Q1 2023 10x Genomics Inc Earnings Call
Speaker 1: There.
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Speaker 2: Hello everyone and welcome to the 10x Genomics first quarter 2023 earnings conference call. My name is Bruno and I'll be the operator of today.
Speaker 2: During this presentation, you can register to ask a question by pressing star followed by 1 on your telephone keypad.
Speaker 2: I will now hand over to your host, Cassie Cornault. Cassie, please go ahead.
Speaker 3: Thank you and good afternoon everyone. Earlier today, 10x Genomics released financial results for the first quarter ended March 31, 2023. If you have not received this news release or if you would like to be added to the company's distribution list, please send an email to investors at 10xgenomics.com.
Speaker 3: An archived webcast of this call will be available on the investor tab of the company's website, on xgenomics.com, for at least 45 days following this call.
Speaker 3: Before we begin, I'd like to remind you that management will make statements during this call that are forward-looking statements within the meaning of federal securities laws.
Speaker 3: These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated, and you should not place undue reliance on forward-looking statements.
Speaker 3: Additional information regarding these risks, uncertainties, and factors that could cause results to differ appears in the press release 10x Genomics issued today and in the documents and reports filed by 10x Genomics from time to time with the Securities and Exchange Commission.
Speaker 3: Ten actionomics 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.
Speaker 3: Joining the call today are Serge Saxenov, our CEO and co-founder, and Justin McIner, our Chief Financial Officer.
Speaker 3: We will host a question and answer session after our prepared remarks. We ask analysts to please keep to one question and one follow-up so that we may accommodate everyone in the queue.
Speaker 3: With that, I will now turn the call over to Serge.
Speaker 4: Thanks, Cassie, and good afternoon everyone. On today's call, I will start with an overview of our first quarter performance across our leading portfolio of single cell and spatial technologies. Next, I will discuss our progress momentum and the exciting opportunities we have ahead in each of our three platforms.
Speaker 4: And, I'll share why, based on early yet overwhelmingly positive feedback we've heard from our customers, we firmly believe Xenium is the best system for in-situ analysis.
Speaker 4: Then I'll turn the call over to Justin for a more detailed look at our financials, business trends, and outlook for the rest of the year.
Speaker 4: 2023 is off to a solid start with first quarter revenue growing 17% year by year to $134 million.
Speaker 4: These results reflect the momentum we're seeing in Corsar spatial portfolio, fueled by the recent launches in both Bizium and Zenium, and the strength in Chromium consumables.
Speaker 4: Originally, the Americas and the Emea teams, so improvement after slowdown in a prior year period, while APEC came in the lower our expectations.
Speaker 4: As we look to the year ahead, it's all about execution and impact. We're coming over the biggest and the most exciting year of product launches in our history, and our team is fully focused on driving adoption and ensuring our customer success. We're continuing to push our innovation engine with new capabilities in all three platforms.
Speaker 4: and we're working to improve scale efficiency and operational excellence throughout the company.
Speaker 4: All of this so we can maximize and deliver on the incredible opportunity we have ahead.
Speaker 4: Now, let me share more about each platform starting with Chromium, the unambiguous leader in single cell analysis.
Speaker 4: In Q1, Chromium consumables continue their solid trajectory and return to double digit growth.
Speaker 4: This was driven by strong performance in America's endemia, as nearly every assay in our entire road single cell portfolio grew year over year in both regions.
Speaker 4: The performance is of use in tremendous scalability of our consumed bulls portfolio across a wide range of applications and analytics is an important differentiator for 10X that creates real value for customers and their research.
Speaker 4: The squatter in particular, we continue to see increasing traction and customer enthusiasm for chromium flex, the new gold standard for single cell gene expression.
Speaker 4: With its robust taxation, superior performance, built-in, and multiplexing, cost advantages, and broad sample compatibility, we believe Flex will be transformative to the current platform over the long term.
Speaker 4: It's very early in this launch, yet it's clear that momentum is building. We're hearing multiple examples of customers who've achieved amazing results in their initial evaluations and are now planning larger studies that leverage the assay's built-in multiplexing to run more samples at lower per-sample costs.
Speaker 4: One customer shared how FLEX, the first and only single-cell assay to work with archival FFP samples, revealed new signatures in bladder cancer blocks some 15 years old that are eye-opening to pathologists. With the palpable enthusiasm we're seeing, reinforces our belief that FLEX is a very important part of the human body.
Speaker 4: has the potential to become our new flagship assay for single cell gene expression. It's drawing more researchers into the 10X ecosystem as new customers increasingly choose Flex as their first 10X assay of choice.
Speaker 4: And, just like we've always done, we're continuing to invest to broaden the menu of applications available in the Flex portfolio to enable more samples, more scale, and more analysis. Later this year, we expect to expand our feature barcode application to Flex.
Speaker 4: To simultaneously profile gene expression and cell surface proteins on a cell by cell basis, across multiple examples and millions of cells.
Speaker 4: We believe that additional plug and play multi-omics capabilities on Flex will open up more opportunities within disease research and translational settings. Flex is exclusively available in Chromium X Series Instruments, and as such, we expect placements to accelerate as more customers appreciate the power and performance of this efforts, which are mutually conducting their importance.
Speaker 4: The Chromium X series is by far the most powerful tool available for single cell analysis, and we believe there's a long runway head with both new and existing customers.
Speaker 4: All together, this is why I firmly believe, despite all the progress we've made, single cell is still just getting started.
Speaker 4: Now, turning to spatial, where both are vision and zine platforms exceeded our expectations during Q1.
Speaker 4: We launched BISIM only a few years ago, and since then, BISIM has emerged as a clear leader in NDS-based spatial technology, using thousands of labs and having generated the largest number of public data sets by far.
Speaker 4: Last year's launches of Scytasist and FFPV2 have further accelerated adoption of the bison platform.
Speaker 4: These new products help solve VKey challenges our customers have historically faced with a vision workflow.
Speaker 4: Site Assist also opens up more samples and more sample types for vision research, providing customers with a better experience and better data.
Speaker 4: This quarter will launch protocols for both fresh frozen and fake samples, now enabling all major sample types to run on-site assist.
Speaker 4: Demand for cytosist Remyan Solid and Q1 has been particularly exciting to see these placements drive increased visualization.
Speaker 4: Scythus' base consumables became the preferred method in Q1, surpassing our instrument free assays, a trajectory we expect to continue.
Speaker 4: And it's not just our existing power users for adopting Cytosis. This instrument is bringing new labs into the 10X ecosystem.
Speaker 4: A large fraction of replacements in Q1 went to labs where either new to the vision platform or new to 10X entirely.
Speaker 4: a promising indicator of potential future growth. These trends demonstrate why work competent and side assist is the future of the Vision platform.
Speaker 4: We're continuing to invest and innovate in the vision franchise, developing new capabilities that will be exclusively available on SIDACIST.
Speaker 4: This quarter, we plan to launch Vizium-Gene Plus Protein Expression, empowering researchers with three analytes and one.
Speaker 4: high plex protein, whole transcriptome RNA, and the HNA staining, all on the same tissue section.
Speaker 4: This will be the first and only assay of its kind to offer a morphology first workflow, preserving pristine H&E staining patterns conducted up front.
Speaker 4: Linking an information-rich image with its complementary molecular analytes on the same tissue section enables researchers to both cross-validate their findings and obtain a new level of understanding.
Speaker 4: Now, turning to Xenium, which we believe is the best performing platform for in-situ analysis.
Speaker 4: It's exciting to see the incredible momentum and traction with built-ins with first start-and-ship engineering in December . And we couldn't be more pleased with the initial feedback we're hearing from our customers.
Speaker 4: We set out the bilginium so it just works in the hands of researchers the same as our other products.
Speaker 4: To have our customers tell us this and show us through their routine use is a testament to the strength of our innovation engine and a talent and dedication of our team. Our customers have not only praised Zinew's performance and ease of use, but also the entire experience engaging with the platform.
Speaker 4: They've given RAV reviews to our field teams for their support during installation and training, which shows the real impact of the commercial breadth, depth and scale we've built over the years.
Speaker 4: It is awesome to have the key design specs we intended and marketed for launch, now developed, delivered and in regular user-mafield.
Speaker 4: Researchers are seeing that its systems on market features, not on paper futures, that deliver real value and lead to exciting new discoveries.
Speaker 4: This year, initial customers generate powerful results and stunning images on Xenium run after run has been deeply rewarding and motivating for our team. In fact, since the end of January , our customers have completed dozens of successful Xenium brands with their own pressure samples ranging from mouse brain to more complex human samples across various different...
Speaker 4: To start, thanks to unique features inherent in our chemistry, Zenium delivers excellent sensitivity and specificity, which are the necessary foundations of any high-quality, trustworthy, and prestigious system.
Speaker 4: We compared the information and the competitors marketing materials to our own data sets and found Zenium is currently up to six times more sensitive
Speaker 4: Zenium also delivers much higher specificity, giving customers confidence that each transcript detected is the intended one, and there is no force of phantom genes or cells in their samples. In another comparison using competitors' marketing data.
Speaker 4: We found Xenium delivers up to 42 tons better specificity than the other platform, where 6 to 25% of the transcripts in each cell can be misleading. Beyond performance, Xenium's easy-use, efficient workflow and best-in-class throughput are also resonating very well with our early customers.
Speaker 4: Researchers can use our entire slide area enabling maximum flexibility to run single large sections, multiple smaller sections, or even tissue micro-race.
Speaker 4: With Zenium researchers can analyze the most tertiary area in the least amount of time using the fewest number of slides. In addition, our gene panel strategy, designed to help customers answer their specific research questions, is also resonating well.
Speaker 4: Our approach combines a growing menu of targeted gene panels optimized by T-Shutab with a flexibility to add in large numbers of custom genes.
Speaker 4: This quarter will continue to expand our content menu with the planned launch of new tissue specific panels.
Speaker 4: and a multi-toucher panel optimized for cancer research.
Speaker 4: With each of these offerings, researchers can also spike in their own custom genes to ensure they aren't limited in any way by gene selection. In addition, we recently launched a fully custom gene panel for maximum flexibility.
Speaker 4: Our new combination of pre-design and fully custom panels is increasing the validated in the field. Given researchers the ability to measure V genes they need at high performance and high throughput.
Speaker 4: This all comes together with our differentiated approach to software and data analysis, which is the best demonstration of the caliber and performance of an in-seach platform, and essential to ensuring a positive customer experience and to enabling routine use.
Speaker 4: Everyone in the field has talked about how challenging it can be for researchers to handle the large amounts of data produced by NCT instruments. However, challenges like these play exactly to one of our key strengths.
Speaker 4: We have invested and built world-class software ID data analysis expertise since the earliest days of the company. In contrast to others who outsource the critical function. We have brought our teams proven software prowess to Zenium. And the result is yet another area where the 10X approach is a big differentiator that's making a big impact with our customers. Zenium.
Speaker 4: is the only platform to feature comprehensive primary and secondary onboard analysis in parallel with the instrument run, including cell segmentation and colostrum results.
Speaker 4: This enables researchers to directly access their data on the Zinium instrument immediately after the run is done without the need for honoris, post instrument analysis or massive uploads, downloads or data transfers. Customers who want more of instrument interpretation can easily do so using Zinium Explorer or a wide variety of
Speaker 4: by an ambitious and exciting multi-year roadmap.
Speaker 4: We've already demonstrated a number of these feature capabilities, including the ability to scale through many thousands of genes.
Speaker 4: In addition, Zinium's chemistry uniquely enables I-S4 mapping and SNV detection. Real game changers, the CYPLIT, aren't possible on other platforms.
Speaker 4: The real world feedback we received from our early Zenim users is giving us better insights faster and helping us to prioritize our roadmap so we can deliver researchers precisely what they want.
Speaker 4: Overall, we feel really good about our early progress and momentum. There is tremendous potential ahead with Zenium, and we're bringing the whole of company effort to capture it.
Speaker 4: We've already made significant improvements in our installation and training times, and we're increasingly confident in our scaling as we move through the year. The kinds of projects our customers are already running indicate that Zenium may be one of the, if not the most transformative technologies in our industry in decades.
Speaker 4: We believe our platforms, each on their own, are by far the best in class in a respective field.
Speaker 4: Each provides a different length on biology and can be used together to provide even more value and reveal the deepest biological insights.
Speaker 4: Our progress across each of our platforms continues to reinforce my conviction that one day just about all two sheet samples, whether for research, clinical or therapeutic applications, will need to be analyzed as single-cell resolution, large-scale, and in the right context. We firmly believe our technologies are critical to accelerating the master of biology.
Speaker 5: Second, slightly resides also in the
Speaker 5: Total revenue for the quarter was $134.3 million compared to $114.5 million for the prior year period, representing a 17% increase year-over-year.
Speaker 5: Given the differences in regional dynamics this quarter, I'm going to start with our revenue by geography.
Speaker 5: America's revenue of $78.8 million grew 32% over the prior year period.
Speaker 5: Amia revenue of $28.4 million grew 38% over the prior year period.
Speaker 5: And revenue in APAC was $27.1 million, a 21% decrease year-over-year.
Speaker 5: As discussed on our last call, we saw an impact to sales in China at the beginning of the quarter.
Speaker 5: While we believe activity levels are recovering, there is typically a lag in reorders after such disruptions as distributors and service providers work through existing inventory.
Speaker 5: We also instituted price increases at the beginning of Q1, and customers typically buy ahead of such increases, particularly service providers, and we believe this also contributed to a larger inventory position in Q1 that customers are continuing to work through.
Speaker 5: As we shared at our investor day last December , starting this quarter, we will be providing a breakout of consumable and instrument revenue by Chromium and Spatial.
Speaker 5: Starting with consumables, total consumables revenue was $112.4 million, and increased a 15% over the prior year period.
Speaker 5: Chromium consumable revenue was $101.1 million up 11% year over year. And spatial consumable revenue was $11.3 million up 69% year over year.
Speaker 5: Turning to instruments, total instrument revenue was 19.2 million dollars and increased a 33% over the prior year period.
Speaker 5: Chromium instrument revenue was $11.6 million down 19% year over year, and the special instrument revenue was $7.6 million.
Speaker 5: As a reminder, our cytosist and zinium instruments launched in Q2 and Q4 of last year respectively, and we did not have material spatial instrument revenue in Q1 of last year.
Speaker 5: Finally, services revenue was $2.7 million, which increased 29% over the prior year period.
Speaker 5: Turning to the rest of the income statement. Gross profit for the first quarter of 2023 was $98.4 million compared to a gross profit of $89 million for the prior year period.
Speaker 5: Gross margin for the first quarter was 73% compared to 78% for the first quarter of 2022. The gross margin decrease was driven primarily by the impact of shifting product mix due to newly introduced products and inventory write downs.
Speaker 5: Total operating expenses for the first quarter of 2023 were $150.4 million compared to $130.8 million for the first quarter last year.
Speaker 5: R&D expenses were $67.1 million compared to $64.1 million for the first quarter of 2022.
Speaker 5: SGNA expenses were $83.3 million compared to $66.7 million for the first quarter of 2022.
Speaker 5: The increase in R&D and SGNA expenses during the quarter were primarily due to increased personal related costs and operational expansion.
Speaker 5: Operating loss for the first quarter of 2023 was $52 million, compared to a loss of $41.7 million for the first quarter of 2022.
Speaker 5: This includes $42.1 million of stock-based compensation compared to $26 million for the corresponding prior year period.
Speaker 5: Net loss for the period was $50.7 million compared to a net loss of $42.4 million for the first quarter of 2022.
Speaker 5: We ended the quarter with $418 million in cash and cash equivalents and marketable securities that have restricted cash. Turning to our outlook for 2023, we are raising our guidance and now expect full year revenue to be in the range of $590 to $610 million, representing growth of 14% to 18% over full year 2022.
Speaker 5: as more instruments are sold.
Speaker 5: Xenium consumables have a gross margin comparable to our existing products. However, the Xenium instrument currently carries a significantly lower margin than our other instruments.
Speaker 5: As we continue to scale our manufacturing capacity to produce more units, the cost for instrument will decline.
Speaker 5: There are also opportunities for component cost reduction, which we have not yet undertaken, that will improve instrument margin over time.
Speaker 5: Our goal with Zenium was to make the best in class instrument.
Speaker 5: To do that, we used a number of high-end components, prioritizing performance and time-to-market over cost.
Speaker 5: This is a strategic investment we are making.
Speaker 5: given the potential utilization for the instrument, where, over time, annual consumable revenue streams could be significant. We believe these are wise near-term investments to make, and it does not impact our view of our long-term financial profile. We have now substantially completed and moved into our new operations facility and...
Speaker 5: with the majority incurred over the next two quarters.
Speaker 5: We still expect a significant reduction in capital expenditures in the back half of the year and continue to drive towards becoming free cash flow positive.
Speaker 5: We will maintain a disciplined and targeted approach to op-ex spend throughout the year. However, we expect some increases over 2022 due to increased stock-based compensation expense as a result of previous equity grants. Additional headcounts support new products and increased litigation expenses.
Speaker 5: as we continue to defend our intellectual property. Our strong cash position gives us the flexibility to invest in support of our strategic priorities while still protecting our balance sheet.
Speaker 5: At this point, I'll turn it back to search.
Speaker 4: Thanks Justin. Before we open it up for Q&A, I want to take a moment to thank our team who work tirelessly to ensure customer success.
Speaker 4: It is their relentless focus on our mission that sets 10X apart. Our products are powerful, helping to drive fundamental advances in our understanding of health and disease.
Speaker 4: We just achieved an exciting milestone as our products have not been typed in more than 5,000 peer-reviewed papers enabling discoveries across a wide range of application areas.
Speaker 4: I'm just scoring that achievement, a recent article in the Economist and a December paper in Nature Medicine, both highlighted the tremendous progress made by the human cell applauses over the past five years. The incredible breakthroughs enabled by our technologies and the potential impact on the future of medicine.
Speaker 4: It's more clear than ever that it's still early days. We believe there are massive opportunities ahead and we're in a very strong position to capture them.
Speaker 4: I couldn't be more optimistic and confident about the future.
Speaker 4: Thanks again to our team for all you're doing every day to push 10X our mission and science forward.
Speaker 2: With that, we will now open it up for questions. Operator? Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star followed by one on your telephone keypad. That's star followed by one on your telephone keypad. That's star followed by one on your telephone keypad.
Speaker 2: Please do offer a limit to one question and one follow up. And do remember to un-mute your microphone when it's your turn to speak.
Speaker 2: Our first question comes from then areas from stifle. Then your lines are now open. Please go ahead.
Speaker 6: Hey guys, thanks for the questions here. Just an on spatial instrumentation and 7.6 million revenue. Can you help us with the split between zineum and cytosist? And then on zineum for the year, how do manufacturing constraints figure into the equation?
Speaker 6: and how we should think about just the placement cadence for the year. Should we expect that to be a pretty even step up over the quarters, or do you think there's some backend loading there for the model?
Speaker 5: Hey Dan, thanks for the question. As far as the split in our spatial revenues for zenium and site-assist, we don't split that out, but it was a solid quarter for site-assist and for zenium as well. We're quite happy with the results for both.
Speaker 5: As far as our manufacturing constraints, we continue to make progress operationally. We've got more visibility into the operational ramp than we do before. And so we are continuing to feel more bullish as the year continues as far as...
Speaker 6: us having the operational capability to place instruments at the pace that we'd like to place them, according to prioritizing customer success for the rollout. Okay, and then maybe just on Chromium growth, you know, Sir, if you had to take apart the drivers there and think about what's working for you.
Speaker 6: still the forecast for the year? Is that evolved? Thanks.
Speaker 4: Hey Dania, so I think on the chromium side globally, the conditions have certainly changed globally macro wise. So it put that as probably the the sort of the strongest factor.
Speaker 4: especially since there's still a pretty big difference geographically if you look at the results. Pretty substantial growth we saw in the NIA and AMR and really across old product lines. So that does suggest that there is just general underlying strong momentum behind the franchise. With this, if you think about the...
Speaker 4: it's not yet that scale. So that's how I would look at it. But that's that. It certainly as it's increasing, it will become one over time, as special as we think about new applications, new customer adoption, driving into more translational use cases.
Speaker 5: call, we gave a starting point for the growth by chromium and by spatial. I don't expect that we're going to update those percentages on each earnings call going forward, but in looking at the changes to our guidance range on this call, we're taking the range up by $10 million on both the lower end and the higher end.
Speaker 5: and that represents the beats that we had in Q1, including a more bullish view on spatial, specifically, zineum. As far as talking about some of the drivers of chromium, like Sirage mentioned, chromium was strong in AMR and AMIA. We had overall weakness in APAC, but...
Speaker 5: the growth rates in AMR and AMIA were in the 20%. And so when we're looking at our outlook for the rest of the year, we're offsetting that against the weakness that we saw in China, in Q1, and that we expect to continue on into Q2.
Speaker 2: Okay, thanks guys. Our next question comes from Dan Brennan from Cohen. Then your line's now open. Please go ahead.
Speaker 6: Great, thanks for the questions, guys. Maybe just on China, and then you started off, and you gave a lot of color in the prepared remarks. Maybe could you just walk through a little bit kind of how we should think about the regression throughout the year, any color on how the quarter ended, how second quarter started off, and just, yeah, just kind of pursue original expectations, kind of what's now in different China.
Speaker 5: This is Justin, I'll take that to start. Maybe I'll just start overall with APAC. APAC overall was down 20% year over year. And that was driven by China, which was down about 36% year over year. And our business bottom in APAC is a whole.
Speaker 5: is different than an AMR and AMIA where we primarily sell through distributors. And in China, the distributors and customers are service providers. And so there's two levels of sales there.
Speaker 5: And so inventory the service providers, as we mentioned last quarter, that was higher because of the lockdowns, but that was exacerbated by pull forward from the price increase that we implemented at the beginning of the year. And so service providers and distributors in particular do tend to have a larger pull forward and advance the price increases.
Speaker 5: just due to the concentration and the throughput of overall product pay. So from what we can tell, the inventory levels are still high at the service providers and distributors. We expect to see a Q2 that is roughly similar to Q1, and then we expect to see some recovery in the back half of the year.
Speaker 6: In Zenium's volunteer, obviously now the string has the big backlog and they had the early access programs. They've had a yearly, like any color on win rates. And as you look at the opportunity set, like what have you learned thus far from the launch? Sounds like you're bumping up your guidance on the spatial side, but any color maybe just in terms of the opportunity, if you think of the next few years, for Zenium from what you're seeing so far early in the field. Yeah, so our view of the opportunity has always been the push, right? Overall, it's huge opportunity and now it was specifically with the Zenium launch. So always the long-term potential here is massive and that has not changed. If anything, kind of our experience with our customers, the speed would reach their eager to adopt these platforms and run their samples.
Speaker 4: very much again leaning into the strength specifically we've developed here and for the platform itself really driving usage going forward. And so yeah so we're feeling good to also make the trajectory in the moment and also the tremendous potential of the look over the coming years.
Speaker 6: Dan and Dan have hit a pun over here. So just to take things off, I mean, you sort of thrown down the gauntlet on the relative specs versus the competition. Do you expect to publish those data sets at some point or are any customers running similar head-to-head experiments that...
Speaker 7: versus where it was at the start.
Speaker 4: really good at where we we're currently are and the feedback we're getting from our customers. And you know, as far as the questions of bookings about, like we know we don't comment on bookings, we do feel good about our momentum. Our cell team has fired up with all the with all the releases we have had with the launch of the catalyst program.
Speaker 7: Got it. That's helpful. And then a quick follow-up on Chromium and then just to clean up for you, Justin. So on the Chromium, you've talked about sort of the possibility of flex cannibalization on the portfolio here. Is it play out as you anticipated or are you actually seeing that sample elasticity come through a little bit quicker? I know you mentioned some large sample projects here that you were looking at. And then Justin, for you, you laid out a few sort of moving parts on the free cash flow line. But maybe I didn't catch this. Did you give a timeline around when you expect to be free cash flow breakeven? Is it potentially now?
Speaker 4: into the multiplex version of these kits. But there's still a relatively small number relative to our overall chromium franchise. And so that is to say, it's too early to say which way sort of the elasticity was going to play out and on what time scale. We would expect that initially it's going to put some pressure because
Speaker 4: you kind of first you adopt that sort of multiplex workflow and then you start scaling up into larger, larger projects. And we're still kind of in that initial phase when people are testing the product, some people are progressing further and some of them now start ordering large multiplex kits.
Speaker 5: What I would see is the biggest lever there towards the end of the year would be the inflection of the zineum ramp. If we find that ramp is increasing more deeply right now towards the end of the year, i.e. planning even more units for the following year, there could be working capital strains on free cash flow. But I think that would be a good thing if we find ourselves in that situation at the end of the year. Our next question comes from Patrick Donnelly from City. Patrick, your lines now open, please go ahead.
Speaker 5: Serge, maybe another one on Xenium. Now that you're getting some systems out there, can you just talk about the customer reception? I mean, are you seeing any cannibalization with Xenium and the rest of the spatial portfolio? Are you seeing it more...
Speaker 6: synergistic with customers looking to expand, kind of build out a spatial portfolio. And then any metrics you guys have in terms of backlog or any way to think about that would certainly be helpful, but maybe just on the cannibalization side to start. Yeah, that's a good question, Patrick, right? It's something that we've been thinking about and we've got questions about.
Speaker 4: I think it's too early to see cannibalization. Certainly when we look at Xenium and Visium, in fact, if anything, there's a great amount of complementarity to the platforms and to the use cases. And we're seeing customers actually buy into the full ecosystem. In fact, we have customers who were buying multiple platforms, meaning the Chromium X, the Site Assist and Xenium together, and the setting of workflows that make use of all three.
Speaker 4: So I think that at this stage there is a lot of complementarity. It is an open question how this will all involve. There's certainly a lot of interest right now, a lot of interest around Xenium with these early adopters, the technologists, and people are definitely spending a lot of their mental bandwidth now on Xenium.
Speaker 4: which might on a margin affect some of the experiments that might have run otherwise with, let's say, Chromium. But I think that's a relatively minor element right now. I think that the platforms are largely complementary and as the markets evolve, we'll see how it shakes out between different applications. But the overarching principle pieces that we've talked about is that regardless...
Speaker 5: follow up on Dan's question there on China. Can you just talk about, I don't know any metrics you have, whether it's activity levels that you saw throughout the quarter in April . Could you see any stimulus activity as well in terms of helping out there and just from it, kind of get a feel for that ramp coming out, obviously, super January was...
Speaker 5: Very bad, and then you know things should improve from there, but I'd love just any color you have that would be helpful If I took as far as China goes we didn't see anything as far as as far as stimulus in fact With some of our and cut with some of our customers We saw drivers in the other direction with customers with fun
Speaker 4: wins overall. And maybe one thing Patrick too I would just kind of add, the landscape in China is different on the rest of the world. We're selling there through two layers of intermediaries, through distributors to service providers. The Nicole oceans total temperature must be farmingically high. As has 249 Long Island counties, we have collective economic stability.
Speaker 4: is around those service providers. And especially given the last couple of years, things that tend to be kind of murky, right? You don't see as much into the M customer usage patterns. And then that's the last couple of years because our team's internal, our China team has not been on the ground near as much. And certainly our outside of external China team.
Speaker 4: has only just like literally the last few weeks have been able to come back for the first time. So our visibility in China generally has been, has been somewhat limited, has been murkier, but we expect to gain greater visibility in the coming quarters. Our next question comes from Matthew Sykes from Goldman Sachs.
Speaker 5: Matthew, your line is now open, please go ahead. Great, thanks for taking my questions. Maybe first just on Chromium Instruments, came in a little bit lower than what we were expecting, but Surgeon made some comments about you expect sort of increased momentum in the later part of the year. Is that flex, you think, just maturing in and driving Chromium X adoption or are there other kind of tailwinds that you see for Chromium Instruments specifically?
Speaker 4: for the latter part of the year. So on terms of, in terms of COVID, I talked about more just general momentum that we're seeing on the kind of a macro economic side. All that, you know, we were seeing a nice pickup in AMR and AME across
Speaker 5: Hey, Matt, yeah, I can add to that. You're right, when you look at Chromium Instruments Revenue, it was down 18% year over year. But there's a few things there to unpack. The first is, when you're looking at the Chromium X and IX split at this time last year, it was way heavily towards the Chromium X instrument. And that was part of... The Chromium X.
Speaker 5: The high throughput being adopted by customers who had the need or wanted to use high throughput in the near future. Over time, we've been seeing the mix shift more towards the IX. In fact, this past quarter, IX was over 50% of the Chromium X and IX split.
Speaker 5: So, you know, revenue was down, but if you look worldwide at units for the Chromium X and IX, that went up on a unit basis year over year in the low double digits. And so overall, we feel really good about the Chromium business and where it's headed. We don't think that instruments are a constraint right now for customers.
Speaker 5: series and over time, Flax is going to drive a complete upgrade cycle as far as the customer base goes. That's going to be a key driver of placing primarily IXs in the future and eventually turning over that instrument installed based to the X series.
Speaker 6: That's a really helpful color. Thanks Justin and Serge. Serge, maybe just one for you. You mentioned as you launched Xenium, the level of sophistication of the components was high just given the importance of the launch, but that over time you could maybe improve the gross margin of the instrument by either changing or substituting. I'm not sure what term you use, but I'm just curious.
Speaker 5: to what extent can you actually kind of make those components different or improve the gross margin of the instrument outside of obviously scale and larger volumes but are there things that you can do within the component mix that can actually improve the gross margin profile of the xenium over a longer period of time.
Speaker 4: without compromising performance and everything else that goes with it? I mean, yes, there's certainly lots of opportunities for that. For Xenium, as we build the platform right now, we optimize, prioritize performance and time to market. And that was our focus.
Speaker 2: And we feel really proud of the instrument and how well it works. But certainly going forward there's lots of opportunities for us to tighten the costs and to bring those down without affecting performance. Our next question comes from Kyle Mixon from Canaccord.
Speaker 5: were most obvious. Just curious about that. And you could just talk about to queue a bit here going forward in 2023. What are you expecting for instrument growth for chromium compared to the seven percent you just did here? Thanks. Hey Kyle, as far as last year goes, I do think that the first half of the year when we are looking at the growth of the instrument, we're going to be
Speaker 5: year over year, I do think it's a fairly easier compare right now. I do think that when we get into the back half of this year, it is going to be a more challenging compare. You know Q1 and Q2 last year were relatively flat to one another and then we saw the pick up in Q3 and Q4.
Speaker 5: As far as the chromium placements for the rest of the year, we're not going to guide to a specific number, but I would caution against extrapolating the Q1 results for the rest of the year. We had a price increase that went into effect at the beginning of this year. Instruments and consumables We're not going to guide to a specific number, but I would caution against extrapolating the Q1 results for the rest of the year.
Speaker 5: went up five and eight percent respectively. And this past Q4 was a really strong quarter for for instruments. And so let's see I think how the rest of the how the rest of the year goes on placements. Like I mentioned Flex is going to be driving more Chromium X and IX over time specifically to IX.
Speaker 5: Eventually it's going to drive a complete upgrade cycle, and I think the only variable there is just the amount of time it'll take to do it. Okay, that was great. And then the 7% I just quoted was for total chromium just FYI, but that was great. And just following up on the pricing increases, so you did, I think consumable increased to 8% this year.
Speaker 6: So maybe surge, how is that USB progressing through the different levels of customers, I guess? You know, the high volume will volume any order and trend that you're seeing them on the deck can symbol so far? Yeah, that would separate the price, the annual pricing increases the work that we do from the more strategic trajectory of elasticity of demand.
Speaker 4: The first one is just sort of the cost of doing business. We do this annually. We increase these prices. There is more, obviously there is more inflation this last year. So we did a somewhat higher increase than we have done in previous years. As far as the elasticity of demand goes, we are strategies to do that through product configurations and that's where the flex kit and the specific of the multiplexing capability of flex comes in.
Speaker 4: That's still very much in the early stages of market penetration. As I said earlier, most customers so far are in a stage of testing their kit. A lot of them have run pilots. Some of them are now scaling up into routine use, but that's a relatively small number, especially relative to our overall revenue base.
Speaker 2: So I think it's substantially early to be looking at the elasticity effects of the flux kit. We'll see how that plays out over the coming quarters, but it's terrible. Our next question comes from John Sorbier from UBS.
Speaker 2: John , your line is now open. Please go ahead. Hi, hello. This is Tien-Hsi calling for John . Served in Justin Keyworth on the quarter. So, quickly on the zenium side, can you provide a simple color on the cell segmentation of the zenium?
Speaker 4: How do you think the cell segmentation of Inium can play with your competitors like MetalSuite? Yeah, so cell segmentation is a critical component of any NC2 platform, any NC2 system. We knew that from the very beginning. We invested a lot.
Speaker 4: development and self-signitation and have taken a very kind of foundation oriented multifaceted approach to solving this problem. The initial release with our what's on our curler and adenium platform is a really good highly performing nuclear based segmentation, which we strongly believe without performing anything else that's out there.
Speaker 4: And our customers are already generating really great results and really good insights using the nucleus-based method. And generally we've gotten positive feedback. Now that's only the start. It's kind of the foundation. There's a lot more work to be done, a lot more improvements to build on top of this. We talked about this at the AGBG in February , the AGBG conference, where what we're doing to build on top of our current...
Speaker 2: or a gaming quarter or something like that. No, thank you. That's a great color. Just one follow up here. I should be going to a side of this. You know, where are you seeing kind of like the most demand is coming from? Is it the new customer-existing customers or what type of customers?
Speaker 4: like a very large fraction are actually new to Visium completely. And actually, some of them are new to 10x entirely. So I think that suggests that there is substantial potential for Visium to go well beyond that initial user base of the Visium.
Speaker 4: So the instrument less manual workflow and suggested that the market for Cytus is actually substantial and larger than what we might have thought before. We're getting great feedback from Cytus across the customers. We just had a customer telling us that they managed to...
Speaker 4: ship dozens and dozens of slides across continents, like really old FFP, like challenging FFP slides tissues, and it worked on, like site-assist data would work on every single slide. So the kinds of results that you don't, like, ever, you just don't expect, and it's really, really rewarding to see the instrument working as designed, and in many ways, been better than our initial expectations.
Speaker 8: Our next question comes from Julia Kim from JP Morgan. Julia, your line is now open. Please go ahead.
Speaker 9: Hi, good afternoon. So just a couple of thoughts here. On Chromium, I think it's nice to see early signs of price lefties that are playing out. So just give us some what color on the distribution of Chromium pull through. You know, how concentrated is concentrated at the top tier customers or are you now seeing more broad-based?
Speaker 9: distribution of large-scale projects and how do we tie that with your previous commentary on the mix of Chromium IX versus Chromium X.
Speaker 4: So, Julie, the comments that I made previously were more along the lines of we do see a flux adoption, but it's still very early in the adoption cycle, and so it's too early to comment on the coil that we're trying to
Speaker 4: kind of presizing how the price elasticity is playing out. Obviously, no longer on we do feel that there's tremendous price elasticity in this in this market and we do expect to drive into that and the flux is going to be one of the primary ways for us to do that.
Speaker 4: As far as pull through and usage patterns of our instruments, I don't think there's necessarily been a huge material shift. Our customer base is not very concentrated. It's very diverse and there's not a single customer that's a dominant part of our revenue base. It's quite dispersed. It's quite robust in that sense.
Speaker 4: We do have large studies that some customers are running. There are some big multi-thousand sample publications. We also have a lot of customers who are running consistently and more sort of on a one-off basis, individual samples that come in. Some of them are doing basic developmental biology studies that are project oriented. So it's a fairly dispersed gamut of usage.
Speaker 9: I wouldn't say that there has been necessarily a huge material change recently. Okay, that's helpful. And then on XENIUM, without getting necessarily too quantitative, could you give us maybe some kind of customer fix in your order funnel? Given the throughput advantage, are you seeing more CRO customers, or are you seeing a more even distribution with the bottle farmer and the XENIUM customers as well?
Speaker 4: there's a huge difference from what we've seen with our other platforms, kind of in the early stages of launch. It is a helping mix of biotech, pharma, academia, some servers, providers, some cereals for sure. Like we were seeing that and it's encouraging. I mean, obviously this is a brand new kind of platform.
Speaker 4: the customers tend to be quite sophisticated and quite forward leaning in terms of adoption. Two questions whether people will actually have samples. Look, I mean, to some extent time will tell, but I reported the early indicators are that that's not an issue at all. People have been jumping in and running samples. I mean, we've had multiple customers who've run through dozens and dozens of samples and many multiple, multiple runs.
Speaker 4: And as far as what it means for pull through, I mean, we'll see it. Like the instrument will design sort of, if you kind of do the math, the max possible pull through is an order of $1 million. It'll, yeah, both, but it's way too early to comment on as to what sort of the average use case is going to be. Our next question comes from Mason, Kariko from Stevens. Mason, your line's not open. Please go ahead. Hey guys, thanks for taking the questions. My first one on Chromium Flex.
Speaker 4: Any incremental color you can provide on feedback flex from pharma customers. How are you thinking about the adoption curve and ramp of this product for pharma in 2023 and 2024 compared to your academic customers? Yeah, that's an interesting, it's a good question because obviously it's like this particular resonance with sensational customers. It worked with a few samples.
Speaker 4: I think at this stage, it's too early to say, like the first people who are going to be exploring this, who are in fact exploring this product, are more on the academia side, now they're more on the translational side. And as they work through and validate the performance of this product, then we expect the farmer will start picking it up.
Speaker 4: That's the trajectory that all these products go through. You do need to go through academia and let these products go through the basis and get that validation initially. And then they naturally get picked up and passed.
Speaker 5: So I do have decided that to happen over time, but not yet in that cycle. Okay, got it. Thanks. And on Site Assist for customers who have bought a Site Assist instrument, let's say early on.
Speaker 5: Have you seen an increase in their Visium consumable consumption since they purchased the platform? And if so, is there an opportunity to see a benefit to Visium consumable growth in the back half of this year and as we enter 2024 given the number of placements in the second half of last year and likely in the first half of this year?
Speaker 5: Hey, Mason, this is Justin. I'll take that one. You know, that is something that we've been looking at. The site assist, you know, improves a number of workflow issues for customers. And so even customers that are, that were buying just the regular Visium before, we looked at their usage pattern before and after a site assist purchase. And we are seeing an increase in usage post.
Speaker 5: more usage with customers.
Speaker 8: Our next question comes from Michael Riskin from Bank of America. Michael, your line is now open. Please go ahead.
Speaker 10: Great, thanks for taking the question, guys. I'll just ask one, just to keep things moving. In response to an earlier question, you said something along the lines of, you know, when you're talking about what are the factors that are driving the improved performance of the trauma you've kind of cited.
Speaker 10: macro condition globally, particularly if you look at America's media versus China. So I'm just wondering if you could expand on that a little bit. macro can mean 57 different things. Is it funding environment? Is it access to clinical samples? Is it, you know,
Speaker 4: take your last point and just because like I mentioned that we were seeing this effect on multiple applications and some of them are much more discovery oriented than translationally oriented. I would say obviously last year was a depressed Q1 due to various factors and we certainly have been coming out of that. Q2 was also fairly depressed so I think...
Speaker 4: just sort of the level of activity with these kinds of products with our customers has been picking up generally in those in these geographies. And I think part of it is the story that we have been kind of expecting that people kind of are ramping up. They're getting back in the labs doing, you know, starting our projects, collaborations, and that's now sort of bearing fruit.
Speaker 4: And we do see it as a sort of continuation of the pattern we started seeing in the back half of last year. Q3 was better somewhat than Q2 and Q4 was better than Q3. And so that's how we're...