PACIFIC BIOSCIENCES OF CALIFORNIA, INC. 10-Q

ITEM 1. FINANCIAL STATEMENTS PACIFIC BIOSCIENCES OF CALIFORNIA, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except par value) September 30, 2025 December 31, 2024 Assets Current assets Cash and cash equivalents $ 56,467 $ 55,370 Investments 242,187 334,561 Accounts receivable, net 30,616 27,524 Inventory, net 53,153 58,755 Prepaid expenses and other current assets 11,513 18,781 Short-term restricted cash 300 690 Total current assets 394,236 495,681 Property and equipment, net 22,127 30,505 Operating lease right-of-use assets, net 42,583 16,091 Long-term restricted cash 1,532 1,532 Intangible assets, net 16,143 389,572 Goodwill 317,761 317,761 Other long-term assets 8,776 9,305 Total assets $ 803,158 $ 1,260,447 Liabilities and Stockholders’ Equity Current liabilities Accounts payable $ 16,362 $ 16,590 Accrued expenses 29,172 22,595 Deferred revenue, current 16,049 13,864 Operating lease liabilities, current 621 10,026 Other liabilities, current 1,005 3,224 Total current liabilities 63,209 66,299 Deferred revenue, non-current 4,400 5,900 Contingent consideration liability, non-current — 18,700 Operating lease liabilities, non-current 54,300 14,914 Convertible senior notes, net, non-current 645,159 647,494 Other liabilities, non-current — 546 Total liabilities 767,068 753,853 Commitments and contingencies Stockholders’ equity Preferred stock, $ 0.001 par value: Authorized 50,000 shares; No shares issued or outstanding — — Common stock, $ 0.001 par value: Authorized 1,000,000 shares; issued and outstanding 301,853 and 294,418 shares at September 30, 2025 and December 31, 2024, respectively 302 294 Additional paid-in capital 2,690,304 2,654,804 Accumulated other comprehensive income 415 422 Accumulated deficit ( 2,654,931 ) ( 2,148,926 ) Total stockholders’ equity 36,090 506,594 Total liabilities and stockholders’ equity $ 803,158 $ 1,260,447 See accompanying notes to the condensed consolidated financial statements. Q3 Fiscal 2025 Form 10-Q 3 Table of Contents PACIFIC BIOSCIENCES OF CALIFORNIA, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, (In thousands, except per share amounts) 2025 2024 2025 2024 Revenue: Product revenue $ 32,597 $ 35,296 $ 96,793 $ 102,051 Service and other revenue 5,844 4,671 18,567 12,739 Total revenue 38,441 39,967 115,360 114,790 Cost of Revenue: Cost of product revenue 19,204 23,278 65,559 68,808 Cost of service and other revenue 3,078 3,484 11,709 10,588 Amortization of acquired intangible assets 183 3,201 4,711 7,172 Loss on purchase commitment 75 — 4,167 998 Total cost of revenue 22,540 29,963 86,146 87,566 Gross profit 15,901 10,004 29,214 27,224 Operating Expense: Research and development 22,846 25,516 74,428 107,456 Sales, general and administrative 31,099 43,746 107,442 133,376 Impairment charges — — 15,000 93,200 Amortization of acquired intangible assets 833 3,649 363,708 13,377 Change in fair value of contingent consideration — 1,170 ( 18,700 ) 1,100 Total operating expense 54,778 74,081 541,878 348,509 Operating loss ( 38,877 ) ( 64,077 ) ( 512,664 ) ( 321,285 ) Interest expense ( 1,739 ) ( 3,538 ) ( 5,214 ) ( 10,655 ) Other income, net 2,999 6,890 11,989 19,718 Loss before income taxes ( 37,617 ) ( 60,725 ) ( 505,889 ) ( 312,222 ) Income tax provision 383 — 116 — Net loss ( 38,000 ) ( 60,725 ) ( 506,005 ) ( 312,222 ) Other comprehensive income: Unrealized gain (loss) on investments 148 2,076 ( 7 ) 1,334 Comprehensive loss $ ( 37,852 ) $ ( 58,649 ) $ ( 506,012 ) $ ( 310,888 ) Net loss per share: Basic $ ( 0.13 ) $ ( 0.22 ) $ ( 1.69 ) $ ( 1.15 ) Diluted $ ( 0.13 ) $ ( 0.22 ) $ ( 1.69 ) $ ( 1.15 ) Weighted average shares outstanding used in calculating net loss per share: Basic 300,844 272,915 299,303 271,631 Diluted 300,844 272,915 299,303 271,631 See accompanying notes to the condensed consolidated financial statements. Q3 Fiscal 2025 Form 10-Q 4 Table of Contents PACIFIC BIOSCIENCES OF CALIFORNIA, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) Three Months Ended September 30, 2025 Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income Accumulated Deficit Total Stockholders' Equity (In thousands) Shares Amount Balance at June 30, 2025 300,350 $ 300 $ 2,677,853 $ 267 $ ( 2,616,931 ) $ 61,489 Net loss — — — — ( 38,000 ) ( 38,000 ) Other comprehensive income — — — 148 — 148 Issuance of common stock in conjunction with equity plans 1,503 2 1,467 — — 1,469 Share-based compensation expense — — 10,984 — — 10,984 Balance at September 30, 2025 301,853 $ 302 $ 2,690,304 $ 415 $ ( 2,654,931 ) $ 36,090 Nine Months Ended September 30, 2025 Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income Accumulated Deficit Total Stockholders' Equity (In thousands) Shares Amount Balance at December 31, 2024 294,418 $ 294 $ 2,654,804 $ 422 $ ( 2,148,926 ) $ 506,594 Net loss — — — — ( 506,005 ) ( 506,005 ) Other comprehensive loss — — — ( 7 ) — ( 7 ) Issuance of common stock in conjunction with equity plans 7,435 8 3,420 — — 3,428 Share-based compensation expense — — 32,080 — — 32,080 Balance at September 30, 2025 301,853 $ 302 $ 2,690,304 $ 415 $ ( 2,654,931 ) $ 36,090 Three Months Ended September 30, 2024 Common Stock Additional Paid-in Capital Accumulated Other Comprehensive (Loss) Income Accumulated Deficit Total Stockholders' Equity (In thousands) Shares Amount Balance at June 30, 2024 272,491 $ 272 $ 2,583,523 $ ( 523 ) $ ( 2,090,572 ) $ 492,700 Net loss — — — — ( 60,725 ) ( 60,725 ) Other comprehensive income — — — 2,076 — 2,076 Issuance of common stock in conjunction with equity plans 1,321 2 810 — — 812 Share-based compensation expense — — 18,259 — — 18,259 Balance at September 30, 2024 273,812 $ 274 $ 2,602,592 $ 1,553 $ ( 2,151,297 ) $ 453,122 Nine Months Ended September 30, 2024 Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income Accumulated Deficit Total Stockholders' Equity (In thousands) Shares Amount Balance at December 31, 2023 267,744 $ 268 $ 2,539,892 $ 219 $ ( 1,839,075 ) $ 701,304 Net loss — — — — ( 312,222 ) ( 312,222 ) Other comprehensive income — — — 1,334 — 1,334 Issuance of common stock in conjunction with equity plans 6,068 6 7,697 — — 7,703 Share-based compensation expense — — 55,003 — — 55,003 Balance at September 30, 2024 273,812 $ 274 $ 2,602,592 $ 1,553 $ ( 2,151,297 ) $ 453,122 See accompanying notes to the condensed consolidated financial statements. Q3 Fiscal 2025 Form 10-Q 5 Table of Contents PACIFIC BIOSCIENCES OF CALIFORNIA, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, (In thousands) 2025 2024 Cash flows from operating activities Net loss $ ( 506,005 ) $ ( 312,222 ) Adjustments to reconcile net loss to net cash used in operating activities Depreciation 10,251 10,932 Amortization of intangible assets 368,429 20,558 Amortization of right-of-use assets 3,083 10,912 Share-based compensation expense 32,080 55,003 Impairment charges 15,000 93,200 Accretion of discount and amortization of premium on marketable securities, net ( 3,905 ) ( 10,663 ) Change in the estimated fair value of contingent consideration ( 18,700 ) 1,100 Inventory provision 9,768 3,715 Deferred income taxes ( 546 ) — Other 1,456 1,002 Changes in assets and liabilities Accounts receivable, net ( 3,092 ) 7,232 Inventory, net ( 4,926 ) ( 15,394 ) Prepaid expenses and other assets 7,797 3,534 Accounts payable 761 ( 2,222 ) Accrued expenses ( 1,396 ) ( 26,665 ) Deferred revenue 685 875 Operating lease liabilities ( 661 ) ( 9,252 ) Other liabilities ( 2,219 ) ( 7,053 ) Net cash used in operating activities ( 92,140 ) ( 175,408 ) Cash flows from investing activities Purchases of property and equipment ( 1,853 ) ( 4,571 ) Purchases of intangible assets ( 5,000 ) — Purchases of investments ( 183,817 ) ( 418,164 ) Sales of investments — 8,061 Maturities of investments 280,089 480,440 Net cash provided by investing activities 89,419 65,766 Cash flows from financing activities Proceeds from issuance of common stock from equity plans 3,428 7,703 Notes payable principal payoff — ( 490 ) Net cash provided by financing activities 3,428 7,213 Net increase (decrease) in cash, cash equivalents, and restricted cash 707 ( 102,429 ) Cash, cash equivalents, and restricted cash at beginning of period 57,592 182,633 Cash, cash equivalents, and restricted cash at end of period $ 58,299 $ 80,204 Cash and cash equivalents at end of period 56,467 77,982 Restricted cash at end of period 1,832 2,222 Cash, cash equivalents, and restricted cash at end of period $ 58,299 $ 80,204 Supplemental disclosure of non-cash investing and financing activities Right-of-use asset and lease liability recognized due to lease extension $ 29,575 $ — See accompanying notes to the condensed consolidated financial statements. Q3 Fiscal 2025 Form 10-Q 6 Table of Contents PACIFIC BIOSCIENCES OF CALIFORNIA, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Business Overview We are a life science technology company that designs, develops, and manufactures advanced sequencing solutions that enable scientists and clinical researchers to improve their understanding of the genome and ultimately, resolve genetically complex problems. Our products and technology, which include our HiFi long-read sequencing technology, address solutions across a broad set of applications including human germline sequencing, plant and animal sciences, infectious disease and microbiology, oncology, and other emerging applications. Our focus is on creating some of the world's most advanced sequencing systems to provide our customers with the most complete and accurate view of genomes, transcriptomes, and epigenomes. Our customers include academic and governmental research institutions, commercial testing and service laboratories, genome centers, public health labs, hospitals and clinical research institutes, contract research organizations ("CROs"), pharmaceutical companies, and agricultural companies. References in this report to “PacBio,” “we,” “us,” the “Company,” and “our” refer to Pacific Biosciences of California, Inc. and its consolidated subsidiaries. Basis of Presentation and Consolidation Our unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States, or U.S. GAAP, as set forth in the Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC. The unaudited condensed consolidated financial statements include the accounts of Pacific Biosciences and our wholly owned subsidiaries. Certain information and footnote disclosures typically included in our audited financial statements have been condensed or omitted. The accompanying unaudited condensed consolidated financial statements have been prepared on a consistent basis with the December 31, 2024 audited consolidated financial statements and include all adjustments, consisting of only normal recurring adjustments, necessary to fairly state our financial position, results of operations, comprehensive loss, and cash flows for the period, but are not necessarily indicative of the results to be expected for the entire year or any future periods. All intercompany transactions and balances have been eliminated. The financial statements should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2024 (the "2024 Annual Report"). Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes to the financial statements. On an ongoing basis, we evaluate our significant estimates, including those relating to the valuation of inventory, fair value of contingent consideration, valuation of acquired intangible assets, useful lives assigned to finite-lived assets, asset impairment assessments, computation of provisions for income taxes, and valuations related to our convertible senior notes. While the extent of the potential impact of current macroeconomic conditions on our business is highly uncertain, we considered information available related to assumptions and estimates used to determine the results reported and asset valuations as of September 30, 2025. Actual results could differ materially from these estimates. Q3 Fiscal 2025 Form 10-Q 7 Table of Contents Cash, Cash Equivalents, Restricted Cash, and Investments We consider all highly liquid investments purchased with an original maturity of 90 days or less to be cash equivalents. Cash equivalents may be comprised of money market funds, certificates of deposit, commercial paper, corporate bonds and notes, and government agencies’ securities. We classify our investments in debt securities as available-for-sale and report the investments at fair value in current assets. We evaluate our available-for-sale investments in unrealized loss positions and assess whether the unrealized loss is credit-related. Unrealized gains and losses that are not credit-related are recognized in accumulated other comprehensive income (loss) in stockholders’ equity. Realized gains and losses, expected credit losses, as well as interest income, on available-for-sale securities are reported in other income, net. The cost used in the determination of gains and losses of securities sold is based on the specific identification method. The cost of marketable securities is adjusted for the amortization of premiums and discounts to expected maturity. Premium and discount amortization is recorded in other income, net. We have the ability to hold, and do not intend to sell investments in unrealized loss positions before the recovery of their amortized cost bases. Our investment portfolio at any point in time contains investments in cash deposits, money market funds, commercial paper, corporate debt securities and U.S. government and agency securities with high credit ratings. We have established guidelines regarding diversification and maturities of investments with the objectives of maintaining safety and liquidity, while maximizing yield. Restricted cash includes cash that is not readily available for use in the Company’s operating activities. Restricted cash is primarily comprised of cash pledged under letters of credit. Recent Accounting Pronouncements Accounting Pronouncements Pending Adoption In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures . This new standard requires a company to expand its existing income tax disclosures, specifically related to the rate reconciliation and income taxes paid. The standard is effective for annual periods beginning in 2025 and is expected to be applied retrospectively. We expect that the adoption of this new standard will result in incremental income tax related disclosures to the notes to the consolidated financial statements but will not have a material impact on the consolidated financial statements. In November 2024, the FASB issued ASU 2024-04, Debt—Debt With Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments . This new standard clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion or extinguishment of convertible debt. The standard will be effective for us beginning in the first quarter of 2026, with early adoption permitted. The new standard is expected to be applied prospectively, but retrospective application is permitted. We do not expect the adoption of this new standard to have a material impact on the consolidated financial statements and related disclosures. In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses . This new standard requires a company to provide disaggregated disclosures, within the notes to the financial statements, of specified categories of expenses that are included in line items on the face of the income statement. The standard will be effective for us beginning in 2027, and interim periods within 2028, with early adoption permitted. The new standard is expected to be applied prospectively, but retrospective application is permitted. We are currently evaluating the impact of ASU 2024-03 on the consolidated financial statements and related disclosures. In September 2025, the FASB issued ASU 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software. This new standard clarifies and modernizes the recognition and disclosure framework for capitalized internal-use software costs by removing all references to project stages and introduces a more judgment-based approach. The standard also clarifies the threshold to be applied to begin capitalizing. The standard will be effective for us beginning in the first quarter of 2028, with early adoption permitted, and can be applied using a prospective, retrospective, or modified transition approach. We are currently evaluating the impact of ASU 2025-06 on the consolidated financial statements and related disclosures. Q3 Fiscal 2025 Form 10-Q 8 Table of Contents Significant Accounting Policies There have been no changes to our significant accounting policies as disclosed in our 2024 Annual Report. NOTE 2. FINANCIAL INSTRUMENTS Fair Value of Financial Instruments Fair value is the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy established under U.S. GAAP requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are as follows: • Level 1: quoted prices in active markets for identical assets or liabilities; • Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and • Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. We consider an active market as one in which transactions for the asset or liability occurs with sufficient frequency and volume to provide pricing information on an ongoing basis. Conversely, we view an inactive market as one in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers. Where appropriate, our non-performance risk, or that of our counterparty, is considered in determining the fair values of liabilities and assets, respectively. We classify our cash deposits and money market funds within Level 1 of the fair value hierarchy because they are valued using bank balances or quoted market prices. We classify our investments as Level 2 instruments based on market pricing and other observable inputs. We did not classify any of our investments within Level 3 of the fair value hierarchy. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the entire fair value measurement requires management to make judgments and consider factors specific to the asset or liability. The carrying amount of our accounts receivable, prepaid expenses, other current assets, accounts payable, accrued expenses and other liabilities, current, approximate fair value due to their short maturities. Q3 Fiscal 2025 Form 10-Q 9 Table of Contents Assets and Liabilities Measured at Fair Value on a Recurring Basis The following table sets forth the fair value of our financial assets and liabilities that were measured on a recurring basis: September 30, 2025 December 31, 2024 (In thousands) Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets Cash and cash equivalents $ 52,483 $ 3,984 $ — $ 56,467 $ 55,370 $ — $ — $ 55,370 Investments: Corporate debt securities — 23,420 — 23,420 — 46,905 — 46,905 U.S. government & agency securities — 218,767 — 218,767 — 287,656 — 287,656 Total investments — 242,187 — 242,187 — 334,561 — 334,561 Short-term restricted cash 300 — — 300 690 — — 690 Long-term restricted cash 1,532 — — 1,532 1,532 — — 1,532 Total assets measured at fair value $ 54,315 $ 246,171 $ — $ 300,486 $ 57,592 $ 334,561 $ — $ 392,153 Liabilities Contingent consideration $ — $ — $ — $ — $ — $ — $ 18,700 $ 18,700 Total liabilities measured at fair value $ — $ — $ — $ — $ — $ — $ 18,700 $ 18,700 During the nine months ended September 30, 2025, there were no transfers between Level 1, Level 2, or Level 3 assets or liabilities reported at fair value on a recurring basis, and our valuation techniques did not change compared to the prior year. Contingent Consideration In connection with the August 2023 Apton Biosystems, Inc. (“Apton”) acquisition, contingent consideration of $ 25.0 million, which we may elect to pay in cash, shares of our common stock or a combination of cash and shares of our common stock, is due upon the achievement of a milestone, defined as the achievement of $ 50.0 million in revenue associated with Apton's technology, provided that the milestone event occurs prior to the five-year anniversary of the closing date of the acquisition. The number of shares, if any, to be issued in connection with the achievement of the specified milestone is not known and will be calculated based on the daily volume-weighted average price of our common stock for the twenty trading days ending on and including the fifth trading day immediately prior to the occurrence of the specified milestone. Upon achievement of the milestone, we may pay cash in lieu of our common stock to ensure that the issuance of our common stock does not exceed 19.9 % of our outstanding shares of common stock then outstanding. The contingent consideration is accounted for as a liability at fair value, with changes during each reporting period recognized in our condensed consolidated statements of operations and comprehensive loss. The fair value of the contingent consideration liability was calculated using a Monte Carlo Simulation to estimate the volatility and systematic relative risk of revenues subject to sales milestone payments and discounting the associated cash payment amounts to their present values using a credit-risk-adjusted interest rate. We classify contingent consideration within Level 3, as factors used to develop the estimate of fair value include unobservable inputs that are not supported by market activity and are significant to the fair value. Estimates and assumptions used in the Monte Carlo simulation include risk-adjusted forecasted revenues for products and services leveraging Apton's technology and an estimated credit spread. We estimate the fair value of the contingent consideration liability based on the simulated revenue of the Company through the five-year anniversary of the closing date of the acquisition. The key input used in the determination of the fair value included projected revenues of the high-throughput short-read products and services leveraging Apton's technology. Primarily due to management's decision to cease development of the high-throughput short-read system, and the resulting changes in the expected future revenues, among other factors, and as the milestone event must occur prior to the five-year anniversary of the closing date of the acquisition, the estimated fair value of the contingent consideration liability is $ 0 . An increase in the fair value of the liability may result from an acceleration in the timing of or increase in projected revenues and from a Q3 Fiscal 2025 Form 10-Q 10 Table of Contents decrease in discount rates, including the risk-free rate and estimated subordinated credit spread for a CCC credit rating. Changes in the estimated fair value of the contingent consideration liability during the nine months ended September 30, 2025 were as follows: (In thousands) Level 3 Beginning balance as of December 31, 2024 $ 18,700 Change in estimated fair value ( 18,700 ) Ending balance as of September 30, 2025 $ — Changes to the fair value are recorded as change in fair value of contingent consideration in the condensed consolidated statements of operations and comprehensive loss. Cash, Cash Equivalents, Restricted Cash, and Investments The following tables summarize our cash, cash equivalents, restricted cash, and investments: As of September 30, 2025 (In thousands) Amortized Cost Gross unrealized gains Gross unrealized losses Fair Value Cash and cash equivalents $ 56,467 $ — $ — $ 56,467 Investments: Corporate debt securities 23,298 123 ( 1 ) 23,420 U.S. government & agency securities 218,475 309 ( 17 ) 218,767 Total investments 241,773 432 ( 18 ) 242,187 Total cash, cash equivalents and investments $ 298,240 $ 432 $ ( 18 ) $ 298,654 Short-term restricted cash $ 300 $ — $ — $ 300 Long-term restricted cash $ 1,532 $ — $ — $ 1,532 As of December 31, 2024 (In thousands) Amortized Cost Gross unrealized gains Gross unrealized losses Fair Value Cash and cash equivalents $ 55,370 $ — $ — $ 55,370 Investments: Corporate debt securities 46,746 184 ( 25 ) 46,905 U.S. government & agency securities 287,393 418 ( 155 ) 287,656 Total investments 334,139 602 ( 180 ) 334,561 Total cash, cash equivalents and investments $ 389,509 $ 602 $ ( 180 ) $ 389,931 Short-term restricted cash $ 690 $ — $ — $ 690 Long-term restricted cash $ 1,532 $ — $ — $ 1,532 Q3 Fiscal 2025 Form 10-Q 11 Table of Contents The following table summarizes the contractual maturities of our cash equivalents and available-for-sale investments, excluding money market funds, as of September 30, 2025: (In thousands) Fair Value Due in one year or less $ 181,705 Due after one year through five years 64,466 Total $ 246,171 Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without call or prepayment penalties. Investment income included in other income, net on the condensed consolidated statements of operations and comprehensive loss was $ 3.1 million and $ 10.4 million for the three and nine months ended September 30, 2025, respectively, and $ 6.0 million and $ 19.8 million for the three and nine months ended September 30, 2024, respectively. NOTE 3. BALANCE SHEET COMPONENTS Inventory, Net Our inventory, net, consisted of the following components: (In thousands) September 30, 2025 December 31, 2024 Purchased materials $ 41,788 $ 45,270 Work in process 25,189 22,172 Finished goods 16,435 14,081 Inventory, gross 83,412 81,523 Inventory reserve ( 30,259 ) ( 22,768 ) Inventory, net $ 53,153 $ 58,755 Goodwill and Intangible Assets Goodwill Goodwill is reviewed for impairment at least annually during the second quarter, or more frequently if an event occurs indicating the potential for impairment. Based on quantitative interim impairment tests performed in 2024, we recorded impairment charges of $ 93.2 million in the second quarter of 2024 and $ 51.3 million in the fourth quarter of 2024. We conducted a quantitative interim impairment test as of March 31, 2025, based on a decline in stock price and market capitalization during the first quarter of 2025, macroeconomic uncertainties, and revised strategic plans emphasizing HiFi sequencing and discontinuing short-read platform development, and concluded there was no impairment. We completed our annual goodwill impairment assessment on April 1, 2025 and noted no impairment. Changes in our future operating results, cash flows, share price, market capitalization or discount rates used when conducting future goodwill impairment tests could affect the implied fair value of goodwill and may result in additional impairment charges in the future. Intangible Assets Intangible assets include developed technology, customer relationships, and acquired in-process research and development ("IPR&D"). In connection with the Apton acquisition in August 2023, we allocated $ 55.0 million of the purchase price to IPR&D. This asset is considered indefinite-lived until the associated research and development activities are either completed or abandoned, and it is tested for impairment annually and more Q3 Fiscal 2025 Form 10-Q 12 Table of Contents frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. We recognized a $ 40.0 million impairment charge in the fourth quarter of 2024 as a result of a quantitative interim impairment test. Based on our decision to cease development of the high-throughput short-read sequencing platform, which would utilize the IPR&D, and the resulting changes to the expected future cash flows, among other factors, we concluded that it was more likely than not that the fair value of the IPR&D was less than its carrying amount, requiring an interim impairment assessment. Using a discounted cash flow model under the income approach, we determined the fair value was below carrying value and recorded a $ 15.0 million impairment charge. The decline in the fair value of the IPR&D below its carrying amount as of March 31, 2025 resulted primarily from changes in the timing of expected future cash flows as compared to the fair value as of December 31, 2024, driven by the restructuring initiatives that prioritize the adoption of HiFi sequencing. The impairment charge is included in our consolidated statements of operations and comprehensive loss for the nine months ended September 30, 2025. Significant estimates and assumptions used in the income approach include timing of future cash flows, revenue growth assumptions, a selected discount rate of 14.0 %, and a selected obsolescence factor of 11 years. The discount rate was based primarily on the weighted average cost of capital, determined using market, peer company, industry data, and related risk factors. The assessment is a level 3 measurement due to its reliance on certain unobservable inputs and significant management judgment. The assumptions used were inherently subject to uncertainty and small changes in these assumptions could have had a significant impact on the concluded value. A decrease of 200 basis points to the discount rate used in our analysis would have resulted in an increase in the estimated fair value of the IPR&D of approximately $ 3 million, and an increase of one year to the obsolescence factor used in our analysis would have resulted in an increase in the estimated fair value of the IPR&D of approximately $ 3 million. Changes to IPR&D during the nine months ended September 30, 2025 were as follows: (In thousands) Balance as of December 31, 2024 $ 15,000 Impairment charge ( 15,000 ) Balance as of September 30, 2025 $ — See Note 5. Restructuring for additional information on costs incurred in connection with our current year restructuring activities. In addition to IPR&D, we had the following acquired finite-lived intangible assets: As of September 30, 2025 As of December 31, 2024 (In thousands, except years) Estimated Useful Life (in years) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Developed technology 3 — 15 $ 421,179 $ ( 405,036 ) $ 16,143 $ 411,179 $ ( 36,607 ) $ 374,572 Customer relationships 2 360 ( 360 ) — 360 ( 360 ) — Total $ 421,539 $ ( 405,396 ) $ 16,143 $ 411,539 $ ( 36,967 ) $ 374,572 Q3 Fiscal 2025 Form 10-Q 13 Table of Contents The estimated future amortization expense of intangible assets with finite lives is as follows: (In thousands) Remainder of 2025 $ 1,020 2026 4,078 2027 4,078 2028 1,301 2029 745 2030 and thereafter 4,921 Total $ 16,143 Amortization of acquired intangible assets is included within our cost of revenue if the costs and expenses related to the intangible assets are attributable to revenue generating activities. Amortization expense for intangible assets that are not directly related to sales generating activities are amortized to operating expenses. For developed technology intangible assets that are utilized in both revenue generating activities and in research and development activities, we allocate the amortization expense between cost of revenue and operating expenses. The finite-lived intangible assets are amortized using the straight-line method over their estimated useful lives. During the three months ended March 31, 2025, we revised the estimated useful life of the developed technology acquired in the 2021 Omniome, Inc. ("Omniome") acquisition. This change reflects updated strategic plans and restructuring initiatives focused on accelerating HiFi sequencing adoption, leading to ceased development of our high-throughput short-read platform and revised expectations for the timing and amount of future cash flows from short-read sequencing products and services. As a result of the change in estimate, during the three months ended March 31, 2025, we recognized accelerated amortization of $ 359.3 million within amortization of acquired intangible assets in operating expenses, reflecting our revised estimate that the asset will no longer generate economic benefit beyond March 31, 2025. This expense had a negative impact on basic and diluted net loss per share of $ 1.20 for the nine months ended September 30, 2025. We review finite-lived intangible assets for impairment when indication of potential impairment exists, such as a significant reduction in cash flows associated with the assets. In the first quarter of 2025, as part of our interim goodwill impairment test, we also performed a recoverability test for the definite-lived asset group and noted no impairment. On March 7, 2025, the Company entered into an agreement to acquire certain developed technology and related intellectual property from The Chinese University of Hong Kong for total consideration of $ 9.7 million. In addition, the Company entered into a license agreement for complementary developed technology during the three months ended March 31, 2025. Both the acquired technology and license are classified as intangible assets and are being amortized over an estimated useful life of three years . As of September 30, 2025, $ 5.0 million of these intangible assets remained unpaid. This amount is included in accrued liabilities on the condensed consolidated balance sheets and is expected to be paid in 2026. See Note 5. Restructuring for additional information on costs incurred in connection with our current year restructuring activities. Deferred Revenue As of September 30, 2025, we had a total of $ 20.4 million of deferred revenue, $ 16.0 million of which was recorded as deferred revenue, current, and $ 4.4 million of which was recorded as deferred revenue, non-current, which primarily relates to deferred service contract revenues and is scheduled to be recognized in the next four years . Revenue recorded in the three and nine months ended September 30, 2025 includes $ 2.4 million and $ 10.5 million, respectively, that was included in deferred revenue as of December 31, 2024. Q3 Fiscal 2025 Form 10-Q 14 Table of Contents Performance Obligations We regularly enter into contracts with multiple performance obligations. These contracts are believed to be firm as of the balance sheet date. However, we may allow customers to make product substitutions or certain modifications at our discretion. The timing of shipments depends on several factors, including agreed upon shipping schedules, which may span multiple quarters. Most performance obligations are generally satisfied within a year of the contract execution date. As of September 30, 2025, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 48.7 million, of which approximately 72 % is expected to be converted to revenue over the next twelve months , approximately 23 % in the following twelve months , and the remainder thereafter. Product Warranties We generally provide a one-year warranty on instruments. In addition, we provide a limited warranty on consumables. At the time revenue is recognized, an accrual is established for estimated warranty costs based on historical experience as well as anticipated product performance. We periodically review the warranty reserve for adequacy and adjust the warranty accrual, if necessary, based on actual experience and estimated costs to be incurred. Warranties are recorded as part of accrued expenses on the condensed consolidated balance sheets and warranty expense is recorded as a component of cost of product revenue in the condensed consolidated statements of operations and comprehensive loss. There were no material changes in estimates for the periods presented below. Changes in the reserve for product warranties were as follows for the periods indicated: Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2025 2024 2025 2024 Balance at beginning of period $ 2,688 $ 3,462 $ 3,100 $ 4,681 Additions charged to cost of product revenue 1,252 1,414 3,809 4,787 Repairs and replacements ( 1,384 ) ( 1,610 ) ( 4,353 ) ( 6,202 ) Balance at end of period $ 2,556 $ 3,266 $ 2,556 $ 3,266 NOTE 4. CONVERTIBLE SENIOR NOTES 2029 Convertible Senior Notes On November 7, 2024, we entered into an exchange agreement with SB Northstar LP (“SBN”), a subsidiary of SoftBank Group Corp., pursuant to which we agreed to exchange the remaining approximately $ 459.0 million in aggregate principal amount of our previously held 1.50 % Convertible Senior Notes due 2028 (the “2028 Notes”) outstanding for (i) $ 200.0 million aggregate principal amount of 1.50 % Convertible Senior Notes due 2029 (the “2029 Notes”), (ii) 20,451,570 shares of common stock (the “Exchange Shares”) and (iii) $ 50.0 million of cash (the “2024 Exchange Transaction”). The Exchange Shares were issued on November 21, 2024 (the “Closing Date”). The 2029 Notes, the Exchange Shares, and shares of common stock issuable upon conversion of the 2029 Notes were subject to certain lock-up restrictions for a six-month period (the “Lock-Up Period”) beginning on the Closing Date of the 2024 Exchange Transaction. Upon any conversion of the 2029 Notes, SBN will not be entitled to be issued a number of shares of the Company’s common stock which would cause SBN's beneficial ownership of common stock to exceed either 9.9 % of the total number of issued and outstanding shares of common stock or 9.9 % of the combined voting power of all of the securities of the Company, in each case, following such conversion. The 2029 Notes are governed by an indenture (the “2029 Indenture”) between the Company and U.S. Bank Trust Company, National Association, as trustee. The 2029 Notes bear interest at a rate of 1.50 % per annum. Interest on the 2029 Notes is payable semi-annually in arrears on February 15 and August 15, commencing on February 15, 2025. The 2029 Notes will mature on August 15, 2029, subject to earlier conversion, redemption or repurchase. Q3 Fiscal 2025 Form 10-Q 15 Table of Contents The 2029 Notes are convertible at the option of the holder at any time from the expiration of the Lock-Up Period until the second scheduled trading day prior to the maturity date, including in connection with a redemption by the Company. The 2029 Notes are convertible into shares of our common stock based on an initial conversion rate of 204.5157 shares of common stock per $1,000 principal amount of the 2029 Notes (which is equal to an initial conversion price of approximately $ 4.89 per share of common stock), in each case subject to customary anti-dilution and other adjustments as a result of certain extraordinary transactions. Upon conversion of the 2029 Notes, we may elect to settle such conversion obligation in cash, shares of our common stock, or a combination of cash and shares of our common stock. On or after August 20, 2027, and prior to the 31st scheduled trading day immediately preceding the maturity date, the 2029 Notes will be redeemable by the Company in the event that the closing sale price of our common stock has been at least 150 % of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide the redemption notice at a redemption price of 100 % of the principal amount of such 2029 Notes, plus accrued and unpaid interest up to, but excluding, the redemption date. Upon the occurrence of a Fundamental Change (as defined in the 2029 Indenture), the holders of the 2029 Notes may require that we repurchase all or part of the principal amount of the 2029 Notes at a purchase price of par plus unpaid interest up to, but excluding, the maturity date. The 2029 Notes are subject to certain debt and lien covenants as well as springing guarantees, in each case, the terms of which are set forth in a second letter agreement between the Company and SBN entered into in connection with the Indenture. The 2029 Indenture includes customary “events of default,” which may result in the acceleration of the maturity of the 2029 Notes under the 2029 Indenture. The 2029 Indenture also includes customary covenants for convertible notes of this type. To the extent we elect, the sole remedy for an event of default relating to our failure to comply with certain of our reporting obligations shall, for the first 360 calendar days after the occurrence of such an event of default, consist exclusively of the right to receive additional interest on the 2029 Notes at a rate equal to (i) 0.25 % per annum of the principal amount of the 2029 Notes outstanding for each day during the first 180 calendar days of the 360 -day period after the occurrence of such an event of default during which such event of default is continuing (or, if earlier, the date on which such event of default is cured or waived) and (ii) 0.50 % per annum of the principal amount of the 2029 Notes outstanding for each day from, and including, the 181 st calendar day to, and including, the 360 th calendar day after the occurrence of such an event of default during which such event of default is continuing (or, if earlier, the date on which such event of default is cured or waived as provided for in the 2029 Indenture). On the 361 st day after such event of default (if the event of default relating to our failure to comply with its obligations is not cured or waived prior to such 361 st day), the 2029 Notes shall be subject to acceleration as provided for in the 2029 Indenture. The 2029 Notes are accounted for in accordance with the authoritative guidance for convertible debt instruments that may be settled in cash upon conversion. Under ASU 2020-06, the guidance requires that debt with an embedded conversion feature is accounted for in its entirety as a liability and no portion of the proceeds from the issuance of the convertible debt instrument is accounted for as attributable to the conversion feature unless the conversion feature is required to be accounted for separately as an embedded derivative or the conversion feature results in a substantial premium. The conversion feature of the 2029 Notes is not accounted for as an embedded derivative because it is considered to be indexed to our common stock, and the 2029 Notes were not issued at a substantial premium; therefore, the 2029 Notes are accounted for in their entirety as a liability. Because we may elect to settle any conversions entirely in shares, and because settlement in shares is the default settlement method, the liability is classified as non-current. The requirement to repurchase the 2029 Notes, including unpaid interest to the maturity date in the event of a Fundamental Change, is considered a put option for certain periods requiring bifurcation under ASC 815 – Derivatives and Hedging. However, given the low probability of such a Fundamental Change occurring during the applicable periods, the value of the embedded derivative is immaterial. The additional interest feature in the event of our failure to comply with certain reporting obligations is also considered an embedded derivative requiring bifurcation under ASC 815. However, due to the nature and terms of the reporting obligations, the value of the embedded derivative is immaterial. Q3 Fiscal 2025 Form 10-Q 16 Table of Contents The exchange qualified as a troubled debt restructuring under ASC 470-60 – Troubled Debt Restructurings by Debtors . Since the undiscounted cash flows of the 2029 Notes were less than the carrying amount of the exchanged 2028 Notes, the carrying value of the 2029 Notes was determined based on the total undiscounted cash flows. As a result, no interest expense will be recognized for the 2029 Notes. The Company recorded a gain on debt restructuring of $ 154.4 million, which resulted in a decrease of basic net loss per share of $ 0.56 , during the year ended December 31, 2024 in our consolidated statements of operations and comprehensive loss. The gain was calculated as the difference between the carrying amount of the old debt and the carrying amount of the new debt, adjusted for debt issuance costs. We incurred issuance costs related to the 2029 Notes of approximately $ 3.1 million, including $ 0.2 million of lender fees, which were recorded as a reduction to the gain on debt restructuring in our consolidated statements of operations and comprehensive loss. We also paid accrued but unpaid interest of $ 1.8 million on the 2028 Notes in connection with the 2024 Exchange Transaction. We did not receive any cash proceeds from the 2024 Exchange Transaction. In exchange for issuing the 2029 Notes, Exchange Shares and paying $ 50.0 million of cash pursuant to the 2024 Exchange Transaction, we received and cancelled the exchanged 2028 Notes. Following the closing of the 2024 Exchange Transaction, no amounts were outstanding on the 2028 Notes. The carrying amount of the liability for the 2029 Notes as of September 30, 2025 is $ 212.0 million, of which $ 209.0 million is included as convertible senior notes, net, non-current, and $ 3.0 million is included as accrued expenses on our consolidated balance sheets. Changes to the 2029 Notes during the nine months ended September 30, 2025 were as follows: (In thousands) Carrying amount as of December 31, 2024 $ 214,200 Contractual interest expense ( 2,200 ) Carrying amount as of September 30, 2025 $ 212,000 As of September 30, 2025, the estimated fair value (Level 2) of the 2029 Notes was $ 169.4 million. The fair value of the 2029 Notes is estimated using a binomial lattice model that is primarily affected by the trading price of our common stock, market interest rates and volatility. 2030 Convertible Senior Notes In June 2023, we entered into a privately negotiated exchange agreement with a holder of our outstanding 2028 Notes, pursuant to which we issued $ 441.0 million in aggregate principal amount of our 1.375 % Convertible Senior Notes due 2030 (the “2030 Notes” and together with the 2029 Notes, the “Notes”) in exchange for $ 441.0 million principal amount of the 2028 Notes (the “2023 Exchange Transaction”), pursuant to exemptions from registration under the Securities Act of 1933, as amended (the “Securities Act”), and the rules and regulations thereunder. The 2030 Notes were issued on June 30, 2023. The 2030 Notes are governed by an indenture (the “2030 Indenture”) between the Company and U.S. Bank Trust Company, National Association, as trustee. The 2030 Notes bear interest at a rate of 1.375 % per annum. Interest on the 2030 Notes is payable semi-annually in arrears on June 15 and December 15, commencing on December 15, 2023. The 2030 Notes will mature on December 15, 2030, subject to earlier conversion, redemption or repurchase. The 2030 Notes are convertible at the option of the holder at any time until the second scheduled trading day prior to the maturity date, including in connection with a redemption by the Company. The 2030 Notes are convertible into shares of our common stock based on an initial conversion rate of 46.5116 shares of common stock per $1,000 principal amount of the 2030 Notes (which is equal to an initial conversion price of approximately $ 21.50 per share of common stock), in each case subject to customary anti-dilution and other adjustments as a result of certain extraordinary transactions. Upon conversion of the 2030 Notes, we may elect to settle such conversion obligation in cash, shares of our common stock, or a combination of cash and shares of our common stock. On or after June 20, 2028, and prior to the 31st scheduled trading day immediately preceding the maturity date, the 2030 Notes will be redeemable by the Company in the event that the closing sale price of our common stock has been at least 150 % of the conversion price then in effect for at least 20 trading days (whether or not Q3 Fiscal 2025 Form 10-Q 17 Table of Contents consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide the redemption notice at a redemption price of 100 % of the principal amount of such 2030 Notes, plus accrued and unpaid interest up to, but excluding, the redemption date. Upon the occurrence of a Fundamental Change (as defined in the 2030 Indenture), the holders of the 2030 Notes may require that we repurchase all or part of the principal amount of the 2030 Notes at a purchase price equal to 100 % of the principal amount of the notes to be repurchased, plus any accrued and unpaid interest up to, but excluding, the fundamental change repurchase date, and all unpaid interest from the fundamental change repurchase date thereon, but excluding, the maturity date. The 2030 Indenture includes customary “events of default,” which may result in the acceleration of the maturity of the 2030 Notes under the 2030 Indenture. The 2030 Indenture also includes customary covenants for convertible notes of this type. To the extent we elect, the sole remedy for an event of default relating to our failure to comply with certain of our reporting obligations shall, for the first 360 calendar days after the occurrence of such an event of default, consist exclusively of the right to receive additional interest on the 2030 Notes at a rate equal to (i) 0.25 % per annum of the principal amount of the 2030 Notes outstanding for each day during the first 180 calendar days of the 360 -day period after the occurrence of such an event of default during which such event of default is continuing (or, if earlier, the date on which such event of default is cured or waived) and (ii) 0.50 % per annum of the principal amount of the 2030 Notes outstanding for each day from, and including, the 181 st calendar day to, and including, the 360 th calendar day after the occurrence of such an event of default during which such event of default is continuing (or, if earlier, the date on which such event of default is cured or waived as provided for in the 2030 Indenture). On the 361 st day after such event of default (if the event of default relating to our failure to comply with its obligations is not cured or waived prior to such 361 st day), the 2030 Notes shall be subject to acceleration as provided for in the 2030 Indenture. The 2030 Notes are accounted for in accordance with the authoritative guidance for convertible debt instruments that may be settled in cash upon conversion. Under ASU 2020-06, the guidance requires that debt with an embedded conversion feature is accounted for in its entirety as a liability and no portion of the proceeds from the issuance of the convertible debt instrument is accounted for as attributable to the conversion feature unless the conversion feature is required to be accounted for separately as an embedded derivative or the conversion feature results in a substantial premium. The conversion feature of the 2030 Notes is not accounted for as an embedded derivative because it is considered to be indexed to our common stock, and the 2030 Notes were not issued at a substantial premium; therefore, the 2030 Notes are accounted for in their entirety as a liability. Because we may elect to settle any conversions entirely in shares, and because settlement in shares is the default settlement method, the liability is classified as non-current. The requirement to repurchase the 2030 Notes, including unpaid interest to the maturity date in the event of a Fundamental Change, is considered a put option for certain periods requiring bifurcation under ASC 815 – Derivatives and Hedging. However, given the low probability of such a Fundamental Change occurring during the applicable periods, the value of the embedded derivative is immaterial. The additional interest feature in the event of our failure to comply with certain reporting obligations is also considered an embedded derivative requiring bifurcation under ASC 815. However, due to the nature and terms of the reporting obligations, the value of the embedded derivative is immaterial. The 2023 Exchange Transaction was accounted for as an extinguishment driven by the change in fair value of the embedded conversion option. We recorded a loss on extinguishment of debt of approximately $ 2.0 million in connection with the 2023 Exchange Transaction during the year ended December 31, 2023, which represents the difference between the fair value and the principal amount of the 2030 Notes of the debt at the modification date, plus unamortized debt issuance costs of $ 1.5 million related to the respective portion of the 2028 Notes. We incurred issuance costs related to the 2030 Notes of approximately $ 7.3 million, which were recorded as debt issuance costs and are presented as a reduction to the 2030 Notes on our condensed consolidated balance sheets. The debt issuance costs are amortized to interest expense using the effective interest method over the term of the 2030 Notes, resulting in an effective interest rate of 1.6 %. We also paid accrued but unpaid interest of $ 2.5 million on the 2028 Notes in connection with the 2023 Exchange Transaction on June 30, 2023. We did not receive any cash proceeds from the 2023 Exchange Transaction. In exchange for issuing the 2030 Notes pursuant to the 2023 Exchange Transaction, we received and cancelled the exchanged 2028 Notes. Q3 Fiscal 2025 Form 10-Q 18 Table of Contents Following the closing of the 2023 Exchange Transaction, $ 459.0 million in aggregate principal amount of 2028 Notes remained outstanding with terms unchanged. The net carrying amount of the liability for the 2030 Notes is included as convertible senior notes, net, non-current in the condensed consolidated balance sheets as follows: (In thousands) September 30, 2025 December 31, 2024 Principal amount $ 441,000 $ 441,000 Unamortized debt premium 398 453 Unamortized debt issuance costs ( 5,239 ) ( 5,959 ) Net carrying amount $ 436,159 $ 435,494 Interest expense for the 2030 Notes was as follows: Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2025 2024 2025 2024 Contractual interest expense $ 1,516 $ 1,516 $ 4,548 $ 4,565 Amortization of debt issuance costs 241 237 720 712 Total interest expense $ 1,757 $ 1,753 $ 5,268 $ 5,277 As of September 30, 2025, the estimated fair value (Level 2) of the 2030 Notes was $ 314.5 million. The fair value of the 2030 Notes is estimated using a binomial lattice model that is primarily affected by the trading price of our common stock, market interest rates and volatility. 2028 Convertible Senior Notes On February 9, 2021, we entered into an investment agreement with SBN relating to the issuance and sale to SBN of $ 900.0 million in aggregate principal amount of the 2028 Notes. The 2028 Notes were issued on February 16, 2021 and bore interest at a rate of 1.50 % per annum. As discussed above, in June 2023 we completed an exchange of $ 441.0 million in aggregate principal amount of our 2028 Notes for $ 441.0 million aggregate principal amount of the 2030 Notes, leaving approximately $ 459.0 million in aggregate principal amount of 2028 Notes outstanding. Also as discussed above, in November 2024 we completed an exchange of the remaining $ 459.0 million in aggregate principal amount of the 2028 Notes outstanding for (i) $ 200.0 million aggregate principal amount of the 2029 Notes, (ii) the Exchange Shares and (iii) $ 50.0 million of cash. As of December 31, 2024 no amounts were outstanding on the 2028 Notes. We incurred issuance costs related to the 2028 Notes of approximately $ 4.5 million, which were recorded as debt issuance costs and are presented as a reduction to the 2028 Notes on our consolidated balance sheets. The debt issuance costs were amortized to interest expense using the effective interest method over the term of the 2028 Notes, resulting in an effective interest rate of 1.6 %. In connection with the 2024 Exchange Transaction, the remaining unamortized debt issuance costs related to the 2028 Notes of $ 1.1 million were extinguished by offsetting the carrying amount of the convertible senior notes. Interest expense for the 2028 Notes was as follows: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2025 2024 2025 2024 Contractual interest expense $ — $ 1,721 $ — $ 5,163 Amortization of debt issuance costs — 81 — 243 Total interest expense $ — $ 1,802 $ — $ 5,406 Q3 Fiscal 2025 Form 10-Q 19 Table of Contents NOTE 5. RESTRUCTURING 2025 Restructuring In the first quarter of 2025, we implemented an expense reduction initiative aimed at lowering our annualized run-rate operating expenses. These actions, which included workforce reductions and other cost-saving measures, were part of a broader strategic shift to prioritize the adoption of HiFi sequencing. A summary of the pre-tax restructuring charges are as follows: (In thousands) Three Months Ended September 30, 2025 Cumulative amount incurred to date Employee separation costs $ — $ 4,787 Other costs 66 629 Total restructuring charges (1) $ 66 $ 5,416 (1) Cumulative charges incurred to date include $ 3.3 million in sales, general and administrative expense and $ 2.1 million in research and development expense. Charges included employee separation costs comprised of approximately $ 2.5 million related to salaries, wages and other employee benefits paid to terminated employees pursuant to the Worker Adjustment and Retraining Notification (WARN) Act and approximately $ 2.3 million of severance costs. Charges included in other costs are primarily related to legal expenses incurred in connection with employee separation matters. In connection with the restructuring and strategic shift, we incurred an additional $ 388.6 million in costs. These include $ 359.3 million of accelerated amortization of certain intangible assets, $ 15.0 million of IPR&D impairment charges, $ 8.0 million related to excess inventory due to decreased external demand and $ 3.9 million for estimated losses on purchase commitments tied to anticipated future excess inventory included in cost of revenue, and $ 2.4 million of accelerated depreciation of fixed assets. See Note 3. Balance Sheet Components for additional information on the IPR&D impairment assessment and the change in estimated useful life of the intangible asset and accelerated amortization. A summary of the liabilities related to the restructuring is as follows: (In thousands, excluding non-cash activities) Employee Separation Costs Other Costs Total Expense recorded in YTD 2025 $ 4,787 $ 629 $ 5,416 Cash paid during YTD 2025 ( 4,787 ) ( 528 ) ( 5,315 ) Amount recorded in current liabilities as of September 30, 2025 $ — $ 101 $ 101 Estimated total restructuring costs to still be incurred $ — $ — $ — Q3 Fiscal 2025 Form 10-Q 20 Table of Contents 2024 Restructuring In the second quarter of 2024, we implemented an expense reduction initiative that included workforce reductions, the closing of our San Diego office, and other actions to reduce annualized run-rate operating expenses. A summary of the pre-tax restructuring charges are as follows: (In thousands) Three Months Ended September 30, 2025 Cumulative amount incurred to date Employee separation costs $ — $ 10,008 Other costs — 16,102 Total restructuring charges (1) $ — $ 26,110 (1) Cumulative charges incurred to date include $ 15.8 million in sales, general and administrative expense; $ 5.9 million in research and development expense; and $ 4.4 million in cost of revenue. Cumulative charges incurred to date include employee separation costs comprised of approximately $ 5.5 million related to salaries, wages and other employee benefits paid to terminated employees pursuant to the Worker Adjustment and Retraining Notification (WARN) Act and approximately $ 4.5 million of severance costs. Other costs in cumulative charges incurred to date are primarily related to accelerated amortization and depreciation of $ 8.1 million for the right-of-use asset, leasehold improvements, and furniture and fixtures relating to the abandonment of the San Diego office. We also incurred cumulative charges to date for excess inventory of $ 3.6 million primarily relating to a decrease in internal demand resulting from the expense reduction initiatives which were recognized in cost of product revenues. The accelerated amortization and depreciation, which was recognized in sales, general and administrative expense, was determined as a result of the Company's change in estimate pertaining to its remaining useful life of the San Diego office utilizing the estimated date on which it planned to abandon the San Diego office. The lease liability pertaining to the San Diego office was also remeasured during the three months ended June 30, 2024 resulting in a reduction in the operating lease liability balance of $ 4.4 million, which was offset against the right-of-use asset on the condensed consolidated balance sheets. We fully exited our San Diego office in September 2024. A summary of the liabilities related to the restructuring is as follows: (In thousands) Other Costs Total Amount recorded in current liabilities as of December 31, 2024 $ 170 $ 170 Additional expense recorded 888 888 Cash payments ( 1,058 ) ( 1,058 ) Amount recorded in current liabilities as of September 30, 2025 $ — $ — Estimated total restructuring costs to still be incurred $ — $ — The table above excludes noncash activities and amounts incurred relating to the San Diego office lease liability. The ending balance of the San Diego office lease liability was $ 0 at the end of the second quarter of 2025. Q3 Fiscal 2025 Form 10-Q 21 Table of Contents NOTE 6. COMMITMENTS AND CONTINGENCIES Leases The Company has entered into various operating lease agreements, primarily relating to our corporate offices. On March 7, 2025, we amended our existing lease covering our corporate headquarters, as well as our research and development, manufacturing, and distribution facilities in Menlo Park, California. The lease amendment extends the term to April 30, 2034. See Note 6 – Commitments and Contingencies , subsection titled “Leases”, in Part I, Item 1 of the Quarterly Report on Form 10-Q for the quarter ended March 31, 2025 for information regarding the Company’s maturity of lease liabilities under its lease agreements. Contingencies We may become involved in legal proceedings, claims and assessments from time to time in the ordinary course of business. We accrue liabilities for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. We do not believe that the ultimate outcome of any such pending matters is probable or reasonably estimable, or that these matters will have a material adverse effect on our business; however, the results of litigation and claims are inherently unpredictable. Regardless of the outcome, litigation can have an adverse impact on us because of litigation and settlement costs, diversion of management resources, and other factors. Please see subsection titled Legal Proceedings, in Part II, Item 1 of this Quarterly Report on Form 10-Q. Indemnification Pursuant to Delaware law and agreements entered into with each of our directors and officers, we may have obligations, under certain circumstances, to hold harmless and indemnify each of our directors and officers against losses suffered or incurred by the indemnified party in connection with their service to us, and judgements, fines, settlements and expenses related to claims arising against such directors and officers to the fullest extent permitted under Delaware law, our bylaws and our certificate of incorporation. We also enter and have entered into indemnification agreements with our directors and officers that may require us to indemnify them against liabilities that arise by reason of their status or service as directors or officers, except as prohibited by applicable law. In addition, we may have obligations to hold harmless and indemnify third parties involved with our fundraising efforts and their respective affiliates, directors, officers, employees, agents or other representatives against any and all losses, claims, damages and liabilities related to claims arising against such parties pursuant to the terms of agreements entered into between such third parties and us in connection with such fundraising efforts. To the extent that any such indemnification obligations apply to the lawsuits described above, any associated expenses incurred are included within the related accrued litigation expense amounts. No additional liability associated with such indemnification obligations has been recorded as of September 30, 2025 and December 31, 2024. NOTE 7. EQUITY PLANS AND SHARE-BASED COMPENSATION Equity Plans As of September 30, 2025, the Company had share-based compensation awards outstanding under the 2020 Equity Incentive Plan (the “2020 Plan”), the 2020 Inducement Equity Incentive Plan (the “Inducement Plan”), the 2021 adopted Omniome Equity Incentive Plan of Pacific Biosciences of California, Inc. (the “Omniome Plan”) and the 2010 Employee Stock Purchase Plan, from which we issued equity awards and employee stock. On June 4, 2025, our stockholders approved an amendment to the 2020 Plan to reserve an additional 23 million shares of our common stock for issuance pursuant to equity awards granted under the 2020 Plan. As of September 30, 2025, we had 37.8 million shares remaining and available for future issuance under the 2020 Plan, Inducement Plan, and the Omniome Plan. Shares remaining and available for future issuance reflect shares that may become eligible to vest upon the achievement of maximum targets for certain equity awards. Q3 Fiscal 2025 Form 10-Q 22 Table of Contents Refer to Note 9 – Stockholders' Equity , in Part II, Item 8 of our 2024 Annual Report for more information on the Company's equity plans . Stock Options The following table summarizes stock option activity for time-based awards: (shares in thousands) Number of shares Weighted average exercise price Outstanding at December 31, 2024 10,509 $ 11.09 Granted 8,290 1.22 Canceled ( 2,501 ) 7.89 Expired ( 376 ) 6.44 Outstanding at September 30, 2025 15,922 $ 6.57 Restricted Stock Units ("RSU") and Performance Stock Units ("PSU") We grant RSUs for which the respective shares vest when the requisite service period is achieved. We granted PSUs during the first quarter of 2023 for which the number of shares issuable is based on performance relative to specified revenue targets and continued employment through the vesting period. The PSUs are issuable following the third year of the performance period. Maximum achievement of the revenue goal under the PSUs will result in up to 200 % of the target number of shares subject to the PSUs to become eligible to vest, while not meeting the minimum achievement of the revenue goal under the PSUs will result in no shares subject to the PSUs becoming eligible to vest. The following table summarizes the time-based RSUs and PSUs activity: Restricted Stock Units (RSU) Performance Stock Units (PSU) Weighted average grant date fair value (shares in thousands) RSU PSU Outstanding at December 31, 2024 14,211 392 $ 7.41 $ 9.43 Granted 11,895 — 1.25 — Vested ( 4,331 ) — 9.47 — Forfeited ( 3,652 ) — 4.08 — Outstanding at September 30, 2025 18,123 392 $ 3.55 $ 9.43 Employee Stock Purchase Plan ("ESPP") Shares issued under our ESPP wer e 3,102,930 and 1,906,529 durin g the nine months ended September 30, 2025 and 2024, respectively. In the first quarter of 2025, an additional 4.0 million shares were reserved under the ESPP. As of September 30, 2025, 15.2 million shares of our common stock remain avai lable for issuance under our ESPP. Share-based Compensation The following table summarizes share-based compensation expense: Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2025 2024 2025 2024 Cost of revenue $ 892 $ 1,229 $ 2,982 $ 4,466 Research and development 3,050 4,740 8,964 15,119 Sales, general and administrative 7,042 12,290 20,134 35,418 Total share-based compensation expense $ 10,984 $ 18,259 $ 32,080 $ 55,003 Q3 Fiscal 2025 Form 10-Q 23 Table of Contents Determining Fair Value We estimate the fair value of stock options granted using the Black-Scholes valuation method and a single option award approach. When determining the current share prices underlying the stock options for calculating the grant-date fair value, we reference the observable market prices of our stock. This fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. The fair market value of RSUs and PSUs granted is the closing price of our shares on the date of grant and is generally recognized as compensation expense on a straight-line basis over the respective vesting period. For shares purchased under our ESPP, we estimate the grant-date fair value, and the resulting share-based compensation expense, using the Black-Scholes option-pricing model. We estimate forfeitures of stock options, RSUs and shares purchased under our ESPP which is utilized to determine the compensation expense to be recorded over the requisite service period. • Expected Term - The expected term used in the Black-Scholes valuation method represents the period that the stock options are expected to be outstanding and is determined based on historical experience of similar awards, considering the contractual terms of the stock options and vesting schedules. • Expected Volatility - The expected volatility used in the Black-Scholes valuation method is derived from the implied volatility related to our share price over the expected term. • Expected Dividend - We have never paid dividends on our shares and, accordingly, the dividend yield percentage is zero for all periods. • Risk-Free Interest Rate - The risk-free interest rate used in the Black-Scholes valuation method is the implied yield currently available on U.S. Treasury constant maturities issued with a term equivalent to the expected terms. The fair value of employee stock options was estimated using the following assumptions: Nine Months Ended September 30, 2025 2024 Expected term in years 4.9 4.9 Expected volatility 95 % — 96 % 81 % — 93 % Risk-free interest rate 3.89 % — 4.29 % 3.48 % — 4.32 % Dividend yield — — Weighted average grant date fair value per share $ 0.90 $ 1.40 The fair value of shares to be issued under the ESPP was estimated using the following assumptions: Nine Months Ended September 30, 2025 2024 Expected term in years 0.5 — 2.0 0.5 — 2.0 Expected volatility 101 % — 113 % 81 % — 118 % Risk-free interest rate 3.66 % — 4.31 % 3.88 % — 5.27 % Dividend yield — — Weighted average grant date fair value per share $ 0.89 $ 1.53 NOTE 8. NET LOSS PER SHARE Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed using the weighted-average number of shares of common stock outstanding and potential shares assuming the dilutive effect of the Notes, using the if-converted method, and outstanding equity awards using the treasury stock method. Q3 Fiscal 2025 Form 10-Q 24 Table of Contents The following table presents the calculation of the basic and diluted net loss per share amounts presented in the condensed consolidated statements of operations and comprehensive loss: Three Months Ended September 30, Nine Months Ended September 30, (In thousands, except per share amounts) 2025 2024 2025 2024 Numerator: Net loss $ ( 38,000 ) $ ( 60,725 ) $ ( 506,005 ) $ ( 312,222 ) Denominator: Basic Weighted average shares used in computing basic net loss per share 300,844 272,915 299,303 271,631 Basic net loss per share $ ( 0.13 ) $ ( 0.22 ) $ ( 1.69 ) $ ( 1.15 ) Diluted Weighted average shares used in computing diluted net loss per share 300,844 272,915 299,303 271,631 Diluted net loss per share $ ( 0.13 ) $ ( 0.22 ) $ ( 1.69 ) $ ( 1.15 ) The following shares issuable upon conversion of the Notes and outstanding equity awards were excluded from the computation of diluted net loss per share for the periods presented because the effect of including such shares would have been antidilutive: Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2025 2024 2025 2024 Shares issuable upon conversion of convertible senior notes 61,415 31,063 61,415 31,063 Equity awards 42,599 36,496 42,599 36,496 See Note 7. Equity Plans and Share-Based Compensation for detailed information on equity awards. NOTE 9. SEGMENT AND GEOGRAPHIC INFORMATION We are organized as, and operate in, one reportable segment: the development, manufacturing, and marketing of integrated platforms for genetic analysis. Our chief operating decision-maker ("CODM") is our Chief Executive Officer. Our CODM reviews financial information presented on a consolidated basis for the purposes of evaluating financial performance and allocating resources. On a regular basis, our CODM reviews: • total revenues by category • total expenses and expenses by function, including sales and marketing and general and administrative, which include depreciation and share-based compensation • net loss per share Our assets are primarily located in the United States of America and not allocated to any specific region, and we do not measure the performance of geographic regions based upon asset-based metrics. Therefore, geographic information is presented only for revenue. Q3 Fiscal 2025 Form 10-Q 25 Table of Contents A summary of the segment profit or loss, including significant segment expenses is as follows: Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2025 2024 2025 2024 Total revenue 38,441 39,967 115,360 114,790 Less: Cost of revenue 22,540 29,963 86,146 87,566 Research and development 22,846 25,516 74,428 107,456 Sales and marketing 15,465 18,435 55,057 64,779 General and administrative 15,634 25,311 52,385 68,597 Impairment charges — — 15,000 93,200 Change in fair value of contingent consideration — 1,170 ( 18,700 ) 1,100 Amortization of acquired intangible assets 833 3,649 363,708 13,377 Other income, net 1,260 3,352 6,775 9,063 Income tax provision 383 — 116 — Consolidated net loss ( 38,000 ) ( 60,725 ) ( 506,005 ) ( 312,222 ) A summary of our revenue by geographic location is as follows: Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2025 2024 2025 2024 Americas $ 18,097 $ 20,107 $ 52,087 $ 58,542 Europe, Middle East and Africa 10,752 9,119 29,459 24,497 Asia-Pacific 9,592 10,741 33,814 31,751 Total revenue $ 38,441 $ 39,967 $ 115,360 $ 114,790 A summary of our revenue by category is as follows: Three Months Ended September 30, Nine Months Ended September 30, (In thousands) 2025 2024 2025 2024 Instrument revenue $ 11,318 $ 16,788 $ 36,484 $ 50,491 Consumable revenue 21,279 18,508 60,309 51,560 Product revenue 32,597 35,296 96,793 102,051 Service and other revenue 5,844 4,671 18,567 12,739 Total revenue $ 38,441 $ 39,967 $ 115,360 $ 114,790 Q3 Fiscal 2025 Form 10-Q 26 Table of Contents