Operator: Our next question comes from Jack Meehan from Neffron Research. Please go ahead with your question.
Jack Meehan: Thank you. Good afternoon. I wanted to ask about the Revio consumables. Could you comment on the range of utilization you’re seeing on instruments in the field. And I understand there’s caution on capital equipment, but just any color on the rate at which you think the Revio consumables can, kind of, grow from here?
Christian Henry: Well, I think, Jack, sure. The absolute consumable revenue we expect to keep growing and growing at a pretty good clip. So I think that is a good sign. The consumable — will the consumable pull through increase or stay the same or decrease? It was 483k this past quarter, which represents roughly 37% utilization, give or take, of the systems, which is a great number. My belief is you’ve got a few factors impacting us over the next few quarters. First of all, some of the highest throughput customers are really starting to get into production, which helps the utilization, which perhaps could help the pull-through number. Some of the newer customers are getting up to speed. And it was part of the reason why we wanted to accelerate shipments so much and we shipped 52 systems in the quarter, what we want to do is make sure that all of those customers can scale up and ramp.
And so the fourth quarter pull-through might be lower than the third quarter, because you ship so many systems that go into the denominator. But the opportunity to grow that into the first-half of next year, I think it’s quite significant. And so that’s really what we’re playing here for is to build a consistently fast growing consumables business which will help buoy gross margins, drive absolute revenue growth, and also create the flywheel and this is really important. More and more Revio data getting into the world will drive deeper insights into the biology, which will drive a flywheel to drive more demand. So very exciting what we saw happening in the third quarter and continuing to happen, you know, quite frankly, you know, as far out as we can see right now.
Todd Friedman: Next question?
Operator: Our next question comes from Eve Burstein from Bernstein Research. Please go ahead with your question.
Eve Burstein: Hi there. Thanks a lot for the question. So going back to Revio instruments, you said that less than 30% of Sequel II/IIe customers have ordered a Revio to-date. Why do you think that is and what’s holding them back? And maybe just on a broader note, looking at the Revio placements as a whole, you said a month ago that you expect orders to go up every quarter through 2024 and then — or excuse me, to go up every quarter through ‘23 and then into ‘24. Is that guidance or that color still in place given the changes in the macro or should we assume that, that’s maybe no longer the case?
Christian Henry: Yes, Eve, thank you for the questions. We’ll start with the with the Sequel II customers. You know there’s a lot of reasons why a customer won’t upgrade straight away. I think the first right now is the time to get budgets in place in order to buy the system. So the biggest customers have a lot easier access to getting budgets than other customers. And so those are the first places you go. The second is that a lot of customers that bought in 2022 want to use their system for a while before they drive into the Revio platform. And then I think the third is really thinking about what kinds of projects and applications am I working on? If I’m working on AAV or microbial genomics, perhaps I don’t need that much throughput.
And one of the things that I think will be helpful there is we just launched — we’re launching the Kinnex kits that allow you to put more samples onto a Revio more economically, and that might drive some of that — some of those conversions more quickly than otherwise would. We’ll see. I think that I do believe that over time, the vast majority of those systems will convert to Revio. And over time, I believe very strongly that the installed base for Revio will be significantly larger than the installed base for the Sequel II family at its peak. When you think about — moving on to your question about orders and Revio orders and what is the pace — what I really want to focus is on driving shipments from quarter-to-quarter. We’re going to have — we are going to have variability in our orders.
We’re going to be trying to whittle backlog down at times and then at other times, perhaps expanding backlog. But my belief is that on balance, shipments are going to grow. In any given quarter, though, they may, in fact, be slightly lower or slightly above kind of trend line. But if you look out over many quarters, I think net-net you’re going to see us growing. So that’s something that we are managing. The macro environment is making it tougher right now. And so perhaps that changes the curve a little bit in the very near term. But I was just with a group of customers, a significant group of customers last week and the number of applications, the excitement, the new ideas really was quite remarkable. We’re super excited to be going to ASHG later this week to interact with our customers and share the energy associated with the platform.
And ultimately, that drives demand. So I think it’s a good news story. There could be some variability, though, here in the near term with the macroeconomic environment.
Todd Friedman: Next question, Jamie?
Operator: Our next question comes from Matt Sykes from Goldman Sachs. Please go ahead with your question.
Matt Sykes: Hey, good afternoon. Thanks for taking my questions. Just two-parter. One, just on the product pipeline, just given the macro issues that you’ve highlighted next year, how are you thinking about benchtop, high throughput, the overall product pipeline as you move into a more difficult macro environment, have you reprioritized any of those projects? I know you talked about R&D spend or maintaining consistency, but I just wanted to find out if you’ve reprioritized any of those projects? And then secondly, Susan, just on the gross margins, I understand the product — the mix shift in the products. But in terms of the inventory charges and scraps, like how should we be thinking about that in terms of one-off or anything that could linger into next quarter or beyond? Thanks.
Christian Henry: Great. I’ll go first. So fundamentally, we set out on a course to build a multiproduct, multiplatform company that I think is going to serve the genomics company or serve the genomics industry in unique ways and create incredible value for all of our stakeholders. And I’m still absolutely convinced of that vision and I think our customers are responding to it as we build out our business. Revio’s just the beginning, clearly. And it’s my belief that we need to continue accelerating, getting platforms into market — into the market to drive — to continue driving long-term revenue growth, but also to drive the ability for us to have different relationships with customers than others. In other words, be able to meet the customers with asking questions rather than selling them technologies.
