Q2 2022 10X Genomics Inc Earnings Call
$520 million, representing growth of 2% to 6% over the prior year.
While our topline growth this year will be slower than our previous expectations. We firmly believe the underlying opportunity for single cell and spatial technologies is as strong as ever.
On our call today I will focus on what we're doing to ready our organization for our next phase of growth.
Justin will provide more details on the specific impacts to our second quarter revenue in our outlook for the year as well as give additional color on steps were taken to strengthen our financial profile.
I'm proud of our track record of product innovation and the growth we've delivered over the past few years.
We have progressed at a truly rapid pace amidst a very challenging environment.
And was that incredible speed, we have quickly outgrowing some of the processes and systems that got us here.
While we have some work ahead of US we're building from a great Foundation.
For starters, our fundamentals are incredibly strong we're focusing on our strengths that have always differentiated us driving our innovation engine, providing a superior customer experience and investing in our long term.
In parallel we will improve our execution and implement tools and processes. So we can increase leverage and scale to the next level of growth.
And finally I continue to have full confidence in both our vision and our approach to achieving that vision.
We have built a leading platform for single cell and spatial biology, and we're just getting started as the only company to have the three fundamental technology approaches for single cell and spatial biology under one roof, we're uniquely positioned to be the best partner to help researchers around the world interrogate resolved to Master biology.
Now, let me share a bit more about our progress and pipeline in each of our three blocks.
Starting with chromium, which is unambiguous leader in single cell analysis.
During the quarter, we continued to see solid demand for chromium X series instruments.
We're proud of the broad appeal and demonstrate the success of the platform in its first full year since launch custom.
Customers are enthusiastic about the new platform and have expanded capabilities, including access to our fixed RNA profiling kits, which is exclusively available on an F series.
Turning to consumables, where the breadth performance and workflow of our broad menu of assays is an important differentiator for us and for our customers.
As planned during the quarter, we began shipping to new kit designed to help make more samples and more sample types available for single cell analysis.
It's been great to see the early energy for both our nuclear isolation and our fixed RNA profiling kit.
The nuclei isolation, our first offering to help ease sample preparation provides a simple scalable workflow to make frozen tissues and previously challenging sample thats more accessible for routine single cell analysis.
This is a great example of our continued innovation and workflow simplification will help expand our opportunity bring new labs, and researchers into tennis ecosystem and increased utilization among existing customers.
It's early but we're really excited by the strong initial adoption of the skin.
We're also really pleased with the early feedback on our fixed RNA profiling kit, which we believe has the potential to be transformative for the chromium franchise over the long term.
This assay enables at risk issues Gluck and self paced at the point of sample collection and removes time and transport constraints typically associated with single cell workflows.
It also offers a number of significant advantages, including improved deal sensitivity increased sequencing efficiency.
And built them sample multiplexing to achieve lower prices at scale.
While adopting a new workloads big time, researchers have been running pilot experiment and side by side comparisons to see firsthand the performance of this asset.
The feedback with personal part has been universally positive.
As the AWP conference in June with demonstrated how our fixed RNA kit can also unlock for the first time ever <unk> preserve samples for single cell analysis.
This is a groundbreaking capability that we believe has the potential to be a real game changer as it opens up vast volumes of archival samples.
Given that all of the progress to date in single cell has been made using fresh or fresh frozen tissues. We expect this breakthrough capabilities.
Should enable much more research, particularly in translational settings.
Looking forward, we're excited about our chromium pipeline, we're on track to launch B Mab and BMC by the end of the year.
Now turning to Vizio.
We're still early in the vision lifecycle, we continue to be encouraged by the widest sustained adoption of our platform as the leading tool for unbiased space oil discovery.
In Q2, we saw increasing adoption of <unk>, which exceeded the fresh frozen in sales for the first time.
To date, our customers have relied on <unk> and almost 300 papers of preferreds.
This is an important leading indicator and also demonstrates the success of the discovery and translational researchers are already having with our current vision platform.
In June we began shipping <unk>.
Our first spatial instruments, while it's still very early we're pleased with initial response in demand we're seeing from customers.
By addressing the key challenges our customers are faced with a busy workload side as this will enable more routine use of the vision platform.
Also significantly expand the number of samples that can be around video.
We believe the ease of use overall experience and performance is much better for customers and the data generated using the instrument is superb.
<unk> will be a key enabler for the vision platform going forward.
In June we also launched the second version of our <unk>.
We're making it available exclusively on Cytosis. So customers can take full advantage of the instruments ease of use and higher quarter data.
This new kit will give researchers high performance, a better and more reliable workflow and the added flexibility of larger capture areas.
I also want to provide an update on busy in HD and our work to develop a high resolution whole transcriptome offering.
This has grown to be a very ambitious undertaking.
Bringing up this new technology and associated manufacturing capabilities, the quality scale and resolution of our customers expect is taking more time than we anticipated.
As a result, we no longer expect to launch <unk> this year.
While we aren't providing an updated timeline right now we are fully committed to delivering this capability to researchers as soon as we can.
Turning to the NIM.
We continue to make great progress on the platform, which we expect to begin shipping to begin shipping by the end of the year as planned.
At <unk>, the energy interest and enthusiasm from customers will solvable and exciting to see so broadly.
Eternally, what hasnt been particularly inspiring our team is a strikingly powerful data we've been getting from our experiments showing great levels of sensitivity specificity and flex on challenging samples.
This has been reinforced by the positive reactions of customers with whom we have shared the data.
We build a leading platform with several key design principles in mind.
The goal is to be able to determine cell types themselves states and the tissue of interest and measure what each cell is doing.
The platform used to work across a wide range of tissue sample types of application and biological systems.
And importantly, xinyu was designed to enable routine use.
We believe from launch Zeno will have the highest throughput of any in <unk> instrument and its cost enabling researchers to analyze the most difficult area of single molecule resolution and the least amount of time.
And finally, we designed <unk> to scale with customers involving research teams.
Guests will be able to support the measurement of thousands in gms and the detection of proteins on the same section.
We firmly believe in <unk> differentiated position both at launch and as we look ahead at our comprehensive long term roadmap for the bottom line.
Our team has established collaborations with key opinion leaders to inform and validate the development of future gene panels.
Combining this cost remains with our wealth of single cell data to design, a broad menu of high quality <unk> <unk> specific to both tissue type and application area.
Researchers will also have the ability to have the largest numbers of custom genes.
We believe our leadership in single cell and spatial Trust Atomics gives us a particular advantage lithium because most in situ experiments make use of single cell data to determine the genes of interest and to contextualize and CTO analysis.
Stepping back we continue to have every confidence in our technology leadership across each of our three platforms. We believe our cadence of technological advancement and velocity of new product launches is unrivaled.
PON is exciting and ambitious and it has already resulted in five major product launches this year.
Looking forward, we're eager to build on this momentum and our track record of breakthrough technologies.
Now, let's spend a few minutes on commercial.
Over the past few years, we've grown incredibly fast so far.
Fast lending infrastructure rebuild didn't always scale with us, especially in commercial areas.
In recent quarters has become clear that what got us to this point of growth wasn't going to get us to the next.
We're proud of the breadth and talent of our global commercial team. This was a group that has worked tirelessly to drive adoption of our technologies and support customers in every phase of the experiments.
Our challenge and our opportunity is to make sure. Our team has the right leadership tools and processes. So we can increase leverage scale to the next level of growth and analog the massive opportunity. We have ahead of us.
Implementing better systems and tools will help us improve both of our commercial execution and the customer experience in a number of ways.
Here are a few highlights.
First we will reduce friction in the sales process and make ordering and reordering more efficient for our customers and our sales team.
Second we'll establish more rigorous and metric driven sales tactics to consistently manage our customers through every step of the sales cycle.
We will do this by establishing universal processes robust training programs and better analytics that help with customer outreach and engagement.
And third we believe the right processes and systems will help us improve visibility and information flows both within commercial and between commercial and the rest of the <unk>.
Altogether, we believe this will help our sales team be more efficient and effective with our title and know how to prioritize their efforts to have the biggest impact.
This is essential as we further expand the breadth and depth of our portfolio increased adoption with existing customers and continue to make inroads with new customer segments and applications.
Now I'm really excited to have Jim Wilbur onboard as our new Chief commercial officer to lead this work.
Jim has dedicated his entire career at the building transformational tools in our life Sciences.
He comes to us from laser scale discovery.
Highly regarded global leader in instruments and assays that have revolutionized protein measurement.
Jim on discounts and as passionate about the sales growth at both a strategic and.
And a very granular level.
He knows what drives customer and sales team behavior, the deep specific technical background, a Friday and developing high performing teams and is fundamentally a builder, which excites me because we have so much more building ahead of us.
It was seamless fit with it that I can mention our culture and we're thrilled to have him here.
Now I'll turn it over to General Safety Awards.
Thanks, Serge I'm really excited to be here.
Let's talk me about this opportunity.
<unk> scale of what's possible.
It's already well established single cell analysis has been transformational in our understanding of biology.
My belief and I know, it's when you all share.
Is that the biggest single cell has become it's really just getting started.
I believe the future will bring an enormous expansion in the number and types of researchers investigators using these tools and the types of questions that are going to get asked and answered.
It's been an amazing start it is absolutely exceeded my expectations.
We're building on a great Foundation.
And we'll give our talented team the resources and support they need to get absolutely everything out of the tremendous opportunity ahead.
This journey towards ever higher levels of commercial excellence is going to be fun.
Thanks, Jim.
In addition to our broad commercial reach and powerful innovation engine.
Our strong cash position is an important differentiator, especially in this environment.
We will be deliberate and protecting them, while also continuing to invest in our strategy and long term growth.
Last week winter action to reduce our global workforce by approximately 8%.
You heard me say, if the people of <unk>, who make the magic happen.
We will make decisions like this.
So difficult.
While the outcomes were made effective every organization there was less impact among our R&D and field based customer facing teams.
The changes were made warranties and especially for those directly impacted but they were necessary to make them more resilient in the current environment and more focused on our mission to drive our next phase of growth.
We don't expect these changes that have a material impact on our near term execution or our long term growth trajectory.
Yeah.
Looking at the work ahead, we are incredibly grateful to our team for their dedication to our customers and tireless pursuit of our mission.
So recognize their hard work and impact, we're making investments to further strengthen our redemption and sustain the team's high engagement.
As I shared in the lithium lastly during times of change, we're staying focused in Wisconsin, our mission and our opportunity.
We expect that in the future just about all tissue samples Weatherford basic research of our clinical diagnostics will need to be analyzed at single cell resolution and spatial context and at large scale.
Standpoint, as Claire, but as 2022 has shown the path together is not linear.
Yet through their research discoveries and publications are customers remind us with increasing frequency of the tremendous potential of our technologies to accelerate the master of biology, and ultimately advance human health.
Here are just a few of the recent discoveries of Brexit questions that have inspired and motivated our acumen recent months.
In Science magazine, we soap obligations of the first large scale cohort studies linking in population genetics with single cell sequencing.
These studies revealed an extensive catalog of molecular signatures in autoimmune diseases opening the door to a new era of functional genomics genetics.
Our tools enable the discoveries of molecular signatures in two recent studies of age related macular degeneration and glaucoma.
These studies will help us better diagnosis and treatment of these devastating diseases.
One of the central questions in car T therapy.
Teasing out what determines success and survival injunctive car T cells are customers are using our immune profiling and gene expression solutions to help answer that question in order to improve and help administrative b cell therapies.
And just last week signed published a large study of samples from patients who suffered heart failure.
The researchers perform single nuclear RNA sequencing on close to 1 million cells to reveal the underlying biology and point to intervention opportunities and personalized treatments.
It is clear the discoveries like these have enormous potential to transform how we predict diagnose treat and ultimately cure disease.
This is why we do what we do this is why despite all the progress. We've made we believe its still early days and this is why we're so confident in the endpoint and then <unk> is the best company to deliver on it.
Now, let me turn it over to Justin for more details on our financials.
Thank you Serge.
Total revenue for the three months ended June 32022.
Was $114 6 million.
Compared to $115 $8 million for the prior year period.
Representing a 1% decrease year over year.
Revenue was flat compared to the first quarter of this year.
Consumables revenue was $97 9 million, increasing 1% over the prior year period and flat compared to the first quarter of this year.
Instrument revenue was $14 7 million deep.
Decreasing 13% from the prior year period, and up 2% from the first quarter of this year.
Service revenue was $1 9 billion increasing.
Increasing 7% over the prior year period.
Our our Q2 results were impacted by macro headwinds as well as some internal challenges. This was particularly evident outside of the U S.
Starting first with APAC.
Revenue for the second quarter was $18 1 million.
Decreasing 15% from the prior year period, and down 47% compared to the first quarter of this year.
Revenues in the region were impacted by Lockdowns in China that increase in scope and duration beyond the assumptions that we shared on our Q1 earnings call in early May.
They extended into June and spread beyond the Shanghai area impacting customer activity and resulting in lower sales.
Turning to EMEA.
Revenue for the second quarter was $25 6 million.
Decreasing 11% from the prior year period, and up 25% from the first quarter of this year.
While revenues in the region improved sequentially results were impacted by unfavorable currency fluctuations.
<unk> customer reorders related to the previously discussed cold chain logistics issue and some execution challenges.
In the Americas revenue for the second quarter was $79 million increase.
Increasing 8% over the prior year period, and up 19% compared to the first quarter of this year.
Turning to the rest of the income statement.
Gross profit for the second quarter was $86 $9 million.
Compared to a gross profit of $110 9 million for the prior year period as.
As a reminder, in the second quarter of 2021, we booked a onetime reversal of $14 $7 million of accrued royalties related to a litigation settlement.
Gross margin for the second quarter was 76% compared to 96% in the prior year period the.
The decline in gross margin was primarily due to the accrued royalties reversal in Q2 2021, as well as changes in product mix and the increased manufacturing and logistics costs.
Total operating expenses for the second quarter were $150 million, an increase of 24% from $121 3 million for the second 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 second quarter were $70 7 million compared to $53 4 million for the second quarter of 2021.
SG&A expenses for the second quarter were $79 3 million compared.
Compared to $68 7 million for the second quarter of 2021.
Operating loss for the second quarter was $63 1 million compared to a loss of $10 3 million for the second quarter of 2021.
Primarily due to the impact of increased personnel related expenses.
This includes $36 3 million of stock based compensation for the second quarter of 2022 compared to $26 9 million for the second quarter of 2021.
Net loss for the period was $64 5 million.
Compared to a net loss of $11 1 million for the second quarter of 2021.
We ended the quarter with $500 million in cash and cash equivalents in marketable securities net of restricted cash.
As we are operating in a macro environment with increased economic uncertainty, we implemented a reduction in force of 8% of our global workforce to reduce spending preserve cash and strengthen our financial profile.
We estimate that we will incur between five and $6 million of costs, consisting primarily of cash severance, which we expect to recognize in the third quarter of 2022.
In addition, we have canceled a number of open hiring requisitions and reduced our near term hiring plan, while implementing targeted reductions in non head count spend as well.
Our goal is to be free cash flow positive by the end of 2023.
Over the next few quarters, we will we expect elevated levels of capital expenditures and subsequent cash burn as we finish construction of our operations facility in Pleasanton.
Completion is expected at the end of Q1 2023, and we are evaluating options to finance the facility after completion.
Now turning to our revenue outlook for 2022.
We now expect our full year 2022 revenue to be in the range of $500 million to $520 million representing growth of 2% to 6% over full year 2021.
In the first half of the year, we experienced a slower than expected rebound as we emerge from the pandemic environment.
This was driven in part by macro factors some of which we expect to continue into the back half of the year.
While we continue to have confidence in the tremendous opportunity our products for unlocking and the underlying demand for our technology. We are adjusting our expectations for the second half to reflect a more modest rate of increase and lingering macro headwinds.
Thus, we expect Q3 revenue growth.
In the low to mid teens percent over Q2, and we'd also expect Q4 to exhibit the same seasonality that we've seen in the past barring any material changes to the macro environment.
We look forward to providing additional information on our business at an upcoming Investor day planned for later this year stay tuned for more details to come.
At this point I will turn it back to search thanks.
Thanks, Jonathan before we start Q&A I want to thank our team. The work we do want to announce is both challenging and exciting and that's what makes it meaningful and worth it.
I'm so proud of this team and the tremendous impact you're making I couldnt be more optimistic and confident about the future.
Thank you for all your doing everyday to push tenants, our mission and science forward.
With that we will now open it up for questions operator.
Absolutely we will now begin the Q&A session, if you'd like to ask a question. Please press star followed by one on your Touchtone keypad.
Any reason you'd like to reduce that question. Please press star followed by two.
Again to ask a question press star one.
As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question.
We'll pause briefly to allow questions to generate in Q.
The first question is from the line of Mac Sykes with Goldman Sachs. You May proceed.
Hi, good afternoon. Thanks for taking my questions. Maybe the first question really appreciate all the color on 22 and the macro factors involved there.
I know it's.
You might give some more details later this year, but.
Any kind of early view on how we should think about.
23, just in terms of growth you've got a lot of new products coming on and no physical H D has been delayed but theres a number of new products coming on that could impact that growth rate, but in terms of rebound. If we assume some of the macro factors start to dissipate at the end of this year any kind of color you can provide us with an what 23 may look like for you.
Hi, Matt.
First off there's a lot to be excited about when we think about 2023.
So as you mentioned.
A lot of new products coming out is going to be the first full year as indium.
It's going to be the first full year of site assist.
And fixed RNA as well.
Also think that we're going to start to see us reaping some of the benefits to improvements in.
Just systems and tools and processes that we've spoken about on the commercial side as well.
But as far as giving any color past that right.
Right now I think we will get through Q3, and Q4 without forecasting too far ahead of what we're seeing and we will share more of a view on the key drivers on 2023 later in the year or in the Investor day that we mentioned.
Got it thanks, Ross I appreciate it and then maybe one for Jim or search.
You talked a little bit about some of the commercial strategy is going to put in place and harnessing the data analytics could you maybe give a little bit more color in terms of where you feel like.
The greatest areas of improvement could be whether its engagement with existing customers or maybe trying to penetrate new areas.
And what type of efforts that you've put together in terms of data analytics.
That could enhance that I'm, just trying to get a sense for from a timing perspective, how we could expect to see some of these changes that you're going to do the commercial strategy start to take place. Thank you.
Yes, I would emphasize maybe to step back a little bit a lot of what we're going to be doing a lot of what we're going to be implementing now it is more around the mechanics of commercialism Houston not the fundamentals of this strategy, we feel that we firmly field as we.
Confidence in our markets and in our in the customers that are out there and that we're approaching.
Our markets with the right set of products.
Our high level strategy now in terms of all the tools and the metrics that we're going to be in systems that are going to be implementing you kind of step back and think of from first principles we have.
And you mentioned as well.
We have to focus on adding new customers to the ecosystem. We also need to focus on increasingly usage with existing customers and you can think about where the how our business has evolved over the last several years. This has been a huge increase in the complexity of our portfolio.
And also.
The sheer number of customers that we have.
And so it is on the us to make it to give.
Our teams several of our sales reps and others.
<unk>.
Much much better tools too.
For them to do you know how to best spend their time, most effectively most efficiently.
And.
And have the right analytics information flows until so that's going to be the levels I think there's a lot to be done across the board.
It's not any specific area that I would point to.
It's a huge opportunity.
It's not going to be the kind of thing where it sort of flip a switch necessarily but over the coming quarters, we should expect to see.
Progress.
Great. Thanks very much.
Thank you.
The next question is from the line up Derik de Bruin with Bank of America. You May proceed.
Great. Thanks for taking the question. This is Mike risks on for Derik I want to follow up on Matts second question there.
Jim I realize that you've only been in the role for a couple of weeks now but.
Wondering if you could give us a little bit more of an update on your thoughts on some of the commercial revamps going forward.
Do you think about retention of the existing sales force versus some turnover that we've already seen them. We could probably expect to continue to see can you give us a timeline on how long do you think until the organization will be in the right place to sort of implement the strategy I guess put another word for.
How much longer is there going to be a revamp versus.
When will you be ready to go forward.
So Mike let me pick.
Pick up that question.
As you alluded to Jim has been here for all the waste business. This so I wanted to be careful in terms of.
In terms of field personnel on the specifics yet one thing I do want to emphasize like I said in a bid.
The answer is.
The team.
The humans.
It is very strong in the commercial team all around as strong in terms of.
We believe in the team and.
With what we have been focused on is bringing in the new leadership and the new tools and new systems new processes right.
So it is going to be a function of a little.
Over the next several quarters as we as.
As we proceed to implement those changes.
I think.
Yeah.
I don't think Theres, a theres a lot more to add.
And again.
Focusing too much on the team turnover, which has not really been the case.
At this point.
Okay, great. Thanks, and then maybe just for a follow up.
In the past couple of quarters, there's been a lot of discussion about halo users of non halo users and sort of as the installed base has grown how.
The divergence of some parts of the customer base and utilization that comes with that was wondering if you could give us an update on that sort.
Sort of.
Are you noticing continuing trends there.
Some of the efforts you've taken to address that has that improved just to give us a little bit of a sense of what's going on on the on the pull through per system or maybe on the utilization side of things.
So I wouldn't say, there's been a huge changes since when we talked about it earlier in the year.
Those data that could be.
There's been a lot of uplift to date, so far this year, so it's hard to too.
At this stage to make any confidence statements around these kind of longer term patterns.
Which you kind of which makes more sense to summarize in the corso across more of like a year.
Cadence.
<unk>.
Overall <unk>.
Similar trends, we've seen before with instrument owners.
Consistent musician ecosystem round.
Daily users tend to be more episodic and.
And.
And use our user products list.
Great. Thanks.
Thank you Mr de Bruin.
The next question is from the line of Dana Ross with Stifel. You May proceed.
Afternoon, guys. Thanks for the questions I have a little problem by Corona or hopefully that doesn't get in the way of being able to ask these here, but surge or Justin maybe just back on new products.
But more focused on this year should we think about some of the key new portfolio elements, there fixed RNA side of six et cetera, playing a role in the <unk> step up that you've alluded to as a part of the outlook.
Well, we do really feel good about these products.
I had mentioned side assist there in particular with the new instrument. So there is a there.
Quite robust demand, we're seeing from customers.
Certainly as you've heard me say multiple times now fixed RNA profiling is a very exciting product. The one note of caution there is that it's a new workflow. It takes some amount of time for people to benchmark it against our previous foreclosed.
So theres going to be.
Some amount of ramp that we still need to kind of see how that performs.
Performs.
And then as far as the step up from Q3.
As far as the step up from Q3 to Q4 goes.
What we're really getting across there is just we'd expect Q4 to exhibit the same type of seasonality that we've seen that we've seen in the past.
And then typically with with new products, we don't typically subscribe too much volume to new products right at launch or right. After launch and we're always launching new products.
They do typically take a number of quarters to get to get traction before they become before they become meaningful.
Okay.
Maybe just as a follow up I wanted to ask a question about sell flex.
You know as you've thought about the moving parts and the dynamics in the single cell market today, and you think about that product seemingly being important for the long term adoption of single cell.
I'm just curious if you think in the short term that there's any negative impact that youre seeing on consumables growth just from reducing the per sample cost, but maybe not seeing the volume increases at the same magnitude this year.
Yes. This is something that we've been watching I would say.
Several fronts. So flex is one.
High throughput HD cancer is another one that has.
Some of the similar dynamics of reducing price per data point.
In order to drive volume I would say so far.
So there is still no way do I can tell it has been fairly minimal.
The extent of cannibalization.
On that front there is some but it also has opened up some new projects and studies on Aneth I don't think there is a material.
Change yet, but we are seeing.
Okay I appreciate it guys. Thank you.
Thank you.
The next question is from the line of <unk> with Morgan Stanley You May proceed.
Hey, guys good evening and thanks for the time here.
So search or Justin perhaps can you just share some color on trends in July and into August here I'm, just trying to sort of juxtapose what is essentially a sort of a mid teens Smith for <unk> versus the 100 million plus that youre, taking down the guide by <unk>.
And any specific color on America's growth here was that essentially related to commercial missteps year over year or 8% a little bit Underwhelmed me.
Hey, Josh as far as your first question goes on on trends to date.
When we gave when we gave our updated guidance. We also gave some color on how we expect Q3 to go with a low to mid teens percent increase from Q2 to Q3.
And so far this quarter the trends that we're seeing support.
Support that view.
And then as far as your second question just around.
Overall overall growth in the different regions the biggest impacts that we've seen.
Our in APAC and EMEA to a lesser degree in AMR.
But within all regions, we have seen some degree of slowness coming out of the first part of the year.
Got it that's helpful. And then just as a follow up one of your peers and especially our called out. This this mixed shift if you will away from you know multicellular resolution platforms to single cell or sub cellular imagers.
Are you hearing from your customers and what does that imply for your lithium platform going forward, particularly in terms of the HD slippage into next year.
So we haven't we haven't seen like I'll say a material slowdown in the <unk>.
The option I think it's a it's been a sort of a different set of use cases for many and.
In many ways and it's still quite early in our market. So it hasnt been volume has been growing a special visit Athena has been growing quite robustly.
And so so from that perspective.
I think.
We're feeling good about the museum trajectory, especially notwithstanding is coming out which should put an additional sort of acceleration to the platform.
But we absolutely see the excitement around in vitro approaches.
First of all what's happened on the AGP ATM, we're certainly investing very aggressively in Veniam I'm really looking forward to launching the platform Lana the CR lots of interest from customers.
Lots of excitement internally here as well.
Got it thanks for the time guys.
Thank you. The next question is from the line of Patrick Donnelly with Citi. You May proceed.
Hey, guys. Thanks for taking the questions.
Similar to close off with first question more just in terms of the visibility Justin can you talk about overall visibility.
Obviously three months ago, you guys maintained the guidance, where you kind of knew about the Europe and China headwinds somewhat known North America seems like it came in pretty light can you just talk about just the general trend visibility into the overall business as we move forward here.
Hey, Patrick.
Sure.
Before getting into the core of the question I'll just talk about the drivers for Q2, the biggest drivers on the Q2, Mrs where the extended Lockdowns in China and also the.
The currency impact as well so just a few things on that.
On China.
Historically, China has been about 15% of our business and when you look at Q2. They did it they did a fraction of what they have what they have done before and when we did our earnings call in the last cycle and we reiterated guidance. We also shared our assumptions for that guidance update.
Had the China Lockdowns.
Abating basically in in May.
And they didn't and they extended into June and they also increased.
Scope as well.
And then currency currency was.
It was a material issue in Q2 as well keep in mind that 45% of our revenue is outside the U S and when you look at 2022 revenue, whereas about 17% is indirect foreign currency.
Have distributors that we sell through that so that we sell to in U S dollars that sell to customers in the foreign currency. So I think the impact of currency.
As it shifted over over the whole of Q2.
Impacted more than that 17% that's in the direct.
And the direct foreign currency I think there is an extended past that as well.
And so then also.
You have the impact in China currency, and then just the growth rates that we were expecting coming out of the out of the pandemic environment and it was a pretty depressed Q1 with the Amazon impact in the first quarter.
And coming out coming into Q2.
Into Q3 and Q4, we did expect.
A higher acceleration and we haven't seen that yet and so really what we're where we're expecting a more modest increase today and still an improvement.
Not to the degree that we were expecting earlier in the year and for right now we're going to we're going to forecast. What we're currently what were currently seen with a more modest growth rate on top of that.
Yeah.
Understood Okay.
One one sort of Georgia <unk> to answer this one I mean, just in terms of kind of the balancing of what kind of growth and profitability. When you guys came out of the IPO and he spent pretty aggressively going after that big opportunity.
Great results for a couple of years stretch there now kind of pruning the workforce and being focused on profitability can you just talk about how you guys balance out internally again still talking about the opportunity being very significant at the same time focus on profitability, maybe just talk about.
How do you find that balance where were you kind of directly incremental dollars from here and just kind of think about chasing growth.
So I guess profitable growth versus going on any growth.
A little bit of color there. Thank you.
Yeah, So I'll say like first of all the very high level, we're still very much in growth mode.
Opportunity is huge it's actually grown large under another time of the IPO and I have every confidence that this is as big a thing as it has ever existed in life science tools and so it's our job to realize this opportunity and that's our number one priority now stepping back if you look at again, what does happen though.
The last couple of years since that deal we've doubled the size of the team in the last two years.
Not just the size that we've increased the team is also organizational complexity.
More layers roles, sometimes over specialized roles and so there's a there's an element of streamlining the organization.
Yeah.
Reflecting on the on the current macro economic.
Economic environment, reflecting our current revenue rates are doing.
<unk> some amount of.
Adjustments to the to the organization on being more careful and deliberate with how was down going forward.
And so it is definitely a balance but the first order like we're absolutely investing and expecting lots of growth.
But now we're also doing it with a stand that Justin put out there.
Driving toward being.
Being free cash flow positive.
Got it thanks Serge.
Thank you.
Next question is from the line of Daniel Brennan with Cowen You May proceed.
Hey, guys. Thanks for taking the questions maybe the first one is on single cell.
So you highlighted surge upfront you know incredibly positive fundamental environment, but obviously the last couple of quarters is it hasn't been as evident to us. So can you just give us some insight on what the underlying market in single cell is growing that.
Has there been any slowdown from <unk> spiritual cannibalization.
And between the drag from the one off factors and how your base business is going to be interesting to get some more color. There I know there was a question earlier on the Halo effect that maybe you can just give us a little more flavor, there and I have a follow up thank you.
Yeah.
Yeah, so as far as the beginning of this the first of the year had a whole lot of different effects puts and takes from different sides. So it's a little hard to Uh huh.
<unk> long term. Thanks, Tom just went up in the last two quarters.
We go back to first principles and the fundamentals that has not changed like people need single cell resolution as only needed for AR applications all across our life Sciences. All goes biology. So no question no question around that as far as the question you know in terms of cannibalization.
<unk> or <unk>.
So I don't think that can be a material effect at this point given that there is not really.
Modular technologies out there and we certainly wouldn't be seeing that on our side as well if that were happening I think it's more broadly the.
The slowdown you've seen recently again these broad macroeconomic factors that Jonathan mentioned and are also generally we're still everyone's still trying to figure out what is the kind of the new world of research look like coming out of its endemic environment.
Over the last two years.
Okay.
Okay.
Got it.
And then on <unk> spatial or I know you haven't really broken out the specifics on the business in the past it would hope to get some color on how we think about the relative size of that business under your share.
And when we think about at least if youre not going to share that but at least if you would think about the new product impact of 23 like is this an incremental driver year over year growth are just potentially a material driver to growth. Thanks.
Hey, Dan.
I'll start with that.
So we don't currently you're right. We don't currently break busy amount, we will talk more about our plans for that.
At the analyst day that we talked about the prepared remarks.
But I can tell you as far as as far as trends go.
Over the last over the last few quarters, it's relative percent of overall revenue.
Hasnt fluctuated too much meaning it's Ben.
It's been consistent volume wise with the with the rest of the rest of the business.
Okay.
Thank you.
The next question is from the line of Julien <unk> with Jpmorgan you May proceed.
Hi, good afternoon. Thanks for taking my question first.
First on <unk> could you give us a little bit more color on the nature of the delay.
A little more detail.
The bottleneck there I mean to be attack and how confident are you that it's gonna be.
<unk> addressed that.
Okay.
Yes, so as I said there was.
This is a very ambitious undertaking and we have been.
Involved new technology, new manufacturing capabilities.
While the initial data for Hello numbers look really good we ran into some technical and manufacturing issues with scaling this.
We are committed to delivering the capability.
But and we know it can be fundamentally it can be done because we have the data to show that can be done.
But I don't think they will take more time and.
We are adjusting our product development approaches here.
But we're not ready yet to talk about the specifics or mandated somewhat.
Got it.
And then I'll, then just making sure. If you are still on track to launch that by year end and are you taking preorders to take advantage of this year as customer budget.
Yeah. So on the genome we are on track to launch it before the end of the year and we have started taking preorders.
At for these instruments.
Precisely partially for that reason.
Got it thank you.
Thank you.
The next question is from the line of Matt Larew with William Blair You May proceed.
Hey, good evening I wanted to just quickly follow up there on <unk> first question.
They're just different.
Is it technical feasibility.
Issues that youre still working to address or I think its just that you solve and it's a matter of scale up and manufacturing were the quality consistency.
Just trying to assess whether this is a technical feasibility or.
Feasibility at scale.
Yeah.
Yeah.
Well it is really visibility at scale issue because again internally, we have shown that it works with seeing the data and then transitioning into our scale is where there have been new challenges.
Contract.
Okay, and you mentioned last quarter that the delays are th deal, we're affecting current volume to demand.
And that's still been the case then are you thinking about the customers are trailing other products.
Just curious what your conversations with customers have been about about the delay.
Well. This is still very early so we'll have to see how that plays out with customers like I said last time HD was stalling some customer sales it may.
It may actually unlocked some going forward, but that's too early to speculate at this stage.
Okay, Justin based on our results year to date I guess are you still expecting to see year over year growth in chromium instrument placement.
Hi, Matt.
Good good question.
Earlier, we had said that we expected.
It's roughly roughly flat year over year, I think with what we've seen.
So far actualize in Q1, and Q2 and then just the adjusted expectations that we have for the back end of the year.
I'd say at this point, we'd expect it.
To be a flat to slightly a slightly lower.
The last year.
I appreciate the detail.
Thanks.
Thank you.
The next question is from the line of Paul mixing with Canaccord Genuity you May proceed.
Alright, great. Thanks, guys for the questions just mentioned the goal to be cash flow breakeven or positive by the end of 'twenty three obviously.
Quarterly number it's not a stretch didn't get there I can just talk about like the underlying assumptions behind the expectation at least directionally like what needs to go right.
Hi, Cai.
As far as us putting out the goal to become free cash flow positive.
2023 by the end of 2023.
We feel that hitting that it is an important milestone for us to hit to make sure that we have.
The right.
Financial profile on our path to becoming a profitable company and so obviously, there's different revenue scenarios that we're looking at for 2023 as we've shown right now we are adapting to the environment that we're in and I expect that we will that we will continue to.
To do so to the degree that it that it makes sense without hurting our longer term growth prospects.
So we'll share more about like I said the drivers for the 2023 topline.
Later later in the year, but we are committed to making sure that our spend is appropriately is appropriate to the topline that we're experiencing.
And also just a few other points that we made on the call. We are expecting elevated levels of Capex over these next few quarters, but I do expect those.
To drop off so just on the on the spend side, that's a key factor to understand that once that operations facility is complete.
And roughly the Q1 2023 timeframe you will see a drop off in the Capex.
We expect to spend.
Roughly a $140 million to $150 million capex over the next 12 months, but a good portion of that is front loaded into the next the next couple of quarters.
Alright that was great. Thanks for that and then for Serge just given some of the departures recently, among the commercial and the marketing leadership.
As long as the reduction last week I was just wondering if you could talk about what gives you optimism that you're not going to suffer from any brain drain or a slowdown in your in your trademark kind of product innovation pipeline strategy.
You alluded to retention earlier in your prepared remarks, just was wondering if you could kind of expand on that.
Yeah.
Yeah. So I just want to emphasize the attention continental has made very much with forward.
With a forward land.
We haven't had a really.
Material departures that in terms of the brain drain or.
In fact, I would say is the level of the company right now is as high as it has ever been in fact, probably higher than it has ever been and so I feel very confident.
Going forward, especially from that perspective.
Okay, great. Thanks, guys.
Thank you.
That concludes the Q&A session and also concludes today's call. Thank you for your participation and enjoy the rest of your day.
Oh.