Q1 2022 10X Genomics Inc Earnings Call

Ability and confidence.

Looking forward to launching this product mid year.

In addition, we're excited for the upcoming launch of the <unk> <unk> instrument, which will simplify the logistic.

The vision workload by bringing bridging the gap between the histology in molecular biology.

Psychosis will also open up the archives of tissue samples all rigs stores on preexisting slides significantly expanding the number of samples that can be run on vision.

We expect to ship set us next quarter.

And finally <unk>.

As we announced in February we plan to ship the first instruments by the end of the year.

We have already received extremely strong interest in the platform from many customers eager to be among the first to receive museum and we feel great about the large funnel of opportunities we are building.

We're very excited about the competitiveness and differentiation of our initial launch as well as our plans to unlock the full capabilities of the platform through our extensive product roadmap in the years ahead.

Through our close partnership with customers and our Cortana access program, we have unique insight into the capabilities and features researchers are looking for.

Customers have told us they need a high plex easier to use and scalable platform that can differentiate itself at some stage in the tissues of interest and measure the right genes and pathways.

To enable this we are developing <unk> to have great performance across all key metrics, including multiplex levels sensitivity specificity and throughput.

And in particular, we know from customers with high throughput is critical because it determines whether the instrumentals practical for routine use.

We've designed our <unk> analyzer to have the highest throughput of any in <unk> instrument and as glass.

<unk> will enable researchers to analyze the most of this year at single molecule resolution in the least amount of time.

We also believe having all three methods single cell spatial and an <unk> together.

He will be a real advantage for the research community and a real differentiator for us.

Molson seizure experiments currently make use of chromium or vision data.

We are in the best position to deliver a seamless experience for customers across all three platforms and this will be reinforced by our support team who consistently received rave reviews from customers.

Because this is an emerging field researchers know their needs will evolve over time, so they want a trusted partner that will innovate and grow with them.

Our track record here is unparalleled much like we've done with our chromium roadmap will enable more analytes, new classes of measurement and truly transformational capabilities on the <unk> instrument as we move forward post launch.

We're committed to delivering rapid product advancements to ultimately establish <unk> as the unequivocal leader in Indonesia analysis.

We're able to develop world class platform through the strength of our internal product development and intellectual property, we already have over 200 patents issued and pending inland seizure field, including the key patterns that will enable.

Features that we believe will be extremely valuable to researchers, including high throughput and high sensitivity.

With respect to our overall patent portfolio. We recently passed the extraordinary milestone of having more than 500 patents issued and almost fortune 100 patents issued and pending.

As we have said before it is our policy not to license our patents, but to differentiate ourselves from our competitors.

By protecting our solid right to own and <unk> is our intellectual property.

With our robust pipeline across all three platforms. We're on track to make 2022 of the most exciting year of product launches in our history.

Now turning to commercial.

Throughout the company, we're thrilled to be back in person with our customers for the past two years being the ability to connect in person in their labs and that conferences has challenged the proliferation on adoption of new technologies, including single cell tools, especially among mainstream biologists, who are new to the <unk> levels of scale and resolution.

Yet we know the number of researchers interested in single cell is rapidly increasing as evidenced by the growing number of new customers entering the tenex ecosystem, either as instrument owners or a scalar users.

We believe the pandemic as it has made it more challenging for many of our halo customers to scale and become routine users of single cell analysis and their research.

There can be many reasons for this whether it's the challenges of working with live tissues or second Arctic oil related impact like supply chain constraints or labor shortages, the reduced staffing levels and limited opportunities for training collaboration or best practice sharing.

A core part of our strategy is to enable as many researchers as possible to become routine users of single cell we.

We have found that customers, who own instruments consistently grow their usage over time.

We're focused on driving instrument placements with both new customers and with Hailer users will also want to ensure our existing customers have the best technologies for single cell analysis, which is why we're focused on upgrading researchers with chromium controllers to our chromium X series.

We have now established a broad base of installed instruments, representing a great foundation for future growth.

And while we've made good strides with an academic labs, we see a large opportunity ahead, both with our existing customers increasing their usage and with new customers entering the ecosystem.

We're gaining traction through throughout pharma and seeing strong growth among biotechs are increasingly adopting single cell and spatial methods.

And as we look ahead, we're also continuing to expand the breadth and depth of our commercial team. We're on track to add nearly 100, new roles and to finish the year with a commercial team of more than 500 employees worldwide for.

We're continuing to gain traction with a dedicated tissue specialists were on boarded last year.

And as we prepare to launch <unk> with deployed a separate specialized market development team dedicated to spatial and in CGM.

To ensure the rest of our commercial organization maintained focus and momentum on growing adoption of our current oil market portfolio.

Before we move on I want to acknowledge Brad Crutchfield, our Chief commercial officer, who we previously announced we will be leaving the company by the end of the year.

Under Brad's leadership, we have built and scaled a global commercial organization. There is a real differentiator for dynamics and an excellent foundation for future growth.

While he is not joining us on today's call <unk> continues to lead the commercial team through this transition period we.

We have initiated a search for our next CEO and have proactively made several changes to the commercial acumen advance, including realigning regional leadership and welcoming a new head of commercial operations.

I want to thank Brad and the entire commercial team for their focus on execution and unwavering commitment to our customers.

And finally, turning to operations and the work we have underway to expand on strengthen our manufacturing capabilities.

We're continuing to make substantial investments in our global operations network by adding production capacity and new capabilities to deliver differentiated products and support the long term growth trajectory of our business.

Since opening our manufacturing center in Singapore, We have continued to ramp production of the site. We're also building out our new <unk> facility and look forward to call it getting more of our R&D and operations teams to enable tie collaborations and fuel our rapid pace of innovation.

In addition, our team is working hard to proactively manage our global supply chain and what remains a very dynamic and challenging environment.

We're working closely with our partners and are continually evaluating our ability to source key components.

We're also expanding our distribution network and carrier carry options to help alleviate global logistics constraints.

We believe our efforts and investments to scale, a fortified by our operations and supply chain are essential to supporting our growth and enabling our product roadmap.

Our team is fully focused on driving our innovation engine scaling our commercial organization and advancing our operational capabilities in 2022.

We're bringing the whole company efforts to delivering this year and building momentum for 2023 and beyond.

I want to thank the entire tenneco team for their hard work focus and dedication to our customers and to our mission.

Now, let me turn it over to Justin for more detail on our financials.

Thank you Serge.

Total revenue for the three months ended March 31, 2022 was $114 5 million compared to $105 $8 million for the prior year period, representing an 8% increase year over year.

Consumables revenue.

With $98 million, which increased 5% over the prior year period.

Instrument revenue was $14 4 million, which increased 30% over the prior year period.

Service revenue was $2 1 million, which increased 31% over the prior year period.

Looking at our regional results revenue for the Americas was $59 7 million, increasing 15% over the prior year period.

EMEA revenue for the first quarter was $25 million, increasing 7% over the prior year period.

Finally, APAC revenue for the first quarter was $34 3 million in line with the prior year period.

As we shared on our earnings call in mid February we had a slow start to the year driven by the omicron surge in certain geographies.

This was especially pronounced with our academic research customers, which represent approximately three quarters of our revenue.

As we moved into March the effects from <unk>, largely abated in North America, and Europe , while the operating environment, while the operating environment was improving in these regions Covid driven lockdowns in China towards the end of the quarter severely impacted lab activity there.

While these lockdowns had minimal impact in Q1, we expect they will more adversely impacted Q2 revenues.

Additionally, our Q1 results in Europe reflects the impact of a process breakdown in the region and logistics cold chain that led to an intermittent assay performance issues.

Our support team was able to trace the root cause of the sporadic issue back to products and it's fallen out of required refrigerated temperature ranges.

This breakdown resulted in a number of European customers receiving products in its oil and needed to be replaced.

We have implemented additional safeguards and our logistics operations and we are working with impacted customers in the region.

Turning to the rest of the income statement gross profit for the first quarter was $89 million compared to a gross profit of $88 8 million for the prior year period.

Gross margin for the first quarter was 78% compared to 84% in the prior year period the.

The decline in gross margin was primarily driven by change in product mix increased manufacturing and logistics costs and higher accrued royalties we.

We expect our gross margin will trend slightly lower during the year due in part to changes in product mix and the impacts of inflation and increased supply chain costs.

Total operating expenses for the first quarter were $138 million, an increase of 32% from $99 million for the first quarter of 2021.

The increase in operating expenses was primarily driven by higher personnel expenses, including stock based compensation increased research and development expenses and infrastructure costs, partially offset by a decrease in outside legal expenses.

R&D expenses for the first quarter were $64 1 million compared to $41 $9 million for the first quarter of 2021.

SG&A expenses for the first quarter were $66 7 million compared to $56 9 million for the first quarter of 2021.

Operating loss for the first quarter was $41 7 million compared to a loss of $10 $2 million for the first quarter of 2021, primarily due to the impact of increased personnel related expenses. This.

This includes $26 million of stock based compensation for the first quarter of 2022 compared to $16 $2 million for the first quarter of 2021.

Okay.

Net loss for the period was $42 4 million compared to a net loss of $11 6 million for the first quarter of 2021.

We ended the quarter with $539 million in cash and cash equivalents and marketable securities net of restricted cash our strong balance sheet as an advantage, especially in the especially in the current environment.

Now turning to our outlook for 2022, we continue to expect our full year 2022 revenue to be in the range of $600 million to $630 million representing growth of 22% to 28% over full year 2021.

Looking at Q2, we are still experiencing some lingering impacts from the cold chain driven spoilage in Europe , which we expect to be fully resolved by quarter end.

Additionally, we are continuing to navigate near term impacts driven by the macro operating environment, which include second order COVID-19 effects supply chain and logistics risks and most significantly lockdowns in China, which are scheduled to end in mid may.

Looking beyond Q2, we are optimistic about the remainder of the year the enthusiasm from our customers for our product portfolio and pipeline remains strong.

As the operating environment continues to improve and our newer product launches have an increasing impact on revenue, we expect to see an acceleration of growth in the back half of the year.

We still expect our annual revenue split to be about 40%, 60% for the first half and second half of the year with slightly more weighting to the back half of the year, reflecting the Q2 factors, we just mentioned.

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

Thanks, Justin <unk>.

Our conviction in the vast opportunity ahead, and our long term growth potential is as strong as ever.

The central learnings on behalf the greatest revelation of the last several years of biological research is the pervasive cellular complexity of the annualized just about every biological system. There is now growing appreciation that eventually all tissues will need to be analyzed with single silicon and at large scale.

We believe it's going to be true for research for clinical and for therapeutic applications.

Our goal is to bring the future forward. This is why we have been investing aggressively in our three platforms chromium <unk> together they encompass all the major technological approaches to addressing cellular heterogeneity at scale, having all three approaches under one roof will create tremendous value for our customers, who will benefit from integrated experience art.

<unk> records of technological advancement and our focus on customer success.

And while we are proud of all we've accomplished so far relative to where we're going we're just getting started our team is driving hard to execute this year and to finish with momentum that will strengthen our position to accelerate growth in 2023 and in the long term.

We know what the endpoint is and we're confident we're the best company to deliver on them.

With that we will now open it up for questions.

Operator.

Thank you.

If you would like to ask a question. Please press star followed by one on your telephone keypad.

If you'd like to remove your question. Please press star followed by <unk>.

Please limit your questions to one question and one follow up and ensure your phone is on mute it lately.

We'll take our first question from Tejas Savant from Morgan Stanley . Please go ahead.

Yeah.

Hey, guys good evening and thanks for the time here.

Maybe to kick things off on chromium can you share some color on where you stand in terms of the upgrade cycle for your.

<unk> controller users and then have you seen utilization of customers, who upgraded to the <unk> earlier in the cycle start to trend up here and then any color you can share on the halo user ordering trends as well would be helpful.

Yes, so in terms of the.

The X upgrade cycle. So we're in the early stages of that as we said before when we first introduced the Alex It was really aimed at the top top top tier top 10% members of all of our customers who are interested in sort of the leading edge of single cell analysis doing things of high high throughput, we have since learned theres more interest across.

For our customer base and a lot of new customers have been onboarding.

With the X cents kind of later in the quarter and especially this quarter, we announced the fixed RNA profiling is going to be available specifically beyond the eggs that has spurred kind of more interest in upgrades across our entire customer base is still quite early I would say, but it's on a meaningful trajectory to go onto drugs in a specialist.

Further until this quarter.

<unk>.

The.

Let's see what was the second question.

But agenda it was on utilization that customers have upgraded earlier.

Yes.

Too early to tell at this stage I mean, certainly the people who are interested in the X in the first place with them to be earlier customers.

And so so they would naturally be kind of.

Higher usage patterns to begin with so at this stage.

It's too early for us to kind of.

Place a precise estimate of the usage patterns into differentiated between kind of this election.

The selection versus actual usage of these.

And but yes, directionally, it's kind of it's trending in the right direction.

As far as as far as Halo instrument on us.

There is concern this dynamic is not really materially changed from what we've seen before at least it's too early to say given all the sort of noise in the last quarter.

But having said that we're always driving new instrument placements that has been our focus then the key thing and this has been very consistent with some of the key thing is that the instrument on earth keep he keeps doing well they keep increasing the usage they keep.

Adding with scaling up their experiments.

And therefore, there has been consistent across the year. So im continues to be.

To be the case and so.

Certainly our goal is to keep adding instrument, making instruments, adding more selling more instruments to existing customers, whether theyre halos or.

Or not and also driving new people into the ecosystem with instruments.

Got it that's helpful and Justin just a quick follow up for you on the guide.

I think I heard you say.

The Lockdowns in China are expected to ended May so is it safe to assume that you are expecting a full recovery to normalized activity in China in the back half of the year.

You may have more.

<unk> sort of slope of the recovery there.

We're expecting this to normalize in the back in the back half of the year.

And just for reference.

<unk>.

And for reference China was about 18%.

Our revenue in Q1.

15% of our revenue last year for the full year.

Really the biggest impact that we're seeing right now is in Shanghai and the surrounding area and Thats, 30% to 40% of our revenue in China.

As in that area.

So there has been an impact in Q2, and we are expecting it to start lifting here.

Later in this month and we are expecting it to normalize in Q3 and Q4.

Very helpful. Thanks for the time guys.

We take our next question from Dan Brennan from Cowen. Please go ahead Dan.

Okay.

Great. Thank you. Thanks for taking the questions guys, maybe the first one just on the updated guide or some color that you provided so it seems like.

Justin So if typically it's 40 60, but maybe a little bit below that so if we say like 39% to 40. It seems like Q2 with somewhere in the 110 to 135 range.

Which would imply a pretty good ramp even a bigger ramp in the back half of the year. So maybe on that back half year could you just give us a sense of how we think about the.

The impact from some of the new products chromium, Max and kind of the fix kitten <unk> kit.

And then just to be clear I guess, the HP product, that's not going to impact 'twenty two right that's going to be all in 'twenty three and then I have a follow up thank you.

Yes, so I'll start and uncertainty.

Some color.

But as far as looking at first half of the year compared to the back half of the year and we have some specific headwinds that have impacted us both in Q1 and in Q2 and as we head into the second half of the year.

We're largely expecting those.

To go away and then typically with new product launches for any one product in the quarter that had launches we do.

Don't expect a huge impact to revenue, but we have multiple new product launches that are that are going on throughout this year and we have newly introduced products as well that had been picking up traction over this year and so all of those point to and support this acceleration in Q3 and Q4.

Great. Okay. Maybe then just on the.

On the new products and just a little more color. So just on the ex <unk>.

<unk> you talked about initially thinking 10% of the customers might want it sounds like it's a bigger percentage today.

Could you just speak to just.

Is it I presume just kind of the core labs that are adopting that as that appealing more to pharma just how much bigger than that 10%. Maybe if you can give us a sense and then b.

The fixed and the nucleic it.

The decision to roll out the fixed kit only on the X.

Presumably a lot of smaller researches might want that ability to do that fixing two so why not broaden out I guess.

Any any color on how those kits might appeal to open up biopharma more whether this year or going forward. Thank you.

Yes.

First question.

The short answer is like every customer in terms of chromium.

Where do we see it growing now and remember we have the eggs and we have the IX.

Which is kind of coming into a somewhat lower price point and yes. Initially the interest was from the top tier of customers, but we saw kind of in the second half of last year.

It really the interest has been across the board.

Or the core labs are sort of natural purchasers as well as.

Can people on the forefront of single cell research, but we've seen new customers coming in kind of almost by default if they have fun certainly growing.

And for sure when we look at biotech and pharma that that's where the demand has been very much focused on the X series.

So.

So thats why I kind of as we kind of looked around we do definitely see it being applicable kind of in a very broad fashion.

It is theres a lot of sort of improvements under the hood.

In the instrument itself and so ultimately as we think about where kind of the world is going and where we want our customers to be where the customers themselves want to be just better for for everyone no longer on to convert to this new technology.

And so that was that was.

A big part of our thinking and a big part of why really fixed RMA.

Profiling is also only compatible with <unk>.

We do see the ex.

Especially the IX being very broadly adopted kind of across across the board.

If it's possible to see one.

One last one in just in terms of <unk>, you talked about the profile of <unk> NAND being superior to what's on the market how well <unk> is doing.

I don't know if you frame this in the past when we think about the aggregate opportunity for HP and proscenium versus your core visiting and product how do we think about like.

The relative opportunity set is it just any any any way to help frame that I know you are not breaking these numbers out within the model today, but just at least on a relative basis, when we think about the magnitude.

Yeah, I mean, directionally or like a feeling of this lineup like busy mentioned relative to visit standard lithium has a much higher potential like a multiplicative potential.

As we think again for the future and in <unk>, we feel very.

Very strongly about its potential, especially when we think about the long term I mean, there are somewhat different use cases, and I think going to be largely complementary.

I think both HD and <unk> are substantially higher opportunities on what we are currently would be currently seeing would be standard resolution vision.

Great. Thank you.

We take our next question from Derik de Bruin from Bank of America. Please go ahead.

Okay great.

Great. Thanks. This is Mike risks going on for Derek.

I want to follow up on <unk> comment a couple of times you are expecting to ship it by the end of this year.

I take it you're not quite at the point, yet where you're taking orders or maybe if you are could.

Could you give us a sense of when you anticipate to start build that border flow that order funnel.

And any expectations you can have for now.

You can have real about how many placements do you expect in year, one answer whether theyre going to be a little bit of a slower launch because it is.

A different sort of more comfortable that you're targeting with the commission. We just any more color on that initial land.

Yes, so we're not taking orders yet, although we've had a lot of discussions on engagements with our customers.

<unk> and.

The interest as we said is very strong and so there's there's a lot of kind of a very nice pipeline of customers, thus forming as far as kind of the numbers that we expect to put other I mean, our focus is going to be on the customer experience very much. So so that's going to determine more than anything else.

The numbers that we're going to be a shipping and thats going to be the focus for the first couple of years of being in the market.

From the perspective of demand.

Is it looks incredibly encouraging at this stage.

And as we kind of project awards, what people are interested in doing.

Near term and in the medium term in the long term I think the trajectory of this of this platform is looking incredibly strong.

And anything you can disclose in terms of both financial the ASP.

Gross margin profile or anything like that.

Yeah, we haven't we haven't disclosed the exact pricing on that these these early earlier placements they are going to be they are going to be lower margin.

It's a complicated it's a complicated instrument, it's going to be it's going to be higher touch as far as the quantity.

The focus initially is not going to be on on quantity, it's going to be on customer success and so when looking at the financials.

I expect.

Low financial contribution this year, just due to what the initial focus is going to be.

Okay, and just if I can squeeze in a follow up.

What you disclosed in the prepared remarks regarding the issue in Europe Ultimate if you go into a little more detail on that.

No.

How do you know that is not going to be any lingering impact could you give us a sense for the scale of that.

Are you sure that these customers are.

And maybe fully.

People don't recover.

Walk us through exactly what happened there on.

The QA QC, north drawn or someone going to ship them. If you could provide more color on that would be helpful.

This was a this is a very complex.

And intermittent issue.

Really a multi variable problem to figure out but.

Our products need to be shipped in a temperature controlled environment. So that's both while its in transit.

And when it's being when it's deemed stored.

So we found that.

In part due to pressures on the overall global supply chain that includes increased delays and then also some processes on our side along with our partner that needed to be tightened up operationally with this led to was.

Shipments sporadically falling out of those temperature controlled ranges and then when they got to the customer it wasn't apparent to the customer.

The product had spoiled until they actually ran ran the experiment.

And so.

When we looked at this and.

Trouble shot it and got to the root cause we implemented some additional safeguards.

Both to improve the monitoring ability for the shipments in transit and in storage and then our processes and quarantine procedures. When we detect that that product has fallen out of the temperature controlled branches and then when we look at the impact.

The number the amount of products replace was relatively small.

Talking.

Couple of million dollars in Q1.

About a couple of million dollars planned and executed already.

In Q2.

But the bigger impact was while we were troubleshooting with these customers.

They start there is a delay in ordering while they work through the troubleshooting it.

Get to the root cause and then we ship into replacement and then they do the experiment again with the replacement.

So really those are those are the key those are the key impacts there.

Okay, great. Thanks, guys.

The next question comes from Julia Quinn from Jpmorgan. Please go ahead.

Hi, good afternoon, thanks for taking the question.

First I have a follow up on the chromium X I S. That's great Michael.

Can you maybe give us an update on the current placement mix between existing and new tenants users.

Then over what timeframe do you expect the majority of your <unk> users to upgrade to the X and IX.

And do you think that distinct RNA profiling is that enough.

Near term bottleneck or are there other remaining bottlenecks that you're hoping to address.

Sure.

So in terms of.

The mix.

So far.

So far the mix has been roughly.

Similar electricity 52.

The new and existing customers.

For the X and that has started to shift obviously because of the fixed RNA profiling kit nothing thats going to like I said, there is going to drive.

A bit of this replacement cycle.

It's a little hard to predict at this stage, it's too early how long relocate to get the majority of.

Of the customer base the switch.

We will have to kind of see how the next couple of quarters pursue but we feel.

Based on the initial interest in.

Fixation.

And ultimately high throughput I think it's going to be a fairly.

Yes.

Rapid cycle.

We'll get to that point.

As far as removing bottlenecks I think fixed or in April volumes going to be one.

Certainly one big enabler.

As I mentioned the nuclear like it is another enabler in fact to kind of remove the bottlenecks we do have other.

Other solutions or approaches that.

We're working on we have always been working on whether it's.

Developing new protocols sharing protocols or new products. So it's not going to be necessarily really every bottle lifetime customers out, but it will certainly be a big enabler.

At this stage.

Got it that's helpful and then in terms of converting the Halo users.

Do you think that you know.

The pandemic impact has been the main hurdle in terms of helping these customers ramp.

And if you are current upcoming new offerings enough to convert them.

Do you think it would take some other initiatives to convert Italia.

So we've always been focused on placing more instruments and we're going to keep doing that.

As far as.

It's hard to do.

The question.

The notion that the pandemic has made it more challenging for them I think that will certainly help I think new product capabilities will help customers.

Scale up as well like the one we just we were just talking about.

And.

It's our goal to keep doing things the other big thing here too is that just having our salespeople our commercial team on site is something that has been missing for.

<unk> for a while and is now now that we have people on site that can actually engage with customers and help them scale up and I think thats. So thats another sort of accelerant that we anticipate to be meaningful.

Going forward.

Great last one for me.

Damian.

I understand the initial launch menu is going to be 400, plex with a path to a thousand impact over time.

Are you able to specify like over what timeframe.

You can get to that higher menu and do you think that you know 400 plex is enough to get U R E.

The initial traction because the system is positioned more for validation and not like discovery, if any color on that.

Yes, so we haven't talked about the timeline to get to other plex levels, but we do feel pretty strongly that having the right. The right genes in this balance is really important so.

All the current platforms that exist out there will be used for validation.

And what is necessary then having a slightly higher price level is actually not going to help you nearly as much as having the right genes in your panel and we're focused on making sure we've got the right kinds of channels.

Tissue and this is where also it helps us quite a bit to have kind of close relationship with our customers and also having a lot of internal expertise.

That has derived from our chromium and wisdom experience.

Two.

Put those together.

Got it very helpful. Thank you.

We take our next question from Patrick Donnelly from Citi. Please go ahead Patrick.

Hey, guys. Thanks for taking the questions.

Justin when you talked about the potential near term impacts looking at <unk>, you mentioned Covid still lingering can you just talk about I guess, what youre seeing on that front, what the customer activity looks like I assume it's lower on the totem pole of headwinds versus the cold chain logistics in China.

But you did call. It out so just wanted to check on that and hear what youre seeing in the field.

So as far as <unk>.

Impacts for Q2.

We talked about LDR.

That's a headwind in both Q1 and Q2, specifically in Europe , and then as far as Covid impacts from from Q1 to Q2 really in Q1 that was.

In EMEA impact in Q2, it's the China Lockdowns that are the primary.

The primary impact there and then just overall.

We've talked about over time.

Order impacts which are really.

Not having to do with <unk>.

Closures or shutdowns.

But it's more just impact on growth rates.

Due to.

People not being in person manpower supplies things like that but generally we have seen we have seen improvements there like we were back back in person.

When we're looking at mid March and so.

That has been improving but again, it's more of an impact on growth rates and it is on the on the current state.

Yes.

I'll ask here too is like I mean, one of the big things that has been happening literally over the last two months lessen that is like.

The people are back in person conferences. This again this has not existed before and there is this whole sort of almost bourbons of activity that we're seeing happening with customers and now with our field teams as well now they can interact with people and kind of initiate kind of pick up on projects that have been laying dormant for a while or and this is important.

Initiate new product projects again. This is something that has been more challenging kind of have to do over the last two years is like because people have dealt with various types of impacts and now it seems like this is kind of more momentum at least based on our interactions our field teams kind of being out there interacting with customers and also them attracting.

With each other so there's sort of this kind of.

That has been a challenge and that has been we expect that to start kind of abating as we as we go into the second half of the year.

<unk>.

Okay. No. That's helpful surge and then just maybe just one on the margins here you mentioned margins in the product mix brought it down a little bit I assume the cold chain stuff didn't help.

As you look kind of in the balance of the year and even more in the mid term you've talked about some of the new products being a little lower gross margin, what's the right way to think about the margin profile as we progress this year and then even in a kind of steady state for the company.

So as far as as far as gross margins, we are expecting it to trend lower this year not by a significant amount of some of the increases that we've seen on material costs and supply chain costs.

We're already in the Q1 results, but theres still remains additional risks for the factors that we've called out that we've called out before just increased raw material costs increased logistics costs as.

As well and then as far as product mix.

That's a big driver as well.

<unk> talked in the past about our newly introduced products and products that we have in the pipeline, having a lower gross margin than existing products.

This is true with the chromium X and IX.

It'll be true with Senium.

When it when it launches as well and so really those are and those are the biggest factors on gross.

Gross margin.

Yeah.

We'll take our next question from Martin <unk> from William Blair. Please go ahead ma'am.

Hey, good afternoon, a couple on HD.

I missed it but I know.

Last quarter, you mentioned, an HD was expected to launch at the end of 2022. So is that still on track and I think last.

Last quarter, you also mentioned that you were.

We're seeing sort of folks that were waiting for HD that maybe that was putting some pressure on lithium demand. So I just wonder how that has trended throughout the quarter as well.

Yeah.

So we don't have an update on the timing still working towards launching near the end of the year.

And on the second question for sure.

<unk> has been.

In effect, we have been seeing customers are.

Our waiting for HD, I mean, theres definitely a lot of customers that are jumping in and doing the standard differential museum and getting great results and great data and wrapping up but certainly more and more people are kind of were really are kind of looking forward to HD.

And.

And yes, there is certainly.

Likely to be some amount of stalling.

Focusing on our vision of the stage.

Okay.

And then just actually just thinking about the.

I guess SG&A in particular, obviously, it's another big year for hiring.

SG&A, but there is maybe a little lighter than what we thought would be in the quarter are you.

That having difficulty filling any rolls or is that maybe just kind of in line with kind of a typical step down and how we should think about SG&A building out there.

As far as if we just look at the sales and marketing piece.

We expect to hire over 100 folks in sales and marketing.

Sure.

So that has been that has been tracking along.

Pretty well just looking at how we've been able to grow from Q4 into Q1.

SG&A overall, obviously, a much smaller amount of hires and in G&A.

G&A.

But.

Even though we are growing.

Quite rapidly and SG&A overall, we have been able to.

Been able to find folks and higher than there.

R&D is really the hardest area that we found to hire and overall.

Okay. Thanks.

Okay.

The next question comes from Matt <unk> from Goldman Sachs. Please go ahead.

Hi, Thanks for taking my questions.

Just following up on that last question just for overall Opex trends as we think about it over the course of the year just given the number of product launches you're getting through.

This year in terms of R&D trends over the course of this year and maybe into next like how are you thinking about the opex cadence over the course of this year.

So this year in particular.

We're building ahead for the lithium launched and so on.

On the sales and on the sales and marketing side, we're starting to hire those support staff now so you are seeing.

Increases now that were really for the.

Towards the end of the year and then the heads that we higher towards the end of the year I'd really think about those as enabling 2023.

So there definitely is.

Higher ahead impact for for our sales and marketing in particular.

Got it and then maybe a big picture question for you you've talked in the past about the potential complementary nature of having the three platforms one senium launches.

You think about longer term with volume in the market do you think that could reinvigorate reaccelerate growth and particularly in <unk>, but any other platforms as customers kind of see the entire ecosystem.

So yes, there is definitely a senior <unk>.

I think it goes both ways kind of a relationship between the two platforms and again chromium <unk> exist on the discovery side of the world much more so on the NIM is going to exist on the validation side.

And certainly like I said in my on the call Xenia naturally.

Basically I mean, just about every paper you see now within seizure makes use of chromium Museum.

<unk> data and so as people kind of are pushing toward xenial and doing these in seizure experiments theres a natural.

There's going to be a natural use cases to also draw and Ron.

Ron chromium envisioned experiments to kind of map things out and discover.

Drive markers.

Cells and cell types. So we do see both of those kind of the all the peripheral or the different law firms are actually kind of pushing each other or they also kind of want to emphasize the customer experienced again from the same perspective, given that so much of the us.

Great actually makes use.

Of all these data types together without having a single customer experience is going to be.

Quite important and valuable to customers.

They go back and forth between the platforms.

Great. Thanks very much.

This now concludes the Q&A session and thus concludes the call for today.

Thank you all for joining please disconnect your lines now.

Okay.

Okay.