Christian Henry: Well, I’ll take a stab at starting and then maybe will pass it to Susan. But first of all, the strategy — the pricing strategy and launch strategy for Revio was really developed around the notion of delighting our customers and making sure that the transition from Sequel to Revio was as painless as absolutely possible. Through lots of experience that we’ve had over the years, we know these product transitions are tough. And so we set up a loyalty discount program that says you get X amount of discount if you bought a sequencer in ’22, X minus something for ’21, and I believe even for 2020. So we gave all of our installed base a bit of a discount, with the heaviest discounts being that in 2022. So as a result, the first 76 orders were virtually all discounted pretty reasonably and that program ended in February.
And so when we look at our financials and our projections over the year, we would expect the low watermark of ASP to be this quarter, Q1. And then Q2, Q3 and Q4, we expect ASPs to improve and then probably kind of normalize at their normalized rate in the first part of 2024. So we think that’s how ASPs are going to unpack themselves as we ship all of the systems out of our backlog. If you move to the gross margin and the charge, the charge that we took in Q1 was really based on the consumable demand expectations for Sequel II. And so what I mean by that is we are seeing customers transition to Revio faster than maybe we had predicted because these things are extremely difficult to predict, and we needed to make sure we had enough inventory and capability if the transition was slow or if it was fast.
It seems as though it’s happening faster than we would have — than we modeled. And as a result, we took about a $3.5 million charge, most of that amount is related to consumables. Back in Q4, if you remember, we did take a charge as well and that was for the Sequel II instrument. And so at this point, we anticipate that we’re through most of those excess inventory issues, and so we don’t see significant — material amounts of the issue going forward, I guess is the best way to characterize it.
Susan Kim: I think the one thing that I’ll add, David, that you were asking, just in terms of when do you start to get the leverage on gross margin. So we talked a lot about the consumable mix being a big part of helping to get that leverage on gross margins. And so with the growth of the installed base — and as you can tell from our guidance, this is a very instrument revenue heavy year. And so next year, you start to see more of the consumable revenue as our installed base for Revio has grown. And so that’s going to help in terms of the gross margin expansion that you’ll start to see more of in 2024 relative to this year.
Christian Henry: But the other thing, Susan, we probably should point out is that we expect this to be the low watermark of gross margins for this — Q1 being the low watermark for this year. We expect it to improve quarter by quarter and then get the leverage like to talk about really in ’24.
Susan Kim: Exactly.
Christian Henry: Yeah. So hopefully that answers your question.
Operator: Thank you. The next question will come from Kyle Mikson from Canaccord. Please go ahead.
