Q3 2023 10x Genomics Inc Earnings Call
Thank you for standing by my name is Aaron and I will be your conference operator for today at this time I would like to welcome everyone to the <unk> genomics third quarter 2023 earnings conference call. All lines have been placed in mute to prevent any background noise. After this.
Speakers remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question Press Star one again, thank you.
Yeah.
I would now like to turn our call over to Kathy Cournot director of Investor Relations and strategic Finance. Please go ahead.
And good afternoon, everyone.
Earlier today <unk> genomics released financial results for the third quarter ended September 30th 2023.
You have not received this news release or if you would like to be added to the Companys distribution list. Please send an E mail to investors at 10 X genomics Dot com.
An archived webcast this call will be available on the investor tab of the company's website <unk> genomics dot com for at least 45 days following this call.
Before we begin I would like to remind you that management will make statements. During this call that are forward looking statements within the meaning of federal securities laws.
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.
Additional information regarding these risks uncertainties and factors that could cause results to differ appears in the press release <unk> genomics issued today and in the documents and reports filed by <unk> genomics from time to time with the Securities and Exchange Commission.
Tenex genomics disclaims any intention or obligation to update or revise any financial projections or forward looking statements, whether because of new information future events or otherwise.
Joining the call today are Serge <unk>, our CEO and co founder and Justin <unk>, Our Chief Financial Officer.
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.
With that I will now turn the call over to search.
Thanks Scott.
And good afternoon, everyone on today's call I will begin with a brief overview over third quarter performance and update you on our progress across each platform.
Jonathan will provide a more detailed look at our financial and business trends and updated outlook for the remainder of the year.
After that we'll open it up for your questions.
Revenue increased 17% year over year to $154 million in the third quarter.
Our results were once again driven by <unk>.
As we continue to ramp operations and drive exceptional demand with researchers worldwide.
What you have strong growth despite continued headwinds in China.
And excluding China, our growth exceeded 20% during the quarter.
Just like Tenex catalyze the single cell Revolution, where no ushering in a new era of genomic analysis with senior <unk>.
Our mission is bigger than any one technology or any one platform or.
Our goal has always been to provide scientists with new generations of tools to measure biology at the right resolution and scale.
That is why we invested in our three platforms that is why we have invested in foundations, our innovation engine commercial breadth and manufacturing scale.
And that is why we firmly believe we are still just getting started.
Now, let me share more about each platform.
I didn't really like to start today with Xenial, which we believe is the best performing platform for in vitro analysis.
In the third quarter revenue from our spiritual products exceeded $36 million.
Largely driven by the accelerated adoption and operational ramp of Argentinian platform.
It's worth pausing here for a moment.
Very few platforms ever achieve the type of success that our team has accomplished with <unk> and just the first three quarters of launch.
It's a steep adoption curve has put it on a truly special trajectory likely among the best in life Sciences School history.
We have always believed that <unk> has the potential to be one of the most transformative technologies in our industry in decades.
Which is why we deliberately brought the whole of company effort and focus to development and commercialization.
Our R&D teams worked incredibly hard to build a high performance system.
Just works and researchers.
Our operations team split and incredible efforts to enable the manufacturing ramp.
And with me the Xenia and launch our top commercial priority of this year.
Now that we have awesome traction with our customers. It's clear those efforts are paying off.
It's been extremely energizing to see results start pouring out from our customers showing how they are using cesium in their own labs.
For example, it seemed from Duke University recently published a study fueled by Xenia that sheds light on the resistance mechanisms intermodal lethal pediatric brain tumors.
Thrilled to see how quickly researchers can go from initial installed two groundbreaking results with <unk>, demonstrating the utility and the ease of use of the platform.
In addition, the researchers at the University of Adelaide recently published the first side by side comparison of Xenial and another platform.
This is the first public study compared theater run by a customer on adjacent tissue sections in their own lab with commercially available instruments.
Across the board the results are striking validating xenial superiority and supporting our own analysis.
This is the first real world evidence generated by customers for customers that shows Xenial delivers better sensitivity and the best specificity.
<unk> throughput the best workflow, the best data analysis and much more.
Most importantly, xinyu shines in biological comparisons delivering better sell typing better speciality and better expression marker identification.
This data is strongly consistent with a resounding feedback we hear from casino customers around the world.
Researchers confidence that <unk> was clearly the right choice for in vitro analysis.
Q3 demonstrated the continued progress, we're making with <unk> across all fronts commercially xinyuan differentiated features great workflow and superior performance drove strong instrument demand. Among researchers worldwide is especially rewarding to have customers who are already running xenial in their own labs order more instruments.
We're also pleased to see customers to make the switch from other than Ctrip platforms could take advantage of <unk> performance.
On the operation side, we've continued to quickly ramp production to meet growing customer demand as we previously announced with surpassed 100 cumulative xinyu ship message on August eight.
Eight months after launch.
We've continued to deliver on the R&D front to Q3, we introduced three new targeted gene panels launched a 480 <unk> fully custom gene panel and deployed new on and off board software to unlock our highest sensitivity and throughput to yet.
With well over half of our panel orders containing some level of customization.
Also launched the <unk> panel design or a self service web side that makes it easier for researchers to design custom panels to answer their specific research questions.
Yeah.
Yeah.
We engineered veniam to optimize performance not only at launch but also for the long term.
We are already executing on an extensive multi year product development roadmap designed to enable powerful research applications and build on the <unk> class leading performance.
In early 2024, we expect to launch a powerful new sales segmentation capability, that's multimodal and includes interior and membrane stands.
Mid next year, we plan to launch 5000, Plex gene panels for miles in human tissues that run in days not weeks and deliver high levels of specificity and sensitivity and throughput.
We're also developing on the inline high plex protein assay to combine that with the RNA assays on the exact same tissue section, which would also intend to introduce next year. This will extend existing protein capabilities on xinyu and beyond immuno fluorescence based measurements.
All in Q3, it was a remarkable quarter virginium strong demand and resounding enthusiasm from researchers reinforce our conviction that the spatial biology opportunity is at least as large as anything in the history of the industry.
Our current position and our roadmap going forward give us confidence that we will realize the full potential of this opportunity.
Now turning to visit them.
Which we see as the leading Ngos based spatial technology in <unk>.
<unk> continues to resonate well with customers, who will benefit from a better visit workflow and better data.
While demand for Cytosorb moderated in Q3 relative to a strong launch quarter in the prior year period.
We see a long runway for placements there.
There are thousands of customers, who have tried wisdom and haven't upgraded decided assist yet in.
In addition, we believe there are many thousands more who are well positioned to adopt museum inside of us in the future.
With that assist us with the foundation will continue to invest and innovate in the vizio and franchise.
Last quarter, we launched our <unk> gene and protein expression assay, which enables researchers to combine whole transcriptome spatial analysis with high plex protein detection and H N standing all on the same tissue section.
In addition, we're excited about all of the progress, we're making on visiting H D, which will bring single cell scaled resolution two unbiased base oil discovery.
We've said before this is one of the hardest and most ambitious projects we've ever taken on.
Our teams have been working hard to deliver a fantastic product and our recent momentum has been driven in part by an acquisition. We made earlier this year to accelerate the scaling manufacturing with visiting H D.
We see this investment with as an important enabler for delivering a superior quality product with superior economics at scale.
Our team is generating absolutely breathtaking visitor image D theater across various human and mouse issues.
We've shared some of these stunning images with customers during our special World Tour events, which is fueling even more excitement for this highly anticipated new offering.
We look forward to sharing more updates as we get closer to launch.
Okay.
With our products and pipeline that we have in both our busier months Union platforms, it's easy to see why we're so bullish about the opportunity ahead integration is.
Also exciting when researchers combine our single cell and spatial portfolios in their work.
We recently partnered with a biotech company that selected the chromium museum platforms for a large scale translational study involving many thousands of tumor samples.
We believe this collaboration will result in clinical significant discoveries. This will transform how we diagnose treat and ultimately cure cancer.
This is just one of a number of examples that show how our customers are leveraging the power and potential of the full 10 X portfolio to advance human health.
Now I'd like to share more about chromium the clear leader in single cell analysis.
In the third quarter, our chromium largely remained a regional story as we continue to navigate headwinds in China the pressure on global growth rates.
As a result worldwide chromium revenue was flat during the quarter in the Americas and EMEA year to date chromium growth was in the low teens.
However, we still believe chromium has the potential for far more.
Three key points to make related to chromium performance.
First we strongly believe in the tremendous potential of the chromium franchise and intend to fully capture the significant untapped opportunity that's still ahead.
So is the fundamental unit of biology, the vast majority of biological research that could benefit from single cell measurements doesn't yet.
We see this as we talk to new prospective customers intrigued about the potential of single cell.
We see this when we talk to long term users who are keen to scale up their studies.
We see this when we talk to translational customers, who are looking to unlock the biology hidden and thereby bank samples.
We have an incredible roadmap of upcoming product launches that will take the entire chromium franchise to the next level raising the bar on performance and with economics to drive broader adoption.
Second we intentionally prioritize busy new product launch this year.
The entire company has been intensely focused on ensuring the success of our customers will this game changing product and the results speak for themselves.
This decision potentially carried some risk.
Less of our focus was on driving chromium growth.
We're confident it was the right decision to make particularly as we look long term.
<unk> more balanced going forward, which will help us deliver on <unk> full potential.
Finally, as excited and confident as we are about the chromium opportunity ahead. Our strategy has always been about the power over a full portfolio of.
A comprehensive suite of products that will enable researchers and eventually clinicians to interrogate biology in a way that's best for their work.
In the near term this may mean, theres, some tradeoffs in lab resources, mindshare, and even budgets among the most cutting edge researchers in the long term, we see the opportunity for tremendous growth across the combination of our platforms driven by the vast unmet needs and addressing the complexity of biology.
Our goal is to enable more researchers to do more single cell work and to use more sample in the process.
Our exciting and robust new product roadmap is built around this imperative.
With several planned launches intended to open up larger studies and make single cell analysis more routine.
Two recent announcements highlight the additional capabilities, we're bringing to the chromium platform.
In September we launched our new high throughput feature barcode multi omics profiling on the flex platform. This offering enables researchers to gain more insights from a single experiment by detecting simultaneous gene and protein expression.
Bill is here to run multi omics more million cell experiments at a significantly lower price point.
This launch is part of our long term plan to broaden the menu of applications available on the flex portfolio.
Yeah.
In addition, we recently partnered with Beckman cultural life Sciences to expand our automation solutions for single cell assay workflows as.
As part of this agreement, we will develop dedicated kits for use them Beckman coulters broad installed base of automated liquid handlers.
Yeah.
Not only are we working to enable more samples for single cell analysis. We're also working to enable more obligations. We have established strong beachheads in translational and biopharma, but it's still very early relative to the expected large potential.
We've seen a number of recent customer publications that demonstrate the promise of single cell tools on the future of drug development and clinical care.
On our blog, where recently highlighted the phase II clinical trial that leverage single cell analysis. The study of the efficacy of the combination therapy group of patients with a mutated metastatic colon cancer.
Single cell data and correlated patient outcomes suggested the therapy was effective to extend progression free survival in some patients likely as a result of up regulating immune related genes in tumor cells.
In September and my T. Researchers published several papers using telematics products to reveal the transcript all make in lipid genomic changes that occur as alzheimers disease progresses.
In one study researchers used chromium to analyze more than 2 million nuclei isolated for more than 400 patients with varying degrees and clinical stages of alzheimers producing the most detailed single cell Atlas of Alzheimers disease, and uncovering cell subtypes and pathways associated with cognitive resilience.
And also this quarter researchers at UCLA published work in the journal of clinical investigation to explain why immunotherapy is more effective for certain brain cancers than others.
This study highlighted how chromium and busy am I being Houston parallel to make new discoveries that can transform the future of cancer care.
Examples like these energize and inspire our team as we push towards our mission and work to bring the future forward.
I'm, so proud of our team's continued execution and dedication.
We like to say, we're obsessed with customer success.
That's evident in everything we do from our innovation engine, so our manufacturing Graham to our field and commercial teams working tirelessly to support our customers and their groundbreaking research.
As we look ahead to 2024 I'm very excited about the robust pipeline of new product launches. We have planned in all three platforms, we can't wait to see how researchers use these new tools.
Even higher levels of scale and resolution do you feel then nexsan typically discoveries.
And we will continue our focus on operating with ever higher levels of rigor discipline and clock speed dialing up both our efficiency and effectiveness to be in the best possible position for all of the incredible opportunities ahead.
We believe single cell and spatial other future and we have every intent to be the company that delivers on that future.
With that let me turn it over to Justin for more detail on our financials.
Thank you search I will start by reviewing our financial results for the three months ended September 32023, then I'll provide an update on our outlook for 2023.
To summarize from an income statement standpoint, we saw exceptional performance from Xinjiang, <unk>, which was above our expectations and given its effect on product mix. This had a negative impact on overall gross margins.
From a balance sheet and cash flow standpoint, we continue to be disciplined in our spending while being opportunistic on acquiring assets to accelerate our strategy.
In the quarter, we closed on an acquisition, which we signed earlier in the year to acquire certain intangible and other assets to accelerate our R&D pipeline is.
It's important to note that net of the transaction, we were operating cash flow positive and this will continue to be a focus of ours going forward.
Now onto the detailed results.
Total revenue for the quarter grew 17% year over year to $153 $6 million compared to $131 $1 million for the prior year period.
Looking more closely at our revenue breakdown and starting with consumables total consumables revenue was $114 4 million an increase of 6% over the prior year period.
Worldwide chromium consumables revenue was $103 million up 2% year over year and spatial consumables revenue was $14 1 million up 38% year over year.
Turning to instruments total instrument revenue was $34 9 million, an increase of 67% over the prior year period.
Chromium instrument revenue was $12 $2 million down 18% year over year, driven primarily by lower unit volume and shifting product mix.
Spatial instrument revenue was $22 7 million compared to $6 million in the third quarter of 2022.
As a reminder, our cenaeum instrument launched in Q4, so <unk> did not contribute to spatial instrument revenue in Q3 of last year.
Services revenue was $4 3 million, which increased 110% over the prior year period.
Looking at our revenue by geography, Americas revenue was $99 million growing 28% over the prior year period.
EMEA revenue was $32 million growing 15% over the prior year period and revenue in APAC was $22 6, million% to 12% decrease year over year.
We continue to face challenges in the APAC region, largely driven by China.
On our last earnings call, we shared that we expected China revenue to remain flat in the back half of the year compared to Q2, which is what happened in Q3.
As we continue to navigate challenges in the macro environment, we are seeing lower demand, particularly at service providers, where a large portion of our revenue, Wisconsin traded and samples are consolidated.
We've been working with these service providers to better track underlying demand and smooth out ordering patterns to better control inventory levels going forward.
Turning to the rest of the income statement gross profit for the third quarter of 2023 was $95 $5 million compared to a gross profit of $100 7 million for the prior year period.
Gross margin for the third quarter was 62% compared to 77% for the third quarter of 2022.
The decline in gross margin was driven by the strength of genius placements this quarter.
I have shared that in the early quarters of <unk> adoption, we expected overall company gross margin to trend lower as more instruments are sold given that the xenia instrument currently carries a significantly lower margin than our other instruments.
We have seen a greater impact to gross margin given the strength in our prioritization of the Xenia lunch.
We plan to continue to prioritize Indian placements over the coming quarters, given the overwhelming enthusiasm we're receiving for this platform and its capabilities, which in turn will continue to impact gross margin in the near term.
As customers ramp up there's indium utilization, the <unk> consumables, which have a gross margins comparable to our existing products will become a larger portion of the revenue and increase our overall margin overtime.
Total operating expenses for the third quarter of 2023 were $193 million compared to $147 million for the third quarter last year.
The increase was driven by $41 $4 million of in process research and development expenses related to our January 2023 agreement to acquire certain intangible and other assets.
The $41 $4 million includes the upfront payment of $10 million earlier this year $31.3 million paid in Q3 upon closing and the achievement of certain milestones and zero point $1 million related to adjustments for assets and liabilities acquired.
Okay.
R&D expenses were $66 $5 million compared to $67 $3 million for the third quarter of 2022.
The decrease was primarily driven by lower laboratory materials and supplies, partially offset by higher personnel expenses.
SG&A expenses were $82 $4 million compared to $73 4 million for the third quarter of 2022.
The increase was primarily due to increased outside legal expenses and increased personnel related expenses.
Operating loss for the third quarter of 2023 was $94 8 million compared to a loss of $40 million for the third quarter of 2022.
This includes $41 $4 million of in process research and development expense. This also includes $42 million of stock based compensation compared to $33 $5 million of stock based compensation for the corresponding prior year period.
Net loss for the period was $93 million compared to a net loss of $41 9 million for the third quarter of 2022.
We ended the quarter with $356 $9 million in cash and cash equivalents in marketable securities net of restricted cash.
Yeah.
Turning to our outlook for the remainder of 2023, we are raising our guidance and now expect full year revenue to be in the range of $610 million to $625 million representing growth of 18% to 21% over full year 2022.
This compares to our previous expectation of $600 million to $620 million.
Our updated guidance reflects our performance for the first nine months of the year as well as continued <unk> momentum.
At <unk>, we have a disciplined approach to spending and are continuing to execute across our business with a drive to become free cash flow positive in the near term.
We still expect a significant reduction in capital expenditures in the final quarter of this year.
As expected the payments for our new facility are now substantially complete.
When looking out over the next 12 months, we are anticipating about 20 million to $25 million of total capital expenditures.
In addition relating to our acquisition up to $15 million will be due if an additional technology development milestone is met.
We also have agreed to certain milestone payments for future sales volumes, if such milestones are met.
There remains a path to hitting free cash flow positive by the end of this year and we believe it will be close.
We continue to balance that goal with the investments, we're making in supporting our <unk> rollout and build on the incredible momentum to date.
The opportunity is huge and we will continue to push to expand our leadership in this space.
It's also important to note that excluding the cash consideration for the aforementioned acquisition our cumulative cash flow from operations has been positive over the last three quarters, our team work and diligence in controlling spending while continuing to drive growth is paying off and we will maintain this disciplined and heading into 2024 overall.
We have a great set up to drive positive cash flows heading into next year.
At this point I'll turn it back to search.
Thanks, Justin.
Given the progress we've made executing on our three platform vision my conviction in the long term is stronger than ever.
There are vast opportunities before us.
Believe me, we're still early in the chromium opportunity and a long way from realizing the full promise of single cell.
In addition, the incredible customer enthusiasm for Xenial solidifies My view, the spatial has the potential to be bigger than anything in the history of the industry.
There are many reasons why I'm so bullish on what lies ahead.
The mental performance advantages of our products the formidable strength of our innovation engine the scale of our operations network the breath of our commercial organization.
But ultimately it all comes down to the talent and tenacity of the 10 X gene.
Day in and day out our team works tirelessly in pursuit of our mission developing groundbreaking tools or transformed the world understanding of health and disease.
Their relentless focus on our mission and customers is a core part of what makes the next tenex.
And why we're so well positioned to deliver on all the tremendous opportunities ahead.
With that we will now open it up for questions.
Later.
Yeah.
Thank you Mr section off at this time I would like to remind everyone that in order to ask a question Press Star and then the number one on your telephone keypad, we will pause for just a moment to compile the Q&A roster.
Our first question comes from the line of Patrick Donnelly with Citi.
Your line is wise.
Hey, guys. Thank you for taking the questions.
Serge maybe on the <unk> piece it sounds like the order funnel remains pretty healthy any metrics you can kind of throw around that I know I think last quarter, you said orders outpaced placements.
Anything you can share on the backlog or activity on that order side would be helpful would be would be appreciated.
Thanks, Yeah, so like I said.
It sounds like momentum this quarter, increasing momentum really thought as Oh, it's been growing in particular the performance of it in the west.
With customers.
They're in the field has been really phenomenal and the feedback from customers has been really phenomenal and so that has been building up to this momentum that we've been seeing an increasing.
And increasing traction there in the field, we had we don't.
We don't comment on.
Backlog generally this this time around just to give a sense of the momentum we did record increase once again, we shipped more than over sold more than 80 instruments.
Clearly showing just the a D a.
The trajectory.
Really remarkable which is what I was alluding to in my comments.
Okay. That's helpful. And then maybe just it might be for Justin just on the chromium consumable side.
Can you just help us think about the right growth rate for the year on that front and also just trying to think about what the exit rate is there any implications for 'twenty for just the right way to think about that business as it maybe it's a little bit more obviously more mature <unk> I'm just trying to get a good handle on the growth rate there in the right way to think about it. Thanks.
Yes, so chromium chromium overall has been a regional story and so we've talked about the challenges that we've seen in China, but when looking at AMR and EMEA. If you look at chromium consumable as year to date.
They grew mid to high teens over over last year, and if you look at our updated guidance range, we're assuming at the midpoint of that range.
Heading into Q4 is that.
The existing business when exhibit the same kind of year over year growth rates that we saw in Q3 for AMR and EMEA and similar sequential growth rates from Q3 to Q4 that we saw that we saw last year.
Okay. Thank you.
Thank you for your question.
Our next question is from the line of Dan Arias with Stifel. Your line is live.
Yeah, Hi, guys. Thanks for the questions Suraj on Veniam can you just maybe talk to how you see the adoption curve evolving there I mean, I know, we're not talking about 2024, but when.
When you think about the next 12 to 18 months at a high level do you see the potential for a pause is that first wave of.
Sophisticated users get their systems or does the way that the market is expanding and I guess the way that the product is being received does that suggest that maybe that doesn't happen.
Yes, good question.
We hesitate to comment the 'twenty 'twenty four is still there.
Early obviously, but as far as the trajectory of <unk>. It is literally on a different tier of compare to sort of your certainly typical launch as you alluded to this in the industry, where you get some early.
Adopter adoption and then kind of a wave and then we'll see what happens after that that's what is going on a really really strong trajectory.
And there's a lot of a lot of science of ways.
Oh.
Oh strength going forward as well.
You do have to assume that there is some amount of initial pent up demand, but overlaid on top of that we're seeing.
Great sustained trajectory of customers.
Seeing the results from those data and coming back to us and ordering more instruments and thinking of more studies and thinking of a larger and larger.
Applications, So I think we.
Well, we'll have to see how it plays out but the early signs are quite bullish.
Okay Fantastic. Thank you and then just maybe in the interest of keeping on top of the litigation you've got this Delaware trial on genomics infringement. This months.
We can have from now if I'm not mistaken.
Caveat, there being I know you don't get too detailed on the legal stuff, but what are your general expectations there.
And then what do you think about the timing for a final ruling what should be keeping in mind here.
Yeah, so hesitate to comment on any particular case, you're correct. There's a there's a trial scheduled to start shortly.
Within a couple of weeks.
I would say that we do have multiple a.
Multiple cases going on in multiple jurisdictions on multiple products multiple patterns. So its not really about any particular to answering in particular trial.
What is important to us is that we invest a lot in innovation, we will invest.
A lot in R&D and.
Income was enough to protect those investments so that we can keep investing in the.
In R&D in our products to deliver best in class products to our customers love.
Yeah.
Okay I appreciate it.
Thank you for your question.
Our next question is from the line of Kyle mixing with Canaccord Genuity.
Your line is live.
Hey, guys. Thanks for taking the questions and congrats on the awesome Simeon ramp so on them.
Consumables.
Well in the quarter I guess, it goes exactly like a faster kind of rates.
And there were some macro headwinds could you comment maybe surge like how is ADM utilization is trending thus far is it close to inflect and possibly on and.
And our people kind of slowing down or pausing ordering in front of me the HD launch because it sounds like an early 24 situation. Thanks.
When it comes to <unk> and utilization, it's too early to talk about patterns.
A wide dispersion of our customers and how quickly they're able to route.
We can certainly point to examples of people who are ready to go from almost day one.
Both with samples and applications for others is going to take longer in particular I'd like to remind people that this platform.
Necessitates its built around targeted panels, which means in a lot of cases and necessitate somewhat of customization, where people have to go through the process of selecting and choosing genes for Jim Donald to them right on the instrument and that means that there is a certain amount of ramp up.
Many customers need to go through so early days there are some really promising signs again, there are some customers that really go.
Ron large studies at large.
The large volume, but there's a big dispersion so.
I hesitate to make projections too early at this stage.
As far as the <unk> is concerned I mean, it is undoubtedly true there's a lot of anticipation for <unk> HD out there in the market.
And certainly a lot of our customers eager for the product.
I've been in a holding off potentially on.
Uh huh.
The standard kits.
Okay that was helpful. Thanks for that and can you also comment on the Biopharma end market, how that's going for you like what percentage of revenues at this point, how fast is it growing and I know that connecting talks were supposed to help there is that kind of playing out as you anticipated and are people actually using connected they haven't.
Yeah.
So biopharma has been.
You know as you know Biopharma has been a relatively stable a fraction of our business.
The neighborhood of about 20% or so.
We have seen some of them just like everywhere else there has been tightening of budgets.
<unk> pharma.
Recently again relative led to negative effect on our overall business just because it is a small fraction.
Of the business.
So we'll have to see how that plays out in the future but.
As far as the as far as the notes is concerned it has infused basis.
But.
It seems to be a sort of the need for automation out there, especially with pharma customers across a range of different applications and across the different use cases and with that in mind, we formed a partnership with the with Beckman Coulter provides a wide range of automation services.
So give us immune so scaling automation solution to many many thousands of labs that he was stuck my culture to many others have gone down substantially.
Alright, perfect. Thanks for the time guys.
Okay.
Thank you for your question.
Our next question comes from the line of Dan Brennan with TD Cowen.
Your line is lives.
Great. Thank you thanks for the questions.
Maybe just the first one just on single cell I think the prior guide.
It was for high single digit growth for the year I'm, just wondering kind of what what that is now I know just you gave some math earlier and Serge I believe in the prepared remarks, you discussed there's more balanced growth.
As you reallocate resources, just kind of wondering what that would imply as we look ahead for single cell.
Yeah, Dan I'll start with talking about single cell as.
As far as China goes maybe I'll start there on the last call we shared that we.
Thought that the back half of this year would be roughly flat in Q2.
<unk>.
In Q3, we saw that to be the case, but.
But we are seeing lower demand there and although we've been working at reducing the inventory levels.
Bill or higher and we plan to reduce them even more in this next quarter. So we're projecting that theres going to be a decline from Q3 to Q4 there.
And then like I said before for EMEA and EMR right now at the midpoint of the guide we're expecting similar seasonality to what we've seen.
In the past and then overall for chromium growth year over year.
That's a single digit growth rate when you put all those together you know mid single digits.
Great.
Oh go ahead sorry.
No I was just going to say kind of taking off what I said earlier.
Tomorrow.
We strongly believe in the single cell growth and the potential of the chromium franchise going forward.
We're going to be balancing our focus on our resources.
To put more emphasis is relatively speaking on chromium.
Asset yields.
Resolved.
We're also have a really really exciting product.
Map that will grow that take the franchise to the next level and drive.
Drive more growth.
Great and then and then maybe just on space. So it's hard.
We've gotten has been really positive just about the market opportunity and the ultimate size of the market, but you know, it's always hard to project out into the future and see this kind of growth keep going up and up on placement. So I'm just wondering from what you see today.
Could you just give us some sense of like the level of like placement not necessarily a number but like is it fair to think placements can continue to grow certainly in like 2025, you know without putting a number on it might grow year over year, obviously, you're on the steep ramp now, but just to kind of help us think about.
How many labs would actually look to adopt space or in the future.
They're not cheap boxes, but they are offering some real unique capabilities. Thank you.
So Dan I would think in terms of maybe two kind of variables as I look at this one is just the trajectory in the moment, which is kind of like you suggested up into the right, which gives us a good.
Some amount of confidence going forward and then I also think in terms of the potential market and the breadth of applications and experiments that people are thinking about that also of this stage is looks very healthy and very robust, which also makes us.
And I think bullish.
Bullishly about next year and beyond.
Great. Thanks, so much.
Thank you for your question.
Our next question is from the line of Luke <unk> with Barclays. Your line is watch.
Yeah.
This is Sam on for Luke Thanks for the questions.
Just wanted to start off with chromium in China, you guys outlined or mentioned some struggles there.
That's certainly not exclusive to 10 actually been hearing that.
All earnings season, but.
I just wanted some more color how much exposure.
China is kind of biopharma related.
Hum.
Any more color there.
On timing.
You think is.
Kind of a realistic.
Our idea of when those issues will resolve themselves.
When you're working with your service providers.
Yes. This is Justin.
Take that one.
As far as our exposure in China, we mostly sell to the academic market.
Pharma exposure.
There is smaller than <unk>.
And other companies that we've heard from.
As far as the.
The demand looking forward I mentioned earlier that we're looking at reducing inventory going from going from Q3 Q4, we sell through distributors, who sell through service providers. There. They typically hold inventory we've been working more recently to get closer with those service providers to better.
Forecast of demand and better help them manage inventory levels and smooth the ordering patterns out going forward.
So I hesitate to call a bottom and what we're seeing in China, but our expectation and the decline from Q3 to Q4.
Is mostly driven from that demand signal that we're seeing with that inventory reduction layered on top of it.
Great. That's helpful. Thank you and then on prioritizing does indium launch.
It seemed like that was kind of at the expensive of chromium.
You provide a little more color there.
Did that come from maybe incentives.
From the sales force towards.
Placing boxes or any more color there and then.
As you kind of balance back out and start to prioritize the chromium again, what are the risks to veniam.
And then kind of lastly on on Veniam orders, how did those kind of trend through through the quarter and did those kind of outpace revenues.
And that's it for me thank you.
Yes, so in terms of the focus on <unk>.
So on the commercial Oh, sorry on <unk>, so on the commercial side.
A number of things first of all most directly their incentives to drive.
<unk> placements.
That's certainly.
Turning to run ourselves into just got more attention there.
Also we have carefully tracking our.
Commercial team.
There's been a dominant how they allocated their attention and we were certainly encouraging them to make sure that the GM <unk> first our first priority also in terms of the resources in terms of marketing resources with a lot of that on <unk> as well.
And now going forward, we are kind of rebalancing. These things both in terms of the resources in terms of in terms of attention in terms of incentives.
Another kind of thoughts over the course of this year.
That dynamic.
Dynamic is that we have built out.
A separate function overlay function and our commercial team for driving <unk> sales specialists.
And to some extent it takes more effort to get the launch a product and get us on a trajectory going forward in terms of creating the right infrastructure and creating the right trajectory of demand and that's what we went through this this past year now going forward, we feel like we are over that initial hurdle.
And we have the flexibility to balance our our attention and focus and put more resources now more attention behind chromium, while at the same time driving the rabbit.
Yes.
Neil.
And so we feel good about the.
I've got a bit of imbalance or potential going forward, but of course, we.
Got any questions and certainly we have a lot of metrics.
To help us stay very closely on top of it.
Yeah.
And as far as our zinc production.
Is concerned like I mentioned.
Yes.
We sold more than 80 and in the meantime, our backlog grew so feel very good about how the quarter progressed.
Yeah.
Thank you for your question.
The next question is from the line of Josh Savant.
Your line is live.
Hey, guys good.
Good evening and thanks for the time here.
One for you on on the <unk> pipeline, you mentioned, the multimodal tell segmentation the <unk> and then the.
Hi, Plex protein assay on the same tissue section so.
In terms of how you see these three capabilities.
Impacting your uranium.
Order book next year any color you can share there and then just as a point of clarification is that last one essentially trucco detection.
Okay.
Truecar detection.
I didn't get the last one.
Uh huh.
Let me answer the question on the product launch questions.
General.
So first of all just with the existing capabilities.
There's obviously tons of demand and a lot of enthusiasm.
For for the product evidence and we are certainly feeling really really good about the capabilities and what the customers are getting.
From.
From the product.
At the same time.
Historically, we've always been.
They are very keen to listen to our customers and stay on top of the initial feedback on react to their feedback very quickly to deliver new capabilities and do it too.
To prioritize the features that customers find most valuable and Thats what were doing again here.
That's why it's solid segmentation is coming very soon that's why we're coming out with.
With a large <unk>.
And we are excited about co detection of proteins on the same tissue I think that's going to be a powerful capability I do want to point out that the <unk>.
<unk> proteins already using immuno fluorescence upon the same tissue customers definitely see huge value on that already.
Got it that's helpful actually and that's exactly where I was going with the core detection bet.
And then Justin one for you on that sort of <unk>.
$9 million a quarter over quarter step up in the fourth quarter.
You talked about Americas and EMEA.
Strength, there or rather the sequential uptick similar to last year.
That sort of essentially your end budget flush dynamic that you as you make your or is it sort of the <unk> product cycle that underpins your confidence that are a bit of both.
Yes, great question, Josh so at the midpoint of our guidance range.
Here's the basic assumptions is that on the <unk> side than we would ship.
Well roughly the same amount ASEAN in Q4 that we did in Q3.
And then.
As far as products, excluding <unk> instruments that we would have the same kind of seasonality that we've seen previously and so that would include a year end budget flush when youre looking at the range of our guidance from the low end or the high end at the lower end would be not seeing the same kind of budget flush than we've seen before.
Our or not.
Not being able to ramp not being able to maintain the xenia ramp in Q4 as we saw in Q3 for any number of issues and then at the higher end would be over delivering on <unk> in Q4, and perhaps seen a stronger stronger year end budget flush than we've seen historically.
<unk>.
Or perhaps not seeing the decline in APAC, primarily driven by China that we've got built into the midpoint.
Got it Super helpful. Thanks for the time guys.
Yeah.
Thank you for your question.
Our next question is from the line of John Sour beer with UBS.
Your line is live.
Yes.
Hi, Thanks for taking the questions first one here on chromium any color on where you see pricing on consumables for next year. I think you had a record increases. This year do you think you can get similar levels in 2024.
Okay.
So our plan for this year the.
The plan around chromium pricing is.
Pretty moderate price changes.
And.
Much of that is driven by the premise that there is tons and tons of <unk>.
So demand in chromium and was down to two.
To gain a lot more ultimate bill.
By increasing the number of samples increasing the number of customers and so thats, where I was going to be focused or large extent.
Oh.
Thanks, and then a follow up here on <unk> I guess in the U S and APAC, where you don't have an injunction just any color on on competitive win rates, there and where do you think you're winning on what customer type or features versus the competitors out there.
Yeah, so just to be clear.
You can charge.
<unk> has been really strong across the world across the world and in fact has been particularly strong in the Americas.
Really really strong momentum there and as far as where we're winning I would say it's across the board I mean, the big the big.
Evolution over the last couple of quarters has been the dominant.
<unk> systems have been out there in the field and have had been performing really well generating also data and the what has been spreading among our customers and is getting a lot of usage of our field teams now to go and talk to customers.
And make more sales that has been the overwhelming story and I don't think it's particular to any particular application or a particular geography or any particular customer that it isn't really an across the board.
Thanks for taking the question.
Thank you for your question.
Our next question is from the line of Mason Chirico with Stephens.
Your line is life.
Hey, thanks.
Jumping between a few calls Tonight. So sorry, if this has been asked I'll just ask one here.
Could you talk about your outlook for Xenia and pricing going forward.
Do you plan on continuing to be accommodative, and somewhat flexible with with pricing given the opportunity to capture these customers and kind of lock them in or how should we be thinking about pricing going forward.
I'll take that one to start.
Yes, I think back to when we launched.
It was a very very competitive and it still is an area of competitive environment.
Lot of a lot of noise out there and not a lot of data and so we launched senium with introductory pricing.
Basically to encourage adoption and make sure that there was less friction and getting the instrument in hands of those early users that can generate the data that could help drive.
Future sales.
So as time has progressed and we are starting to see more data come off the instrument. The results of the head to head study that we saw.
We saw mentioned in the prepared remarks, and other customers presenting data that they have run on their own instruments in their labs. This is really showing the true value of the <unk>.
Platform and so we are confident moving away from the from the introductory pricing at a lower price point and we took the list price.
In this in this past quarter now the average selling price is.
Is still trending below the list price and we'll continue to do so because as you mentioned.
We are open to working with customers around package deals with other instruments.
And also taking reductions off the list price of the instrument for customers that are coupled that with a larger consumable consumer quarter.
Got it thanks, Jeff I appreciate it.
Thank you for your question.
Our next question is from the line of Michael <unk> with Bank of America. Your line is live.
Great. Thanks for squeezing me in guys I'm going to ask two hopefully quick ones.
Putting up some points from earlier, one on gross margins and gross profit in the third quarter. I know you guys have said a number of times, the Virginian instrument ramp, but still to drop off the 62% was steeper than we anticipated and if I just look at it on a gross profit dollar basis sequentially last quarter, you guys had 99.
6 million now it's 95, so you've got $4 million less gross profit despite the higher revenues and despite chromium essentially being flat sequentially. So I'm just trying to do the math on that was there some discounting in the quarter some inventory functions there or.
I don't see how it could be how's it could be that dilutive to margins, if there's something else going on what am I missing here.
Yes, good question Mike.
When you look both year over year and sequentially.
Maybe I'll just start with year over year, and then I'll get to the sequential piece, but.
If you look back to a year ago.
And you look at the margin that we had and what we decline to this year.
Practically all of that variance is due to xenia and so if you were to exclude xenia and calculate the gross margin.
It would be.
Roughly the same as it was a year ago and so then sequentially.
There's also been a mix towards <unk> instruments, there has been a mix towards more instruments. Overall, there has also been a mix to more.
It's higher increases in the service line as well and so when we when we install and train on Senium that portion of it gets booked into service and that's also that's also a lower margin as well.
But nothing.
Yes.
Nothing fundamentally has changed about our cost structure.
That would be.
Outside of the product mix that we've that we've talked about driven by the increase in <unk>.
Okay, Alright, I'll redo the math again, Directionally no surprise, but just surprised the magnitude and then follow up again on the chromium consumables I know you guys have been given the sort of ex China, or specifically Americas, and EMEA number, but sometimes you give the quarter and sometimes you give the year to date. So I think my notes got a little mixed up.
Did you say that.
Year to date.
Americas and EMEA, our chromium consumables is mid to high teens.
What was it <unk> just so we have like the sequential numbers I'm, just trying to see if it accelerated or decelerated as we've gone through.
Thanks.
Yeah. So Mike we provide that just to give some additional color as far as the regional breakout by product, but year to date.
Year to date chromium overall has been in the low teens <unk> EMEA.
If you look at chromium consumables year to date, it's been in the mid to high teens.
And when you look at Q1 and Q2 this year it was easier compares.
The prior period a year ago.
Those rates of increase where were higher.
Thank you I appreciate the clarification thanks guys.
Thanks for your question.
Our next question is from the line of Justin Bowers with Deutsche Bank.
Your line is live.
Hi, good afternoon.
Two quick ones for me in terms of helium or are you starting to see.
Some reports are repeat customers.
The order book, there and then just taking a step back.
And the academic landscape.
Are you starting to see.
Can you paint.
Paint a picture.
What sort of new core lab activity is around single cell and spatial.
More broadly or even nationally.
Yeah.
Yes, Justin so the first question on the <unk> on whether we're seeing with these customers.
So the answer is yes for sure.
Relatively speaking is still very much new customers. That's what we're about that's where we're at.
Focused against sales, but we're seeing multiple businesses and this is always really gratifying when our customer has gotten their instrument. They have around their samples and then after seeing the results from those first from getting more again another instrument and in fact, we're seeing more examples of that.
With Ron.
Ron the studies get biological results and on the basis of biology to go back and buy.
And others Union, so probably the best.
The best measure of how something is performing well and you see this kind of a good business from customers.
So very gratifying for us for us to see.
As far as academia, and just friends among core labs, I mean, those generally tend to be.
Fairly consistent we do see.
Decent adoption with the.
Core loss.
Around the world.
To put some takes some some core labs have issues with having enough staff.
To run experiments on suncor less of sort of other issues, but overall no major trends to call out here.
I appreciate it.
Thank you for your questions.
Our next question is from the line of Rachel that install.
With J P. Morgan your line is wise.
Great. Thank you for taking my questions and good afternoon and.
First off I, just wanted to clarify your comment around the easy and this quarter was that comment around any instrument stalled or was that more around the number of instruments shipped this quarter and then you mentioned backlog growth breathing through how long is the backlog at this point.
Okay.
Hi, Rachel.
This adjustment we are.
Yes.
That's what we that's what we ship this quarter was over we shipped over <unk>.
Sold over <unk>.
And we grew the backlog on top of that.
Okay. That's helpful and then just on China.
Can you walk us through how the region trended throughout the quarter and also how is October trended relative to September in Nebraska, three keel and then can you just frame up some potential scenarios for China for 2020 for next year is it really possible for that region to hold flat without any stimulus.
That's it for me thank you.
Yes.
As far as how China trended throughout throughout Q3.
You know I think.
Came in line generally with what we called out in our last earnings call. When we said that we expected China in Q3, and Q4 to be roughly flat to Q2 and that's how it came in.
Ordering patterns in China, just due to the consolidation of volumes through distributors and service providers.
Can be somewhat can be somewhat lumpy.
As far as looking at Q4.
From the demand signal that we're seeing we are calling a decline right now going from Q3 into Q4, but that is mostly driven with our targeted inventory reductions that we're that we're driving with the service providers.
So the actual demand at least from what we can tell right now is more than we expect that our revenues in Q4 to reflect.
Yeah.
Great. Thank you guys for came up on 2024.
Kinda.
Well you know.
Like I said hesitate hesitate to call the bottom.
Right now.
So we'll have to see on we'll have to see on 2024, we'll have to see how the rest of Q4 progresses.
Thank you.
Thank you for your question.
Final question for today will come from the line of Mac Sykes from Goldman Sachs. Your.
Your line is live.
Hi, This is <unk> on for Matt Thanks for taking my questions.
Some color on competition and wins with <unk>, but are there any changes to the environment within chromium, maybe within the different regions and customer types.
Yes.
Yes, I don't think Theres anything in particular, that's material has changed on the chromium business, we see the.
The environment is wrong.
Capex environment has been.
Tighter.
Simply for sure.
Special outside of the U S and we're definitely seeing the effects of that.
Again, I think there are sort of the underlying demand on the <unk> side has kind of broken through a lot of that but we do see the capex constraints.
Testing themselves out there.
Theres also a biopharma has been a has been somewhat pressured and we're seeing some impact from that.
We saw that in Q3 are likely seeing it in Q4 as well.
But overall I wouldn't call out any other really good trends on the chromium side.
Okay, Great. That's helpful and then on DRAM pricing I know you said you increased your list price.
Could you talk to when you might start to roll off some of the discounts and Athena instruments or do you see that continuing for the near future.
We're always we're always open to working with customers to get an instrument in their hand and get them using that instrument.
We've talked about before.
The strategy and the value where the senium as the consumable revenue consumable revenue streams and so if we can if we compare in order for an instrument.
With the larger consumer water will take a deeper discount on the instrument just to get that out there.
That isn't being used.
Okay, great. Thank you.
Yeah.
Thank you for your question and ladies and gentlemen that will conclude today's Tenex genomics third quarter 2023 earnings conference call. Thank you all for attending.
Have a great night.
Yeah.
Yeah.
Hum.
Yeah.
Okay.