Q2 2020 10X Genomics Inc Earnings Call

[music].

And gentlemen, thank you for standing by welcome to the 10 X. genomic second quarter Twentytwenty earnings conference at this time, all participants are in the listen only mode.

After the speakers presentation, there will be a question and answer session. Please.

Please be advised that today's conference is being recorded I.

I would know liked it had to conference over to your Speaker, Eric Trashy director of Investor Relations a strategic signing please go ahead.

Thank you.

Earlier today furniture was released financial results for the second quarter ended June Thirtyth 2020.

If you're not received this news release for if you would want to be honest with the company's distribution list. Please send an email to investors that connects genomics dotcom.

An archive webcast of this call will be available on the Investor tab of the company's website connects genomics dot com for at least 45 days following this call.

Before we begin I'd like to remind you that management will make statements. During this call that are forward looking statements within the <unk> Federal Securities laws.

They tend to hold material risks and uncertainties and could cause actual results for events to material materially differ and those anticipated and you should not place undue reliance on these forward looking statements.

Additional information regarding these risks uncertainties and factors that could cause results to differ appears in the press released 10 Nextradio mix issue today and in the documents and reports filed by connection on its from time to time with the Securities Exchange Commission.

Connection or less disclaims any intention or obligation.

To update or revise any financial projections or forward looking statements, whether because of new information future events for otherwise.

Joining the call the call today, our search stacks and have our CEO and co founder and Justin back in here, our Chief Financial Officer. In addition, Brad Crutchfield, our Chief commercial officer will be available for queuing it with that I'll now turn the call over to search.

Thanks.

Good afternoon. Thank you for joining our call to resort second quarter 2020 results.

Thank you and your families are seeing healthy I'm sorry.

I'd like to start up call today by again thanking the amazing team agenda for their unwavering dedication and incredible execution. During this quarter. Despite all the challenges they've had to phase.

I'm always a proud of our team on culture, but it's been especially inspiring to see the ability that everyone has shown to adapt and succeed in a phase of new obstacles.

This perseverance has been critical to ensure that we continue to execute on our plans and take advantage of opportunities ahead.

As expected the impact of Goldman 19, greater than a challenging environment and the second quarter.

Revenues were down 23% year over year at $42.9 million.

This decline was a direct result, a widespread custom allow closures due to the pandemic.

We started the quarter with only 25% of our customer Mylabs open and we ended the quarter with nearly 60% open. So most of them have been operating at a much reduced capacity.

We anticipate Atlanta closures will continue to impact our business until our customers are fully operational.

That's a once a little faster short term disruption I'm more confident than ever in our mission and in our business. It is clear at the current events have reinforces the importance of mastering biology.

No just among researchers, but I'm going to broader public as well.

As just one example to finalize the proposed increase for next year's NIH budget would be one of the largest in decades.

In many ways the quarterly pandemic is likely becoming catalyzing event for accelerating to century biology.

On today's call I will start with a review of our commercial progress during the quarter. The second quarter next I will discuss the operational highlights, including the launch of several breakthrough products I'll also discuss our thinking about the future and investments, we're making to capitalize on long term opportunities.

I will then turn the call over to Justin for a more detailed look at our financials, including additional detail when they came back from Carbonite GM during the second quarter.

So starting with our commercial business.

Fund the impact from whats, but luckily for US we were encouraged by several dynamics were sold throughout the quarter.

Importantly, there was continues in high level of engagement from our customers while never away from their last but planning for their eventual return.

Also was so strong demand for our instruments, particularly driven by quoted 19 related research, which opened required placing the crewman controller in a biosafety lab.

On select occasions, because of the urgency of their work boot provided some customers with strategic discounts on instruments is directly in quoted 19 research.

Well, we're encouraged by the short term demand for our instruments related to quoted it's also important to note that the benefits to connect and to the greater club as research efforts will be realized over the long term.

The researchers are the biology go to 90, and then other infectious diseases enabled by these instruments will likely perseus far into the future.

Well the demand for our consumables was significantly reduced during the quarter because of quota 19, we still notable tailwinds from our immune profiling products.

Researchers around the world I using these products increased the understanding all the stars globally to inception.

The separate the Bodys immune response.

And in some cases identify antibodies, which may have therapeutical prophylactic benefits.

There are now well over 50 preference and peer reviewed papers featuring sevenx products across these applications.

For instance that had been multiple publications major journals in which researchers for able to individually analyze and rapidly identify neutralizing antibodies for the sorts our ability to buyers.

The research holds great potential for using the told that pandemic that several of the most promising quoted 19 treatments, making their way preclinical trials as based on neutralizing antibodies.

More broadly we're encouraged by the media coordinated and collaborative efforts of course, the scientific community and the fees live which sciences has been making progress in understanding the disease.

What are immensely proud to play a role in supporting these efforts.

Now while the overall usage of our single cell consumable products was significantly impacted this quarter.

The underlying demand remains strong.

We experienced continued high engagement from existing customers as well as robust interest from new potential customers.

For the high levels of attendance and follow up in our numerous webinars and virtual events.

There are now over a thousand peer review publications, featuring our single cell products.

These publications serve as a validation and an accelerant for future demand because they demonstrate the value of single cell approaches across just about every area of biology and disease.

Spanning the spectrum from basic exploratory science translational work with clinical applications.

And of course, because the 19 pandemic is a stark demonstration that when faced with an urgent need to understand biology, the biology of a disease single cell approaches are essential.

Turning now to spatial we still continue to vision for our vision platform, particularly once researchers were able to come back to their lives.

In addition to the strong adoption of Vizient with existing chromium users who have hit.

Continued uptake with customer score entirely new tenax.

Furthermore, as essential fraction of the vision business last quarter was driven by repeat customers.

We are encouraged by the strength because it speaks to customer enthusiasm, especially given that the bought from was launched only a short time ago.

We have been excited to see a wide range of applications and use cases, there are customers are pursuing what division in particular, we haven't seen continued interest from translational researchers.

Responding to this interest we formally announced the launch of the vision clinical translational research network engine.

With members, including global industry leaders sliding GSK, Johns Hopkins and mass general.

This network will function as a collaborative research community.

It will aim to accelerated expansion and vision into clinical translational studies and to enable discoveries across multiple disease areas, including oncology neurology and immunology.

Well this program.

We provide our members with exclusive access to specialize support and various discounts on vision products.

Many of the participants have already started as their work and we expect publications to begin rolling out later this year.

Now turning to internal execution, we have been working to me the significant operational challenges the club at 19 pandemic imposed on the business.

Ill, probably development teams as well as our manufacturing shipping and customer service functions needs to be on side.

On our last earnings call as trust, our commitment to ensure a safe working environment for all of our employees.

With that imperative in mind.

We implemented a novel programs to provide the recurring Sars caused me to testing for all employees at our present them headquarters who are unable to accomplish their jobs remotely.

The first thing is just part of a comprehensive approach to maintaining a safe workplace. But also includes there's still as Luis symptom screening and the risk factor assessment provision of personal protective equipment and other preventative procedures.

Well the testing program and other measures in place would have been able to dramatically increase our R&D productivity and relative to the hype of the shutdown.

Furthermore, we have been able to maintain our production shipping and customer service functions throughout the pandemic.

We also pushed forward without limitation of the long term Cobley ERP system in the second quarter. We believe the new system will enable increase automation and operational clarity and serve as a foundation to help us scale the business in the years ahead.

Despite current related challenges, we substantially completed the transition onto this platform in early July as planned.

Now in the first quarter, we'll lay does an ambitious roadmap of new products and applications.

And we have been and executing on this roadmap, having now launched multiple products. So far this year with more on away.

This has been a great operational achievement by our team given the challenging environment and the large number of unexpected obstacles.

We believe that many of these newly announced products will enable significant new research and exciting new discoveries across biology.

And I will now give an overview of the products we have launched so far this year.

Starting with our chrome and targeted gene expression solution.

Allowing customers to focus on the cell types and biomarkers that matter. Most so their research. The solution is designed to enable them to answer biological questions quickly efficiently and cost effectively.

By moving beyond unbiased discovery and into targeted research, we via Predefine and custom panels are targeted solution will accelerate adoption of dynamics and cancer and the knowledge of research and drug discovery as well as among a much wider group of customers within basic Science research.

This product is currently shipping tool sold sevenx customers.

We have consistently heard intense interest from our customers in the ability to simultaneously profile gene expression and epigenetic programming from the same sell across many thousands of cells at once.

To satisfy those demand we have developed and begin began taking orders earlier today.

For a single cell multi on at that plus gene expression products, providing our customers with a unified view of a cell gene expression profile and the epigenetic landscape.

Well this product researchers will be able to deepen that characterization of cell types.

However, new June regulatory interactions and better I understand the rules at the genetic broken.

The potential of this technology is profoundly exciting because it seeks to address one of the central challenges to understanding human biology, and can drive fundamental new insights across many diseases.

In July we announced the launch of a new product we have not talked about previously.

This was version two of our Troman single cell immune profiling solution.

Notably this product except the capabilities of the original version and offers enough to 60% increase in gene detection sensitivity.

This increase of sensitivity allows our customers increased flexibility to either reviews, the sequencing costs, while preserving biological insights or access increasingly managing transcripts.

We believe these problems this product will be an important tool for advancing the speed of the art in the Neogenomics and we'll have our full applications across many areas, including infectious disease cancer and ordering unity.

We expect to begin shipping this product imminently.

Now turning division.

Similar to the targeted solution on chromium, our targeted vision gene expression product will allow researchers to focus on the cell types and biomarkers of interest while also maintaining the spatial arrangement of these cells within their tissue sample.

We believe that this will be particularly useful in translational settings and allow researchers to buy a balanced cost slipped biological inside.

We expect to begin shipments in September.

Since our last earnings call. We also started shipping vision spatial gene expression with immunofluorescence solutions.

Which is extending vision to protein analysis will this solution researchers are able to perform whole transcriptome spatial analysis and immunofluorescence protein deduction in parallel.

This capability is likely to open up a lot of fascinating areas of discovery.

Within Euroscience for example, we're seeing customers compare Alzheimer's post mortem brain tissue to normal brain tissue using immunofluorescence to look look at I'm, a little better played within the tissue and overlaid Unix freshen data via vision.

Lastly, I wanted to touch on our integrated software in early July we launched the latest version of our data analysis pipeline sell range of 4.0, which adds support for targeted gene expression analysis importantly sold range of 4.0 also increases data analysis speeds.

Bye bye bye faster for while continuing to run on conventional Gpus, making these benefits available to all of our customers without additional investments in specialized hardware.

As we keep developing and launching new products, we continue to make significant investments in our patent portfolio to protect leasing credible innovations as of July machines.

Then over time.

250 patents issued or allowed and over 500000 spending.

We had over 100, new Babin filings and almost 50000 seizures are allowed in the second quarter alone, including broad intellectual property addressing spatial and Multiomics approaches.

The pandemic has highlighted the ability of our team to execute relentlessly to the short term challenges.

At the same time would have done next we'll keep our focus on the long term and the vast set of opportunities enabled by the essentially of biology.

And we'll look to the future we see more exciting opportunities ahead of us than ever before and at the same time, our confidence in our ability to capitalize on them is stronger than ever.

Glenn to keep investing in the business to build in our momentum, thus far and to create stronger foundations for future growth.

Within R&D, we remain intensely focused on maintaining our culture of rapid innovation and robust product developments.

As we would be on the quota crisis, we intend to accelerated investment in R&D to continue improving existing products and launching new ones.

We will keep making investments in intellectual property to protect these products.

And within our commercial organization, we will continue to build out salesforce.

Course key geographies around the world as well as investment capabilities to address the interest we're seeing from the Biopharma and translational markets.

Okay.

So in summary.

This was a tough quarter, but our team executed remarkably well, while the near term environment is likely to remain to remain uncertain. The long term fundamentals of our markets are very strong.

The importance of our mission is as clear as ever and we will drive to provide the technologist needed to accelerate the master of biology, and bouncy home health.

With that I'll now turn the call over the Justin for more detail on our financials.

Hi.

Thank you search.

Total revenue for the three months ended June Thirtyth, 2020 was $42.9 million compared to $55.8 million for the prior year period, representing a 23% decrease year over year.

Consumables revenue was $34.2 million, which decreased 27% over the prior year period.

Instrument revenue was $7.3 million, which decreased 12% over the prior year period.

Service revenue was $1.5 million, which increased 48% over the prior year period.

Consumable revenue was impacted this quarter due to lab closures, having a direct impact on the ability of researchers to perform experiments using our products.

Instrument revenue was also impacted this quarter due to lower asps, primarily related to the strategic discounting of Cobiz related placements.

Service revenue was not materially impacted.

North America revenue for the second quarter was $20.3 million, which decreased 39% over the prior year period.

EMEA revenue for the second quarter was $11.7 million, which decreased 4% over the prior year period.

APAC revenue for the second quarter was $10.9 million, which increased 3% over the prior year period.

The decline in revenue this quarter was the direct result of widespread customer lab closures, we started the second quarter with about 25% of customer lapse open.

In mid June as conditions began to improve we saw a modest acceleration in us lab openings, which continued through the final two weeks for the quarter.

By quarter end, we estimated at approximately 60% of our accounts in aggregate. We're open for general research with the majority of those operating at a much reduced capacity.

Last within the us where close throughout most of the quarter with a modest acceleration openings beginning in mid June continuing through the final two weeks of the quarter.

Labs in EMEA began to reopen slightly ahead of those in North America before plateauing in mid June.

The recovery experienced in APAC, primarily driven by China towards the ended the first quarter held ended the second quarter.

And the percentage of labs close in that region remains fairly consistent throughout the quarter.

Thus the net impact to our Q2 revenue was primarily driven by customer lap closures in North America and to a lesser extent those in EMEA and APAC.

We believe that the rate of lap Reopenings will remain unpredictable and at this time. It is unclear how unknown factors such as resurgent case counts for another wave of infections may impact the pace of labrie openings in the coming orders.

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Now turning to the rest of the income statement.

Gross profit for the second quarter of 2020 was $32.9 million compared to a gross profit of $40.8 million for the prior year period.

Gross margin for the second quarter was 77% compared to 73% for the second quarter of 2018.

The gross margin increase was primarily driven by lower accrued royalties related to ongoing litigation, partially offset by charges related to idle capacity and the continued build out our manufacturing facility in Singapore.

Total operating expenses for the second quarter of 2020 were $72.3 million, an increase of 41% from $51.2 million for the second quarter of 2019.

This was primarily attributable to increased personnel related expenses related to ongoing expansion within R&D and the commercial organizations stock based compensation increased infrastructure spending legal expenses and the administrative costs to becoming a public company.

R&D expenses for the second quarter of 2020 or $27.5 million compared to $18 million for the second quarter of 2019.

This was driven primarily by $8.2 million increased personnel related expenses, including stock based compensation.

And $1.3 million increase in allocated costs for facilities and information technology.

As China expenses for the second quarter.

Were $44.4 million compared to $32.6 million for the second quarter of 2019 with the increased driven primarily by $8.8 million and increased personnel related expenses, including stock based compensation and $1.4 million increased legal expenses.

Operating loss for the second quarter was $39.4 million compared to a loss of $10.4 million for the second quarter of 2019.

This includes $13.9 million a stock based compensation for the second quarter of 2020 compared to $3 million for the second quarter 20, our team.

Net loss for the period was $40.2 million compared to a net loss for $10.9 million for the second quarter of 2019.

We ended Q2 2020 with $339.8 million in cash and cash equivalents. While we are encouraged by the recent trends there remains near term uncertainty related to covert nineteens and we will refrain from reinstating guidance at this time.

At this point I'll turn it back to search.

Thank you Justin.

Before closing I want to again, thank everyone at Gemex for all of your efforts this past quarter.

It has been amazing to see how will you have executed I am not could not be more proud to be horrible team.

To further potential for near term volatility, we're confident we'll never above the long term opportunities ahead for tenants and we're committed to making the necessary investments to capitalize on these opportunities.

This is the since your biology, and we're just getting started.

With that we'll now open it up for questions.

He asked question he will lead the cross car line on your Karma from.

To address your question. Please press the pound key.

Once again to ask question.

Please press star one.

First question is from the line of Pica Peterson of JP Morgan. Your line is now open.

Hey, Thanks, sorry, Greg I'll start with a clinical translational research network can you maybe just help us think about that in context. The 45 biopharma customers how material that could be in terms of the volume and volume ramp in utilization levels and what this also drive chromium placements as well correct.

Now, let's say, it's not the as far as a revenue in the near term I think I would I would caution against putting so much weighted.

In the logo and certainly we see that as a as one of the accelerants.

For for the clinical and yet that pharma markets as well a similar with the come the from the front as well again below these little steps, we're putting in place and investments, we're making for market development, though that should bear fruit them the next year and beyond.

And then on the Cobot dynamic are you able to put any any metrics around just south of the opportunity, which we mainly think about it as it back in the immune profiling. The two product that you highlighted is that from a product.

Most of the is they need to the new profiling product certainly covered those fields that has a significant they'll one for that product, but it's going to how the certainly able to.

With patients well beyond just covered.

Cancer Autoimmunity like coast immunotherapy immuno oncology. So those are the big drivers for that product as well as far as quoted this comes the Tailwinds are concerned there definitely there.

There are substantial Budd there.

I would say relatively speaking that bail in comparison to the headwinds for suffering from the web closures.

Okay, and then just two housekeeping one per quite hop off on did Jim you Didnt give an updated number of number of labs, you did that the last two quarters able to talk on on how many customer sets are using this Jim and then secondly on.

Ftn just curious is that still on deck for early early next year. Thanks.

Okay.

So our so in terms of cost.

In terms of customers a vision the number of the stages over 600. So we've added a substantial number of lots over the course of last quarter and.

As far as.

The ever be Blobism is concerned that would be there's still a plan for a first settlements share.

Okay. Thank you.

Your next question comes from the line out there doing bank of America. Your line is now open.

Hi, good afternoon.

Today, I am I realize that there's a ton of moving parts in variables, but I'm just sort of wondering if you can give us a sense of what the difference was in demand in the so it would be doing say if how to if you if 50% relapse or open at the end decor.

Order.

And your debt that started any sort of mid quarter I'm, just sort of thinking what's like what was sort of the revenue contribution that last two weeks to get a sense, where I. If I I just try to get Esensor. That's I can try to model forward on forward basis.

Hey, Jack this as Justin.

I'll take that.

Typically we do see higher concentration of revenue in a in a normal quarter, particularly in the last few weeks and in Q2, we did see more waiting, particularly in the last in the last two weeks of June than we normally see and I do think that that was.

Related to a number of customers that were.

That were shut down for the majority of the quarter that opened up around the same around the same time. So we did see a we did see a spike during those last couple of weeks I think it remains to be seeing what that will look like steady state as the customers and moved to be out of sync with one with one another.

And I guess, yeah, we heard from other companies have mentioned about.

For worried about not getting their hands on supplies going forward and a sense of stocking or people buying ahead of when they thing when you think things are going to open up.

And that in that sense.

No we didn't see any indications of any kind of pull forward or by add from customers.

Got it.

I mean, obviously you know you're very heavily enact U.S. academic markets and I guess can you give us some flavor on what you're hearing from your customers on.

Their lab openings I mean, I mean, how many a sense of the flavor for how may think that.

Are there labs half staff you know fully operational you have a sense of sort of the mix I know you said that much more so at reduced capacity, but can you give us some flavor on that and it does it have an east rhyme or reason in terms of the sizing institution the types of institutions and in disincentives looked a little bit more flavor on what you're sort of seen in that critical segment Omar.

But.

Thanks, Eric This is Brad I'll take that you know, it's really a mixed bag I mean, presumably that customers are having the same problem that everybody else has dealing with child care. Another disruptions obviously the local situations are changing.

This is obviously when we were on the call last quarter or early this quarter I guess it was last quarter.

We would have seen we thought that the south is opening up really fast and we thought at his portend for the future, but the coast were somewhat slower and opening up and even now institutions are all trying to figure out how it can get as many people in the lab through different ships.

And then just plain distancing and that certainly impacts the capacity on that.

Got it and I guess and if I missed it in your remarks, my apologies, but did you give a number for how many chromium can actually placed.

No.

We are putting that connect out from the regular chromium controller at this time and well update in total the total installed base I annual.

And one final question before my competitors kill me the the.

The ramp into visit them are you seeing people reordering. The is it mostly new people I guess can you give us some flavor on how those experiments are ramping and how people are or and how people are ordering a new customers. It reorders are the people expanding experiment if they try it different flavor on the ramp.

Yes. This Brad I, Yeah, we definitely have seen good reorder rates people using its starting to adopted expanding this the size of their experiments number samples things like that.

Obviously again, the second quarter and that.

Limited access to the lab didn't help but overall like again I think we continue to be impressed by the wide range of use cases, and how those are moving to publications and really looking forward to the publications that we see already coming out.

And bioarchive, but ultimately ones that will come out throughout this year will really expand the whole our horizon for them.

Great. Thank you.

Your next question comes through the line of stock Franco of Cowen. Your line is now open.

Oh, Thank you for taking the questions. My first one is one which I think I know they answer too, but I want to ask it anyway.

When we look at the pace of operational investment and your commentary on the outlook for continued investment in growth initiatives.

I just wanted to make sure that we should view that as really a sign of confident that first you're you're seeing robust demand, albeit somewhat preferred for your products and that along those lines.

Youre youre confident that but likely duration of deferral doesn't warrant any real material slowdown look case of investing in long term growth opportunity gets.

Absolutely.

Yes, I mean look I look at.

[laughter] group.

Really what I mean, we obviously look at the lot of ended leading indicators looking on demand of that come into the my opening remarks looking on the long coming out in the house or the shape of.

What customers are thinking about the future on the wireless technologies are their evolving soul of the we feel very positively about and yes. This is a near term disruption, but the same download feel pretty confident.

As one would pass through a pandemic, there's a really really strong business frozen meals.

Okay mix makes sense yeah.

Talk a little bit about what's going on them in the different end markets I guess just from a promotional standpoint.

Hi, you're prioritizing thanks.

Biopharm Biopharma lobby.

In general seem to reopen a bit more quickly than some of the academic research centers, where are you able to make you know I guess kind of commercial lemonade out alignments in a way and really just kind of pivot and maybe a bit more.

Aggressive and you're going after some of those far about commercial accounts that may have been.

A bit harder to penetrate empire prioritize historically.

Got it does this is Brad you know the one thing with Biopharma.

As a perception is.

It really depends on the side the larger biopharmas were all of much closer to academic institutions as far as their opening and much more issues with employee.

Programs to get people in the lab.

But obviously the smaller in the small biotech we're able to move fairly quickly took two we opened so that's kind of has a different there I think overall, we have been focusing on pharma and even obviously through now the pandemic and there's a number of.

Probably think ultimately will be part of bringing.

Expanding beyond the discovery into some of the more operational or validation on platforms. So that we we continued to make progress on.

And then over time I think in general we we we were able to pivot very quickly on adding key customer engagement, but I will say by the ended the quarter.

All the other companies. It Doesnt same thing and then we were all just on Poising. Our customers was as we call. So ultimately there was a balanced across that but in general we have looked at this time as an opportunity to to make snakes eliminate no matter how tough it is.

Okay, Thanks for that Brad and and one last one.

You talked about focusing on German of course, there's very strategic you know separate from that.

In diagnostics, you hear about more virtual in more detail I arm in research tools are yeah. There's increased focus on what companies can do basically enable their bill yeah. Their lab customers to get back to work get them out in the lab.

It's tough to do but keeping in mind. Many of your users don't actually hobaugh chromium basically in their own lab.

Up courses, the consumable solution or without a captive instrument for spatial profiling.

I'm wondering if those attributes.

By extension, the fact that but that in investment in New York Technology really at the lower cost of entry. That's helped you had better position you for adoption and utilization as folks.

Figure out how to how to really operate in this environment as its clear it's going to last a little bit longer than we all would have hoped.

Yes, those are really good questions I I think the most important thing is is the idea that fast start and that's kind of what you described in the benefits of our business both in terms of being able to get the capital to buy it.

So so obviously that helps us with the chromium uncertainty busy in this very the in assets because there's no capital. So a key point to our success as these fast start inaccurately goes to our support organization and our ability both busy and chromium to successfully onboard customers and be able to do that with a lot of digital tools that we.

Already had in place not expecting the fact that would be our only access so that start has allowed us to get even customers a with a video who.

Got it in their lives at the end of the quarter get Didnt have any capital investment and we were able through our our support organization to get them up and running in doing span experiments and getting data. The other thing I'll point out and you kind of touched on this is that we have oh, there's a there's a lot of capacity for our instrument. So we have a lot of people who use other instruments.

The so called Halo users, which ultimately become useful.

As opportunities for us to sell it chromium instrument to well in the world right, now where where there's a lot of controls about buildings and what floors. You can go on and all that is we're starting to see lot more interest in and helping us drive box placements as well.

Okay Super helpful. Thank you guys for all the detail.

Your next question comes from fly Netflix surrogates for of Evercore ISI. Your line is now open.

Hey, guys, maybe just another way to ask Eric's question getting kind of the pace through recovery and so when you think about those 60% to labs networks that are now open how how has the capacity. It I know you talked about reduce capacity, but the last hour open before the 20%.

That you guys talked about before has as their capacity increase are you seeing that kind of cap out at like 60% and then as these other lapse come on their at 20 and going up to 60.

Excellent I'll take this you know it's interesting because it's all over the map we have examples in Germany, where you have institutions that are almost fully operational and at this point and then we have most of the big U.S. labs that got customers that we even go to the coast, our operating probably around 50% capacity and again.

I, just always warrant that opening close capacity.

It's a good number and we certainly have literally watch that on a weekly basis, but remember in some cases, even labs that are opened on maybe only 20% will be consuming a lot of our product because it's really that front ended the experiment sort of the sharp ended the spirit of I'd like to say and then you have institutions like the borrowed that largely shift initially to doing.

We'll be testing because there was such a demand for testing and then has now pivoted almost exclusively to research on the.

Biology so.

Win win win labs shifts like that that introduces some delay because there. They are building building entirely new workflows and access to the biology and then obviously the.

And testing in the capacity to to run our products. So there's really a mixed bag on this line.

No not at give you more resolution on that but thats kind of how we look at it.

No that's helpful.

Yes, just a follow on to that and so I mean, you guys continue this toward basis of new product introductions.

He's talking about that demand.

As these new labs open is it for all these new price or eight like are you getting.

Everybody to it.

To follow on which I was with the flavor and having a with us eliminate it looks like wedding their appetite type putting out all these you press releases on these new products and then there's there are risks that they're not going to use of the legacy products, you're not catching a full value of that.

So you know us there's still the workforce that is driving so much insight in biology as are our original sort of blockbuster. The 55 expression, which we brought successes versions of that product down an outage increased capacity so that really what we're leading with an even when we look at as much.

Multi element products that are combining that.

Our combining a measurement I mean, those are all sort of pivoted on buying fines.

That's three prime expression, so I can't I Wouldnt think that anything we do moves away from had it just kind of enhances it but I think the real thing is when we bring out these products. It's again, it's consistent with the our execution and then weve for the last several years of laid out a roadmap in.

To the credit or R&D team and operational team or been executing on that is.

Certain pointed out it's very difficult times so.

Yeah, I mean, I I think.

Yeah, the slightly over that.

Okay.

Lastly, I guess just on the on margin cadence.

Should we expect to similar type of of offset to the royalties continue to roll off from that continues to build outs and and capacity expansion.

Yeah for this.

For the next Gen transition I've talked before about how that's basically in linear progression over six quarters, starting at the mid 29 team, we're basically executing along along that schedule.

Maybe slightly slightly ahead of it.

<unk> percent basis from where we would expect to be if you just straight lined it.

And I would expect that we would continue at the same pace through the end of the year.

Awesome alright. Thanks.

Your next question comes from the line of Patrick Donnelly of Citi. Your line is now open.

Great. Thanks appreciate the color on the lab openings through June obviously, a few questions on that any insight you guys can provide obviously you've been another month and a half. Since then we've seen the cases in the U.S. pickup obviously any framework you can provide just around kind of the last month and a half of things.

I've gotten a little worse here in the U.S. in terms of opening spend whatever it may be on the lopsided.

Hey, Patrick this is Justin I'll take that.

60% of labs were or open at the end of Q2, but as Brad said.

Most were operated reduce capacity some of the must reduce capacity and there is a pretty wide range of variability amongst those.

Amongst those labs.

We haven't necessarily think seen things get worse.

Since then.

Overall, if I was to give some color on how Q3 is shaping up.

I would say that revenue is tracking pretty similar to where we were a year ago.

Okay. No. That's really helpful. Just impacts and then I guess on the cobot market, how aggressively or you guys going after that sounds like you discount with some instruments to get placements out there can use to expand a bit on the demand you're seeing there any way to size the opportunity potential tailwinds from.

For more on some of that research.

So, but other spread you know I I think in yen and as far as could be a two is going to be effectively models for how people will study the immune system because it's so much data around the outcomes and how the the immune system responded to the virus and then in some cases over responded and so.

In a sense, we see a lot of interest to use this wealth of data and patient outcomes and I've said this before.

We continue to push on that market around that and it's not just immune profiling product is all our products are setting in the biology, and I think over time, you're going to see more and more studies that are looking at time core studies on multiple tissues.

Because it turns out there all related and they're all communicating and and I saw I to me I think this is.

As a search pointed out at the beginning in some sense is pandemic is created.

An incredible value cadence for the study in understanding Nasri biology, I think specifically.

Sars itself will be an create case study.

That's helpful. Brett. Thanks, maybe just one last one might be for surge often just on the IP side and maybe just an update there. Obviously you saw some news last week can you just run us through I guess, what do you guys thought about that when what's left outstanding any timing expectations in the near term on in terms of material.

Updates on that side.

So in terms of multi the surge so there was a decision.

Thinking about the major.

Decisions that they have any there was the appeal in the original Delaware case.

Well those are certainly came down last week or the week before.

I want to help us as the those cars in the legacy products.

None of them, that's jump products, and so kind of a backward looking phase one of us on areas of too.

Over the three beds to do the Dan that's where a return of infringement plus onto a return to build return.

And.

So the extent.

So the accumulated damages that's already been accounted for in our financials. So there will still have so there's still more mechanics that worked out in the final decision on those coming in a sort of the coming months.

So that's that decision and I think.

Nothing else major to update.

On a.

On the legal side.

Okay. Thanks search.

Your next question comes from the line of ban I asked US Stifles. Your line is now open.

Afternoon, guys. Thank you maybe just a couple of follow ups on the ones that have been asking starting with belaboring. The point a bid on the current environment are you able surge or Brad Pitt sort of contrast, the percentage of labs that are open that 60% or so but the percentage of labs that are open and accessible in terms of just being able to install entry.

I mean, I guess, how meaningful is that difference if we're just sort of picky about orders, but then thinking about new customers and new installations, maybe in the back half of your.

Yeah, I'll just jump into that or is on that when it's interesting because I I wouldnt for the most part is wide open for their own word there there are close to any outside visitors and that that remained almost universal we're seeing a little bit of change in Europe, but and in some cases, we have had has oh we have.

Gone on site in the U.S. to do installations on the chromite chromium connect but in general and I, we kind of a disconnect from there because again, where we are where we're from a sales standpoint, we're operating from the view that this was all on.

Virtually and we kind of settled into nominally assuming we're going to be a number for awhile, but the ability to onboard customers. We have not seen any limitation in that beyond you know and I'm sure.

Our our at they asked in some of our customers would like to meet each other face to face other than that and then the personal side of it we've been able to effectively onboard new customers.

Yes, Okay, and then just maybe on the clinical translation network.

In ballpark figures do you have the percentage of those labs that are visium users today.

And then I'm curious just thinking about the pricing scheme, that's associated with that program, which I believe in corpus corporates, a little bit of discounting.

With that discounting be expected to be at a level that could be at all and meaningful to two gross margins.

So I presume.

The vast majority of the Ctr end, where new customers. These are new applications. They might have been weak customers sort of early adopters, but generally where new customers and that's kind of.

That was the pull in my we we decided to.

Run into that marketplace I don't believe because in some of the testing. We do is for a limited number of samples. So I don't believe that this would have a material impact on the gross margin as a company.

And I would just add to that just overall.

Vizio product does have a lower gross margin in some other products so as that does.

Increased materially as a percent of overall revenue there is going to be some impacts from that but there is positive impacts to margin over the same time period as well.

Yep, Okay, Justin confused so if you're trying to maybe I'll just finish for with one for you. There can I just sort of extend on the thought that you had the Patrick's question by asking if there's any reason why just given if you're tracking to flattish in threeq, Judy can be up year over year in Fourq you.

Yeah I'd say.

As far as Q3 goes.

Like I said that Patrick I knew it does look like were shaping up to be.

At least for live from the image that we can see from this quarter that we're on pace.

To be pretty similar to Q3 of last year and so you know if the positive trend continues as you know more customers not only opened up but open up to full capacity overall. It also open us outside visits that would obviously be.

Positive driver revenue overall, but there's also the rest of things could turn the other way in which we haven't seen to date, but there is that risk and things concern that as well so.

It all hinges upon the openings and how they're going to progress between now and ended the year.

Yeah.

Certainly I understand that okay. Thanks, a bunch.

Your last question comes from the line of savings Mesenbrink of Guggenheim Securities. Your line is now open.

Hi, Thanks for taking my question and I might sorry, if I ask the repeat my phone so I'm going to storm in my phone drop several times during the call. So on my first question is on the on NIH dollars that they don't tend to go away right now we're looking at you know 40.

Good 40 billion ash waste a in budget this year, probably increasing at at historic kind of numbers here. So can you kind of give us a flavor in terms of your customers accessing those fat fun I mean, it maybe put into three camps here I mean number one do you think that there could be any kind of demand destruction.

Because of the not inability to access that fun number two maybe a parallel shift in that demand. So maybe equaled part that you would get in 2020, you get to 20 to 21 22 or do you think there might even be a catch up in terms of those dollars as we see that increase in NIH and your customers access those funds.

Boy, that's a tough question I had a lot of questions.

So the.

The demand both a personal.

No basically I'm asking on your customers accessing NH dollarss and how they're going to be able to access that in <unk> dollars and whether or not we're going to see either a any kind of demand destruction be just a pure shift in demand.

Parallel shift in demand or see whether we'd see those dollars into into kind of a pent up demand fashion as we look at 2021, and we basically what I'm asking as you know there's definitely excitement in the research market Big Post Cove. It if we're looking at 10 x. prior to cope with versus 10 X. now in 2022.

I mean, I could almost even see I kind of a scenario, where you would see you know there's more NIH dollars you have an NIH backdrop, there's excitement in genomics and it's really obvious that.

Your your customers need to know what's going on with the immune system post coven.

Yeah. So that they did you know the demand destruction and that's a new term I know I've heard other companies use. This I mean, obviously, there's we can't make up for last time, there will be some ability to continue to to make up for experiments as samples are weighted you got challenges it at Ti institutions, because the core facilities are busy.

There is good because again pent up demand some of the co. Good related the other thing to note is when we think of the NIH remember obviously you know you've studied there's a lot there's really two parts to it.

There is the extra Maryland, the intramural the intramural budgets are still subject to the current fiscal year and those monies still have to be spend and we had some question early.

I guess on the last call I'm wondering whether they NIH with lacks or change that they decided not to do that so we are seeing that gear up for that.

We ended the quarter four lines the into Q3 of course as far as going forward I see a lot of parallel and opportunities to enhance our business as as I pointed out earlier research that is going to get done because of co that India, India. The wealth of information at.

Okay.

Again, the easier the last part I guess, either with with there'd be a massive catch up and I don't see that happening because a lot of that's just related to the biology and samples and.

So I don't see that is.

That is among all sorts of growth.

Yeah. Thank you very much and then just a second one on busy I talked to a service provider, who said a they they would recommend 85% of their single cell work also have a company.

He is not the phone [laughter] restored by lightning.

Well.

Yeah.

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