Q3 2024 10x Genomics Inc Earnings Call
Thank you for standing by, my name is Mark and I was a Beard Conference Operator today.
At this time, I would like to welcome everyone to the 10 next genomics 3rd quarter, 2020 for earning Scotland Friends call. So these call is being recorded. All kinds of information will prevent any background noise. After the speaker's remarks, there will be a question in answer session.
If you would like to ask a question during this time, see for a press bar followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would not like to turn the call over to Cassie Corneau, senior director, head up in press relations and strategic finance. Cassie, please go ahead.
Cassie Corneau: Thank you and good afternoon everyone. Earlier today, 10 extra nomenks released financial results for the third quarter and did September 30, 2024. If you have not received this news release or if you would like to be added to the company's distribution list, please send them to email to investors at tenetstrutomic.com.
Cassie Corneau: An archive to have cast of this call will be available on the investor top of the company's website, 10xionovic.com, for at least 45 days following this call.
Cassie Corneau: 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 security's laws.
Cassie Corneau: These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those that have been stated. And you should not place undue reliance on further looking statements.
Cassie Corneau: Additional information regarding these risks, uncertainties, and factors that could cause results to differ, appears in the press release to next year's list issue today. And in the documents and reports, filed by Panic Genomics from Tom Paton with the Security that Exchange Commission.
Cassie Corneau: and action moments, this includes any intention or obligation to update or revise any financial projections or slower looking statements, whether because of new information, future events or otherwise.
Speaker Change: Joining the call today are Serge Saxonov, our CEO and co-founder and for his first earnings call with 10S Adam Page, our new Chief Financial Officer.
Speaker Change: We will hope to question an answer session after our prepared remarks. We ask analysts to please use to one question without we may accommodate everyone in the queue. With that, I will now turn the call over to Serge.
Serge Saxonov: Thanks Cassie and good afternoon everyone. Revenue for the third quarter, decline 1% your year in line with our pre-appointment.
Serge Saxonov: Our results this will are both for the worst conditions.
Serge Saxonov: This was primarily caused by mortist robes and then we couldn't anticipate it from the sales or structuring we implemented this quarter and by cautious customer spending particularly around capital purchases as we continue to navigate a challenging macro environment.
Serge Saxonov: While these changes in our commercial structure and necessary to drive our growth and strategy, we expect this continued headwind and also expect cautious customer spending to persist.
Serge Saxonov: We now expect all your revenue in the range of $595 million to $695 million.
Serge Saxonov: At the Miss Sports of the Range, the Simplines flat force woulder revenue, compared to our third quarter results, and represents a 3% decline from the prior year.
Speaker Change: Adam will talk for more details over our data guidance range shortly.
Speaker Change: There is no question of revenue growth in 2024 as it is a point in
Speaker Change: The Yerica said a number of moving pieces that have made it particularly challenging.
Speaker Change: We initiated major product transitions across all of our blockbounds and significantly involved our sales organization.
Speaker Change: All of us with a backdrop of a difficult matter environment and changing the best of dynamics across the portfolio.
Speaker Change: Despite these current headwords, we continue to believe we're on the path to the most significant transition in the world's state since the day for adoption of NGS.
Speaker Change: We have the leading portfolio of single-cell and spatial technologies, and when vision of world in we've more stages we'll be analyzed using our products.
Speaker Change: The strategies we're pursuing to accelerate on the staff with our first to vulnerable commercial structure in order to foster widespread use of our technologies.
Speaker Change: Second, to create an increasing accessible price point so that we can drive ubiquitous use of our tools across all samples.
Speaker Change: We have to be a leader on price and whether a new product launches, we believe we now have the best cost structure for customers across a wide range of experiments.
Speaker Change: We've got shown over and over our ability to extend our technological leadership and push friends years.
Speaker Change: With these new offerings, we believe we're now the leader in both technology and cost.
Speaker Change: and third, the advanced recapitabilities with new products, workflows and software in order to enhance even use and drive more adoption.
Speaker Change: Finally, Winston talked about the subjects with his daughter in approach to investment in cash marriage.
Speaker Change: I'm confident that the steps for regaining will enable us to reach more customers, execute consistent liquor's tuberculosis oil, and drive the broad democratization of our technologies through the full potential of the large opportunity ahead.
Speaker Change: So the rest of the calls today, I will discuss what we're doing to advance our strategies and why we're confident they will set us up for future long-term growth.
Speaker Change: Adam will then provide more detail on our third quarter financials and specific impacts to our outlook for the rest of the year.
Speaker Change: Let's start with the changes we've been making to our commercial organization.
Speaker Change: As we share on our launch earnings goal, we will be architected our commercial infrastructure from the ground up, making fun, educational changes to transform how we engage with our customers.
Speaker Change: We sell to a diverse set of customer-guides and research segments.
Speaker Change: and we designed a new sales structure to focus our team to better serve all their distinct needs, whether in academic or biopharmic settings, scaling up top-tier customers, driving more jobs in the moment and emerging users, or bringing new researchers into the ecosystem.
Speaker Change: To accomplish this, we have this personalization to key areas. By creating a distinct cathodolic wisdom regime, exclusively focused on driving xenium instrument placements.
Speaker Change: Creating a distinct biopharm organization which is focused on better serving the unique needs and expansion of our students use in that sector.
Speaker Change: and adding a dedicated team to nurture new and emerging accounts in the next generation of time, on the customers.
Speaker Change: In addition to this specialization, we also recalibrate a territory scientist to make each territory more manageable and drive more efficient utilization of our Salesforce.
Speaker Change: While these changes were necessary, they did cause more destruction than we anticipated.
Speaker Change: Ultimately, this is a larger disruption in the areas where the failed structure changed the most. For example, over 40% of customer account in the Americas changed sales coverage within the quarter.
Speaker Change: And there are a new by-empharma in capital equipment teams, still have a large number of open roles.
Speaker Change: Our teams now have an improved focus and more different roles with targeted incentives. I'm confident, please with the right changes to make and see the most ready creating more clarity and rigor in our process.
Speaker Change: There is still work to do to realize the full potential over the Morphal Organization. We're working fast to fill our open headcom. A cause executive is still onboarding and getting up to speeds with the new customers and territories.
Speaker Change: We're spending a little day time before we're to the full benefit of impact from our new approach.
Speaker Change: Work confident, these changes will help us deliver the best experience to our customers, open up new opportunities and drive decision growth across the portfolio.
Speaker Change: During Guam Cromen, Brassfolio, as we have been communicating for some time, driving into priceless density has been a particular focus for us.
Speaker Change: will reach the next step of this direction by launching new products and capabilities aimed at lowering the cost and ultimately expanding access of single cello-analysis.
Speaker Change: First, we're setting a new standard for the course personnel for researchers with a launch of gem X-Flex. Customers can now run millions of cells, full of them one-cent personnel, and lower five-fold reduction compared to previous products.
Speaker Change: We're bringing a highest performing and most flexible assay to our new Gemax technology architecture. Gemax Black enables broader opportunities for mega-scale CRISPR screens, cell-addressing projects and multi-site translational studies and more others.
Speaker Change: Second, to decrease the cost per sample, even at a small scale, we launched GEM-X Universal Multiplex.
Speaker Change: With this product, researchers can batch and run four independent samples up to 5,000 cells each for approximately $560 per sample.
Speaker Change: This is a new multiplexing capability for flagship GEM-X Universal 3' and 5' gene expression assays, which will launch in March of this year.
Speaker Change: Furthermore, even while we're lowering cost barriers for our customers, these two products have comparable gross margins to our current consumables.
Speaker Change: Finally, to address CAPEX barriers, we launched Chromium XO, our most affordable single-cell instrument, at a U.S. list price of only $25,000.
Speaker Change: Chromium EXO serves as a budget-friendly entry point into routine high-performance single-cell analysis.
Speaker Change: XO enables researchers to generate high-quality data with less hands-on time, labor, and experimental costs compared to non-canonics workloads.
Speaker Change: Our GEM-X universal 3-front singleplex and multiplex assays are available on the EXO.
Speaker Change: With these launches, we're addressing a primary bottleneck for our customers, price.
Speaker Change: At the same time, we have also delivered new protocols, capabilities, and software to enhance ease of use and drive more adoption.
Speaker Change: Chromium flux, for example, should be uniquely suited to open up more translational research.
Speaker Change: It is the only commercial single-cell assay compatible with FFP samples, which are often constrained by limited cell quantities.
Speaker Change: With GEM-X FLEX, we've delivered a four-fold reduction in required cell input, significantly expanding the opportunity to include vast amounts of biobank clinical samples that were previously off-limits for single-cell research.
Speaker Change: Another example is the unique on-chip multiplexing workflow built into GEMMAX Universal Multiplex, which is an efficient and elegant way for researchers to analyze more samples in a single run.
Speaker Change: On-chip multiplexing eliminates the need for upstream sample tagging, simplifying the process and reducing hands-on time compared to other sample multiplexing methods.
Speaker Change: And we have introduced new solutions for upstream sample fixation to improve the workflow, whole block fixation to expand sample compatibility, and library prep automation to enable greater throughput.
Speaker Change: On the software side, we delivered automated cell annotations, making it easier and faster for researchers to go from experiment to insight.
Speaker Change: Cell annotation is a fundamentally hard problem and a critical part of most types of single cell analysis.
Speaker Change: With this new capability, we're addressing one of the biggest challenges in data analysis for our customers.
Speaker Change: Altogether, we're excited about the strength, differentiation, and leadership of our single-cell portfolio, and believe the new products, workflows, and software we've introduced will enable more researchers to adopt single-cell methods for more studies, more often.
Speaker Change: For additional product information, we encourage you to refer to the supplemental materials we posted on our Investor Relations website along with the earnings release.
Speaker Change: As we continue to execute on single cell, we are also motivated by the immense potential of our spatial platforms.
Speaker Change: We were encouraged by spatial consumables usage this quarter, with the continued adoption of Visium HD and Xenium 5K.
Speaker Change: Within the Vizium platform, we're seeing the majority of labs order Vizium HD, and now that the initial wave of customers is starting to move past evaluations, we're beginning to see good reorder trends.
Speaker Change: In addition, we are seeing the majority of new Elysium customers start with HD, an encouraging sign of the benefits this product brings to researchers.
Speaker Change: Adoption of our visiting site assist instrument continues at a solid pace. Our experience over the years has made it clear that an instrument like Site Assist is key to delivering a complete solution for customers.
Speaker Change: SiteAssist is critical for enabling a robust and straightforward workflow.
Speaker Change: One that allows customers to use standard histology slides.
Speaker Change: Additionally, by ensuring consistency, precision, and preservation of spatiality, Cytosys is integral to high-quality data and more accurate scientific results for our customers' experiments.
Speaker Change: Within the Xenium platform, we saw continuous adoption of Xenium 5K and Q3, leading to overall Xenium consumables revenue growth sequentially.
Speaker Change: And we continue to see encouraging utilization trends, with sequential growth in the number of runs.
Speaker Change: We consistently hear very strong feedback from our customers on these products, on the data quality, and on their ease of use.
Speaker Change: These complementary spatial platforms support a broad spectrum of customers' use cases and accommodate the ways their research and research questions may evolve over time.
Speaker Change: As we look forward, I'm encouraged by the underlying progress we're making and motivated by the immense opportunity I see ahead. Understanding biology requires measuring molecules, cells, and tissues at large scale and at high resolution.
Speaker Change: Our technologies are delivering these fundamental capabilities to researchers around the world.
Speaker Change: But these are still very early days.
Speaker Change: My conviction is fueled by our customers, both the work they are doing today and their ambitions for the future.
Speaker Change: I came away from last month's Human Cell Atlas General Meeting energized by the community's plans to take on larger, more complex studies to embark on high-impact translational projects.
Speaker Change: and to explore new single-cell and spatial applications that could transform the world understanding of health and disease.
Speaker Change: Conversations like these reinforce my belief that single-cell and spatial continue to be some of the most exciting and game-changing opportunities in the life sciences.
Speaker Change: While we continue to see strong adoption, we're cutting-edge genomics researchers.
Speaker Change: We believe there is an even larger opportunity across the broader space of academic research, whether in basic science or in translational applications.
Speaker Change: This opportunity spans across many different fields, including oncology, immunology, neuroscience, metabolic health, women's health, infectious disease, aging, and multiple others.
Speaker Change: We know this opportunity exists because we see early interest and use from many new kinds of customers.
Speaker Change: just not yet routinely or at scale.
Speaker Change: Even among our well-established academic customers, we're seeing interest in running larger-scale experiments, whether moving towards translational applications, analyzing large patient cohorts, or embarking on massive cell screening campaigns.
Speaker Change: In biopharma, there is increasing interest to apply single-cell and spatial technologies across the entire continuum of the drug development process.
Speaker Change: For example, many groups are focused on applying single-celled spatial tools for target identification and drug discovery, especially in the context of large-scale CRISPR experiments or combinatorial drug screens.
Speaker Change: In preclinical work, the emergence of organoids as a superior research model should open up a broad range of use cases, including characterization of disease development, progression, and therapy mechanism of action.
Speaker Change: We believe cell therapy development is another exciting opportunity, as our tools have the potential to accelerate biomarker discovery and screening, enhance cellular environment profiling, and support drug product characterization.
Speaker Change: And there exists an even larger space of translational applications to apply our technologies to clinical trials, which in many ways is only now becoming possible.
Speaker Change: We have built a sizable franchise with single cell and a solid foundation in spatial.
Speaker Change: And while this year has certainly had its challenges, we firmly believe there is a vast opportunity ahead and that we're the best company to deliver on it.
Speaker Change: Before I turn it over to Adam, I'd like to officially welcome him to 10X. On our last call, we announced he would be joining us as our new CFO, and I'm really excited to have him on board.
Speaker Change: With that, I'll turn it over to Adam.
Adam Page: Thank you, Serge. It's great to be here at 10X working with such a dedicated and resilient team.
Adam Page: I'll start by reviewing our financial results for the three months ended September 30, 2024, and will then provide further details on our updated outlook for 2024.
Adam Page: All growth rates provided will be on a year-over-year basis, unless otherwise noted.
Adam Page: Total revenue for the quarter was $151.7 million, down 1% driven by weaker instruments revenue, primarily zinium instruments, offset by stronger contributions from consumables.
Adam Page: Looking at our revenue breakout, total consumables revenue was $126.2 million, up 10%.
Adam Page: Chromium consumables revenue was $96.5 million, down 4% year over year, driven primarily by lower average prices, offset by increased consumables volumes.
Adam Page: Spatial consumables revenue was 29.7 million dollars of a hundred and eleven percent
Adam Page: driven primarily by continued demand for the new spatial consumables products introduced this year, Vizium HD and Xenium 5K.
Adam Page: Moving on to instruments, total instrument revenue decreased 45% to $19.1 million.
Adam Page: Chromium instrument revenue was $7.6 million, down 38%, driven by fewer units sold.
Adam Page: Spatial instrument revenue was down 50% to $11.4 million, driven by a lower number of zinium instruments sold.
Adam Page: Services revenue was $6.4 million, up 48%.
Adam Page: Looking at our revenue by geography, America's decreased 11% to $87.8 million.
Adam Page: AMEA grew 18% to $37.9 million, and revenue in APAC increased 15% to $26 million.
Adam Page: The most significant changes in our commercial reorganization were in the Americas, which contributed to the regional disparities.
Adam Page: Turning to the rest of the income statement, gross profit for the third quarter was $106.4 million, compared to $95.5 million for the prior year period.
Adam Page: Gross margin increased to 70% from 62% the year prior, driven by change in product mix, which was predominantly fewer Xenium instruments.
Adam Page: Total operating expenses for the third quarter decreased to $147.9 million.
Adam Page: compared to $190.3 million for the prior year period.
Adam Page: This decrease was primarily driven by a $41.4 million in-process research and development expense related to an agreement to acquire certain intangible and other assets in the prior year period.
Adam Page: R&D expenses decreased to $66.2 million compared to $66.5 million for the prior year period, primarily driven by lower personnel expenses, including stock-based compensation expenses, partially offset by higher laboratory materials and supplies.
Adam Page: SG&A expenses decreased to $81.7 million compared to $82.4 million for the prior year period, primarily driven by lower personnel expenses, including stock-based compensation, partially offset by higher outside legal expenses.
Adam Page: Operating loss for the third quarter was $41.5 million compared to a loss of $94.8 million in the third quarter last year.
Adam Page: This includes $33.9 million of stock-based compensation as compared to $40.2 million of stock-based compensation for the corresponding prior year period.
Adam Page: Operating loss in the third quarter of 2023 included $41.4 million of in-process research and development expenses.
Adam Page: Net loss for the period was $35.8 million compared to a net loss of $93 million for the third quarter of 2023.
Adam Page: We ended the quarter with $398.2 million in cash and cash equivalents.
Speaker Change: Turning to our outlook for the rest of the year, as Serge mentioned at the beginning of the call, we now expect full-year revenue to be in the range of $595 million to $605 million.
Speaker Change: representing a 3% decrease from full year 2023 at the midpoint.
Speaker Change: At the midpoint, our updated guidance range implies approximately flat fourth-quarter revenue compared to our third-quarter results.
Speaker Change: Within chromium, we are assuming a continuation of decreasing price per reaction while assuming an uptick in volumes. Within spatial, we are assuming similar results to what we experienced in Q3.
Speaker Change: The drivers of our assumptions are
Speaker Change: First, ongoing headwinds from our commercial restructuring.
Speaker Change: While we implemented the new structure in mid-Q3, our efforts remain ongoing as we make new hires to fill our redesigned territories and teams, train new sales reps, and solidify processes.
Speaker Change: And second, the macro environment continues to be challenging. We are still seeing cautious customer spending, putting pressure on both CapEx purchases, as well as larger consumables projects.
Speaker Change: Given this, we are not counting on the typical seasonality that we tend to see in Q4.
Speaker Change: While we anticipate these factors will impact Q4 and into next year, I want to affirm that we are taking the appropriate and necessary steps to take advantage of our opportunity.
Speaker Change: We are taking a disciplined look at our spend in our 2025 planning.
Speaker Change: But I would note that much of this is due to timing, and we expect this to offset in Q4.
Speaker Change: We are focused on maintaining a strong balance sheet going forward.
Speaker Change: At this point, I'll turn it back to Serge.
Serge Saxonov: Thanks, Adam. The end point is clear. Biology needs to be analyzed at the single-cell level and in spatial context.
Serge Saxonov: However, as 2024 has shown, the path together is not linear.
Speaker Change: I'm incredibly grateful to the Tenex team for staying focused on our mission and our customers as we navigate this period of change and push through these challenges.
Speaker Change: I have strong conviction that the actions we are taking now are necessary to deliver a long-term opportunity and fulfill the promise of single-cell and spatial biology.
Speaker Change: We will continue to execute with urgency and excellence as we work to foster widespread use of our technologies and create value for all stakeholders.
Speaker Change: We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again.
Speaker Change: Your first question comes from the line of pages I want with Morgan Stanley. Please go ahead.
Speaker Change: Hey guys, good evening. Thanks for the time.
Speaker Change: Serge or Adam, perhaps, maybe I'll start with one in the quarter in the outlook here. So, you know, India and AIPAC held up a lot better for you in the quarter relative to the Americas, and you highlighted, you know, the bulk of the commercial restructuring was focused on the Americas. So that makes me feel that it's mainly the commercial reorg that was the driver of the 50 million cut forces.
Speaker Change: incremental macro deterioration you know relative to your prior guide so can you just conform that and then the second part of my question is
Speaker Change: because there's a few moving pieces, right? So you've got the meaningfully lower price points on the Chromium that you're enabling for the customer base.
Speaker Change: But then you've got the macro stuff, and you also, Serge, I think, in your prepared remarks, talked about, you know, GEMEX Flex and Universal Multiplex having comparable gross margins. So just trying to put all of that together in terms of, you know, gross margin and free cash flow dynamics. Thank you.
Speaker Change: Sure. KJAS, thanks for the question. Let me take a stab at it. So on the Q4 guide, a couple things to consider, you know, in the way we're sort of thinking about the incremental call down is about
Speaker Change: from the macro environment and half of it coming from internal commercial organization work that we're doing. The reason, so the commercial one, you know, and I think we talked about and Serge got into in the script,
Speaker Change: What I would mention around the macro is
Speaker Change: We've historically seen a step up from Q3 to Q4.
Speaker Change: And we were still...
Speaker Change: even in the prior guide anticipating that type of seasonal step up, even if it was a bit muted perhaps in prior years, but we're still expecting some of that. And I think as you can see from what we've got in here from Q4, we're anticipating that doesn't occur. We don't see a step up from a, you know, CapEx perspective and even some of the larger consumables projects that we would tend to see in Q4, also not anticipating that to be the case.
Speaker Change: So, you know, you end up with about half of that guide down coming from the macro.
Speaker Change: And then, you know, on the internal side from a commercial RE-ORG, we still have a significant number of open requisitions filling those roles with top-notch talent. But, you know, that certainly continues to be a...
Speaker Change: and Impact Force here at Q4. The other piece of your question, or the other question that I'll answer, on gross margin dynamics, it's important to note that the products that we've launched are actually at comparable gross margins to our existing portfolio.
Speaker Change: So, you know, that's part of the innovation engine here at 10x and it's part of the reason that we're, as we're trying to democratize single-cell, get products into the hands, expand the market, the market opportunity.
Speaker Change: We're able to do that actually at comparable gross margins to the existing sort of base consumables business.
Speaker Change: The last thing, just the sort of second part or related part of your question around cash flow, positive, yes, we talked about that in Q3. I did mention, you know, just now here on the call, from a working capital perspective, we expect that to flip a bit.
Speaker Change: But as we noted in Q1, we had a roughly $20 million payment that we made that was sort of an unusual payment.
Speaker Change: related to an asset acquisition. And so absent that, we're still pretty darn close to being cashflow positive for the year. And that's still the way that we're thinking about our business is really being mindful of our cash balance along the way.
Speaker Change: Your next question comes from the line of Tycho Peterson with Jefferies. Tycho, your line is now open.
Tycho Peterson: part of the reason that you're not losing share. That seems different than what you're saying now. So I'm wondering if you can clarify that. Then as you work through the sales transition, do you have a sense of what percentage of orders that dropped out of the funnel are likely to be just pushed out versus unrecoverable? I guess, how do we get comfortable that there's not?
Tycho Peterson: share loss underway and things are dropping out of the funnel. And then Serge, I want to push you on pricing because you've gotten more aggressive with the Xenium promotion and Chromium XL and GemX. Just, you know, can you give us more comfort, get us more comfortable that the elasticity is actually there and that the funding for larger projects is materializing?
Tycho Peterson: Thanks.
Serge Saxonov: Yeah, thanks Taiko. So maybe on the first part of the idiom and visiom, kind of dynamic.
Serge Saxonov: Just wanted to clarify, we have said before the Xenium instruments in particular got affected by the microenvironment more so in an outsized way relative to the rest of our product portfolio. But once you take that out of the equation, all the products were similar relative to expectations.
Serge Saxonov: So, and yeah, as we've been saying all along, Zinium has been affected particularly by sort of the macro headwinds and the funding pressures of customers because this is the big sort of big price instruments and such.
Serge Saxonov: As far as the sort of pricing
Speaker Change: So there's different elements to this. I mean, you mentioned promotions.
Speaker Change: We've been running on some of our products, on Xenium instruments. There's nothing, I would say here, necessarily extraordinary relative to just a normal course of business.
Speaker Change: that we do, we have ongoing promotions on different products. And there was, there was some happening this quarter as well. And as far as more general sort of pricing, especially as it applies to kind of on the single cell side, we
Speaker Change: As we've been saying for a while, we believe there is a tremendous potential in single cell to grow, and a big barrier to further growth is price. And price can be a barrier along multiple dimensions.
Speaker Change: whether it's price per sample, price per cell.
Speaker Change: down over time. We do have strong conviction in the elasticity. I mean we have and we are seeing some volume grow already.
Speaker Change: relative to
Speaker Change: despite average, along with price decreases. We have seen based on sort of geographic price actions that we've taken in the past, we have seen that resulting in volume growth and over time over the course of a few quarters, actually growing substantial enough to drive substantial incremental top line revenue.
Speaker Change: We've also seen examples of customers who have adopted Flex.
Speaker Change: which if you kind of adopt it in a sufficient scale, flood-safety, you can drive down substantially your price per sample. And we have seen the dynamic with the customers that as they adopt it, to a greater and greater extent, their volumes increase and over time those volumes
Speaker Change: drove substantial expansion and top line revenue as well. It's not an unusual dynamic, it's actually quite common in the history of our industry and we expect it to play out here as well and we now have the empirical evidence to support that view.
Speaker Change: Your next questions come from the line of Doug Schenkel with Wolf Research. Doug, the line is now open.
Doug Schenkel: Hey, good afternoon. So, as many of you know, I'm a New England Patriots fan. They're a historically great franchise that's having a really, really bad season. I don't expect them to win, but I do want to see progress. I want to know things have bottomed and that they're on track to improving.
Doug Schenkel: In some ways, I see parallels to how I'm looking at 10x right now. So with that in mind...
Speaker Change: How do we know you're making progress and have the right plan in place and that you're not going to be mired at last place for years to come?
Speaker Change: And really, what can you share that assures us that you're tracking to become a winning organization again? And specifically, what should we look for in the fourth quarter that would resemble a win? Because
Speaker Change: Clearly, if you just meet guidance, that's not gonna be good enough. What should we be looking for that actually suggests that you're on the verge of turning this around? Thank you.
Speaker Change: Thanks, Doug. So, I mean, first of all, as I mentioned in my remarks earlier in the call, 2024 has been disappointing, and it is also the case that over the past couple of years, while there has been progress and really exciting milestones that we have met and achieved, we have had our challenges.
Speaker Change: In particular, we identified several years ago that we needed to scale our organization to reflect the growing complexity of the products and our markets and our segments.
Speaker Change: and the short story there is that the changes that we had tried to make over the course of the last couple of years has just not gone deep enough.
Speaker Change: It's clear we've learned from those changes, from the incremental adjustments we try to make.
Speaker Change: And it's the big driver, the big rationale for going through the commercial transformation right now.
Speaker Change: The overall approach we take as a company is once it's clear what decisions need to be made, we move fast.
Speaker Change: And I appreciate, again, that we're going through a period of disruption and pain right now. I do have conviction we're on the right path. You can look to see that...
Speaker Change: specifically in the regions where the disruption has been released, we are actually performing
Speaker Change: relatively well, in some cases quite well. We're looking forward to continuing on these changes. And yes, it's going to take some amount of time for them to work through the system across the company, across all the regions, across all the product categories.
Speaker Change: as we look to Q4.
Speaker Change: We certainly, you know, we do expect to see some improvements, but we have to be guarded in our assumptions at this point. We are still going through the, we still have a lot of open roles, we're still building up and filling out the commercial organization, and we're still in a very challenging macro environment.
Speaker Change: But I am confident that we're on the right path and we're going to start seeing the partial approval.
Speaker Change: Your next question comes from the line of 10 areas, which defaults to 10. Your line is now open.
Speaker Change: You guys, thanks. Serge, maybe more on the commercial fixes going forward. How much of what you need to do here relates to filling those open sales roles that you mentioned, which is pretty straightforward, versus implementing discrete changes in processes and just ways of going about things, which is harder. And then relatedly, what in your mind represents sort of a
Speaker Change: line in the sand, drop dead time point when it comes to your expectation for the company being fully on track, driving the level of visibility and the level of execution that you need to be successful here.
Speaker Change: Thanks.
Serge Saxonov: Yeah, yeah. So, you're right. Well, so first of all, a big part of what we need to do is fill in open roles.
Speaker Change: As we mentioned, we do have a lot of, on the call, we have a lot of open roles on our Genium CapEx team. We have a lot of open roles in the biopharma teams and other teams are also not fully staffed yet. So that is a big part of what needs to happen over the coming quarters.
Speaker Change: At the same time, you are right that there is also...
Speaker Change: a big element of
Speaker Change: of training people and
Speaker Change: Having people kind of grow into the new structure, new ways of working together, clarity around interactions between roles, and getting used to the new processes.
Speaker Change: that is also a work in progress. I'm seeing lots of improvement on that front, consistent improvement on pretty much weekly basis, but it does require adjustment in how people work. And so we have to be cautious in assuming sort of immediate changes.
Speaker Change: And so when I kind of put these together, when I think about filling an open role and having the new salespeople having the time to wrap up, which usually takes on order of a couple of quarters,
Speaker Change: After them coming on board, you should look at sort of the middle of next year as the time frame for all of these changes to be in place and for the organization to be really rocking.
Speaker Change: Your next question comes from the line of Dan Brennan with TD Cowen. Dan, your line is now open.
Dan Brennan: Great, thank you. Thanks for the questions. Maybe just on pricing and single cell, Serge, if you don't mind, there's a lot of different permeations of your products. So the thing we're trying to get a sense of is the investments that you made in price, you know, are they more niche? Are they more expensive? So is it possible to zoom out?
Dan Brennan: and just give us a sense, if we look back, say, a year ago, what your, like, price per sample would be across, you know, like, all your volumes. Kind of where that's been today. Like, how much have you invested in price?
Dan Brennan: And now, where does that gap stand today, do you think, of your own price, say, versus where, you know, kind of the competition stands, and do you need to further invest in price?
Dan Brennan: And then finally, like, with this investment in price, do you think, like, you're growing above market, in line with market, or just, how do you think about your growth versus the broader single cell market growth? Thanks.
Speaker Change: Yeah, yeah. So...
Speaker Change: Good question. Unfortunately, the answer is actually somewhat complicated because there's lots of different types of experiments.
Speaker Change: that our customers run. There's lots of different types of customers and different things matter to them, right? And so that's why, you know, we talked a lot about price per sample, but there's other metrics as well, like price per cell, price per experiment, and price per sample in different contexts. We're cognizant of those sort of all those different dimensions.
Speaker Change: And as we've been saying for a while, one of the major keys to unlocking the single cell market is to drive down these price barriers over time.
Speaker Change: which is what we have been doing over the course of the past year. Certainly the introduction of the GEM-X architecture earlier in the year was one step in that direction. You know, it was a 10% drop in per sample pricing there, but over 50% or 2x drop in per cell pricing.
Speaker Change: We further launched this quarter a product, GEMMAX Flex.
Speaker Change: that really increases the scale of what's possible with single-cell.
Speaker Change: on GEMMAX 3' and 5', also addressing...
Speaker Change: specifically addressing the per sample price getting down to under $600 a sample relative to, you know, well above $1000 for other assays.
Speaker Change: And so we're kind of making changes across a number of variables. And I think we're driving, we're in a good position now to address a lot of these bottlenecks. This is not the last of it. As we said before, over time, we do expect to drive down prices.
Speaker Change: And also, you know, this will drive the expansion of the market, and that's our primary goal here. As far as market share is concerned, you know, there has been certainly competition in single-cell, you know, since sort of the beginning of these segments. This has been a competitive segment, especially over the last couple of years. I would say there hasn't necessarily been a market change in the dynamic.
Speaker Change: in the last quarter. You know, there's maybe more aggressive presence of some of the new entrants going after our customers, putting pressure on price.
Speaker Change: you know, creating some distractions, elongating sales cycles, adding some friction to the process.
Speaker Change: But fundamentally we keep hearing from our customers page that they really appreciate that we have the best products, the best quality, the best workflow, the best breadth of applications, the best service, and by and large, calls keep coming back to us for all those reasons and now with all these new
Speaker Change: we have been releasing
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Mason Carrico with Stephens. Mason, your line is now open.
Speaker Change: Hey, thanks for taking the questions here.
Mason Carrico: On the new Chromium products and the pricing headwinds that are associated with them, could you just walk us through your expectations around customers converting over to these assays, how it'll impact growth over the next several quarters, at what point do you think we largely lap these headwinds, and really ultimately
Speaker Change: Is it possible we have another year of chromium revenue flat or declining or is your baseline expectation that volumes next year offset that pricing headwind?
Speaker Change: Thank you. Bye.
Speaker Change: Yeah, good question. So, clearly, we're launching new products right now. And as with more prices, the pattern that we have seen with our products, with other products, is that usually it takes some of the time for the elasticity effects, for higher volume growth, for higher volumes to kick in.
Speaker Change: and compensate for the decreases in price. So over time, and that time frame is typically three to four quarters, you expect to see incremental growth in top line revenue from price exchanges because of elasticity.
Speaker Change: But in the meantime, you do expect to see some pressure on the top line, some amount of headwinds. So that's kind of, that's how we're thinking about it. Now again, these are products that are meant to
Speaker Change: kind of transition customers gradually at these new price points, but we do expect there to be some new return on investment.
Speaker Change: Your next question comes from the line of Puneet Soudha, with Learing Partners. Puneet, your line is now open.
Puneet Soudha: Yeah, Serge, I'm wondering if you can, you know, size the Salesforce and give us an idea of how many positions are still open. I mean, my question is, why wouldn't this take six to nine months from now for the Salesforce challenges to normalize? You have new people coming in, new relationships need to be built.
Puneet Soudha: plus all the challenges that you pointed out with the end market and you have new products launching into the market as well so could you elaborate a bit on that and then my second part of my question is
Puneet Soudha: When you look at the Xenium installs, can you clarify where they landed versus the 40-50 install expectation?
Speaker Change: Clearly, that's a new product in the market. It's been gaining ground. It's one of the leading products. Clearly, numbers papers are growing, grants are growing. So, just trying to understand what's holding that back. Is it just largely capital equipment?
Speaker Change: Salesforce that you mentioned, or is there anything fundamental that's happening with the spatial already at this trajectory, in the trajectory of this market at this point? Thank you.
Speaker Change: Yeah, let me take this question first here. So, I mean, first of all, kind of zooming out, you know, we do, when you look at the indicators of demand, fundamentally, there's lots of interest.
Speaker Change: for my current customers in doing more. When you talk to them, there's an interest in doing more in the near term, there's new customers kind of being intrigued by this technology, and there's a lot of interest in kind of looking out the scaling up significantly for the future.
Speaker Change: The same sort of data you see in general surveys of customers in terms of expectations of growth.
Speaker Change: You also see funding signals that are quite strong, quite robust going forward. And then also, when you look at our kind of utilization, the instruments that we have been installing, that has also been quite healthy, which is also an indicator of kind of the underlying demands.
Speaker Change: and who both work for future installs as our existing customers kind of, you know, drive discoveries and publish their findings and develop the market. So, you know, we also know that, you know, CapEx environment has been particularly challenged recently.
Speaker Change: particularly on kind of higher priced items like Zinium.
Speaker Change: And, as we've been saying, we're going through a major commercial transformation that in part is focused on precisely this issue.
Speaker Change: Two areas. Yes, that has put quite a bit of pressure on our
Speaker Change: and ZDM Sales.
Speaker Change: This quarter certainly was a disappointment. Q3 was a disappointment in that regard. But again, I don't think, given those two factors, you really need to resort to any questions around the fundamentals of the demands here. We absolutely strongly believe in this franchise, in its potential, and absolutely still see this potential to be the largest revolution in the Lifestyle Schools, Sims, and GS.
Speaker Change: Your next question comes from the line of Rachel Vottenstall with J.P. Morgan. Rachel, your line is now open.
Rachel Vottenstall: Great, thank you. So, I wanted to dig into spatial assumptions in the performance this quarter. So, first off, can you give us placements for Xenium and Vizium in 3Q? We're getting roughly 30 placements for Xenium, so is that the right ballpark for what you guys did in 3Q? And then in terms of 4Q guidance, you mentioned in the prepared remarks that you're assuming spatial to be similar to what you saw in 3Q. You're not assuming standard seasonality in that 4Q time frame. So, how should we think about placements for Xenium and Vizium next quarter? Are you expecting this to grow sequentially?
Speaker Change: Rachel Thadham here. Yeah, I mean, I think you're, you're, you're.
Speaker Change: about right as it relates to Q3, in terms of the Zinia emplacement center that you quoted there. And that is what we're anticipating for
Speaker Change: 2-4 again, absent.
Speaker Change: You know, in different macro environments, we would have anticipated a Q3 to Q4.
Speaker Change: Bump from a CapEx.
Speaker Change: Your next question comes from the line of Kyle Mixon with Canada Card Genuity. Kyle, your line is now open.
Kyle Mixon: Thanks, guys. Serge, I think you mentioned it's going to take until mid-next year for the benefits of the commercial regularization to fully take shape. How much visibility or confidence do you have that there's going to be this inflection point in the middle of next year? And with the CapEx and China headwinds potentially abating by that time, is it fair to say you could return to revenue levels or growth rates that you're happy with by the second half of next year?
Speaker Change: So, look, on the commercial side, I think it's it's fair to expect that there should be These timelines are pretty firm. We do have
Speaker Change: that time frame, getting through it. In terms of, yeah, as we look to the second half of the year, that's normally going to be a significant factor. As far as MACRA is concerned, I don't know that
Speaker Change: One can say at this point that it's going to get better, right? So our baseline assumption is that macro situation is going to stay similar to what it has been so far.
Speaker Change: Your next question comes from the line of Patrick Donnelly with CD. Patrick, your line is now open.
Patrick Donnelly: Thank you.
Patrick Donnelly: Hey, guys, thanks for taking the questions.
Patrick Donnelly: Serge, maybe just one on the expense side. I mean, you guys are talking a lot about, you know, filling a lot of open spots, you know, well into next year, and at the same time, you're talking about disciplined spending and focusing on
Patrick Donnelly: some level of profitability. Can you just talk about, I guess, the balance between those two, where some costs are coming down, what some of the hiring.
Patrick Donnelly: going up or is that just kind of replacing? And then the second one is just on the competitive landscape, you know, it seems to be coming up a little bit more tonight.
Patrick Donnelly: Can you just talk about what you're seeing there? Is it some of the homebrew stuff we've seen some papers on over the past couple months? Is it other players, bigger players that may be acquired, smaller assets? It would be helpful just to talk through what you're seeing on the competitive side. Thank you, guys.
Speaker Change: headcount in those areas, but at the same time, the new structure is meant to be substantially more efficient than what we had before, where we had lower redundancies and overlays and overlaps.
Speaker Change: And so while there is a modest investment that we're making in terms of, you know, kind of increasing headcount, I actually expect it to be materially more efficient and set us up really well to grow efficiently and gain a lot of leverage.
Speaker Change: which, again, in the context of our strong balance sheet and the focus on cash management should set us up really well into next year and beyond. As far as competition is concerned,
Speaker Change: The dynamic has not changed on the spatial side in the last quarter.
Speaker Change: We've been doing well in winning based on the performance of our products.
Speaker Change: It's been a consistent team this year. No issues, I'll take that it's been a change in the dynamic this past quarter on the single-cell side they're going to spend more players and arguably are acting more aggressively out there and then face for the most part of this really kind of the small companies that have been doing that and
Speaker Change: I don't think the overall dynamic has really changed.
Speaker Change: Thank you very much, Hugo.
Speaker Change: Your next question comes from the line of Michael Riskin with Bank of America. Michael, your line is now open.
Michael Riskin: Hey guys, thanks for squeezing me in. I want to follow up on an earlier point talking about spatial and just some of the trends you're seeing there. And I want to drill in on the consumable side of things. I think you touched on this in some of the earlier questions.
Speaker Change: Frank, I just want to make sure my math squares out. So if I'm looking at our model and I'm looking at consumables revenue for spatials overall, you know, I've got you at 26 and change million in 1Q, 29 in 2Q, and, you know, 29 and a half in 3Q. So I know you've had a number of product rollouts, both on the Visium side and on the Xenium side, but if I look at your install base now, it's 50% higher now for Xenium instruments than it was at the end of last year. So.
Speaker Change: to your comment on utilization and just sort of, you know, demand for the instruments. I can see how Xenium demand could be lower because of the macro. You'd still think that the consumables would have ramped up just because the installed base is higher. So is that a matter of timing, people drawing down inventories, maybe reordering trends, anything you can talk about? And just.
Speaker Change: Where I want to lead with this question is where do you think that spatial consumables could grow next year going forward? Just looking at the trends over the last couple quarters. It's flatlined a little bit more than we would have thought. Thanks
Speaker Change: Yes, I think it's probably important to kind of tease apart sequential kind of dynamics versus year-over-year comparison.
Speaker Change: When I think about sequential, there's been a number of pieces because of the new product launches in particular.
Speaker Change: kind of the bolus, for example, visiting HD customers that are coming in initially and getting them and kind of getting through the bolus.
Speaker Change: similar sort of dynamics on the Union 5k when you have an initial customer interest and there's only some amount of pent-up demand in the early
Speaker Change: into play. On the Xenium side we're seeing kind of some of the underlying data coming through on that.
Speaker Change: utilization through telemetry data we're getting that looks encouraging and showing consistent growth.
Speaker Change: So yeah, the underlying dynamics are encouraging, but they do get somewhat dismissed sometimes by these kind of product launches.
Speaker Change: and sequential dynamics. I would also point to that the consumables, you know, across the entire product line were kind of, were affected in Q3 by the same sort of commercial transformation headwinds that we saw across the board. And so you have to also take that into account.
Speaker Change: And that's why you kind of want to go back and also look at the year-over-year comparison and there you do have very encouraging trends.
Speaker Change: Your next question comes from the line of Subbu Nambi with Guggenheim Securities. Subbu, your line is now open.
Speaker Change: You guys, thank you for my question.
Subbu Nambi: Good. So...
Subbu Nambi: And how...
Speaker Change: I'm not sure if it's you or us, but you're not coming through clearly.
Subbu Nambi: Can you hear me now?
Subbu Nambi: Yes.
Speaker Change: Guys, what are the applications where you believe the cost of single cell sample prep is the biggest scaling item to driving volume growth? And how would you characterize your ability to drive elasticity, given that sample prep is only one component of the cost equation for users?
Speaker Change: Yeah, I mean good question so
Speaker Change: in terms of why price being a barrier. So first of all, you know, there has been a theme.
Speaker Change: with our customers since almost the beginning of single cell. And that theme has been growing more and more as you talk to existing customers, you look at what prevents them from using more when you go do surveys of potential customers that are looking to adopt single cell. The number one theme, and it just comes up over and over and over again, is price.
Speaker Change: It is also kind of when you look at how customers actually make decisions as to how much.
Speaker Change: to allocate the single cell experiments versus others.
Speaker Change: The decision, like the marginal decision, is really about price. In some sense, it's the insight per dollar, right? And we see this again and again and again, whether it's applying for grants or designing an experiment.
Speaker Change: customers have to think hard about whether to allocate the next marginal dollar to single-cell or not. In many cases, they have a strong preference to running single-cell routinely on all their samples, but they end up compromising
Speaker Change: substantially, allocating it only to a small fraction of their samples, a small fraction of their budget.
Speaker Change: because of price.
Speaker Change: So lots and lots of evidence from customer behavior and customer feedback that price is a big issue.
Speaker Change: We've also now seen examples where in the past in a geographically targeted way or with specific customers where we have had experience of reducing prices.
Speaker Change: and then seeing volumes.
Speaker Change: pick up on the timeline roughly as you would expect based on general experience in our space.
Speaker Change: how long it takes for people to design experiments and maybe get additional grants.
Speaker Change: to do more. And we have seen consistently with experience with our Tokyo post waters, the volume more than overtakes the headwinds of price and creates a lot more.
Speaker Change: demand a lot more revenue. As far as the out part of the workload being only
Speaker Change: are part of the overall cost equation. That is true. That said...
Speaker Change: The way the dynamic has worked over the past several years is that sequencing prices have been coming down, been coming down a lot, especially recently. And at this stage, it's really the price of our, part of the workflow that largely determines the overall cost of the experiment. And that creates the opportunity for us, particularly in this moment of time, to really drive into realistic.
Speaker Change: Your next question comes from the line of Matt Lowry with William Blair. Matt, your line is now open.
Matt Lowry: Good afternoon. You mentioned that single-cell volumes grew in the quarter and chromium consumables have been up sequentially in the last two quarters.
Speaker Change: Well, so as far as volume growth is concerned, this is, we're referring to here to reaction kind of reaction metrics, which we share on an annual basis. And we'll share that kind of when we are doing our Q4 call.
Speaker Change: Thank you.
Speaker Change: We, another sort of kind of indicator to maybe keep in mind is that you can look at the volume growth in terms of reactions. You can also look at volume growth in terms of the numbers of cells.
Speaker Change: that are analyzed. And on that account, because of the new products that we've been launching that can accommodate higher and higher throughput.
Speaker Change: The actual growth in cell number has been really robust.
Speaker Change: and William Hoard power and John Carozza. Thank you.
Speaker Change: Your last question comes from the line of Matt Sykes with comments as, Matt, your line is now open.
Matt Sykes: Hi, thanks for taking my questions. I just want to go back to the commercial changes, just given the impact that you saw in this quarter. You've outlined your timing for the new hires and when they can potentially ramp their productivity, but just on the existing sales force, who also saw very significant changes in their territories and accounts.
Matt Sykes: I guess just two quick questions. One, are you confident that they've bought into these new changes?
Matt Sykes: from a morale and motivation standpoint, and two, how should we think about those existing sales folks re-ramping their productivity given all the changes they've experienced? Do you think it will coincide with the potential timeline for new hires or could they adapt more quickly?
Matt Sykes: over the next maybe two to three quarters versus sort of six to nine period outline for new hires. Thanks.
Speaker Change: Yeah, so a couple of things. First of all, like we do have a lot of really, really talented people on the team.
Speaker Change: And in fact, a lot of the changes that we've been making is specifically to help them unlock their full potential, to give them a clear focus, clear direction.
Speaker Change: so it can really, really perform in this new, much greater, much
Speaker Change: of that simpler structure.
Speaker Change: And, you know, I'm personally excited about it. I think a lot of people on the team are really excited about it. And we see there's a lot of positive momentum on the team. It has been a tough, tough transition, and I do recognize that a lot of them, like I really, really appreciate strongly how much they have worked their way through the transition, oftentimes driving sales when they might not be confident to the same extent that they would have been in the past, but we're making sure that the customer is really, really served well, despite like not knowing precisely how the new structure is going to...
Speaker Change: You know, going forward, you know, different people are going to be adopting different parts of the organization on different timeframes.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.