Q2 2021 10X Genomics Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the 10 X genomics second quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session. So I'll ask a question during the session you will need to press star and Denver.
Number 1 on your telephone please be advised that today's conference is being recorded.
I'd now like to hand, the conference over to your Speaker today, Eric <unk> director of Investor Relations and strategic finance. Thank you. Sir. Please go ahead.
Earlier today, and I would challenge released financial results from the second quarter ended June 32020 more.
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Could cause actual results or events to materially differ from those interests.
You should not place undue reliance on forward looking statements.
Information regarding these risks uncertainties and factors that could cause results to differ appears on the press release and X genomics.
Each day.
And then the documents and reports filed by 10 X genomics from time to time, the Securities and Exchange Commission.
Your next genomics disclaims any intention or obligation to update or revise any financial projections or forward looking statements, whether because of new information future events or otherwise.
Joining the call today are search section on our CEO and cofounder and dressed him back and here, our chief Financial Officer.
In addition, Brad Crutchfield, our Chief commercial officer, and Eric might occur our general counsel and be available for Q&A.
With that I'll now turn the call over to search and search.
Thanks, Ed.
Afternoon, and thank you for joining us.
On today's call I will start with a brief overview of our performance and solid execution during the second quarter.
Next I will discuss our progress and enabling broader adoption of single cell analysis as we continue to advance our vision of bringing into every biology researcher in the world.
In addition, I'll share more about our relentless focus on innovation and the investments, we're making to power future enabled by single cell and spatial biology.
I will then turn the call over to Justin for a more detailed look at our financials and outlook for the year.
Yeah.
Revenue and for the second quarter totaled $116 million up 170% year over year, and 9% sequentially driven by increasing adoption of our products.
We're pleased with our team's stronger nutrition and this quarter as we continued to deliver on our commercial plans and advance our R&D pipeline as.
As we anticipated customer lab operations returned to near normal levels during the quarter.
And while some lapse experience lingering COVID-19 related impacts from much of the period. The majority of customer sites were opened in person meetings with our sales and support teams by the end of Q2.
However, subsequent to quarter and rising case counts and emerging variance have increased uncertainty and our operating environment, which Justin will discuss further.
Now moving to our results.
Strong demand for our chromium instruments during the quarter, we initiated the price change for the chromium controller to position and strategically within our extended instrument lineup ahead of the launch of chromium X.
As a result, we saw approximately 100 and incremental placements during the quarter, bringing many new customers into the ecosystem.
Adoption of our single cell and spatial consumables continue to grow but the ability to measure gene expression proteins epigenetic programming and new features and other modalities are our customers have access to a comprehensive toolkit and soybean and biology of the right resolution and scale.
The breadth of these offerings is resonating well with and a growing customer base.
I think our volume solution for example, does it and has had an impressive trajectory since we began shipping less on a year ago and.
The ability to analyze the gene expression and the B genetic programming from the same cell is inspiring and rapid adoption with existing customers as well as customers new to them X and to single cell approaches more generally.
Directly connecting and regulatory signals with cellular function is essential to understanding biology, and its most fundamental level.
And our recent prepay and feature and multiple researchers analyzed sales from human pituitary samples to uncover diverse regulatory mechanisms involved and stem cell development.
<unk> allows the scientists to identify and characterize uncommitted stem cells and determined the transcription factors and epigenetic mechanisms the shape their fit and function.
These findings should help develop therapies to treat and accretive diseases caused by pituitary deficiencies and tumors.
Yeah.
Adoption of our volume solution also continues to expand since launch the number of papers and publications with volume has increased each quarter as born on mortgages or is progressing well.
And their experiments and generate relevant insights.
And today, there have been more than 120 publications and prevents featuring vision technology.
And 1 recent lithium preprint researchers from them in depth spatial analysis of somatic mutations.
And benign and malignant prostate cancer tissues.
These researchers were able to identify small clonal cells not evident from visual assessment, and which would have been overlooked by typical histological analysis. Additionally.
Additionally, the study showed that copy number variation and the regions, which and Cook cancer drivers open occur on tumors and benign tissue lesions typically ignored by pathologists.
This study showcases the power of unbiased spatial approaches are uncovering the biology of tumor progression.
Which could lead to improved early detection of cancers and improved patient outcomes.
This quarter. We also launched the begin shipping busy on for FSP, enabling for the first time true on by a spatial gene expression analysis and FSP samples.
Early demand has been strong as pre marketing activities and inspired both new and existing customers to initiate pilot studies.
We are encouraged by the adoption of lithium and happy to date, though as we said on the best It will likely take time for initial customers to progress through their pilot studies and onto large experiments.
And looking into the future the interest we're seeing affirms our view of the widest likability opus product and both the discovery and translational setting.
Yeah.
After the quarter, and we announced the availability of chromium X. This.
This part from represents a huge advance for single cell genomics as it will allow our customers to supercharge the experiments and theyre getting as many of the millions sales in a single run at a significantly lower cost per cell.
<unk> was developed in response to the desirability of our early customers to run ultra hydro and experiments.
We are pleased with the initial response and look forward to getting it and our customer accounts this quarter.
The chromium platform has come a long way since we introduced the chromium control of 5 years ago, We launched the platform with a vision of making single cell analysis accessible to every biology lab and the world and.
And we have made tremendous progress toward the goal there or not and thousands of customer labs, using our products and more than 2800 papers across a wide diversity of journals and research areas.
And then turn on lease obligations are helping inspire growth spectrum of researchers by validating our solutions across an increasing number of applications.
And while thousands of labs are using our products, we're still very early and realizing our vision.
Well over 100000, researchers globally available to <unk> X and we estimate that 2 thirds of them could already benefit from single cell and spatial genomics applications.
But this in line, we have consistently pursued a strategy focused on broad access to bring new researchers into our ecosystem.
The success, we had this quarter with instrument placements and new Labs is an example of that strategy.
And their solutions become more widely adopted and increasingly reaching new customer profiles and Youll. These customers Olympic experience with single cell workflows and high concept experiments. Unlike our earlier adopters.
And particular sample prep and data analysis and important areas, where these customers speeds greater challenges.
With the launch of our low throughput and felt like Skype and introduction on the Tenex clouds earlier. This year, we have made important progress and addressing some of these areas.
Since launch and the demand for some flex is and particularly robust and we have to.
Strong interest in our denim X cloud solution, especially among our users who are not buying from medicines.
Moving forward.
We will continue to prioritize the tenants of customer success.
Enabling access and addressing barriers to adoption as laid the groundwork for continued growth and expansion into the best opportunities.
The strength of the talent and talent and commitment of the 10 X gene and give us tremendous confidence as we announced this vision.
The team's ability to persevere and despite challenges related to the pandemic has been consistently impressive.
Because of their efforts, we have been able to maintain a rapid velocity product introductions, including the breakthrough launches such as chromium X and visit per FTE.
And the same time, we have been making significant progress on our extensive R&D roadmap to deliver many future products.
And developing and launching these products will be highlighted vicious even under normal circumstances.
Our ability to maintain our plan and cadence of product introductions and the face of a pandemic underscores this important competitive.
The differentiator and as a debt.
And for our entire organization.
Yeah.
With grown and believe the single cell and based on approaches represent the future of biology.
Over the past several years has become increasingly clear on the complex cellular heterogeneity as a pervasive feature of all human tissues and is fundamental to understanding all biological systems.
Acknowledges the resolve this heterogeneity and enabled single cell resolution on scale will be critically important biologic and future significant discoveries and clinical applications.
Yeah.
Our chromium platform is an established leader and single cell analysis.
While we have rounded out the core set of capabilities with the recent product launches, including chromium X. This platform remains early and the development and adoption.
And then to continue to have capabilities and improvements and future to enable broad adoption and create additional value for existing customers.
Vision, and spatial biology, and more broadly is it or even earlier.
Our core discovery customers have been adopting lithium since its launch in late 2019 and with introduction of <unk>. This quarter, we have expanded access to translational research.
And we will continue to invest aggressively in the spot from fundamental new capabilities and breakthrough features as far and extensive extensive product roadmap.
We are and the process of building a sophisticated factory here and Pleasant developed and next generation of high resolution video and consumables.
This effort as a result of multiple technical innovations that we believe will give us a set of highly differentiated capabilities that don't exist anywhere else and the world.
We expect our vertically integrated capabilities to provide a powerful foundation to enable new products and growth and the future.
With our on Ctrip platform will continue to expand our investment to build a historic complementary platforms chromium and <unk>, which will help transition many of the discoveries made but those platforms to the clinic and the future.
We will also and does broadly and our organization, including our R&D and commercial teams and our global operations to support and broadening adoption of our products.
Okay.
Finally last week and off the worldwide settlement or litigation or a buyer.
This settlement results more than 25 separate matters and over 8 years of litigation on the complex.
And we're scheduled to go to trial and on claims against virus Selsey products This week and that alone.
Jason we had a sort of the sales of products and printed 6 of our guidance.
Yeah.
This settlement, probably cross licenses each company's intellectual properties related to single cell analysis was exceptional and we did not licensed patents related to certain application areas and technologies under development.
Importantly, the settlement also does not include intellectual property related to special or and Ctrip approach.
Each company will make royalty payments through <unk> 30 on the licensed funds for the life of the patents.
From a financial point of view, we expect that agreement to be test positive for us when considering cost savings from litigation and our ability to offset certain payments against other licenses and the reduction on past royalties related to the Delaware litigation.
Any payments or royalties by environment on our sales and services would be incremental to us.
We expect the impact to our gross margins will be left on 1% also excluding any potential royalty payments from buybacks.
And apart from the financial benefits of this agreement eliminates the distraction and uncertainty of litigation.
This is a victory for science and now all of Us to turn our full attention from our mission of mastering biology to get to human cells.
We were able to achieve this outstanding result, and part from a strength of our intellectual property, which now includes over 1100.50 patents issued and pending we believe that our deep and broad patent portfolio as a key competitive differentiator and we will continue to December technology, breakthroughs, which have resulted from a significant investment.
And the research and development.
I would now because it is our general policy not to license our patents to protect our sole rights on and practice.
Okay.
Before turning it over to Justin I'd like to thank our employees for their continued hard work dedication so far and 2021, we entered the year with Highland ambitious goals and our ability to develop and deliver so many great products from growing customer base is a testament to your commitment and execution.
With that I will now turn the call over to Justin from <unk> Health.
And.
Thank you Serge.
Total revenue for the 3 months ended June 32021 was $115.8 million.
Compared to $42.9 million from the prior year period.
Representing a 170% increase year over year, and a 9% increase quarter over quarter.
Consumables revenue was $97.1 million, which increased 184% over the prior year period.
Instrument revenue was $16.9 million.
Which increased 131% over the prior year periods and service revenue was $1.8 million, which.
Which increased 25% over the prior year.
The increase from consumable revenue this quarter was primarily driven by growth from the instrument installed base and decreased impact of the pandemic on customer operations.
The increase and illustrate revenue was driven by increased instrument placements during the quarter.
Service revenue increased due to a large number of instruments coming off of their initial 1 year warranty and on the paid service contracts.
Americas revenue for the second quarter was $65.8 million.
Which increased 225% over the prior year period.
EMEA revenue for the second quarter was $28.8 million, which increased 146% over the prior year period.
APAC revenue for the second quarter was $21.3 million, which increased 95% over the prior year period.
Turning to the rest of the income statement.
<unk> profit for the second quarter was $110.9 million.
<unk> to gross profit of $32.9 million from the prior year period.
Gross margin for the second quarter was 96% compared to 77% from the prior year period.
The gross margin increase was driven primarily by a 1 time reversal of $14.7 million of accrued royalties to cost of sales as a result of the settlement with bio Rad.
Total operating expenses for the second quarter were $121.3 million and increase of 68% from $72.3 million for the second quarter of 2020.
The increase in operating expense was driven by increased personnel related expenses due to ongoing expansion within R&D and commercial organizations, including stock based compensation increased costs related to facilities expansion and increased information technology spend and supportive channel expansion of our operations.
R&D expenses for the second quarter were $53.4 million compared to $27.5 million for the second quarter of 2020.
The increase was driven by $14 million and increased personnel related expenses, including stock based compensation and.
And the $8 million increase and expenses related supply materials supplies and a quick.
SG&A expenses for the second quarter were $68.7 million.
Compared to $44.4 million for the second quarter of 2020.
The increase was driven by $15.9 million and increased personnel related expenses, including stock based compensation $3.3 million of external legal fees, and a $2.7 million increase and expenses related to it and facilities.
Operating loss for the second quarter with $10.3 million compared.
Compared to a loss of $39.4 million for the second quarter of 2020.
This includes $26.9 million and stock based compensation for the second quarter of 2021 compared to $13.9 million from the second quarter of 2020.
Net loss for the period was $11.1 million compared to a net loss of $40.2 million from the second quarter of 2020.
We ended the quarter with $622 million and cash and cash and cash equivalents net of restricted cash and the.
The increase in cash from the prior quarter includes proceeds from option exercises and positive operating cash flow.
She'll be offset by capital expenditures related to our operational expansion and classes.
Now turning to our outlook for the remainder of 2021.
We look forward to a strong finish to the year as we build on our progress to date and continue to fuel our rapid pace of innovation.
We remain confident and the long term trajectory of the business and we'll continue to invest heavily and our team and facilities to support this vision and serve our ever increasing customer base.
On our last call. We noted there was a wide range of operating efficiencies within our customer labs due to COVID-19, and the lingering impact was likely to persist through the second quarter.
This largely played out as expected.
Towards the final weeks of the quarter, we began to see a marked improvement and the majority of our customer labs had returned to near normal operations by the end of channel.
While these improvements were encouraging and more recently, we have seen some customer labs stream sitting and COVID-19 related protocols due to the emergence of adult to bear on him and closing access to outside visitors.
The situation and increasingly uncertain and due to the extent and increased restrictions impact our customers ability to progress through their experiments or.
Or limit our access to their sites, it's possible that we could see and impact on our business and the back half of 2021 gig.
Given this environment, we are maintaining our full year revenue guidance for 2021 or $480 to $500 million.
Representing.
Growth of 61% to 67% over full year 2020.
At this point I'll turn it back to search.
Thanks, Justin as we look ahead, and we firmly believe the single cell and and spatial analysis represents the future of biology and.
The vast majority of biological tissue samples will need to be analyzed on a single cell resolution on spatial context.
And it's still very early and the investments, we're making on our platforms have us well positioned to make that future every allergy.
With that we'll now open it up for questions operator.
Good day, ladies and gentlemen is on all of a question at this time, please press with BARDA and the number 1 key on your thoughts from telephone.
And there has been answered or you wish to remove yourself from the queue. Please press <unk>.
Your first question comes from the line of Doug Schenkel from Cowen. Your line is open sales.
Hi, good afternoon, and thank you for taking my questions.
If I could start with just a couple of questions on the quarter and then.
And then kind of pivot to a longer term question.
It looks like instrument revenue, if I'm doing the math right increased over 50% relative to Q1 and.
Just going back to your prepared remarks, if I did that right, which hopefully I did was this a function of the ASP change from the chromium controller that you referenced increasing.
The number of placements you were able to make and the quarter and.
And if that's right. It does seem like this was probably a record placement quarter for you if if if I'm doing all this math right.
Is it possible you could actually increase the installed base by 40% this year because it does seem like you're tracking for something like that.
Doug. This is this is justin so.
Going back to the beginning.
Part of your question.
You've got it right.
We lowered the price of the chromium controller to $35000 and advance of the launch of chromium X. The to make sure that we had that product positioned appropriately and and <unk>.
And what's going to be our new lineup of products between the <unk>.
And controller, the IX Mdx and.
And as <unk> noted in his remarks that drove about 100 placements. In addition to what we expected we would have done.
This quarter, so 100 incremental overall.
And so yes with that with that kind of growth that we've seen in Q2 and year to date.
We could.
Demand for instruments and strong, especially at this price point and so that could drive a pretty large increase installed base. This year.
Okay.
Inside of that.
Okay. That's.
Always good to know I can still do that so thank you for that [laughter].
And then.
I guess the bigger picture question, you know as you're rolling out new consumable kits on new instruments and I.
Prominently have the chromium accident and my head as I'm thinking about this.
Yes. The assumption is that there is going to be elasticity and the market as you.
And I'm kind of using elasticity deliberately here, but if you both reduce the cost per data point, you know azure, allowing researchers to profile more features and many instances per the same price per cell and also increasing the throughput. So how many sales can be processed and a certain amount of time.
At points, when we've seen that and tools.
And in other categories there has been.
You know our periodic lag that's you know quickly overcome over time, but you know it could take a quarter or 2 from the Alaska elasticity to play out the way 1 expects it to longer term.
I'm just wondering if that's a dynamic that we should be keeping in mind as you are rolling out new products and new kits and if so how you're incorporating that into guidance as we think about the second half of the year. Thank you.
So Doug let me and this is Suraj, let me just pick up on that question. So we definitely think a fair amount of buddle assistant demand and especially as it relates to different use cases.
You mentioned chromium nuts, so with that and of course, we have the high throughput chips coming out where the cost per so is going to be a lower significantly lower while people theyre running larger experiments. So this is kind of almost a classic tasteful.
Pushing on the list is still on a per cell level, but toward larger experiments will soon earlier and <unk> launched our soap flex kit.
Sure.
And I mentioned in my remarks, as well, which bye bye from birth.
But makes them multiple samples together customers kind of assets that would get a lower price per sample.
And.
That has a sort of a on the 1 time and this is a potentially putting some pressure on our revenues because instead of being.
You don't some amount per.
Wherever simple now is just are you kind of compressing mulch.
Multiple samples and to 1 line and the near term, but by the elasticity curves and potential drive more usage, it's too early I would say for it either.
To talk with great confidence about how these effects are going to be like are shaping out certainly right now sell flex we're feeling good about it it's a it's.
Doing robustly well in line with our expectations customers are adopting at this stage a lot of the adoption is coming from people who had previously run homebrew.
Approaches for with gold sales housing and.
And kind of converting now too to to sell flex. There's also new use cases, new customers, who are picking it up and we're seeing both kinds of examples where.
On the 1 hand.
And and.
And extend and much better got scammed.
Guidance.
And most of the landfill semis, but they're all good on and why.
Okay.
We are seeing uptake.
Alright, and like World The day examples where.
The studies that were previously not possible there are just too expensive and are becoming possible.
And so we've definitely feeling good about it I don't think that's the kind of thing is going to play out and material way like and a quarter or 2 it's a longer term.
It kind of dynamic.
And and the Chrome index more solid sales.
And you kind of have to expect people to actually adopt the instruments and then the new workflows and then kind of those larger experiments. So it's not just a simple switch that happens on the quarter on too.
On to it to scale up to those kinds of experiments book overtime.
And with the worst from there.
That's super helpful detail and and started taking throughout that and they are the only thing I was going to ask as a follow up is so it sounds like you know given how much spot and how much detail you just shared the assumption is this isn't going to have a major impact and service of like how you're how you're guiding the second half or it doesn't represent and resent of a.
Risk weighted on the cadence of when products are coming out that you know you could be off by a quarter or 2 in terms of on the elasticity and materializes is that right.
Yeah, that's right and it's.
It's just not gonna have and major impact on how we're thinking about guidance for the second half second half there okay alright. Thanks Scott.
Thank you your next up we have Tycho Peterson from Jpmorgan. Your line is open.
Hey, good afternoon, and a couple of follow ups on the pipeline, maybe similar to kind of doug's thinking here, but as we think about I'll start with different people and capabilities and that you mentioned it will take some time for customers to expand beyond the pilot studies and how you're thinking about that ramp and how important will cite assessed to be next year and kind of really maybe opening up more of that market on the clinical side.
Good.
Yeah, and that's a good question and that's the earliest spread on debt. We certainly are instead of outside the system is going to be but when it comes out and slides are to be on accelerator. It is hard to tell at this stage and we need to see the customers actually go on through the pilot studies and come back on the other side.
To to know for sure. We do know that some people are and kind of gearing up we're doing larger studies and the absence.
Absence of Cytosis and.
And.
And.
And just the other thing to also keep in mind and 60% of the SMB customers and new to attend Max we'll be sitting here with you.
And people.
So overall the launch is going is going well.
Very much in line with our experts.
Stations and.
It's going to take some of the terminal price to learn.
And the sort of.
How people are actually ramping but there is definitely not as encouraging early signs.
And then I guess similarly on on chromium X obviously, the ability to enable routine million cell experiments is attractive I guess, how important is kind of the funding backdrop here I mean, the good news is the NIH outlooks and getting better and better but you know how important is it for labs to kind of a lineup of funding here or do you think this is something that they've already kind of secured funding.
And I'm just trying to understand the grant dynamics here, because obviously drive the adoption.
Yeah, No I think there's definitely a mix I mean, those people who have money available and and on par.
And the reason why we started talking about it earlier. This year is for that reason and so that they can sort of start preparing for that but we're also we've been helping our customers the growth applications precisely and anticipation of my focus coming and that's a longer cycle. So it definitely is a mix definitely will be people, who have money and especially with our pricing but those.
Definitely also a larger cohort debt.
We'll get more of our growth cycle kind of a feel for that.
Okay, and then just lastly for Justin and I appreciate the thought process and not raising guidance given the pandemic I'm just curious.
Is this a real issue now that youre seeing that labs are not allowing access or is this just being prudent and cases are going up and then can you also comment just on how we should be thinking about margins. I know you said less than 1 per cent impact from a settlement with the chromium price adjustment and I'm wondering if there's any impact on margins and the back half and here.
Thank you for the first part of your question.
We have seen instances of customers and a larger customers that are shut down and access to our sales and and support staff and we're getting new information every day on this but even in the area where our headquarters is located 400, new masks mandate now and we're watching closely what kind of changes theyre going to be that the local to local.
Guidelines.
And as far as.
The second part of your question could you please repeat that gross margin.
And it takes on margins and the back half of the year. I know you said it was a lesson and 1% and packs and the bio Rad and settlement, but also with it you know call me on pricing adjustment and just.
Yes can you just talk on how you think about gross margins and back out there.
Sure so the.
Price adjustments have been part of our plan for some time. So that's been incorporated into the guidance that we've given before and in the past we've guided a slightly decreasing gross margin each quarter.
Also partially due to.
Newer products with lower gross margin profile is becoming a larger percent of our overall of our overall revenue.
And then if you look at this quarter.
Without the impact of the onetime reversal of.
Our bio Rad.
On the accrued contingent liabilities related to the buyback settlement and you can see that we would've followed debt profile that we laid out previously.
Okay. That's helpful. Thank you.
Okay.
Thank you moving on and they also have to adjust savant from Morgan Stanley. Your line is open.
Hey, guys good afternoon.
And just 1 on vision, FSP, and where you sort of Jimmy and I. Just can you just talk about traction following the launch and how youre going about sort of differentiating the product among translational research shows and perhaps may have Oh did you M X already up and running and by when do you expect to see the early customers be done with that pilot studies and scaling.
Up to larger work is that.
2 dynamic at this stage.
And so let's.
So the launch is going on in terms of Oh. This is on the launch is going well, we're encouraged by the book leases and how people are adopting.
Adopting the product as far as kind of how theyre looking at relative to genomics. So it was certainly enough customers quite a few who are looking at both platforms. The big difference here is that you don't have to pick your regions of interest you see the full slide you see the book.
Express.
Express and of course, the entire just your slides and.
I think you know this is really important, especially people who are doing research on.
Not necessarily.
And kind of almost by definition and all.
The answer and uptime.
So those really are theres, a crucial point of differentiation I would say in terms of the.
And the timing.
And there's going to be.
There's going to be a range. Some people are look like they're going to be getting through this fairly quickly, but I wouldn't say that.
Especially I would say and the like in the Covid environment, where there is whenever you're adopting a new technology, there's all kinds of restrictions around it and some that people don't even anticipate on until they kind of get through the products. So I'd be cautious on interest and assuming that people can just sort of sprint or these especially with new customers.
It seemed that those are getting all these constraints.
The pressure on how fast people can get through the initial experiment experiment and so I wouldn't I wouldn't say that this is more of a 'twenty 2 kind of thing.
Got it very helpful.
And then.
And on a similar way and I mean any color you can share on the order funnel Youre ahead of the chromium X and I X lunches and how many of those customers do you think or are new to <unk> X versus those already kind of using the chromium controller and perhaps familiar with you be up because he always on such.
Yeah. It's a good question and I know obviously this is a very early and we just started talking to our customers with it and creates the specs and price.
So very early days initially and then and our goal and we'll just bought from us before and to get to the high and all of our users and this is where like our focus has been and this is where a lot of the demand has been coming from at the same time.
Still very early but there's quite a few new customers as well that are coming out with.
The interest and the platform, especially kind of book, maybe more on the biotech side of the world.
Got it and then just a couple of housekeeping ones for you Justin and I mean, I know you mentioned.
And you guys will be paying royalties to each other so how should we think about and offset to that 1% because if I. If I heard right. It sounds like it was a gross number that could be partially offset by our inbound and payments from bio Rad and then separately any color you can provide on opex guidance in the back half of the year would be super helpful.
Okay.
And as far as the as.
As far as the bio Rad famous suggests what we don't know what kind of Phoenix will get will get from them and the future. So that the comment that we made around.
Having less and a 1% impact and.
The payments that we reported.
And that would be incremental debt and.
And so right now with us being the worst.
We're assuming zero.
Very helpful and then on the Opex piece.
And so on our Opex continuous continues to increase each quarter as we execute on our hiring ramp.
Head count is 1 of the biggest drivers there and the last call we talked about how we plan to hire 400 heads this year and if you look at where we ended Q2, we've hired just over 200.
So we're well on track there and.
We'll continue to execute on that hiring ramp and so you'll see opex continue continuing to increase quarter over quarter as we add those additional heads.
Very helpful. Thank you.
Yeah.
Thank you and your next question comes from the line of Garik <unk> from Bank of America and your line is open.
Hey, guys. Thanks for taking the question. This is Mike risking on for Derek I wanted to go back to the point on the instrument placement growth in the quarter I've gotten a lot of questions from clients for some to make sure I'd and flex the south thoroughly.
And the color you provided I believe wasn't incremental 100 placements versus expectation, but.
I mean, it's something on the 325 to 350 total units sound.
And sound about right is make sure we're thinking through the overall weighted S. P appropriately.
And so from my Kid you know keep in mind. There is a good there is connect and there as well and Q2 was a really strong quarter for connect the increase from from Q1.
You too.
It was a pretty good it was a pretty good increase and part of that was driven by some instruments to be shipped.
Shipped out and not been able to fully installed and get up and running due to COVID-19 restrictions and we were able to get on site and get those installed and get those installed this past quarter, but connect is still a very low percentage from the overall instruments that debt.
We're shipping each quarter. So if you look at the range that we had talked about in the past the 50 to 55000.
You can divide.
The book ends of that into our total into our total revenue.
And that would get you basically a number that does not include can ask and I would take it down from there a little bit just assuming.
A smaller percentage connection and there as well.
And connect is roughly.
5 or 6 chromium is at this point as far as and in terms of revenue.
Okay I appreciate that and then on the.
On that big jump and.
And and chromium and as this quarter.
Does that.
It was a little bit more than we would have expected given your commentary.
On on the price cut.
And that give you any thoughts on sort of what the elasticity of demand is pretty instrument I mean does that.
Does that have went to potential further cuts down the road.
Given given what we know about the model and just how much of this is about driving and install base if you've got some opportunity there.
Is that something we could be seeing down the road further flexibility there to really drive that install base.
And so it's definitely something that we're keeping it we're keeping a close eye on.
We learned a lot when we when we dropped the price down to 35000. It was yeah. It was a promotion, which we you know we then made permanent as we started Q3 and so I think some of that could be driven by the urgency of having a promotion that's expiring at the end of the quarter and what that means as far as and when.
The price has made $35000 on a long term basis.
But the measure that over time.
Okay I appreciate that thanks.
Yeah.
Okay and next 1 and we also have David Rustenburg from Guggenheim Securities. Your line is open Sir.
Hi, and thank you for taking the question, so I'm and I keep going with it kind of that theme on that higher placement thing and maybe walk up models and you guys kind of a chance to kind of pull me down here because.
And with that higher instrument number.
You've had really good pull through and you've kind of converted those customers and a path to be going up and driving and that consumable tubes towards that 150 price and as we build out our our models should we be actually lowering that consumable pull through following not great instrument placement number.
Sure.
Yeah, that's a great that's a great question.
And we've talked about $150000 and a good pull through number that are based on model on.
And for near term purposes, but.
And obviously as you add more instruments to that and you increase the denominator that's going to bring the pull through down and that's 1 of the dynamics that we've highlighted quite a bit and quite a bit over time and the.
Near term I think we still we still feel good about 150 being a b and a good and a good number to use but keep in mind as we as we place additional instruments and we bring on additional customers.
And there's no guarantee but from your customers are going to ramp exactly the same as the previous customers previous customers have especially ones that are buying and at a lower and you know how to lower price point that were buying and at the previous a higher price point. So there's information that we'll learn over time.
We wouldn't make any drastic changes to what we said before but we think that generally what we're seeing is still going to be in line with what we put out before.
Perfect and and I'm going to kind of stick with a similar 3 and number of consumable pull through on kind.
When you when you think about chromium X I I believe you mentioned in the past and it's really you know kind of for those top 10% customers and it goes back to kind of Doug's question about elasticity demand has decreased prices did and would there be any kind of way to quantify the way you were maybe thinking about that decrease in <unk>.
<unk> I mean, and say where are you thinking about the customer doing 30% reduction and pricing and doing 50 per cent.
You do increase and and pull through I mean, any way to quantify it would be great. If you can maybe theres a tiny bit of conceptualization you can do and then just as a reminder, on because you have such a wide group of ranges in terms of your customer pull throughs on can you remind us maybe what that top decile might do in terms of your revenue.
And if you're comfortable giving that and I'll take my rest of my questions offline.
Yeah.
So and your first question on the chrome and months.
And so the dynamics there it's way too early.
On Tuesday solely not like and any kind of a number.
Ground this way they chose and how much the reduction on price per cell will drive total spend and I think it was the kind of thing that probably also manifests itself not over a single quarter as I said before but kind of more on the <unk>.
Timescale on multiple quarters, and small Trs where people actually have to conceptualize few kinds of experiments.
And.
Often times I should put and grants to kind of get more and more money to run those kinds of experiments.
So I wouldn't say I think it is weighted challenge and given the sort of on a conceptual level to think about what the trade off would be.
On a sort of any kind of a nearer term basis I think we do believe that ultimately got up and do you think are really big picture and really a long term debt as everything kind of.
Trends towards single cell resolution, there's no escaping the size of this should drive boards at net.
Because the trajectory of that looks like at this stage just like we're playing in a very good numbers.
It is hard to estimate.
I think your second question was around sort of a just first of all the different types of customers.
But and so.
Yeah, I mean, there's definitely dispersion and I mean, 1 of the things that's been interesting for us and almost from the beginning we do have a pretty wide.
Diversity of customers, so it's not like Super concentrated.
With just a few usual suspects we do have our early customers. Some of the most sophisticated ones are or has it standard, but nowadays, though not dominate on a revenue.
And by any stretch. It is also the kids are just was just alluding.
Moving to as we have been placing more instruments, especially kind of getting into new labs over the course of the last year and a half since the start of the pandemic. We brought on new customers on their ramp has been slower potentially kind of exacerbated by the effects of COVID-19.
But again, everyone husband and are increasing their usage per tonne.
Thank you.
Thank you and your next question comes from the line of Patrick Donnelly from Citi. Your line is open.
Hey, Thanks, guys.
I know in prior quarters, I think as Brad kind of talked about labs coming back a bit conservative and ordering smaller amounts of kits given the shelf life and not wanting to get stuck with them in case things shut down again have you guys seen that ease I guess, just and when you're talking about a month ago things start to book, maybe a little more normal now they're kind of back to a bit of a pause and it is that whats has.
And maybe can you just talk through I guess, what youre seeing in terms of order patterns from customers and comfort on the go forward.
Hey, Patrick this is Brad Yeah, and I think that's waning quite a bit but you know that.
And the change daily now so you know at this point.
Wait and see it happens, but generally I think for the most part people are confident they're back and the lab and I think a lot of the data showed that there hasnt been and transmission and the lab and need.
Our scientists so we can say and what they are doing so ultimately ice.
I think that that's probably not a factor anymore. If it is it's a second and sort of a factor.
Okay, that's good to hear.
And then third maybe just on the chromium controller, obviously nice to see the hundred place incremental placements. There can you just talk about and the customers, where you're seeing adoption or any surprises in terms of applications, we're not seeing more adoption and your expected on a kind of a lower and.
Well.
And let's have a surprise us so much but we have talked about.
And also for some other time and.
Net income sort of approach on the.
On marketing organizations, who started reaching new customers.
Customers' needs of some X, so, especially within neuroscience and <unk>.
Such a disease and that was obviously kind of sports book.
And so those are kind of these new customer segments, and then and that has been.
Uh huh.
Bearing some fruits are getting into the serious.
Yes, that's what I would.
Don't have to.
Yeah, and maybe just last 1 on the chromium X and <unk>.
And you talked about Youre talking specs and pricing with customers just recently.
It doesn't seem like it but should we be expecting a bolus of demand where customers were kind of holding off the order list and now theyre going to come in waves or anything it doesn't because it doesn't seem that way, but just wanted to make sure.
Yeah, I don't think there has there would've been a sort of a huge.
And I sort of.
And the top kind of dynamic I think this is definitely sledding tour and customers.
And our early.
And especially some of our list most forward looking customers that have been kind of asking for this kind of capability for for a while so it definitely.
Yup.
There is some amount of kind of baked and demand for that.
Coming but I'm not sure if I would classify it as like a huge sort of.
So not any kind of deal.
Understood. Thanks, guys.
Okay.
Thank you. Our next question comes from the line of Mac Sykes from Goldman Sachs. Your line is open.
Hi, Thanks for taking my questions.
Just maybe first just following up on and take just a question on Opex, just specifically as it relates to sort of inflationary pressures and the and then more specifically on the labor side. Obviously, you guys have made great headway in terms of increasing your head count I'm. Just wondering are there any inflationary pressures on that in terms of wages and what you have to pay.
And to bring new people on board or has it been fairly consistent throughout the year.
Well Mark it's hot right now right now Matt.
We are.
We just updated our range as recently and we looked at how much the market has moved last time.
We did that kind of debt that that kind of analysis, which which wasn't that long ago and.
Yeah, Theres definitely been movement.
Higher and the market and so we.
It's and our plans right now, but yes, we are seeing that we are seeing that a little bit.
Okay, and that's accounted for and in your current plans right now that inflation.
Yes.
And then just just a quick question just on the overall comments on sort of the resurgence in COVID-19 and the and the.
Things are going on with the labs and most recently is there any regional aspect to that obviously, it's surrounding where there's a resurgence and so I'm just wondering if there's any regional differentiation into how labs are reacting most most most recently to the resurgence.
Yeah.
This is Brad.
Yeah, and it's pretty much.
But it's fairly dynamic across all of our region and 1 thing that were following closely is the U K, where we saw it being hit fairly hard by the Delta variant and there was some.
Somewhat acute.
Limitations, but those kind of went away fairly quickly and now we're seeing things starting to emerge there, which I think is.
Hopefully something we can all look forward to but overall generally right now the world is going backwards when it comes to adding more of these protocols and sort of restrictions, but again to be clear. This is not closing labs are going home kind of think this is just normal things and the leap and the most important thing is our ability to get on.
Site, there's a lot of you have a lot of support people out there they've done amazing things virtually but theres nothing when no.
Substitute for being on site.
Hold on to shoulder with our customers and helping them in some cases, just giving them confidence because these are big experiments and home and.
And then there's an element of risk so.
In General I think it's it's very dynamic, but I think we're prepped to get through it.
Great I appreciate the color. Thank you.
Yeah.
Your next question comes from the line of Matt Larew from William Blair. Your line is open.
Yes, good afternoon and.
You've talked in the past about the potential for the consumable pull through on chromium connect to be about 2 X chromium controller and we're about 18 months since launch so just curious what youre seeing from early.
Early adopters of connect in terms of.
Pull through and then perhaps it's too early to comment on potential pull through for chromium X, but if it doesn't then be curious from your commentary too.
And then are.
Our plans for chromium connect and our longer term assumptions is that it would be between 2 and 3 X that if the chromium controller.
But.
Keep in mind with many of these instruments placed.
During the during the pandemic and many of them just coming online recently and in the last 2 quarters. We obviously are seeing that now and we aren't seeing anything that is having an impact on the average chromium.
Pull through right now either.
Okay.
Okay, and then last quarter, you mentioned that some customers who are on boarded during the pandemic, where we're having more trouble getting columbus busy on that.
You alluded to.
Trying to provide additional competition and support.
So just curious whether it was the ability and interact with customers and personnel or any additional capabilities and services that you offer and if that was something that was improved and on in the quarter.
And this is Fred I think in general Yeah, we.
The.
You know, helping people onboard and new technology is best done in person and then just be clear about that but and so I think over time, we've actually increased our or certainly deliberately increased our resources around support COVID-19.
Ultimately, we are expecting to be back and in front of our customers and that that's an area, where we think we can add a lot to help customers.
Foster through the workflow and that goes even just with chromium aswell.
Okay, and just 1 more on the on Med number obviously was a was very strong and maybe that was just a 1 time orders and pent up demand but.
And you just kind of curious if there's anything driving that number and the quarter.
And for <unk>.
From a us specifically.
Yep.
Yes, so and when you look at the quarter over quarter increases by region and there was a pretty big increase for EMEA and decent increase for <unk> as well, but EMEA was primarily driven by just labs that were previously either shut shut down or running at reduced capacity just coming back towards.
More closer to normal operations by the end of line in.
In Q2.
Okay. Thanks Kessel.
Thank you once again in order to ask a question. Please press Star then the number 1 on its all from Keybanc.
Presenters no further question at this time, ladies and gentlemen. This concludes today's conference call and thank all for joining him on the all disconnect.
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