Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the 10 X. genomics fourth quarter earnings Conference.
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Thank you earlier today connects genomic released financial results for the quarter. In your ended December 31st 2019 give not received this news release or if you like to be added to the company's distribution list. Please send an email to investors at connects genomics Dot com.
An archive webcast of this call will be available on the Investor tab of the company's website, an extra dynamics dotcom for the next for at least the next 45 days following the call this call.
Well again I'd like to remind you that management will make statements. During this call sort of forward looking statements within the meaning of federal Securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated and you should not place undue reliance on forward looking statements.
Just one formation regarding these risks uncertainties and doctors that could cause results to differ appears in the press release connect you know they issued today and the document and reports filed by connection on me from time to time with the Securities and Exchange Commission.
And I actually don't mix disclaims any intention or obligation to update or revise any financial projection or forward looking statements are there because of new information future events or otherwise with that I'd like to turn the call over to search that's not the Companys co founder and Chief Executive Officer search.
Okay, and thank you everyone for joining us this afternoon.
I'm pleased to welcome you to demonstrate knowledge, earning call through your fourth quarter and the during 2019 results.
Joining me today it was just I'm not going young our chief Financial Officer.
Red Cross sold our Chief commercial officer will join us for doing it.
[noise], including school I will provide an update on our commercial execution talk about our investments to drive future growth and will walk through some of the new capabilities in our pipeline.
Then I will turn the goal to Justin for a more detailed look at our financials and outlook 4.1.
Good all night deal was a big here for tenants a revenues continued to grow and we ended the year with $245.9 million installed revenue up 60% over 2018.
Drew me. Your we also continued to see a large and rapidly growing body scientific publications coming out of our customers' lives, but number publications more than doubled during 2019 and there are no over 700 papers, where customers have made fundamental thing to do discoveries using our products.
And even more exciting the number of publications has been the breadth of periods, where we have seen our customers do their work and the tremendous number of applications where products are being used.
During the year, but that's you major discoveries and all that immerse important studies autoimmune diseases fundamental breakthroughs in many types of cancers fascinating work on age related diseases.
And while there are many great studies the truth I wanted to highlight the paper from last quarter, but demonstrated the strikingly barbell approach to antibody discovery.
Researchers out of Vanderbilt University use aren't immune profiling solution to screen vast numbers of b cells from HIV infected patients to quickly find HIV and influenza specific antibodies, while giving an exquisite understanding of their specificities.
We expect that this approach will become integral to four interbody discovery and for vaccine development across a wide range of therapeutic areas.
Let's go to work by our customers demonstrates why we believe this is essential biology. It shows how new technologies, new tools and new understanding will lead to cures lease I didn't give profound meaning to the work we do at Dynex. It was a huge motivator for the team.
Now turning to commercial execution.
Our brothers organized around two core platforms chromium and busy.
The common whopper enable single cell analysis would come in our customers are able to see what is happening in those samples of the right level of resolution the single cell resolution.
The business platform enables spatial analysis, but vision, our customers are able to see where it is all happen how sells the molecules arranged with respect to each other and tissues.
We began taking preorders for building in September and started to shipments at the end of November and remember that unlike chromium visium does not require an instrument, which we believe will accelerate adoption of this platform.
We're very excited by this product and its potential even though it is early days the interest we're seeing from new customers has exceeded our initial expectations inside out of your end vision was already being used by more than 200 labs.
Well were started but it's early interest the trajectory visit reduction will be a bunch and the power customers use these brothers and up their demonstrated success.
So far with busy we have seen interest across many different research areas. While our initial focus has been on discovery vision in particular has seen more interest among translational obligations, most notably in oncology and in Alzheimer's our customers are using visium to study disease in patient samples look for Biomarkers and predict responses.
The therapy.
The first product launch on the visa blood from at the end of last year was for measuring gene expression, but this is just the first brought it would have many more in the works to enable new applications semester additional biological analyze and to make improvements to the underlying platform.
Now looking at our current platform the transition to Nexgen architecture continues to progress well at this point all chromium instruments that we sell operate exclusively with our next Jim solutions.
Weve been careful not to disrupt existing studies of our customers using legacy jump products and expect the transition to be complete by the end of the here.
Across our two core platforms criminal vizio, our customers average the pull through of over $150000 and you'll consumable revenue in 2019.
And as of your and we have sold a cumulative 1600 66 chromium instruments around the world.
Going forward will we will invest efforts both to increase the usage of our products for existing customers and to increase the number of new customers.
We see a tremendous both of opportunities ahead, and though we are focused on scaling our business for the future.
Well the core pillars of our competitive advantage is our innovation engine, which comprises both knowing what breakthrough products to build and the ability to build them a drop and velocity.
We have identified many exciting opportunities in the near and long term potential for its financial impact.
The big advantage at least opportunities were executing on a rich product roadmap and are increasing our investments in R&D.
Our team is working on a number of programs some of which I will discuss today and all of which can that substantially to our long term growth.
As the pioneer of single cell genomics, we now have over 700000 issues are pending relating to our tee up innovations, including foundational dads and single cell analysis epigenomics spatial analysis and hold your mix.
We continue to invest heavily in developing and defending the patent portfolio, which provide significant differentiation and production.
We're also investing in our operational infrastructure to support a rather growth. We're actively building up a new single manufacturing side to support the global expansion and to ensure the continues you over operations were also transitioning to a global ERP system. After this year.
Our commercial organization ended 2019 with over 200 employees and over 75 Commission sales executives with children in North America, Europe and employee hybrid approach approach in Asia Pacific with local distribution partners working together with Synnex employees to develop individual markets.
Our commercial infrastructure complements our innovation engine to drive rapid global adoption of our products and through close partnership with our customers, we have direct insight into their needs and their future questions. This information is directly into our product development pipeline. It allows us to both rapidly interbody products to deliver an ever improving customer experience.
And to identify new opportunities for future products.
Now I will preview some of the capabilities we're working on.
Starting with our common platform.
Single biggest request, we have received from our customers.
To be able to measure gene expression and epigenetics together from the same so.
With our existing capabilities, our customers they've been able to read epigenetic programming across large numbers of cells, but the next challenge is directly linking the epigenetic programming to its output, which is gene expression and that is precisely capability, we're going to launch with our next front. It for the very first on our customers will be able to read both epigenetic programming.
Using attack seek and R&D gene expression of course, thousands to tens of thousands of cells in a single expense.
Our customers have been definitely interested the most capabilities because it will allow them to start unlocking the rules of cellular programming and with that one of the most fundamental challenges to addressing human health and disease.
The second focus of innovation for Korlym is to further broadening the reach of the platform.
Since ushering in a single celled Revolution, one of our core tenants is to make our products accessible to all biologist well single cell research has been transforming the way the signs is done because thousands of labs around the world. A nice goal is to enable this approach for tens of thousands of new researchers were just starting to be in threeq by this technology.
And to that and we'll be launching two new capabilities to make single experiments less expensive and more flexible.
First we will enable targeted sequencing. This means that instead of sequencing. The full transcriptome will resell our customers will not be able to sequels, just a subset of genes.
This will dramatically reduced the cost of sequencing and significantly decrease the cost of overall single cell experiments.
I will also allow experiments to be more focused on specific questions opening up more validation on translational use cases.
We're also launching a proprietary solutions that will allow our customers who combined samples together into a single tenant claim.
This will increase the number of billable samples for single cell analysis and allow experiments to be scaled beyond what has turned the practical.
And finally, the third area of focus for crewmen used to further increase throughput the single so experiments.
The launch of this platform in 2016 allows for the first time labs through 1000 sell experiments resuming.
Since that point would have built our customer scale to 10000, so experiments and beyond in fact, many labs are now actually running hundred thousand so experiments with union.
But biology is very complex and the which addresses complexity is through scale.
We have now heard from our customers an interest in running millions so experiments and over the next two years, we will be launching multiple features capabilities and products to enable this type of scale.
And in fact, we see the future going well beyond 1 million cells were exposed to develop our technology to the point, where it would enable 10 million so expansions.
This will transfer many of the applications where single cell analysis is currently use.
This massive scale at single cell resolution will also enable experiments across new research areas like normal drug screens massively parallel egina battling analyses large scale cohort the population skill sets.
Turning now to visit.
With the launch of vision, we brought on how to deal with molecule analysis of tissues license.
Good teachers license and pathology workflows.
With that the August analyzer tissue is using IC or immunohistochemistry, which uses for residents to measure protein markets.
We're not planning to launching new capability that will allow our customers to the book.
I see and busy and gene expression from the same tissue from the same sample at the same time.
This will significantly increase the amount of information that our customers can get from their samples.
But even more importantly will serve as a bridge from the traditional world of pathology to the new world of Rich Hightower with molecular analysis that we're delivering vision.
I see it is great for measuring one protein marker, maybe too, but it can really scale much further.
To address this fundamental limitations with bringing our feature Barcoding technology Division.
Sufficient targeting customers will be able to measure very hyatt place levels of protein targets using Ali good that antibodies.
This technology can be pushed to the point, where customers could be measuring hundreds potentially even thousands of proteins at the same time together with gene expression on the same sample.
We believe this capability will be trust transformative to the kind of information our customers can extract from biological samples and tissues.
And finally, our early focus with vision has been ground to squarely in foundational discovery research.
That said, we have already received a great deal of interest from translational and clinical researchers.
For these customers. The most important type of sample is formalin fixed paraffin embedded for SSP, which is the standard way the patient samples are collected in store and human pathology.
Now as was the spine visualizing tissues, but it is absolutely awful for the kinds of things of does the molecules sample.
Our current vision product was not initially designed to be compatible with fee.
However, given an incredible amount of interest we have now internally develop the capability of the for the platform to work with S&P and who will be releasing this as a product in the future.
We're very excited for what is ahead I look forward to providing more details on each of these new capabilities next week at AGBT Conference.
This has been a very eventful year 10, economics I'm very proud of the progress. Our team has made to date looking ahead to 2020 weeks that revenue for the full year to be in the range of 350 million to 360 million.
Im confident that we would we are well positioned to continue to under people know strategy in 2.1, and well into the common decade as we all share in that the century biology.
And with that I will now turn the call over the adjustment mechanism for more details on our financials.
Thank you search.
Total revenue for the three months ended December 30, Onest 2019, with $75.3 million compared to $50.6 million for the prior year period, representing a 49% increase similar to prior years. Our revenue in 2019 was more heavily weighted to the back half of the year, particularly.
Q4, due to the budgetary cycles of our customer base.
Consumables revenue was $64.7 million, which increased 69% over the prior year period.
Instrument revenue was $9.4 million, which decreased 18% over the prior year period service revenue was $1.1 million, which increased 51% over the prior year period.
The decrease in instrument revenue was driven primarily by the consolidation of our instrument product line into one full featured lower priced instrument in early 2019.
North America revenue for the fourth quarter was $42.5 million, representing 51% growth over the prior year period.
EMEA revenue for the fourth quarter was $21.4 million, representing 54% growth over the prior year period.
Hey, APAC revenue for the fourth quarter was $11.5 million, representing 35% growth over the prior year period.
Gross profit for the fourth quarter of 2019 was $58.7 million compared to a gross profit of $35.7 million for the prior year period.
Gross margin for the fourth quarter was 78% compared to 71% for the fourth quarter of 2018.
The gross margin increase was driven primarily by lower accrued royalties related to ongoing litigation.
Total operating expenses for the fourth quarter of 2019 were $66.8 million, a decrease of 40% from $110.6 million for the fourth quarter of 2018.
The fourth quarter 2018 included $40.1 million of in process, R&D as well as an incremental $30.4 million and accrued contingent liabilities related to ongoing litigation.
R&D expenses for the fourth quarter of 2019 or $27.9 million compared to $13.1 billion for the fourth quarter of 2018, excluding in process R&D expenses related to acquisitions. The increase was primarily attributable to higher personnel lab materials and infrastructure costs.
Yes.
SGN expenses for the fourth quarter were $38.8 million compared to $26.9 million for the fourth quarter 2018. The increase was primarily due to personnel costs facility is driven by construction of our new global headquarters as well as higher professional services and insurance.
Costs associated with our status as a publicly traded company.
Operating loss for the fourth quarter was $8.1 million compared to a loss of $75 million for the fourth quarter 2018.
This includes $5.1 million and stock based compensation for the fourth quarter of 2019 compared to $1.1 million for the fourth quarter of 2018.
Net loss for the period was $7.1 million compared to a net loss of $75.5 million for the fourth quarter of 2018.
Turning to our full year results total revenue for the full year ended December 31, 2019 was $245.9 million compared to $146.3 million for 2018, representing a 68% increase.
Syllables revenue was $206.9 million, an increase of 92% over the prior year.
Instrument revenue was $34.9 million, a decrease of 4% over the prior year.
Service revenue was $4.1 million, an increase of 89% over the prior year.
As of yearend, we have sold a cumulative total of 1666 chromium instruments up 645 instruments from 1021 instruments at the end of 2018.
The decrease in instrument revenue was again driven by the consolidation of our instrument product line into one for featured lower priced instruments in early 2019.
Our average annual instrument pull through was $158000 for 2019.
From $148000 for 2018.
Average annual instrument called through is calculated from the simple average of the quarterly pull throughs and also includes busier.
North America revenue for the full year was $139.8 million, representing 64% growth over the prior year.
EMEA revenue for the full year was $58 million, representing 62% growth over the prior year.
APAC revenue for the full year was $48.1 million, representing 89% growth over the prior year.
Gross profit for 2019 was $184.9 million compared to a gross profit of $117.7 million for 2018.
Gross margin for 2019 was 75% compared to 80% for 2018.
The decrease in gross margin was driven primarily by higher accrued royalties related to ongoing litigation, which impacted cost of revenue for full year 2019, whereas these accruals only impacted cost of revenue in the fourth quarter of 2018.
Total operating expenses for 2019 were $215.4 million, a decrease of 6% from $228.4 million for 2018.
Operating expenses for 2018 included $62.4 million in process R&D as well as an incremental $29.1 million for accrued contingent liabilities.
R&D expenses for 2019 were $83.1 million compared to $47.5 million for 2018, excluding and process R&D expenses related to acquisitions.
The increase was primarily attributable to higher investments and personnel lab materials and infrastructure.
SGN expenses for 2019 were $130.8 million compared to $87.9 million for the prior year.
The increase was primarily due to personnel costs with increased hiring across all SGN a functions along with increased facilities costs due to the transition to our new global headquarters.
Operating loss for 2019 was $30.6 million compared to a loss of $110.8 million for 2018.
This includes $13.3 million of stock based compensation for full year 2019, as compared to $2.7 million for full year 2018.
Net loss for 2019 was $31.3 million compared to a net loss of $112.5 million for 2018.
We ended 2019 with $424.2 million in cash and cash equivalents.
Turning to our outlook for 2020, a surge mentioned, we expect full year revenue for 2020 to be in the range of $350 million to $360 million representing growth of 42% to 46% over full year 2019.
This outlook is based upon the latest market conditions, and our best to use of timing of upcoming new product launches.
As in prior years, we expect revenue to be heavily weighted toward the back half of 2020 with modest sequential increases in the first half of the year.
We are excited about the size and growth of opportunities in front of us in the near term throughout the next decade and beyond.
This conviction has led us to increase our investments at this stage.
We have a robust product pipeline with a multitude of new products at various stages of development.
We are increasing R&D headcount and expanding our laboratory and manufacturing facilities, we continue to expand our commercial organization increasing coverage in direct markets to build stronger relationships with existing customers. While onboarding new customers. This is an addition to developing the channels to support our global expansion.
We are deliberately accelerating our investments and our focusing on our topline revenue growth. These near term investments will help drive continued revenue growth and will deliver what we expect to be best in class operating margins over the long term.
At this point I would like to turn the call back to search for closing comments.
Thanks, Justin.
Very proud of our team for such an incredible year.
During 2019 was successfully navigated a number of major transitions, including rebuilding completely new product product architecture with nuts, Jim and taking the company published in the third quarter, all while successfully launching our second platform technology with museum and delivering exceptional revenue growth.
Well these transitions largely behind US we look forward to continuing a rapid pace of innovation and 21, which is truly of what is that the core of our vision that fairness.
The capability as I outlined earlier, just a glimpse of what is ahead. This is essential by LNG. Our goal is to build technologies to measure every aspect of biology, and maybe these technologies available to everyone whether for academic research for development of new medicines over treating patients.
Our vision is that EMEA, given any biological sample you should be able to measure every analyze the relevance of the ride resolution with all the necessary content.
Because that's how we will achieve understanding that's how we will arrive at viewers.
With that we will now open it up the questions operator.
Thank you as a reminder to ask a question you want me to press Star one on your telephone to withdraw your question press the pound team. Please sanbolic compiled the Q and a roster.
Our first question comes from Tyco Peterson with JP Morgan. Please go ahead.
Hi, This is all any on for Tycho. Thanks for taking my question.
In terms of this quarter the beat relative to our model primarily can come services revenue while.
From a sales came in at the high wondering whether we should be modeling the business a bit differently going forward in light of per visit them launch and higher but cannot grow up this year.
Just wondering if you can parse out the assumptions underpinning your 2020 guidance across instrument consumable from services segment sales trends in particular are you anticipating continued double digit declines in instrument sales for the full year as a result at the dynamic.
Yes.
So this hey. This is this is just and there was there was a lot there I guess, but let's go back to the beginning and start with the be compared to the consensus.
The beat was primarily due to increased revenue coming from coming from consumables.
That was the largest that was the largest contributor overall.
As far as how as far as how you should model this going forward.
As I mentioned that we've taken market conditions, our assessment of demand timing of new products and our own ability to deliver into account when developing the guidance model.
[music].
We would expect the instrument placements to increase year over year, and we would expect similar consumable pull through to how we've been guiding you and other analysts all along which is around 100 and around or just above $150000 on an annual basis.
Can you please repeat the other parts your question.
How we should be thinking about guidance framework.
I think I just answered that.
Yes, yes got that's helpful.
And I was just wondering around 15% of your business come from Adra, just wondering whether you're seeing any disruption from the corona virus outbreak and how we can diamonds from the risk for your business.
In particular for one can you also wondering if you're embedding conservatism peer 2029.
So let's take the krona buyers question first so we've been assessing the impact of that on both our expected sales and the supply chain.
We're going to continue to monitor the situation, but we do seem we do see some potential impacts for Q1.
With up to about 5% of our expected revenue at risk.
We've accounted for this within the range of our annual guidance estimate.
Turning to supply chain, we're not yet aware of any impact to the supply chain, but some impact could be possible of the virus where to spread and impact our operations in Singapore.
Okay. That's helpful color and then lastly on chromium, Matt I was wondering whether you have started to roll out fairly tight and if so what the feedback has done. So far can you also give us any early read of the final preorders and what proportion of our from Biopharma.
The merits.
Lastly, wondering whether capital expenditure has come up as a barrier to broader adoption during your discussion or our clients comfortable with justifying the capital expenditure with higher level for pull through.
Hi, This is Brad I'll take that question, we plan to begin delivering chromium connect in the next few weeks.
The early demand has been heavily skewed to pharma, but several large genome centers have also.
Purchased or placed an order for the instrument in terms of funnel, we're really not going to disclose that but we have seen good demand. The list price of the instrument is $260000 that well within the capital constraints of virtually any customer it would be contemplating higher throughput single cell experiments.
Okay. Thank you.
Thank you. Our next question comes from Derik Debruin with Bank of America.
Hey, guys. This is Mike risk it off Derek Thanks for taking my question.
First off congrats on a quarter, but I want to follow up on sort of moving pieces, you talked about in both and for Q and for the for the forward looking guide.
Not sure if you're gonna be able to disclose this but at least Directionally, maybe you could talk to the magnitude of the Visium contribution in Fourq Q and then also.
When we think about how that scale over the course of 2020 I mean is it for the point where by the end of 2020 is going to be on its own sort of a meaningful meaningful number I know when you talked about the.
2019 numbers like for example, the 158000 pull through you mentioned that visit was included in that.
Just wondering.
How that number is going to ramp.
The conference contribution could grow over the next year.
So hey, Mike. This is just an all I'll take that so.
As far as vision being included in our pull through we made the decision to combine that metric because.
Basically from a business perspective, we expected our sales of visiting would go primarily to existing customers.
As far as how we can think about the contributions and busy in the future. It's it's pretty early in the lifecycle now very early in fact.
While initial orders exceeded our internal expectations were starting to see reorders come through now, but it's going to be sometime before we had a from handle on how to model and projected IZEA.
When it really depends upon is the success of our customers as reflected in their publications.
Okay. That's helpful adoption knocks out to one of my follow up questions I'm in terms of the type of orders.
You also mentioned that you had really positive uptick in the first couple months could you talk a little bit about your manufacturing supply bigotry of capacity for provisioning, but then also for for chromium going forward. The next couple of years.
And then I've got one off from follow up after that.
Yes, so we.
With the transition to Nexgen, just talking about products broadly overall the amount of skews that we've had to manage internally is basically doubled when we release that product lines. So it has been challenging for us to manage it but the operations and manufacturing logistics teams have done have done a great job managing that.
As we mentioned before we are going to continue to expand our manufacturing operations in Singapore now later on domestically and that's to add capacity and also for risk mitigation to provide a redundant source for mostly our entire our entire product line.
For the near term.
At least from what we can see.
We don't we don't see any major risks to either our supply chain or manufacturing capacity in fact, because of the because of the.
Seasonality of our business, we really we really plan to build out at a much higher capacity than we need from quarter to quarter.
Okay. Thanks, one last one if I could the really appreciate the color you provided surge on the from a new capabilities, you're working on I'm, just curious for any of those.
Are they built into the guidance assumptions for 2020 or and also if you could provide any even directional comments on expectation of timing next six month 12 month three to five years, just sort of gauge and then.
Yeah sort of when do you think though for showing up in a number.
So I'll start.
I mean, the products are contemplated fully within the guidance adjustment give.
In terms of more detail around timing.
These are not like far out capabilities.
The specifics.
Of.
Of this time Inc. will be well, we'll be sharing Thats league of agent meeting.
Okay, great. Thanks, I'll get back in the Q.
Thank you. Our next question comes from Doug Schenkel with Cowen.
Hi, there this is Adam wish off on for Doug. Thanks for taking my questions.
There was a strong placement cord and year with also a strong closed on the pull through side of things how should we think about the near term balance of instrument placement growth with pull through growth in other words contained at eastern Schleicher product within within an institution, which would drive new placements were also likely pressure instrument pull through should we therefore expect that instrument placement growth will outpace pull through.
All three growth at least for the next few years, considering the remains ample opportunity to penetrate deeper within many institutions.
Well, it's really a question on that's going to be it there's a multiple dynamics embedded in our I'd like to in our market adoption, we are going to be.
Going forward on placing more instruments that certainly core part of our strategy at the same time, we will also work and increasing increasing usage and also a lot of our.
Both in terms of just helping our customers.
Ramp up and releasing applications and new products.
We know that's kind of historical and we'll look at the different cohorts people, who how bad the industry instruments for longest use agents. The most that make you branding and the next kind of high usage cohort is the next.
The next.
The next set of customers caught up a bit system and so it kind of.
There's multiple dynamics going on under the this average pull through and we're going to depressing all the levers going forward.
Okay. I appreciate the color you announced the video met stronger than expected uptake in the translational setting and your upcoming targeted sequencing application FSP compatibility, which is expected to near term could have roles in the translational workflows as well. So maybe a question for Brad how do you view the near term opportunity the translational setting versus your core academic cuts.
Emerged from a commercial standpoint.
That's a really good question and it's again, one that we thought would be further out but again with the new capabilities have been announced and just in general. The there has been such a pull in the marketplace. We're definitely seeing these sort of translational networks and we're in the process of enabling them. Some more talk a little bit more about that next big the GBP.
Because again this is somewhat of a new customer segment for us are different call point, but were preparing to sort of be proactive in that area as well.
Okay. Thanks, and just one last one for me the strong gross margin in the quarter were attributed some.
Progress with the Nextgen conversions, maybe I missed it but are you still targeting the year end of 2020 for all customers to be conferred or is it possible, it's going to occur sooner.
Yes so.
We're still targeting by year end, having all customers converted in fact, we let our customers know that no that that's where we're targeting our we started shipping nexgen at the end of Q2 2019, beginning of Q3, and so really we look at it is a six quarter transition with a.
Basically a linear progression of adoption of nexgen over that over that six quarters.
Great. Thank you.
Thank you. Our next question comes from Luke Circuit with Evercore.
Hey, guys, how you doing.
Just wanted to follow up on that last question on the translational wheel, we look on vizio and we expected the discovery side to be the near term opportunity. It's turning out that it's kind of you know the translational is coming sooner.
Just are you seeing any any competitive win rates versus the Geo mix and then was it more of a decision to get into this market was it more of a pool from the customer side or was it just you guys saw this opportunity and decided to go for it.
Hello. This is Brad I'll take that we really haven't had any direct competitive situations are obviously with genetics. We have actually we know what we have customers that are using bold. So we haven't looked at that it's strictly at a competitive situation into your second question, we were absolutely being pulled into peak by people that.
Looking at clinical studies and validation studies. So this was this is something that again the majority of our customers initially where people that have use our single cell products, but again as we pointed out we were somewhat surprised that so quickly we'd be asked his support these.
The other kinds applications.
Okay and are you seeing differences and pull through between the translational discovery customers.
It's way too early at this.
It's too early to in Boca death.
The commentary search on the expanding out of it outside the 10000 sell experiments going up 2 million 10 million, it's kinda like when the genome analyzer and at the high seek into the X 10.
Well.
How should we think about that in terms of pull through I mean, I'm sure, it's not linear compared to the exponential ramp of Ah.
Sales and they'll per experiment.
Well I think.
Well, we will be talking about again that you'd also lists of this roadmap of what it means for our customers and that's like the BTM. This yeah. There was a multiple moving pieces under it doesn't obligations and capabilities.
Hey, we are as I said earlier, we are looking to expand the market in the usage across all the different investors.
The sell scale is one of those but there is others. We're also working on.
Okay.
And lastly, the supply chain in the ERP changes is there any additional incremental cost outside of what.
Outside of the traditional model that we've we've discussed earlier.
This is just that I'll take that.
Nothing outside of what we've talked about before there are so costs, we have with the IP implementation and the wrapping up the same port plant, but nothing new pass those two things.
No Okay, alright, thanks, guys.
Thank you know our next question will come from Patrick Donnelly with Citi.
Thanks, guys, maybe just one for surge here just to mention some increased spend this year not surprising given the breadth of opportunities you guys have can you just talk about where the R&D priorities are how focused you guys are a few different big projects versus kind of spreading it out over a bunch of different different opportunities.
Well, so we I mean that being focused as one of our core principles here.
Having said that yeah, we I mean as I mentioned, we do have a diversity of over changes we're investing both on the chrome inside them on the vision side.
And both on the edge on the long term. So it's it's a balance albums and there was any particular thing that we are.
Investing well above everything else.
It's a balance and we.
We drive to stay focus while the same time, making sure that they have a good scanner opportunities.
Okay, and then just to maybe one for use on the gross margins just help us on the cadence for the year I know you have some puts and takes with an extra time, obviously being a positive things like the Singapore ramp maybe a little bit of an offset on the build out there can you help us think about kind of the ramp throughout the throughout the year in 2020.
Sure. The biggest driver gross margin is going to be the transition over the next gen.
We talked about that.
Progressing over the six quarters on the auto linear progression.
I would expect that.
The transition in next Jim would probably be a little bit slower in in Q1, but then would accelerate more in Q2 in Q3.
Finish out year, so thats the biggest that's the biggest.
The positive factor for gross margin. This year, there are some headwinds around Singapore manufacturing, that's going to impacts gross margin.
In Q2 Q3 is we're ramping up the facilities there and also our spend on the ERP project that we expect to go lives.
Here in the latter part of this year.
And then also some of our new product introductions that have lower gross margins and existing products. For example, chromium connect their as higher gross profit per instrument, but lower gross margin just due to the cost and selling price and then also vizio has a slightly lower gross margin than our current product line.
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Okay. That's helpful. And then maybe one just on Vivian definitely encouraging to hear kind of that 200 lab number I didn't hear you because it's still tracking around kind of 20% of customers are new to 10, X. and if so what's the feedback been kind of what strongest customers and.
Or the early customers got similar to those early adopters you saw on single cell as well.
Hi, This is Brad I'll take that.
Yes, initially we do have that roughly 20%.
Of customers are new to 10, x., but even within the core customers. What we've really been excited about is the their ability to work with tissue. I mean, these customer traditionally don't come from tissue as a starting material and we put a lot of effort in and training training videos, we have a tissue optimization kit.
And what's been amazing is how successful they been we actually encourage customers to send in there.
Optimization.
Flights or at least a picture that will help them choose the best conditions and it's just been remarkable. So what's happened is that because we have a one day workflows. So we're ready for sequencer.
At the end of the first day, and so we're seeing more and more customers reorder, which certainly reflected the fact that they're seeing success.
That's helpful. Thanks, guys.
Thank you and we do have a follow up question from Derik de Bruin with Bank of America.
Hey, it's it's Mike I, just wanted to squeeze a fall and thanks.
Following up on some of the operating expense comments you made as we think about sinead going forward with some of the new products you highlighted some of the move into more of a translational setting a move into some of the.
Apology.
Customers do you anticipate having to expand sales force more than you would have.
Otherwise sort of if there is there any incremental spend as we go forward to support.
For some of the new product launches or how does that fit into the model.
And this is Brad I'll take that we factored all of that product into our sort of growth plans in terms of the operating expense and growing up the sales organization I mean, clearly as we get further down the road, we buy we might very well start looking at a more specialized targeted force as we move more towards the pathologist, but right now in terms of.
2020, I think for well covered in.
Our not planning anything incremental at this stage.
And this is Justin.
Just to add that you asked about some of the Opex trends.
Just due to our.
Ongoing litigation.
There is some there are some legal expenses that will hit in different parts throughout the year. So for example, we just we just want to case with the ITC and there's a success fee that's associated with that and you can see payments like that so.
Spread out throughout the year.
Okay. That's helpful and it's actually just enough the perfect bridge one off I want to squeeze in was if you could provide some update on some of the ongoing litigation there were some rolling in December you had the the news that had just a couple of days ago with the ITC about the DD seek products.
And then could say across the board there sort of just to make sure what I'm missing anything.
So this is sorry, so I'll say that I mean, so that the rulings that have come out over the last few months have been largely in line with once we have been communicating what we have them expensing.
The ITC ruling back in December in our defensive case.
Explicitly once again come from that and as Jim does not them French.
Those those downs and also haven't added additional exclusion for existing customers to keep.
Thank you using some of applications.
The ruling that just came out a few days ago was.
That you see Commission International Trade Commission, followed by our.
Single cell products infringe on three of our patterns and so that he is going to order.
On bio Rad and.
Okay.
So I mean, we see that things kind of unfolding as as roughly as links but as I mentioned earlier, we are the binding on single cell genomics and we're pleased that the court recognize our core bands where valid them the.
And what infringed.
And as I said, we have this once we have over 700 bonds issued or.
Or pending and.
That is a bit source of growing competitive advantage for us.
Great, Thanks, well going forward to they should be.
Thank you.
Thank you speakers I'm showing no further questions in the queue. At this time I would now like to turn the call back over to search Saxena for any closing remarks.
Well. Thank you everyone then have a good evening.
Certainly our gen.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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