Pacific Biosciences of California, Inc. (PACB) Q1 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Pacific Biosciences of California, Inc. First Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce our host for today, Ms. Trevin Rard. Ma'am, please go ahead.

Good afternoon, and welcome to today's Pacific Biosciences first quarter 2013 conference call. With me today are Mike Hunkapiller, our Chairman and CEO; Susan Barnes, our Chief Financial Officer; and Ben Gong, our Vice President of Finance and Treasurer. Before we begin, I would like to inform you that comments made on today's call may be deemed to contain forward-looking statements. Forward-looking statements may contain words such as believe, may, estimate, anticipate, continue, intend, expect, plan, the negatives of these terms or other similar expressions and include the assumptions that underlie such statements. Such statements may include, but are not limited to, revenue, margin, cost and earnings forecast, future revenue implied by the company's backlogs, expectations of future cash usage and other statements regarding future events and results. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties. These risks and uncertainties are described in detail in the company's Securities and Exchange Commission filing, including the company's recently filed Annual Report on the Form 10-K. The company undertakes no obligation to update, and prospective investors are cautioned not to place undue reliance on such forward-looking statements. Please note that today's press release announcing our financial results for the first quarter of 2013 is available on the Investors section of the company's website at www.pacb.com, and has been included on Form 8-K, which is available on the Securities and Exchange Commission's website at www.sec.gov. In addition, please note that today's call is being recorded and will be available for audio replay on the Investors section of the company's 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, and that Pacific Biosciences undertakes no obligation to update such forward-looking statements. At this time, I'd like to turn the call over to Mike.

Thanks, Trevin. Good afternoon, and thank you for joining us today. We are pleased with the continued progress we're making in driving the adoption of our products. Highlights for our most recent quarter's achievements are as follows: we grew consumables revenue by approximately 46% from the previous quarter as our customers have significantly increased the utilization of their PacBio RS systems. We booked new orders for 4 PacBio RS systems and installed 3 systems from our prior backlog of 5, which brings our new backlog of systems up to 6. Earlier this month, we launched the PacBio RS II, which doubles the sequencing throughput compared to previous long moving sequencing runs. Existing customers with PacBio RS systems can achieve the same output as the RS II by purchasing an RS II upgrade. Prior to launching the PacBio RS II, we began offering the upgrade to our existing customers and we have received 31 orders for upgrades as of the end of March. At the end of January, we launched our 1.4 SMRT Analysis software upgrade, which enables customers to achieve Q50 or 99.999% consensus accuracy of assembly using only standard PacBio long sequencing runs. In February, we attended the annual Advances in Genome Biology and Technology or AGBT conference. Many attendees remarked that the PacBio presentations were the highlight of the conference. The scientific data generated by PacBio customers was impressive, and the feedback we received from our customers were both complimentary and generous. Finally, after completing a $20 million debt financing with Deerfield in early February, we raised an additional $9 million of equity using our aftermarket stock offering through Cantor Fitzgerald. This cash provides us with greater flexibility and time to further develop our products and grow the business. In each of our last few earnings calls, we have talked about the importance of delivering high value to our existing customer base through reliability improvements and product enhancements. We feel strongly that improving satisfaction among our initial customer base leads to higher system utilization and in turn, this drives instrument sales. Over the past year, we have made the PacBio RS system very reliable and consistently delivered on our commitments to expand the read length and throughput capabilities of our products and delivered numerous software tools to enhance the analytical capabilities for our system. Our customers have responded favorably. Results we delivered in the first quarter are good indication that we are on the right track. The past quarter, we grew our consumables revenue sequentially by 46%, driven by a significant jump in system utilization. Our average consumable revenue for installed system has been increasing each quarter. On an annualized run-rate basis, it grew in the past quarter to over $100,000 per system. Since a few of our customers' systems have reached the $300,000 annualized rate, there's still significant room left to increase consumable usage overall. We booked 4 RS systems in the first quarter, which is on par with what we have seen in the last 2 quarters. Our goal is to drive growth in bookings this year and we continue to expect our bookings for the year to be roughly double last year's total. We're seeing improvement in our instrument sales pipeline but calling the timing of the orders is sometimes difficult. We believe our recent launch of the RS II, coupled with higher utilization in the installed base will drive more bookings, as new customers see more impressive results coming out of our existing installed base and as some high volume customers need to add to their capacity. Now I would like to provide some color on the AGBT conference presentations, which highlighted the advances our customers have been making with their PacBio RS equipment. One of the most impactful presentations in the conference was given by our Chief Scientific Officer, Jonas Korlach, during one of the final plenary sessions. His talk entitled Automated, Non-Hybrid De Novo Genome Assemblies and Epigenomes of Bacterial Pathogens contained a tremendous amount of data on organisms that were previously thought to be almost unsequenceable due to their complexity. Plasmodium, which is the parasite responsible for malaria, is known to be extremely complex and difficult to sequence due to it's very low GC content. Heroic efforts in the past using Sanger sequencing have only been able to yield a partial sequence of about 3,000 separate contigs. With SMRT sequencing, researchers have brought this down to less than 100 contigs. Pertussis, which is the organism associated with whooping cough, has drawn a lot of attention recently because of the emergence of vaccine escape strains has led to numerous infections and deaths, even when people have previously been vaccinated. These genomes have a large number of repeat elements and only 2 strains have been sequenced in the last decade, again, using thousands of Sanger reads at a very high cost to complete. Jonas went onto present that in the 4 weeks preceding the AGBT, we collaborated with a research in the Netherlands to completely sequence 9 different pertussis strains, including their epigenomes and plasmids. The data presented by Jonas surprised many who did not realize this was possible. In the weeks following the AGBT, we were encouraged to see increased interest in the PacBio RS. Both academic and government scientists engaged in microbial research and surveillance. Both we and several of our customers have demonstrated the ability of the PacBio RS to routinely deliver highly accurate, finished de novo assemblies of bacteria, rapidly and affordably. And we feel that PacBio SMRT sequencing is now the gold standard for microbial genome analysis. With all of the performance increases we have released over the past year, our customers have also been moving beyond sequencing microbes, taking on larger projects and sequencing larger genomes. At the AGBT, there were multiple presentations of plant, animal and human sequencing projects using the PacBio RS. A great example of this was highlighted by Eric Schadt from the Mount Sinai School of Medicine. Eric and his team sequenced a human genome with 10x to 15x coverage using the PacBio RS. They detected 24 known repeat expansions that have a direct disease association. He explained that these repeat expansions in the human genome are often previously underexplored because short read sequencing tools lack the ability to read through them. Mount Sinai is interested in using this type of data for carrier screening, pre-implementation, implementation and plantation, diagnostic DNA testing and newborn screening. Eric's presentation has already sparked additional interest in human genome sequencing with the PacBio RS. Michael Schatz from the Cold Spring Harbor Laboratory presented a de novo assembly data from 3 strains of rice. Rice has a 370-megabase genome, consisting of nearly 40% repeat sequences, repeat structure that has made analysis using short read sequencing very difficult. Recently, Dr. Schatz was quoted in the journal Nature Biotechnology in reference to the RS accuracy and read link improvements during 2012 saying if this were Apple, a, PacBio would've branded it as a new model, it really feels like a new instrument. Finally, as it relates to the AGBT, we were very pleased to hear our customers telling other attendees at the conference, why they must use PacBio to achieve their desired results. At one breakfast meeting, one of our customers from the U.K. declared that PacBio is the most accurate sequencing platform in the market. This comment was a far cry from the some of the previous misperceptions about accuracy we've heard in the past and shows that our customers have begun to understand how to use PacBio data for several genomes with exceptionally high accuracy. Now, we'll shift gears to talk about our recent and upcoming product enhancements. During our last earnings call, I mentioned that we have just launched an upgrade to our SMRT analysis software toolkit that contains powerful new algorithms for assembling PacBio data. This is proving to be a significant driver for business, enabling our customers to easily generate assemblies with Q50 or higher accuracy, it has contributed to higher utilization, has helped address previous concerns and misperceptions about the PacBio accuracy. As I mentioned earlier in this call, we launched the PacBio RS II about a week ago. The RS II can provide users with twice the amount of throughput compared with the previous RS. It accomplishes this by reading all 150,000 wells in the SMRT cells simultaneously. The previous RS was able to read 75,000 wells at a time. As a background, we'd originally designed the RS with this type of upgrade in mind and we designed the SMRT cell with 150,000 wells to accommodate it. Detection optics of the installed base of RS instruments can be upgraded in the field to RS II performance and already, we have received upgrade orders priced at $20,000 each in the U.S. with over 40% of our customers. We have just begun installing the first few upgrades this month and we plan on continuing to roll them out in the coming months. We have said in the past that we expect to increase our addressable market by increasing the throughput of the PacBio RS. Each time we increase the throughput of the system, larger projects become more affordable. As an example, projects such as microbial sequencing that require 32 SMRT cells when we first released the RS can be done with 4 SMRT cells today. We are planning to launch additional chemistry and software enhancements later this year. This could double bot average read links and throughput again. Combined with the PacBio RS II upgrade, we are on track to quadruple the throughput of our system for the second year in a row, enabling similar microbial projects to be completed with a single SMRT Cell and larger genome projects with a corresponding reduction in cost. In summary, we had a solid quarter with strong indications that our business is gaining momentum. The recent feedback we have received from customers on product performance is very positive and therefore, we feel that we're on the right track, focusing on those things that can make a significant difference. With the cash we have added to the balance sheet in this past quarter, we're in an even better position to drive the adoption of our products. With that, I will turn the call over to Susan.

Thank you, Mike, and good afternoon, everyone. I will begin my remarks today with a financial overview of our first quarter that ended March 31, 2013. I will then provide details of our operating results for the quarter, the sequential comparison to the fourth quarter of 2012, as well as a year-over-year comparison to the first quarter of 2012. I will conclude my remarks with a brief discussion of our balance sheet. Starting with our first quarter financial highlights. As Mike said, we booked 4 instruments in Q1 and ended the quarter with 6 instruments in backlog. During the first quarter, we recognized revenue of $5.6 million and incurred a net loss of $21.1 million. We ended the quarter with $112.3 million in cash and investments, an increase of $11.7 million from the balance at the end of Q4. This Q1 ending balance includes the addition of net proceeds of $28.5 million of debt and equity financing, offset by cash use of $16.8 million. Breaking down our revenue. Total revenue for the quarter was $5.6 million, relatively flat with the $5.9 million of revenue realized in Q4 and down $4.4 million from Q1 of 2012 For instrument revenue. In Q1 of 2013, we recognized $1.9 million on 3 instruments, compared with $3 million on 5 systems in Q4 and $7.9 million on 11 systems in Q1 of 2012. As a reminder, in the early part of 2012, we were still working off the pre-commercial sales backlog. Consumable revenue grew substantially in this quarter. Revenue for the quarter totaled $1.9 million, up $600,000 or 46% above that recognized in Q4 2012 and up $1 million or 125% above the $860,000 recognized in Q1 2012. As our installed base continues to grow, service revenue increased in Q1 2013 to $1.5 million, up $100,000 from Q4, and up $400,000 from a year ago. Grant-related revenue in the quarter was $300,000, flat to that recognized in Q4 and Q1 of 2012. We'd like to note that this is the final revenue from this grant that was providing between $200,000 and $300,000 in revenue and gross profit per quarter. Gross profit in the quarter was $900,000, representing a gross margin of 17%. This is up from a $600,000 gross profit and 11% gross margin recognized in Q4. The increase in profit and margin quarter-to-quarter is largely due to the changing product mix with consumables carrying a larger proportion of this quarter's revenue. In Q1 of 2012, we recorded a negative $200,000 in gross profit, which was a result of additional expenses associated with our C2 introduction in that quarter. Moving to operating expenses. Operating expenses for the first quarter totaled $21.5 million. Q1 2013 spending was $800,000 below our fourth quarter operating expenses of $22.3 million. Year-over-year, operating expenses reduced $5.9 million from $27.4 million in Q1 2012. Approximately $4 million of this decrease year-over-year was a result of legal charges associated with the settlement of 2 patent disputes earlier last year and additional reductions coming from cost efficiencies realized across the organization. Breaking down our operating expenses. R&D expenses of $12 million were basically flat quarter-to-quarter and year-to-year. In Q4, R&D expenses were $11.7 million and in Q1 of 2012, expenses were $12.1 million. R&D expense in Q1 2013 included $1.2 million of non-cash, stock-based compensation expense. Sales, general and administrative expenses for the quarter decreased $1.1 million to $9.6 million in Q1 from $10.7 million in Q4, primarily as a result of the higher legal charges incurred in Q4 associated with the class action suit and from a refund of state and local taxes recorded in Q1. Year-over-year, sales, general and administrative expenses were reduced by $5.7 million, due primarily to high legal expenses incurred in Q1 2012 related to the settlement of the 2 patent disputes I mentioned, as well as our continued attention to controlling of marketing and G&A expenses. Ben will provide further guidance on our ongoing expense rate later in the call. SG&A expense for the fourth quarter included $1.4 million of noncash, stock-based compensation expense. Also, this quarter, we started in the area of O&I. We started to book interest expense from the Q1 Deerfield debt funding. This quarter recorded approximately $350,000 of interest expense. Now, turning to our balance sheet. Cash and investments totaled $112.3 million at the end of the first quarter, up $11.7 million from the previous quarter. The increase in our cash balance includes net proceeds of $19.8 million from the February debt financing with Deerfield that we discussed in our last call and we also raised $8.7 million in net proceeds from the use of our ATM. As part of the program, during the quarter, we sold 3.9 million shares at an average price of $2.34 a share. There remains $21 million of additional capacity under this ATM program. Excluding the net proceeds from the debt and equity financing, cash used in the quarter was $16.8 million, reflecting our first quarter net loss of $21.1 million, that's $4.1 million in noncash expenses, primarily composed of $2.7 million of stock-based compensation expense and $1.5 million for depreciation. Accounts receivable decreased from $2.8 million at the end of Q4 to $2 million at the end of Q1. Average day sales outstanding remains well below the industry average. And lastly, inventory balances increased $1 million from the end of Q4 to $10.6 million as of March 31, 2013. This concludes my remarks on the financial results for the quarter. I would like to turn the call over to Ben.

Thank you, Susan. I will be providing an updated forecast on our near-term 2013 financial performance. Our first quarter revenue results were in-line with our expectations. We installed 3 systems in Q1, which is consistent with what we had anticipated. With 4 new bookings from the first quarter, we started Q2 with 6 systems in backlog. As we mentioned in the past, we generally expect to convert systems from backlog to revenue in either the first or second quarter after they have been booked, depending on the readiness of our customers. Looking forward to Q2, we anticipate that 2 or more of the 6 customers in backlog will not be ready to have their systems fully installed by the end of the second quarter. As I mentioned earlier in the call, we also expect to recognize revenue on RS II upgrades as they are installed over the next several months. As of the end of March, we had received upgrade orders totaling approximately $630,000. Now recording -- regarding consumables. As we also mentioned earlier, our consumable revenues jumped significantly in the first quarter, reflecting higher system utilization across the installed base. Although we expected a sequential increase, the amount of the increase we achieved in such a short timeframe was surprising. We likely benefited from some early purchases of consumables by some customers as they began embarking on new projects. We're continuing to drive toward higher levels of utilization. However, we would not expect to see another sequential jump of this magnitude right away. Furthermore, the RS II upgrades may cause some disruptions in utilization over the next quarter or 2, as some customers who have ordered the RS II upgrades may wait until after the system has been upgraded before launching into new projects. And the upgrade itself can make the system unavailable for a few days. Therefore, we expect our second quarter consumable revenues to be relatively flat compared with Q1. However, we are forecasting sequential growth in consumable sales after the second quarter. Finally, as Susan mentioned earlier, we expect our grant revenues to decrease as we have completed the most significant project we have been working on. In total, we expect revenues for Q2 to come in at relatively the same level as Q1. Beyond Q2, we are forecasting sequential revenue growth -- sequential growth in total revenue and for the year, we continue to expect to record higher total revenue for 2013 compared with our revenue for 2012. As Mike mentioned earlier, we expect our instrument bookings to approximately double this year compared with 2012. With regard to gross margin. We were pleased with the uptick in margin we saw in Q1, driven by the higher mix of consumable revenue. As a result, we are increasing our forecast on gross margin for the year to be around 10% compared with our previous forecast of mid-single digits. Our forecast in gross margin percentage for the year is lower than what we had realized in Q1 due to the anticipated reduction in grant revenue. Our operating expense levels for Q1 came in below $22 million as expected. We continue to monitor our expenses closely, and expect to maintain expenses at this level for the balance of the year. Please keep in mind that our expenses can vary quarter-to-quarter due to the timing of certain research and development expenses. In addition, please note that our operating expenses have included noncash, stock-based compensation expense and depreciation expense that together amounts to approximately $4 million per quarter. Please note that we started recording interest expense related to the note we issued to Deerfield. In relation to that $20.5 million note, we are incurring annual cash interest payments of approximately $1.8 million, or $450,000 per quarter. We expect to record approximately $600,000 in interest expense in the second quarter. But prior to the $450,000 in cash interest, it was approximately $160,000 of noncash amortization associated with the GAAP accounting of the note. With regard to cash usage. We are on pace to consume approximately $70 million for the year as we have outlined last quarter. This includes the impact of interest payments. Of the $29 million in cash we raised in the first quarter, we are targeting to maintain at least $60 million in cash through the end of the year. And with that, we'll open the call up to your questions.

[Operator Instructions] Our first question comes from the line of Bryan Brokmeier from the Maxim Group.

I'm not sure if you've said this at the end there, Ben but you have about 31 upgrade orders as of the end of March. How should we think about the pace of those upgrades and what's coming in the second quarter? I think you may have mentioned that, but I have missed it.

So we have already started, I think, some of those upgrades this month. We want to do it in a systematic manner and it does require some coordination with customers because it means that we have to take down their system while we do that. So we may not get all those done this quarter. Most likely, it's going to happen over the next several months.

Do you expect some of that -- it's about, I think it's 42% of your total installed base, are you expecting more of the rest of your customers to upgrade or how should we think about the rest of your installed base?

Yes, it's been a very popular upgrade. So we do expect to see more orders. As Mike mentioned, we are selling that for $20,000. And sometimes there's a purchasing process that they have to go through. And so, we expect them to just be coming in on sort of ratable basis.

Okay. And your consumable revenue was stronger than I was expecting. What accounted for the higher utilization Mike had mentioned? And what types of projects may be driving that higher utilization?

This is Mike. I think actually, it was kind of more or less across the board of our applications. Certainly, in microbial space, we're seeing a lot of uptick there but as I tried to point out, we're also seeing larger genomes being tackled in the plant, in the fungal space, as well as in the mammalian space, even with humans now and those involve a lot more cells per sample, or SMRT cells. But I think generally, it's just the reliability and performance of the system is to the point where people are planning more and more projects on their system. The core labs, if they're a service facility, are seeing an increase in projects from their clients that want to use the long read capabilities of the RS. So I think it's pretty much across the board.

All right. And have you begun realizing any revenues from the 100,000 foodborne pathogen projects?

Only a tiny bit. I mean, it's still mostly in the sort of start up phase, relative to the customers there working on decisions on which bacterial strains they're going to prioritize to begin with, as well as them working on the automation of their sample prep. And I think we'll start to see more of that this quarter. We saw relatively little last quarter in that regard.

We saw a nice publication on that, actually a week or so ago. Where I think the FDA mentioned that they sequenced one of the salmonella strains that was responsible for an outbreak back in October, and that was part of that project.

And our next question comes from the line of Daniel Brennan from Morgan Stanley.

First off, Mike, could you provide maybe a profile of the 4 orders that you had this quarter? Any type of color on the types of customers that are kind of ordering RS today?

Well, it's kind of the main applications. Certainly, in the bacteria world, we're doing very well and having made the case there that we can do things that other people can't do. And people in the human space who have began to realize how much they missed from the short read technologies, there as much information as they do provide, there's still a lot of holes, are beginning to look at the RS, at least in conjunction right now with the short read technologies as a way to give a much more complete picture of genetic variation. And then the third area, I would say is in the plant space, where you have all kinds of reasons, both from an agricultural perspective and coming up with better varieties to looking at sources of alternative energy components. So I think, those are the areas that kind of parallels what the biggest uses of our system are right now, as well as a what the -- shorter term list of prospects are looking at.

Great. And then, I think you alluded upfront, you also mentioned on the prior conference call, you discussed or I don't know if it was Susan or yourself, Mike, about the funnel and how you're optimistic, and you had the 4 orders this quarter, but you got -- it's difficult to predict like conversion. So is there any -- I know this comes up on every call, but is there any color about the funnel itself as it stands today? Any kind of new things you can point to, to give us a sense of the size of the funnel? Whether it be new leads or days to close, anything that would give us a sense of where you stand today versus where you stood last quarter?

We tried to say at the beginning or even the past quarter that we were getting to see the inklings of increasing our pipeline. I think we've seen that accelerate during this quarter, even starting right after AGBT. I think the issue of how difficult it is to predict exactly when a big capital purchase like this comes into realization, has to do with a procurement process, which can be somewhat erratic time wise and somewhat lengthened, if there is a long procurement concept. Things have to go up for bid in a lot of cases, particularly outside the U.S. And even though it's in essence, designed to be a sole-source bid, this still is a process with 2 to 3 months on that. And then you're at the whim of the bureaucracy that's guiding this through. And then the other thing that's an issue in the U.S. these days is the sequester thing, which probably delayed an order or two in the U.S. for us last quarter. It didn't stop an order but government agencies, in particular, were under a lot of constraint on their capital budgets, until right at the end of the quarter. And now that that's been at least resolved in the short term, I think that's less of an issue. But big ticket equipment items have a certain process that one has to go through, and even though you know you're going to get the order, knowing exactly what month, sometimes the quarter you're going to get it, it's a little hard to gauge sometimes, particularly at the -- where we've been or 1 or 2 units make some big difference for us percent-wise. As the pipeline gets bigger, and hopefully our sales get bigger as a result of that then 1 or 2 of those units being pushed from one quarter to another, becomes less and less of an issue.

Great. And if I can just maybe sneak one more in. Just back to that question earlier on the consumable pull through. Is it possible to the kind of quantify, I think you mentioned there's a few customers who do as much as $300,000 on an annualized basis to pull through. Is it possible to give a sense of was the increase in the pull through this quarter fairly broad-based? Was it driven by a select number of customers or any metrics you can give towards the substantial increases around the pull through and kind of the customer drivers behind that?

Actually, it was pretty broad-based. I mean, our top end customers continue to push the usage of their machines. But one thing that we did, I think we mentioned on our last call, was we've shifted some of our sales efforts, particularly focused on consumables and utilization of the systems in that perspective. And we targeted a lot of the sort of medium to low throughput users, to making sure that they knew how to get projects adapted to the PacBio RS and just carry out successful usage of it. And that's starting to pay off pretty handsomely for us as well.

Can I just sneak one more in? And I spoke to Ben about this but as a woman who looks through a lot Moleculos-facing technology maybe this year, will that be a direct competitor to the type of long reads that the RS generates or will it be something different? I'm just trying to think about how customers think about comparing Moleculo towards the RS.

Well, it's hard to know because no one really knows what the performance of that's going to be at this point. I mean, our belief is that it still has a lot of the limitations of the -- that the sample prep associated with the short read technologies, it relies on PCR amplification step. It's even more difficult and wrought with problems, strictly biased that the current system uses because you're having to deal with long-range PCR. You just -- it's just no one's ever demonstrated you can do that very uniformly. So you still will end up with a lot of holes because of that, that coverage bias issue. With our technology, you don't have that. We have even longer reads than you could routinely get on most long-range PCRs with our technology already. And by the end of the year, we expect to have an average of even longer read lengths from our customers. So while I suspect that it's -- if I had to guess, it's probably not that different from the mate-pair -- the long mate-pair libraries that they use now in terms of what it adds to the luminous short read sequencing technology.

[Operator Instructions] Our next question comes from the line of Amanda Murphy from William Blair. Amanda Murphy - William Blair & Company L.L.C., Research Division: I just have a follow up to Dan's question. And not to belabor the point but in terms of the comments around bookings for the year, I'm just curious, given that the capital -- well, the budgeting issues you talked to and perhaps, the long conversion cycle in terms of sale. I mean, how do you get comfortable with that bookings number, especially given that there's a bit of an acceleration implied towards the end of the year or through the year rather?

Well, there's a certain way to look at it. We actually doubled this quarter year-over-year. But no, I think this year is we know enough about the pipeline at least, what we can see, things could always change, to know that a substantial number of those potential orders are already in the purchasing queue. And so, I think our outlook is at least, as far as we can see, is less on the order of the quarter we're going to get those orders from than it is exactly what quarter they're going to come in. But we know that there's funding available for most of the ones that we're looking at in our pipeline, at least, in the next quarter or 2. So funding is always an issue in a general sense but to the degree that we have impetus from our customer base, who need to do things they can't do otherwise with sequencing technologies, we feel there's a pretty strong momentum in our favor. Scientists in the end, have been pretty creative about how to get money from things that they need to do through science with. It may take them a little while but usually, they force the issue. Amanda Murphy - William Blair & Company L.L.C., Research Division: Okay, got it. And then, in terms of instrument ASP, how should we think about that in light of the new platform? Is it -- should we think about it consistent with how it's trended in prior quarters or will there be some increase? After the upgrade?

I mean, it's priced the same as the RS. I mean, there's -- we'll see an up-and-down from an ASP depending on what geography we're selling in, particularly at these -- at modest unit numbers where you don't have much of an averaging effect. The RS II and the RS are the same price. Amanda Murphy - William Blair & Company L.L.C., Research Division: Got it, okay. And then just last one on methylation. And I know you've had some software introductions there, can you just remind us where you sit with methylation? Are people using it? I know that you've had some publications that are using it but how much are people using the RS platform for methylation studies at this point?

Well, if they're doing bacterial studies, they're using it probably uniformly and you'll probably see an even bigger set of papers coming out in the next 6 months from people who have even gone back and taken some of their old data and reprocessed it to look for methylation patterns. I think there's sort of 2 issues about it in microbial space. One has to do with the fact that you've got sort of 2 kinds of reasons for methylation in microbial systems. One has to do with defense against their pathogens, which tend to be phages. But the other has to do with regulating gene expression within those organisms. And as people understand the latter in particular, there's a much bigger interest in that space. In the sort of nonbacterial space, where some of the predominant methylation patterns are -- types are different, we're beginning to see people exploiting that. But I'd say, that's probably still in the early phase.

[Operator Instructions] And I see no additional questions in the queue at this time.

Okay. So in wrapping up, we remain steadfast in our commitment to bringing the unique advantages of our SMRT technology and products to our customers and the scientific community in general. We continue to make progress and we see momentum building in our business, particularly in system utilization. With further product and software releases on the horizon, it will be exciting to see how this will impact both our consumable sales and new systems bookings in the coming quarters. Thank you for listening in, and we will talk again in about 3 months' time.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may now disconnect. Everyone, have a good day.