Q4 2023 10x Genomics Inc Earnings Call
[music].
Okay.
Jamie: Good afternoon, My name is Jamie and I will be your conference operator today.
Jamie: We'd like to welcome you to the Nextgen I'll make fourth quarter and full year 2023 earnings conference call.
Jamie: All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session.
Jamie: If you would like to ask a question during that time simply press star followed by the number one on your telephone keypad.
Jamie: If you would like to withdraw your question Press Star one again.
Jamie: Thank you I would now like to turn the conference over to Kathy Cornell you.
Kathy Cornell: You may begin your conference.
Kathy Cornell: Thank you and good afternoon, everyone earlier today <unk> genomics released financial results for the fourth quarter and full year ended December 31st 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 Tenex genomics dotcom and.
Kathy Cornell: An archived webcast of this call will be available on the investor tab of the company's website <unk> genomics dot com or at least 45 days following this call.
Speaker Change: 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 Change: 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 Change: 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.
Speaker Change: <unk> genomics disclaims any intention or obligation to update or revise any financial projections or forward looking statements, whether because of new information future events or otherwise.
Joining the call today are search Saxon off our CEO and co founder and Justin <unk>, Our Chief Financial Officer.
Speaker Change: We will host a question and answer session. After our prepared remarks, we ask analysts to please keep to one question. So that we may accommodate everyone in the queue.
Speaker Change: Last week, we were a silver sponsor of the 2020 for advances in genome biology, and technology General meeting known as <unk>.
Speaker Change: Our workshop, our team presented exciting science and details of our upcoming product launches.
Speaker Change: Serge will highlight some of use today, we encourage you to check out the presentation replay on our website. If you didn't see the news or if you would like more information.
Speaker Change: With that I will now turn the call over to Serge.
Serge: Thanks Kathleen.
Serge: Good afternoon, everyone. During today's call I'll start with a brief overview of our progress in 2023, and why we have a great setup as we kick off the year.
Serge: Next I will highlight the strength of our innovation engine and our key priorities and focus areas in 2024.
Serge: And then Justin who will provide a more detailed look at our financial results business trends and revenue guidance for the year.
Serge: 223, it was another strong year for <unk> with total revenue growing 20% to $619 million as previously announced.
Serge: We catalyze the field of single cell analysis.
Serge: And in 2023, we came in through our own in spatial biology, as well with special revenue exceeding $135 million for the year.
The big driver for Us and the Big story of 123 was the launch of Xenia.
Serge: It wasn't extraordinary launch here for the Xenia platform.
Serge: We've driven a remarkable adoption selling more than 250 instruments in the first year of launch even more importantly customers have been incredibly enthusiastic about the platform as they rapidly move from install to inside from instrument delivery powerful discoveries.
Serge: To date there has.
Serge: It's been more than once you published papers all three brands using zinio.
Serge: Among them are multiple independent benchmarking studies.
Serge: Validates <unk> as the best performing system for <unk> analysis.
Serge: These rigorous studies compared customer generated data from their own instruments in their own labs.
Serge: The results demonstrate xenial delivers the best sensitivity the best specificity, the best throughput and the best biological insights.
Serge: Of course, none of it was accidental with carefully engineered <unk> to be a premium instrument delivers premium performance with an extremely easy to use workflow.
Serge: We leveraged our operations and manufacturing scale to ramp capacity faster than anticipated.
And we relied on the dedication and drive of our commercial team to ensure our customer success every step of the way.
Serge: Because he knew his exceptional launch year reinforces our belief and then almost long term potential for the platform, which we believe will usher in a new era of genomic analysis.
Serge: Zoom is just one of several accomplishments in 2023, validating our strategy to drive growth through innovation and reinforcing we're well positioned for long term success.
Serge: In 2023, we reached nearly 6000 cumulative instruments sold around the world.
Serge: 29% increase year over year.
Serge: We also opened our new R&D and manufacturing hub wasn't done to support new product development and production, including for <unk> syndrome.
This cutting edge facility adds operational scale and capacity to enable multiples of growth.
Serge: In addition, we achieved our goal of positive free cash flow in Q4, and excluding acquisitions delivered positive operating cash flow for the year, reflecting our commitment to maintaining cash discipline as we scale.
Serge: Lastly, it was especially rewarding to see a massive increase in customer obligations.
Serge: Which were up 58% year over year.
Serge: We have now surpassed 7000 peer reviewed papers, citing tenex technologies.
Serge: Seeing how our customers use our tools to push science forward is a huge source of inspiration motivation and pride our mission driven team there.
Serge: This is what <unk> is all about.
Serge: Before I discuss the very exciting developments leading into 2024.
Serge: To emphasize the key principles that anchor our approach.
Serge: First our fundamental thesis is unchanged.
Serge: Biology needs to be understood and analyze the single cell level the spatial context.
Serge: Following this principle, we believe there are large opportunities ahead, and our commitment to ongoing product innovation will allow us to capture those opportunities.
Serge: Second we have always build a company for scale and we will continue to do so.
Serge: We have made significant investments over the past several years building out a world class operations facility and scaling our research and development and commercial teams.
At this point, we will have additional capacities and as we grow our revenue we expect to realize operating leverage as we drive toward profitability, while we continue to deliver breakthrough innovations.
Serge: And third we're committed to maintaining cash discipline and driving a strong financial profile.
Serge: We have already made investments to operate at scale.
Serge: We have also put in place rigorous operational and cultural frameworks to prioritize incremental spending on highly targeted areas necessary to drive growth.
Serge: It's been a busy and exciting start to the year, we kicked off 2024 with the launches of two catalytic new products, which demonstrate the enduring strengths and velocity over our innovation engine and the impact and value for customers around the world.
Serge: This year, we're planning to introduce branches defining new products and capabilities that will extend our technology leadership raise the bar for researchers and continue to set the standard for high performance single cell and spatial tools.
Serge: Let me highlight a few of the game changers, who were expecting to launch this year starting with busy in HD.
Serge: <unk> is a prime example of how we listen to our customers and take them to hardest development challenges that will have the biggest impact of scientific research.
Serge: It has been the most requested product in our history.
Serge: This is a must see increases the resolution of the vision platform by over three orders of magnitude is.
Serge: His development hasnt tailed monumental technological leaps.
Serge: And what this means is that researchers will be able to extract large scaled molecular information from their tissues at single cell scale of resolution.
Serge: <unk> will run on existing Cytosis instruments with the same robust and easy to use workflow standard Museum.
Serge: Ahead of launch we have sold more than 500, cytosis instruments, the customer labs around the world.
Serge: We expect more researchers will adopt side assist again access to HD and take advantage of visiting the expanding spatial discovery capabilities.
Serge: Since we opened <unk> preorders in January we've been encouraged with the initial response in the early demand from customers.
Serge: This product has been a long time coming but we're confident customers will soon see the visiting HD was well worth the wait.
Our ambition is to establish <unk> as the platform for a translation of our discovery.
Serge: If one has a cohort of samples with phenotype information that needs to be correlated with political information for <unk>.
Serge: Mark a discovery or anything else, we believe there's no better tool in existence the visiting HD.
Serge: At <unk>, we also unveiled Jim X, a transformative new technology for chromium franchise.
Serge: The first major overhaul at all chromium architecture. Since 2019, <unk> features a completely reengineer microfluidic chip designed with optimized reagents to enable superior performance at a larger scale and lower cost.
Serge: Later this quarter, we plan to launch the first two products on Jim ex our highest volume assays chromium single cell gene expression before a chromium single cell email profiling <unk> III.
Serge: These products, which are exclusively available on the chromium X series instruments deliver highest performance across the board and give customers important performance advantages that will immediately benefit their single cell research.
Speaker Change: Let me highlight a few.
Speaker Change: First we designed <unk> to be even more robust than previous generations of chromium products delivering more consistent performance, even with more challenging samples.
Speaker Change: Jim X was substantially increased sensitivity detecting up to two times more jeans compared to all market chromium assays.
Speaker Change: The new architecture greatly improves capture efficiency recovering up to 80% themselves.
Speaker Change: <unk> is also built to scale, enabling a twofold increase in sales captured per channel with improved assay robustness with faster more efficient cell partitioning.
Speaker Change: And finally, and this is quite important even with all of these performance advantages. The <unk> assays are also more cost effective than ever before.
Speaker Change: Reducing kirby accident costs, and delivering a more than twofold reduction in cost per sale.
Speaker Change: We believe there is significant price elasticity in single cell research, particularly as more researchers are exposed to these methods and the existing users move towards larger and larger experiments.
In fact, we're seeing more customers use flex multiplexing to scale their experiments as chromium reaction growth outpaced revenue growth in 2023.
Speaker Change: We want to lean into this elasticity it makes single cell analysis, even more accessible.
Speaker Change: That's why our long term goal is to deliver a high performance single cell research for $100 per sample.
Speaker Change: <unk> is one of multiple planned steps in those direction to drive prices lower to support researchers and expand opportunity for single cell analysis.
Speaker Change: Have a robust Jim extra roadmap ahead, including a comprehensive menu of high performance assays and applications designed to deliver superior economics and drive broad adoption at large scale.
Speaker Change: In addition to Jim Max we announced a number of new capabilities on the chromium platform in response to our customers' most frequent requests.
Speaker Change: We're adding more workflow flexibility, including protocols for both upstream fixation from the whole blood processing.
Speaker Change: And we're opening up new applications of chromium flux, including CRISPR screening and intracellular protein profiling.
The investments, we're making in the chromium franchise to raise the bar and set a new standard for single cell analysis underscore our confidence in growth opportunity ahead.
Speaker Change: We believe the momentum of our new products, along with our renewed commercial focus on chromium, we'll help invigorate the franchise to drive more robust performance, it's $1 24 and beyond.
Speaker Change: While visiting with Z and Jim have been the Big news to start the year. We're also executing on an extensive multi year product roadmap for <unk>, Inc.
Speaker Change: Including multimodal sell segmentation and you add on kit compatible with existing Xenial assays to improve the determination of boundaries.
Speaker Change: It is expected to launch this quarter.
Speaker Change: We're planning to launch a 5000 Plex gene panel midyear scaling up plex by an order of magnitude, while delivering the really high quality sensitivity specificity and throughput customers have come to expect from <unk>.
Speaker Change: And later in the year.
Speaker Change: We expect the launch of our integrated high Plex zillion protein profiling capability, enabling researchers to get a large scale <unk> readout and up to 20 proteins on the exact same tissue section in the <unk>.
Speaker Change: Ron.
Speaker Change: These new products will continue to push the boundaries of science yet. This is only the beginning what is really exciting about the union is the amount of technological headroom that this platform has ahead with tremendous runway for more applications higher throughput and lower cost over the years.
Speaker Change: We can't wait to bring some of these capabilities to our customers.
Speaker Change: In each of our three platforms. This year, we introduced a new franchise defining products, we will take our portfolio to the next level.
Speaker Change: We're confident that these are the right offerings to solidify our core platforms and drive growth for the long term.
Speaker Change: But we also recognize there may be near term headwinds, while our customers take time to trial and latest transition to this new tools.
Speaker Change: This war on some conservatism around the pace of new product adoption.
Speaker Change: Our commercial team is excited and engaged to help customers navigate these product launches and deliver on the full promise of single cell and spatial biology.
Speaker Change: And while we're transitioning and commercial leadership I couldnt be more proud of how our team has stepped up and lean into the opportunity that comes with this change.
Speaker Change: We recently held our annual global commercial meeting and the team's energy and enthusiasm was possible probably the highest I've ever seen that telmex.
Speaker Change: It is clear our team is ready to deliver on our priorities and evolve the organization for greater scale and impact.
Speaker Change: They understand we have work to do to get there and they're fully rallied around our vision of creating a premier commercial organization that deliver superior execution and superior results.
Speaker Change: With incredible new products in every franchise. The commercial team is primed to bring more balanced attention and focus across our portfolio as we continue to drive our mission and obsess over customer success.
Speaker Change: Part of our commitment to customer success is to ensure as many researchers as possible are aware of and have access to our leading portfolio of single cell and spatial tools.
Speaker Change: Our goal is to drive broader adoption by reducing prices and make our technology more accessible.
Speaker Change: We strongly believe in elasticity of demand for our products.
Speaker Change: And that means driving down cost alone multiple vectors lower cost per cell purchase your per sample bear experiment for a project.
Speaker Change: Jim <unk> is one step in this direction with more to come across all of our platform as part of our long term product roadmap.
Speaker Change: Let me wrap up by summarizing our priorities for 2024.
Speaker Change: First we're laser focused on ensuring the success of these new product launches. We believe we have set the bar high for their performance and capabilities and we want to make sure. All the researchers are aware and understand the potential of diesel.
Speaker Change: Second we plan to drive chromium to higher rates of growth. We believe single cell analysis is nowhere near fully penetrated and as there are significant opportunities ahead, which our new products will help us capture.
And finally as I mentioned, we intend to maintain a strong focus on cash discipline.
Speaker Change: And before I turn it over to Justin I'd like to say that while we're excited about new innovations and what's in front of us in 2024, and there are considerations related to year over year comparisons and product introductions that will affect this year's financial growth as Justin will address in his section.
Justin: We're focused on delivering in 2024 and are steadfast in maintaining a long term orientation that has served us well since the earliest days of the company.
The scope of our ambitions requires us to take the long view, that's how we will make decisions. That's how we innovate that's how we think about value creation.
Justin: With that let me turn it over to Justin.
Justin: Thank you Serge.
Justin: I'll start by reviewing our financial results for the three months ended December 31 2023.
Justin: Then I'll review, our financial results for the full year 2023, and I'll finish by discussing our outlook for 2024.
Justin: Total revenue for the quarter grew 18% year over year to $184 million with no change from our previously announced preliminary results.
Justin: Total consumables revenue was $143 million, an increase of 7% over the prior year period.
Justin: Chromium consumables revenue was $118 $1 million.
Justin: Down 2% year over year, and spatial consumables revenue was $22 2 million up 95% year over year.
Justin: Total instrument revenue was $38 4 million, an increase of 72% over the prior year period.
Justin: Chromium instrument revenue was $11 1 million down 27% year over year.
Justin: Special instrument revenue was $27 $2 million.
Justin: Compared to $7 1 million in the fourth quarter of 2022.
Justin: Services revenue was $5 3 million, which increased 129% over the prior year period.
Justin: Looking at our revenue by geography, Americas revenue was $103 8 million growing 21% over the prior year period.
Justin: Media revenue was $50 $6 million growing 18% over the prior year period.
Justin: Revenue in APAC was $29 5 million.
Justin: A 7% increase year over year.
Turning to the rest of the income statement.
Justin: Gross profit for the fourth quarter of 2023 was $115 8 million compared to a gross profit of $119 4 million for the prior year period.
Justin: Gross margin for the fourth quarter was 63% compared to 76% for the fourth quarter of 2020 to the.
Justin: The decrease in gross margin was primarily due to a higher mix in Sydney and instruments sold.
Justin: Total operating expenses for the fourth quarter of 2023 were $171 million compared to $142 $5 million for the fourth quarter last year.
Justin: The increase was primarily driven by $19 6 million of nonrecurring in process research and development expense related to a technology acquisition.
Justin: R&D expenses were $65 3 million compared.
Justin: Compared to $63 6 million for the fourth quarter of 2022.
Justin: The increase was primarily driven by higher personnel expenses and higher cost to support operational expansion.
Justin: SG&A expenses were $86 $1 million compared to $78 $9 million for the fourth quarter of 2022, primarily driven by increased outside legal expenses, including success fees.
Operating loss for the fourth quarter of 2023 was $55 2 million compared to a loss of $23 1 million for the fourth quarter of 2022.
This includes $38 $9 million of stock based compensation compared to $41 million of stock based compensation for the corresponding prior year period.
Justin: Net loss for the period was $49 million compared to a net loss of $17 2 million for the fourth quarter of 2022. The increase in net loss includes and is primarily driven by $19 $6 million in nonrecurring expense related to a technology acquisition.
Speaker Change: I'll speak now to our full year results.
Speaker Change: Total revenue for the full year ended December 31, 2023 was $618 $7 million.
Speaker Change: Representing a 20% increase over full year 2022.
Speaker Change: Total consumables revenue for the year was $479 6 million, an increase of 10% over the prior year period.
Speaker Change: Chromium consumable revenue was $423 million up 5% year over year and spatial consumables revenue was $59 2 million up 69% year over year.
Speaker Change: Total instrument revenue was $123 5 million, an increase of 71% over the prior year period.
Speaker Change: Chromium instrument revenue was $47 9 million.
Speaker Change: Down 18% year over year.
Speaker Change: <unk> instrument revenue was $75 6 million compared.
Speaker Change: Compared to $13 $8 million in 2022, which was driven by the incredibly strong traction we experienced with <unk> and its first full year.
Speaker Change: Services revenue was $15 7 million, an increase of 86% over the prior year.
Speaker Change: As of yearend, we have sold a cumulative total of 5966 instruments across all three platforms, comprising 5180, chromium instruments 531, visiting them instruments and 255 senior instruments and.
Speaker Change: In 2023, we sold 1336 total instruments, increasing 29% from the prior year.
Speaker Change: During 2023, our customers bought over 347000 reactions with the consumables products up 9% from approximately 319300 reactions in 2022.
Speaker Change: Broken out across our product platforms customers bought approximately 312500 chromium reactions up 7% year over year 29300, <unk> reactions up 3% year over year and 5200 Ziemian reactions.
Speaker Change: As a reminder, our consumable reaction is the reagent setup needed to perform an experiment using one of our solutions. We believe it is an important metric because it represents the unit volumes, we sell to our customers.
Speaker Change: Looking at our regional results for the full year 2023, America's revenue was $373 2 million growing 27% over the prior year period.
Speaker Change: EMEA revenue was $142 3 million growing 22% over the prior year period.
Speaker Change: Revenue in APAC was $103 3, million% to 2% decrease year over year.
Speaker Change: Gross profit for 2023 was $409 3 million compared to a gross profit of $396 million for 2022.
Speaker Change: Gross margin for 2023, 66% compared to 77% for 2022.
Speaker Change: The decrease in gross margin was primarily due to changes in product mix due to a higher number of <unk> instruments sold.
Speaker Change: Total operating expenses for 2023 were $674 6 million compared to $564 million for 2022.
The increase was primarily driven by $61 million of in process research and development expense related to an agreement to acquire certain intangible and other assets earlier, this year and higher personnel expenses, including stock based compensation expense.
Speaker Change: R&D expenses for 2023 with $273 million compared to $265 $7 million for 2022.
Speaker Change: Increase was primarily attributable to increased personnel related costs and higher costs for facilities and information technology.
Speaker Change: SG&A expenses for 2023 were $343 3 million compared to $298 3 million for the prior year.
The increase was primarily driven by increased outside legal expenses personnel related costs, including stock based compensation expenses and increased facilities and information technology cost.
Speaker Change: Operating loss for 2023 was $265 3 million compared to a loss of $167 $9 million for 2022.
Speaker Change: Net loss for 2023, with $255 1 million compared to a net loss of $166 million for 2022.
Speaker Change: For 2023 operating loss and net loss both include $61 million of nonrecurring expense related to the technology acquisition.
Speaker Change: We ended 2023 with $388 $7 million in cash and cash equivalents in marketable securities I'm proud to share that in Q4, we hit our goal of achieving free cash flow positive, meaning cash flows from operating activities exceeded capital expenditures.
Speaker Change: In Q4, we generated over $20 million of free cash flow.
Speaker Change: For full year 2023, excluding acquisitions and net of restricted cash we were cash breakeven.
Speaker Change: Net of restricted cash our cash burn for 2023 was $41 $3 million and that included $41 $3 million cash.
Speaker Change: Cash payments related to the aforementioned technology acquisition.
Speaker Change: Our team work and diligence in controlling spend is paying off and we ended the year on strong financial footing.
Speaker Change: Turning to our outlook for 2024, we expect full year revenue to be in the range of $670 million to $690 million representing growth of 8% to 12% over full year 2023.
With this outlook there are a few key factors to consider.
Speaker Change: First is the impact of our new products, which we announced at the Jpmorgan Conference earlier this year and at <unk> last week.
Speaker Change: Our new chromium, Jim X technology, and our <unk> HD product exciting innovations that said and generally expected for major product updates like these we are anticipating some temporary headwinds while customers evaluate test and trained as part of the transition to these new products.
Speaker Change: Both of these transitions are expected to start this quarter and we do not expect to see as larger customers stock up on either the legacy or newly introduced products at quarter end. Thus the biggest impacts should be in Q1.
Speaker Change: Second with respect to Xenia Q3, and Q4 of last year, we saw a large number of placements with nearly 180 placements over those two quarters.
Speaker Change: As a reminder, we took a price increase at the start of Q4.
Speaker Change: We believe that combined with the year end Capex budget dynamics likely pulled forward about a quarter or two in a quarter half of demand into 2023 and as a result, we expect to see a more pronounced step down in placements to start the year.
Speaker Change: Finally, and as I have explained before our guidance philosophy is to anchor on the midpoint of the range with balanced upsides and downsides the midpoint of our guidance range incorporates the above factors and we'll need to see how these transitions play out over the next couple of quarters.
Speaker Change: Okay.
Speaker Change: For the rest of the year, we believe we have a number of potential upsides first is the upside of balancing our commercial efforts across all three platforms with increased focus on driving chromium growth.
Speaker Change: Second is the upside in <unk> instrument placements, while the sales cycle is longer than our other products, we have a large funnel of opportunities.
Speaker Change: Third is the upside related to <unk> HD, where there is potential for a quicker adoption overall and the benefit of driving increased <unk> placements.
Speaker Change: When looking out over the next 12 months, we are anticipating about 20 million to $25 million of total capital expenditures down from almost $50 million in 2023 and $132 million in 2022.
Speaker Change: As Serge mentioned earlier.
Speaker Change: We have now made many of the significant capex capital expenditures for this stage of growth.
Speaker Change: As I mentioned earlier, we hit our goal of achieving free cash flow positive in Q4, given the seasonality of our business and a milestone payment related to disease HD that was accrued in December and paid in January.
Speaker Change: Expect to achieve the same in Q1, but we will maintain discipline in 2024 overall, we believe we have a great setup to drive positive cash flow for the year, while making targeted investments to continue driving growth. Our goal is to self fund our innovation and scale by investing cash generated back into our business.
Speaker Change: At this point I'll turn it back to search.
Search: Thanks, Justin.
Speaker Change: We often talk about the enormous complexity of biology.
Speaker Change: This complexity is what makes it so challenging to understand biology and to advance human health.
Speaker Change: But the extent of the challenge also means the vast opportunities ahead of us.
Speaker Change: Core <unk> is fundamentally about growth and impact our innovation engine is.
Speaker Change: System really deliver transformational technologies that have enabled our customers to expand the frontiers of science and have a profound impact on society.
Speaker Change: In fact, our customer recently told us that our technologies arent, just unraveling biology, there on earthy opportunities to create.
Speaker Change: Yeah.
Speaker Change: We see this as a powerful responsibility and the guiding force for our team work tirelessly every day to support science and scientists around the world.
Speaker Change: I'm, so grateful for our team's drive and determination as we remain bold ambitious and disciplined in pursuit of our mission.
Speaker Change: And that we will now open it up for questions operator.
Speaker Change: Again, if you would like to ask a question press star followed by the number one on your telephone keypad.
Speaker Change: And your first question comes from the line of Dan Brennan with TD Cowen Your line is open.
Daniel Gregory Brennan: Great. Thanks, guys congrats on the quarter.
Daniel Gregory Brennan: Just to level set the guide could you give some more color on the components, namely singles.
Daniel Gregory Brennan: The single cell and spatial do you want to give color on instruments or consumables.
Daniel Gregory Brennan: That'd be helpful as well.
Daniel Gregory Brennan: And then I have a follow up.
Dan Brennan: Yes.
Speaker Change: Hey, Dan Thanks for the question.
Speaker Change: As far as the guide goes.
Daniel Gregory Brennan: Adding to total revenue and we're not planning on breaking that out by product line.
Daniel Gregory Brennan: But I can give you some color as far as how we're thinking about instruments for the various platforms.
Daniel Gregory Brennan: For chromium.
Daniel Gregory Brennan: Built into the midpoint of our guidance range as chromium instruments being roughly flat year over year.
Daniel Gregory Brennan: But with higher weighting towards the IX, So a slight decline in revenue.
Daniel Gregory Brennan: For <unk>.
Daniel Gregory Brennan: We're expecting instruments to be slightly down year over year and thats due to what we've done over the past year about messaging that the future of <unk> is on the side of this is with all the customers getting ready for <unk>.
And.
But by and large customers have been coming back to us because our product due to the superiority of the product much better data quality much better workflow much greater breadth of applications much greater support customer support commercial support and that that is really our goal is as I mentioned earlier.
To keep investing in innovation.
Keep them driving forward to make sure that our customers are always seeing us as by far the.
Most compelling choice for single cell analysis.
Yeah.
Your next question comes from the line of Doug Schenkel with Wolfe Research. Your line is open.
Oh, Hey, good afternoon guys.
First a question on the early part of this year and then I want to follow up with a bigger picture question.
So in terms of what you're seeing in terms of customer behavior customer response since the launch of <unk> in lithium H D. I know Jim axis.
I think that May have only done last week, but I'm. Just wondering you know are are you seeing anything to suggest that these announcements are going to open up new accounts are they opening up different customer groups anything you could share on the early in the early going would be I think of interest to all of us.
I think Doug it's it's too early to.
To comment on that.
It is a drug like the year started with like really exciting launches we announced the.
Preorders for visa H D.
And just last week, we announced to the world for diverse style they coming of Gen X.
These products a little first very naturally gain traction with our existing customer base.
And we're certainly seeing that both in terms of the reaction because those are the people that are going to be more aware of them and in terms of where our sales where our commercial team will naturally for attention to and the reaction has been has been great.
As I've talked about these images either is a huge advantage over what game before and Jim <unk> has a number of advances that are precisely along the last what customers have been looking for greater sensitivity of greater solar recover efficiency throughput costs.
And greater robustness I would say that by virtue of these.
These advances as well, we do expect that ultimately more customers.
We will answer in the ecosystem.
Because these products are more amenable to a more central to us.
Gaining more information concept of customer samples, but it's way too early to talk to that now based on sort of empirical data and initial customer reactions.
Okay that makes sense Serge so the bigger picture question, and then maybe I'm being unfair because I may be asking you to.
Two our job for us a little bit here, but.
You know the stock closed out you know I think.
Jamie: Eight to nine times, the midpoint of revenue guidance in the current environment, that's pretty robust.
Jamie: 10% growth year over year at the top line is solid but.
Jamie: You know arguably it's not a slam dunk to support the valuation or are certainly upside from current levels. So if we kind of think back over the year or something just normalized for boom and bust cycles.
Jamie: You've always garner premium multiple based on your growth profile and related to that your ability to keep opening up.
Jamie: New markets new opportunities based on your innovation.
For those that might be weighted to bring up that what can you share on guidance philosophy entering this year and also on the product pipeline.
Kathy Cornell: Single cell spatial and I think importantly, beyond that can help folks not with paper and believes that.
Kathy Cornell: The <unk> the future is still very much like the tax of past. Thank you.
Speaker Change: Yeah. So let me start here, maybe a dozen can touch a little bit on guidance philosophy. So fundamentally.
Speaker Change: As we've been saying, we do believe that ultimately all samples anything that starts with sales and it starts with tissues needs to be analyzed with single cell contacts with spatial resolution and we build the products are the platforms to enable that vision to enable the future.
Speaker Change: Our product development innovation engine has been has has demonstrated at least shown their ability to launch new platforms and new promise and in fact, I think sitting here right now I can say with full confidence is as strong or stronger than it has ever been.
Speaker Change: And we have announced a number of products. Just this last month there is way more in our pipeline. There's a lot more capabilities a lot more products that are coming and they used to drive towards that long term vision and we feel like.
Speaker Change: The market the runway for the market is really really long and really robust and we have every opportunity to.
Speaker Change: Take full advantage of.
Speaker Change: All these oh these these opportunities in front of us.
Speaker Change: So I would say to the to.
Speaker Change: To the same extent that we have created these markets before through fundamental technology innovation.
Speaker Change: That story is still very much.
In fact, we feel strongly more strongly about it than ever.
Speaker Change: And Doug as far as our guidance guidance philosophy, what I'll say is that we we call out what we're seeing today.
Speaker Change: We don't want to get too aggressive.
Speaker Change: And things that were not seen yet so in this case, we're anchored at the midpoint of our range.
Serge: We've got a balanced view of upsides and downsides, but then we've also called out upsides that I spoke to earlier in the prepared remarks, and so those were the first was the results of balancing our commercial efforts across all three platforms with increased focus on driving chromium growth.
Serge: So that results.
Serge: The result of doing that is not built in a I would consider that and upside and then the second one was the upside in <unk> instrument placements as we get through the first couple of quarters.
Serge: Third is the upside on museum H D and then quicker adoption with the potential for that driving more scientists displacements yet more.
Serge: <unk> placements in addition, but that's not that's.
Serge: That's not built in yet and.
Serge: And so as the year progresses.
Serge: And we see how we've progressed towards these upsides will update as appropriate if appropriate.
Serge: Okay.
Title Nixon: Your next question comes from the line of title Nixon with Canaccord Genuity. Your line is open.
Nixon: Hey, guys. Thanks for the questions.
Nixon: Just going back to the product transition dynamics to visit mainstream T. J Maxx could you just walk through that in more detail like is that just a like a tough switch or a customer is going to happen like could it be hesitant to kind of stick with you guys and kind of evaluate other options in single cell or spatial profiling and is there any risk that could kind of impact if any you can track.
Serge: <unk> momentum or those businesses just totally not.
Serge: Independent at this point.
Speaker Change: Yeah, so let.
Serge: Let me just wanted a little bit on the <unk>.
Serge: So for both of the <unk>.
These are very natural upgrades and some physicians for our customers with each deal and emphasizes and workflow.
Serge: <unk> is very similar to what we have now established with M D and that workflow it.
Serge: It is a much improved version of the relative to what we started years ago and that's something that has resonated with our customers. It runs on the same side assist instrument that our customers have so we see it as a very natural progression for our customers.
Serge: That said.
Serge: There is always some amount of friction in turning over in deciding when to finish your projects yields existing projects on standards on the current brothers, and when and which ones to pick up on.
Speaker Change: I'm busy and H C W.
Speaker Change: Also expect people to before kind of jumping at large scale.
Speaker Change: G towards some reagents in smaller quantities to test it out the bench market.
Serge: So we fully expect that customers will see fully within the tenants ecosystem, but it will take some amount of time to them.
Serge: Turnover in transition and decide when and where to transition onto the HD.
Serge: Similar dynamic on the generic side again it runs on our.
Serge: On the existing <unk> instruments.
Serge: The workflow is similar to what they would be doing with the current athletes just better.
Serge: And I'll, let just better everything is just sort of better. So we do expect them to naturally a transition to the gem X architecture, but again, there's going to be the same amount of friction where people will first.
Serge: Order these reagents to test them to benchmark them before deciding which studies to transition one answer.
Speaker Change: Okay that was great.
Serge: Yeah.
Speaker Change: And just just to add that you know the.
The impact on revenue throughout the year, Yes, we do think the biggest impacts with the transition is going to be in Q1. I mean, these transitions are gonna be executed throughout the year, but as far as seasonality goes when you look at what we would expect Q1 to be in relation to the midpoint of our guidance.
Serge: Strange I would expect somewhere in between 20% to 22% of the <unk> of the annual revenue would be in would be in Q1 as a result of these transitions.
Okay. That's interesting. Thanks, Jonathan Thanks, there was a lot to that great answer going back to single style you SSD demand.
When Nexgen was introduced 2019 thing that was sort of IP litigation.
Serge: I'm not sure if that was price reduction if there was a price reduction associated with that but chromium consumable someone would have grown 20% CAGR since then.
Serge: Catalyzed by that next Gem relief do you think that the Gen next introduction and the price decrease here could similarly kind of bomb like Reaccelerate chromium consumables.
Serge: Because that is growing high single digits for the past two years.
Speaker Change: Yes, so that jumped into the actually.
Speaker Change: Lower the price back when we launched it.
Serge: As far as <unk>.
Serge: Price reductions are concerned we do fully expect that over time, it will lead to high demand more reactions and ultimately more revenue.
Serge: Sure.
Serge: We have some some evidence of that dynamic based on the progression of customer accounts with floods assays, where as customers.
Serge: From transition to higher levels of flexing, which entails results in a lower price per sample their total number of reactions and total revenue and also columns goes up as more incremental projects get added.
Serge: Yeah.
Serge: Your next question comes from the line of Patrick Donnelly with Citi. Your line is open.
Patrick Bernard Donnelly: Hey, guys. Thanks for taking the questions Jeff.
Patrick Bernard Donnelly: Justin probably the first one for you just in terms of some of these moving pieces.
Speaker Change: You know both <unk> in the year can you just talk about the margin progression, obviously those have been pressured quite a bit from that.
Serge: And maybe some of the consumable piece.
Serge: But the ramp up.
Serge: Coming soon and the consumables piece will obviously bring the margins up but can you just help us think about how that's going to progress. This year on the gross margin piece and then.
Speaker Change: Any color on the expenses would be helpful as well.
Speaker Change: Yes sure.
Speaker Change: First let me talk about our philosophy for gross margin overall, we realize that that's a key strength of ours, we're committed to driving high gross margins long term and we believe that we have the ability.
Serge: Over the long term to get back to higher gross margins.
Serge: But we have been investing in <unk> platform since launch we've talked about the mix of basic.
Serge: Basically the strength of the <unk> instrument placements being by far the largest driver on the change in margin as of late.
Serge: We do think that as the Xenia consumable streams ramp up that will help to offset the margin of the instrument and over time. This platform will have a margin overall, that's comparable to our other product lines. The consumables themselves have gross margins that are that are similar to the other consumables.
Serge: That we sell.
Serge: For <unk>, we do have a slightly higher cost for generics.
Serge: But that is more of a transitory thing.
Serge: More impact Q2, and Q3 and Thats given how our licenses are structured there is going to be a very minimal impact.
Serge: Beyond our beyond Q3, and so the gross margin may fluctuate in the first three quarters of 2020 forward just based upon the mix of the Veniam instruments and the mix of Gen X, but like I said beginning in Q4 are those road.
Serge: The royalty payments will normalize and.
Serge: And we would expect a very minimal impact after that.
Speaker Change: Oh, Okay, and I guess, that's one of the other ones I mentioned were just museum HD, just coming up the manufacturing ramp of that with any new product.
Serge: You start off with yields are probably a little bit less than where you expect them to be a longer term and so we do expect some impact on the zoom HD just do the yields but over time as we improve those we expect to see the improvement as well.
Okay. That's helpful and Serge, there's obviously been a bunch of questions about single cell and kind of catalyze and get back to grow can you just talk about what you're doing internally and how we chat a little bit about about another GBP, but just you know in terms of incentivizing. The sales force I think you guys went all in on spatial and reading them last year.
Speaker Change: Alrighty swing the pendulum back to single cell. This year, maybe just talk about the strategy and how do you think that could impact cycle. Thanks.
Speaker Change: Yeah, Yeah very good question, Yes, we did as we've talked about before last year and 23 module. The company's focus was on spatial and especially on helium.
Speaker Change: We put a extra incentives on our commercial team to to put them on the right trajectory and obviously it has borne fruit and is worthwhile.
Speaker Change: As we entered this year.
Speaker Change: We have been.
Speaker Change: Telling the team to bring a more balanced.
Speaker Change: Perspective, a little better balanced allocation of attention across the portfolio.
Speaker Change: As we go into this year, we now have as part of our quarter there isn't a number on chromium.
Chromium as part of their incentive structure.
Speaker Change: We are watching this very carefully it's a good question to see to make sure that there is appropriate balance we do have now.
Speaker Change: Some edits specialization on the team to drive to continue to drive <unk> to drive the new which is giving us more room for overall commercial team to be able to drive chromium, which has a much.
Speaker Change: The franchise is a much wider footprint and.
Speaker Change: So we feel like we're putting the right measures of the right incentives in place, but something that we're absolutely watching and we will be as we progress really good really good.
Sabine AMD: Your next question comes from the line of Sabine AMD with Guggenheim. Your line is open.
Sabine AMD: Hey, guys.
Sabine AMD: For a full cloud.
Sabine AMD: This acquisition is most.
Speaker Change: Okay.
Speaker Change: I was wondering what question customers didn't naturally upgrade to general and can flex its available architecture.
Speaker Change: Then I have one follow up.
Speaker Change: Yeah. So the the largest applications that we have does.
Speaker Change: Otherwise we are.
Speaker Change: We've enabled on gender gender Gen X.
Speaker Change: Which is a three pronged gene expression of five prime which is comprised of this includes.
Speaker Change: Immuno profiling.
Speaker Change: Those are the biggest application that they also represent more than 50% of the.
Speaker Change: Volume for chromium.
Speaker Change: I'll now walk with flexible roughly.
Speaker Change: We are planning to take the phone or.
Speaker Change: More than that.
Speaker Change: Yeah.
Speaker Change: So we haven't talked about the precise percentages around the different applications around floods.
Speaker Change: What is a at.
This was a material fraction of the overall.
Speaker Change: Chromium portfolio larger fraction in terms of reactions.
Somewhat smaller in terms of revenue.
Speaker Change: Revenue.
Speaker Change: Yeah.
Speaker Change: Your next question comes from the line of Josh <unk> with Morgan Stanley. Your line is open.
Josh: Hey, guys. Thanks for the time here.
Speaker Change: Justin just a couple of quick cleanups for you on the guide.
Speaker Change: I mean.
Speaker Change: I get your point around anchoring to the midpoint of the upside downside sort of color you provided very helpful. But can.
Speaker Change: Can you just put a finer point on the degree to which you're anticipating a budget flush in 'twenty four and then what are you assuming in the guide for China is essentially sort of <unk> trends continuing for 2024.
Speaker Change: Yeah, So hey, Jeff maybe just starting with the last part of your question. We did we did consider what we saw at the end of Q4.
Speaker Change: As we thought about.
Speaker Change: At the beginning of this year and that was contemplated in our guidance.
Speaker Change: As far as the guide overall.
Speaker Change: Biggest drivers are you know what I highlighted before just around the product transitions and the xenia them go forward.
Speaker Change: As far as the year end on a on the budget dynamics.
Speaker Change: You know really it's taken more of a of an average view of the seasonality that we've seen in the past and rather than trying to assume something binary like budget flush or or no or no budget flush.
Your next question comes from the line of Mike Riskin with Bank of America. Your line is open.
Michael Ryskin: Hey, guys. Thanks for the question actually I want to follow up on China real quick, but I want to expand on that a little bit.
Speaker Change: It's been one of the major headwinds to growth over the last couple of years, obviously as a percent of revenues drop.
Speaker Change: Significantly I mean.
Speaker Change: In the fourth quarter, you were down to like 6% of revenues coming from China, and then Patrick.
Speaker Change: 20%.
Speaker Change: No.
Speaker Change: From my perspective, I mean, the profession amount of headwind anymore. As you go into 2024, but like if you strip. It out grew up in the last couple of years would've been much much higher so we talked about things from a <unk> busy perspective can you talk about it from a geography perspective feels like for 'twenty for Guy can be 10% of the mid point some of the other geographies have to decelerate.
Speaker Change: <unk> so could.
Speaker Change: Could you just reconcile those two approaches to thinking about the guide and I do a follow up thanks.
Speaker Change: Hey, Mike Thanks for the question for China.
Mike: In mind that in 2023 things.
Mike: Things started to take a downturn in China, beginning in Q2 Q1 of 2023.
Speaker Change: Still roughly a solid quarter in China. So for Q1, we do have a more difficult compare considering that and then it also impacts the year over year 24 over 23 compare as well.
Speaker Change: Going forward as far as what we assumed in 2024 for China.
Speaker Change: It's been more informed by what we've seen more recently around.
Speaker Change: Q3, and Q4 and so overall, we aren't forecasting any you know anything in China to get better right now and so I would characterize it as flat.
Speaker Change: Flat roughly.
Speaker Change: Roughly flat sequentially, but then year over year down when you consider the impact to Q1 2023.
Speaker Change: Your next question comes from the line of Matt <unk> with Goldman Sachs. Your line is open.
Matt: Hey, good afternoon, thanks, taking my questions.
Matt: Just following up on some of the color you gave to Patrick's questions on margins more of a philosophical question for you Justin as you think about.
Matt: Given that <unk> has now transitioned to a multi product company, you've got different growth rates different mixes different margin profiles for each of these products. How do you think about the overall gross margin profile of the company and is there sort of aligning the sand they are willing to draw at $60 61, 6% or whatever the level is and how do you manage that given the commercial efforts balanced between the different.
Justin: Products, how much are you thinking about your margins and where you want them to maintain them in the near term when youre doing that.
Justin: Yeah.
Justin: Matt that's a great. That's a great question I think I think first it's important to understand that we have a very long term view.
Justin: The business, we are definitely not focused on the near term and so.
Justin: Margin.
Justin: Margin plays into that especially when we think about when you look at what we've done with the <unk> platform, where we know the instrument is lower margin, but that's really an investment in the future. When you consider the consumable revenue streams.
When we look at new product development.
Justin: We have margin targets that we incorporate into their thinking and design there as far as the trade offs around the cost and the features and the volume.
Justin: And so there is you know robust thinking that goes that goes into that.
Speaker Change: We do have targets internally I'd hesitate to put out a number of publicly right now but know that margin is very important to us that we recognize the strength that that's driven for us to be able to reinvest.
Back into the business, but also keep in mind too that we do have a very long term orientation, where we're focused on doing what's best for the business overall.
Justin: Yeah.
Nathan: And your last question comes from the line of Nathan character with Stephens. Your line is open.
Nathan Stephens: Hey, guys.
Nathan Stephens: A lot's been asked here, but I just had one clean up real quick so just and I think they do.
Speaker Change: You guys had talked about HD and the potential for it to accelerate situs displacements and I may have heard this wrong, but in response to a prior question I think that you said that.
You expected sides assist instruments to be down year over year. So could you help me reconcile the two or maybe clarify what you said about sided displacements expectations. This year.
Yes, sure Nathan I was talking to the assumptions that are in our guidance range right now so at the midpoint for.
Justin: <unk> instrument.
Nathan Stephens: Instruments, so cytosis.
Nathan Stephens: That that hasnt assumption of being slightly down year over year, and then there is an upside.
Justin: If the adoption curve of museum HD will help drive more cyanosis instruments, and just just think about.
Justin: What we've done over the last year and since launching.
Justin: Cyanosis, roughly a year and a half ago where are.
Justin: Our messaging has been focused on this side assist being the future of the museum platform.
Justin: And that having a really strong adoption curve and a number of strong placement quarters with a good number of customers, who we believe have.
Justin: Not just bought it to use vision, but it also purchases to be to be ready for <unk> HD and.
Justin: And so I don't want to get too far ahead of ourselves with an assumption in the guidance range. Because I think that you know there has been a lot of placements ahead of a busy M H D to be ready for it.
Speaker Change: And maybe it's just like us slide no.
Speaker Change: What I was referring to in my prepared remarks is that the sales all side of this this year will be some of them at least are a lot of them will be driven by it is an agency that is not to say that there is necessarily going to be an increase over what was the placements before because we certainly drove a lot of placements outside of this last year.
Justin: Anticipation of HD launch.
Speaker Change: And this concludes today's call. Thank you for joining you may now disconnect.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change:
Speaker Change: Okay.