software and chemistry could also help drive additional sales by offering more capability to customers. The hope is that those increased capabilities will bring more utilization and drive high-margin consumable sales in the future.

Looking forward

In the back half of the year, investors should watch for growing bookings and installs of the Sequel system, and progress on moving to a high-volume supplier for SMRT Cells. If both of those move forward, we should see sustainable revenue growth and expanding margins. That'll help drive losses down and potentially bring the company to profitability, which has been a long time coming for Pacific Biosciences of California.

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