I don’t think so at all. I think our focus in short-reads is on needle-in-a-haystack applications. And what that means is that we will be focused in areas where the benchtop long-read system really won’t have a lot of strategic capability. And so I do think that they will be very separate. Next question, please.
Operator: Thank you. The next question is from Luke Sergott with Barclays. Please go ahead.
Unidentified Analyst: This is [Sam] on for Luke. Thanks for the questions. I think you’ve mentioned before that some of the benefits from the Revio promotion would start to come through in the second quarter. And that should be fully realized by the end of the year. How do you see this promotion kind of affecting a cadence of placements this year? Are you kind of see more in 2Q given when the promotion kind of began? And then you mentioned some sample delays impacting sequencing volumes in the quarter for some large customers. Could you kind of give us some granularity there? And did those come from [indiscernible] projects? Thanks.
Christian Henry: Yes. That’s a good question. So when you think about the promotions, the promotions are spurring new demand into the funnel, which has a lead time. And then perhaps getting that middle of the funnel closer to the tipping point, so to speak. And so I would not be surprised if the promotions start helping in Q2 and continue throughout the year. But I would also not be surprised to see if the promotions really have their biggest impact in the second half of the year just because of the sales cycles. And I think that we’ve seen these elongated sales cycles. This will probably help push people across the finish line and shrink the sales cycle some. So perhaps it’ll have some impact in the second quarter. We’re not giving specific Q2 guidance today.
But I do think the environment is still tough in Q2 and when I look at the year, I look at the year, the second half definitely getting better than the first half. And so we definitely see that partially because, one, we see where the funnels are, but also because the larger scale [proxy] type projects will be – they should mostly be fully operational in the second half of the year. And so that goes to your second question where some of the sample delays, they were from some of the larger type population scale type projects. And I do think some of those will start in the second quarter. We’ve already seeing the Singapore project, it’s slated to start this quarter. All of us project’s been continuing. The MVP project, veterans project is continuing.
And the Estonia projects actually ramping really quickly. We’ve installed the systems, they’ve been trained, they’re amazing people to work with, they have a lot of sequencing capability. And so we’ll see how that project ramps. But we’re pretty darn excited about that. And so hopefully this quarter that will get up and ramped as well and then grow over the course of 2024. So the back half definitely looks a lot more promising than Q2, but Q2, we are continuing to build the funnels and we’re continuing to improve our execution over Q1.
Susan Kim: I think one other thing that I’ll add is, Sam, if you see in the earnings presentation, we had included a histogram of our install base and what is across the horizontal axis was the utilization of the instruments in our install base. But a key driver of that utilization, what you’ll notice in the metric below that is that the month or the age in which that instrument was installed and how long it’s been in installation is also a driver. So one of the things that we fully expect to happen is that the low utilization, which actually have been installed more recently, are going to start to move to the right. And that’s going to help to grow our consumables revenue going forward.
Christian Henry: Yes. That’s a good point, Susan.
Todd Friedman: All right. Next question?
Operator: Thank you. The next question is from Tejas Savant with Morgan Stanley. Please go ahead.
Tejas Savant: Hey guys, good evening, and thanks for taking my question here. Christian, sort of sticking with the needle threading and pipe pruning or pipeline pruning theme here. So I want to start with the COGS side, right? So you talked about some good cost cuts on both the Revio unit as well as consumables. Can you just share how much will be passed on to customers via further price cuts and promotions and so on, and how much goes towards better margins to get you to that cash flow breakeven target for 2026? And then on the pipeline, just taking a different tack on some of those earlier questions, I know you mentioned work on that next-gen SMRT cell for the ultra high throughput long-read instrument. But in a sense, I mean, is more long-read capacity in the market really the priority that you need to solve for when it sounds like, if anything the fact that there’s too much long-read capacity is what’s hamstringing sales here a little bit beyond just the macro.
And maybe the solution is, helping those applications for long-read mature and scale versus just place more boxes. I think you alluded to some of that on the commercial org side of things, but perhaps you can just elaborate on what you plan to do differently there? Thank you.
Christian Henry: Yes. Tejas, thank you. Those are good questions. Let’s start with – we will start with the cost cuts and the improvement. What we’re really seeing is we have been laser focused on reducing the production costs of Revio, and we’re doing that through a couple of different things. First, we’re just getting more efficient and more effective in our manufacturing. We have pulled back some of the stuff that we’ve been outsourcing to in-sourcing which lowers the cost. We’ve been improving our supply chain and doing a lot of work around that, that’s driving the cost down. But second, we’ve actually been improving our software and our technology, which has given us the ability to reduce the amount of compute required or the power of the compute required in the instrument.
And so we’re on a path – a glide path to be able to buy cheaper GPUs, less expensive GPUs and get the job done. So those are things that are getting – starting to get realized now in Q2, and we’ll continue to get realized through the rest of the year. Some of that will get passed on to the customers. Some of it will drop the margin. It really depends on the situation. I don’t have the exact breakdown in front of me because it’ll be dependent on the customers. But certainly, we’re taking advantage of that to improve our gross margins. And in cases where it makes sense, get that Revio installed and up and running consumables faster because the long run that will drive better margin to the whole business. So we’re doing a little bit of both.
On the 25 [indiscernible] we continue to make efficiency gains and improvements, yields have been getting better. That’s where we’ve been taking a lot of cost out is were yields are starting to get better. We’re improving our efficiency there. That’s really great because that simplifies. It simplifies our plan, but it also enables us to price wherever we need to price and improve our gross margin. A lot of that is going to our improvements in gross margin. So that’s exciting. With respect to the pipeline, the next generation SMRT Cells actually really important to the company. I agree that there is more capacity in the market in the last 12 months than ever before in the history of long-reads. And customers are absorbing that capacity. And it will take time, as I said in my prepared remarks.
But I also believe that we have to be planning for the future. And the next generation SMRT Cells been in development for a couple of years now. And these are very long development programs and we’re pretty much at the end of the development of the SMRT Cell itself. Once we have the SMRT Cell, then we can decide when we develop the system around that and launch it into the market. But it is important to have that core technology available to us. So the reason why we’re continuing on investing in it right at this moment is that the SMRT Cell itself is almost done. And we’re working with external partners that we want to maintain those relationships with. But then that also gives us the flexibility to decide how and when to launch an ultra high throughput system.
And that will be dependent on how the market moves.
Operator: Thank you. The final question tonight comes from Rachel Vatnsdal with JPMorgan. Please go ahead.
Unidentified Analyst: Hello. This is [indiscernible] on for Rachel from JPMorgan. Thank you for taking my question. I just wanted to touch quickly on Revio backlog here. At the end of 4Q you shared that the total product backlog was $19 million, most of it was Revio. So can you reconcile for us the 13 Revios that slipped in the quarter with the 28 placements, and what that really means for your backlog at the end of 1Q? Thank you.
Christian Henry: Susan, you want to take that one?
Susan Kim: Yes. So I might have missed the second half of the question. So at the end of the year, last year we did have $19 million in product backlog. We disclose our backlog once a year. We’re not disclosing it on a quarterly basis. But one of the things that we have said that this year is going to be a year in which there is going to be more book ship, more turns in the year than we had last year. That’s just the nature of being in the second year of a new product launch. So that is part of our assumption. And that is also included in our updated revenue guidance. One other trends that we have seen, which started in the second half of last year, is that customers are placing more standing orders for consumables, which has been a nice trend.
And so customers when they purchase the Revio instruments, some are choosing to go ahead and place an order for consumables with a ship schedule. And also one thing on the instrument side is that we did not ship all of the instrument backlogs. So we do still have instrument backlogs. And we plan to continue to maintain instrument backlogs throughout the year. But that kind of gives you some of the characteristics that’s embedded in our setting.
Unidentified Analyst: Thank you very much.
Christian Henry: All right.
Operator: Please go ahead.
Christian Henry: Thank you, everybody for joining us today. That’s going to conclude our call for today and we look forward to connecting with you throughout the quarter and updating you on our Q2 results later this summer. Good one. Thank you.
Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect your lines.
