10x Genomics Q1 2024 Earnings Call Transcript

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Provided by Quartr
April 30, 2024

There are 17 speakers on the call.

Operator

day, everyone, and welcome to the 10x Genomics First Quarter 2024 Earnings Call. Today's call is being recorded, and I would like to turn the call over to Cassie Cornell, Director, Head of Investor Relations and Strategic Finance. Please go ahead.

Speaker 1

Thank you, and good afternoon, everyone. Earlier today, Pannex Genomics released financial results for the Q1 ended March 31, 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 an e mail to investors10xgenomics.com. An archived webcast of this call will be available on the Investor tab of the company's website, kinnexgenomics.com, for at least 45 days following this call. 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 1

These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated, and you should not place undue reliance on forward looking statements. Additional information regarding these risks, uncertainties and factors that could cause results to differ appears in the press release 10x Genomics issued today and in the documents and reports filed by 10x Genomics from time to time with the Securities and Exchange Commission. PENEX Genomics disclaims any intention or obligation to update or revise any financial projections or forward looking statements, whether because of new information, future events or otherwise. Joining the call today are Serge Saksinoff, our CEO and Co Founder and Justin McIner, our Chief Financial Officer. We will host a question and answer session after our prepared remarks.

Speaker 1

We ask analysts to please keep to one question so that we may accommodate everyone in the queue. With that, I will now turn the call over to Serge.

Speaker 2

Thanks, Cassie, and good afternoon, everyone. During today's call, I'll start with an overview of our Q1 progress and performance, highlighted by the launch of 4 major new products that we believe set a new standard for single cell and spatial biology. Next, I will discuss the exciting opportunities we have ahead across our 3 platforms and the steps we're taking to deliver on the future. Then I'll turn the call over to Justin for a more detailed look at our financials, business trends and outlook for the rest of the year. For the Q1, total revenue grew 5% to $141,000,000 We continue to drive strong growth in spatial led by our Vizium franchise and the highly anticipated launch of Vizium HD.

Speaker 2

We also saw strong interest in our new Chromium GemX technology, which delivers substantially higher performance at a lower price. A significant number of customers trialed the new architecture, contributing to lower than expected quarter end orders for Chromium overall. Despite the near term sales impact, we believe JEMAX will invigorate Chromium growth over the long term and ultimately enable wider single cell adoption. And while we're working to deliver on the vast opportunity ahead in Chromium, our strategy has always been focused on the strength of the entire portfolio and on providing the full breadth of our capabilities to customers. With our 3 complementary platforms in single cell and spatial, we're committed to innovation that enables the scale and resolution necessary for researchers to better understand biology and disease.

Speaker 2

We believe that we're still early in this opportunity and in adoption of these tools. This year, we're introducing franchise defining products in each platform to enhance our performance leadership and accelerate long term growth. These products are a testament to the enduring strength and velocity of our innovation engine and its value for customers around the world. These launches also reflect how we listen closely to customers' feedback and build products that are most responsive to their needs. Let me highlight a few of our latest advances and how we expect them to extend their technology leadership.

Speaker 2

First, we were thrilled to officially start shipping Vizient HD at the end of March. For our team, there's really no better feeling than seeing new products in the hands of researchers. That's especially true here. VzMHD has not only been the most requested product in our history, but also one of the most ambitious development projects we've ever taken on. It is precisely the kind of challenge 10x was built for.

Speaker 2

It is yet another example of our ability to tackle hard problems and arrive at the best solution possible for our customers and their research. VisiMisty enables whole transcriptome spatial analysis at single cell scale resolution. It runs on existing site assist instruments, leverages the same robust and easy to use workflow as standard Visium and brings the field of spatial discovery to a whole new level. While it's still very early, we're really pleased with the strong initial demand and tremendous enthusiasm we're seeing from our customers. The positive momentum further fuels our ambition to establish Vision HD as the platform for translational discovery.

Speaker 2

This quarter, we also continued to deliver on our robust Xinyum R and D pipeline. We began shipping both our multimodal cell segmentation product and their new immuno oncology gene panel in March. Cell segmentation includes an add on kit compatible with existing Xenium assays. It leverages advances of assay chemistry and sophisticated machine learning algorithms to significantly improve the determination of cell boundaries using multiple morphological features and modalities. While Xenium launched with a robust nuclear based segmentation approach, many researchers have been waiting for this new solution to enable the most accurate biological interpretation for their Xenium runs.

Speaker 2

Xenium is already well recognized as being C2 performance leader. There is still much more to come. We're planning to launch our 5,000 Plex capability mid year, scaling up Plex by an order of magnitude, while still delivering high quality sensitivity, specificity and throughput. We're also developing panels of 1,000 to 2,000 genes to give customers even more options and flexibility. We're moving forward with integrated protein profiling, which will significantly expand Xinyam's existing protein capabilities.

Speaker 2

And longer term, we have architected Xinyam to allow for tremendous technological headroom and enable more applications, higher throughput and lower cost. With the long awaited launch of Vizim HD, the performance of Vizim HD in the field and the interest and buzz around the XENIUM pipeline, it's clear we're in the forefront of the spatial biology revolution. We're seeing some cutting edge researchers and technologists start to reprioritize their team's resources and mindshare from single cell approaches to explore how spatial methods can push their research forward. We're also seeing spatial resonate with new researchers who have never done single cell or other genomics work before. Take this year's annual meeting of the American Association of Cancer Research or AACR for example.

Speaker 2

There was resounding energy and conviction on Spatial, which emerged as a huge theme of the conference. In fact, the majority of the plenary sessions featured or referenced 10x spatial data. This burgeoning interest in spatial is drawing the attention of both new and existing customers and we have work to do to ensure we can satisfy that interest and drive growth across the portfolio. Turning to single cell and the launch of our new Gemax technology, the first major overhaul to our Chromium architecture since 2019. With this completely reengineered microfluid chip design, GEMx delivers superior performance at larger scale and lower cost.

Speaker 2

In March, we began shipping the first two products on GEMx, our highest volume chromium assays, 3 prime gene expression and 5 prime immune profiling. These assays take single cell analysis to the next level, giving researchers meaningful performance of damages across the board from increased sensitivity and capture efficiency to improve robustness and scalability, all at a lower cost. In fact, the new technology provides researchers a more than 2 fold reduction in cost per cell. We believe GMX raises the bar for the field and sets a new standard for single cell analysis. Our customers have been eager to see and validate this for themselves.

Speaker 2

In Q1, more customers than expected trial GEMX to see firsthand the power of this technology on their own samples. And more recently customers including the Fred Hutch Innovation Lab have started to share their own independent comparisons of GEMEX and their next gen technology verifying our performance claims. We're encouraged by the early enthusiasm, adoption and feedback on GEMEX despite the near term headwinds as we help customers navigate this product transition. Gemx delivers great value to customers now and opens up meaningful possibilities to expand the field long term. As we have said before, we believe there is significant price elasticity in single cell, which presents a significant long term opportunity for a broader adoption.

Speaker 2

GEM X is one of several steps we have planned to take advantage of the elasticity. By delivering superior performance of superior economics, we believe Gen X will help us enable larger projects, reach new customers and encourage more routine use among existing researchers. We fully intend to expand the single cell opportunity through our robust Chromium roadmap and other efforts to drive better awareness and broader adoption at large scale. Put simply, our goal is to make single cell analysis the standard for most biological research. While we believe there's huge untapped potential for single cell, our conviction is not just in Chromium.

Speaker 2

It's in the combined performance, leadership and differentiation of all three platforms together. Our strategy has always been about the power of the full portfolio and the choice it enables for customers. Our goal is to ensure that researchers and ultimately clinicians have access to a comprehensive suite of the best performing products to resolve biology in a way that's best for their work. We intentionally designed distinct yet complementary platforms to support a broad spectrum of customers' use cases and how their research and research questions may evolve over time. The strength of our execution in R and D and operations has enabled us to deliver a full portfolio of groundbreaking products.

Speaker 2

And as we continue to evolve our commercial execution, it will better position us to maximize and deliver on the incredible potential ahead. We believe there are clear opportunities to drive growth, utilization and scale with existing customers to bring new researchers into the 10x ecosystem and to accelerate translational and biopharma opportunities. Allkem's MOSAIC study, which we first announced in November is a powerful example of the progress we're making in translational applications. This large scale project is on track to complete spatial profiles on thousands of tumor samples across 7 different cancer indications by the end of the year. The team is looking to discover biomarkers and to build predictive models that could transform how we diagnose, treat and ultimately cure cancer.

Speaker 2

In addition, we firmly believe there's a long runway ahead for single cell methods in biopharma. Importantly, we're not the only ones who share this conviction. Some of our pharma customers recently published on the value and the impact of our products in therapeutic development. Sanofi reported that 90% of the company's disease targets are credentialed using single cell genomics. A recent preprint in medRxiv helps shed light on why.

Speaker 2

The study analyzed single cell data across 30 diseases and 13 tissues to examine associations between genes, cell types and diseases. They found that support from single cell analysis significantly increased the odds of clinical success for a given gene to be a viable drug target. In fact, the authors estimate that their approach could approximately triple the chances of a drug target reaching a Phase 3 clinical trial. So while we have established strong beachhead in translational and biopharma, it's still very early relative to the expected large potential. With all of the advances in our portfolio, we're in a better position than we've ever been to deliver.

Speaker 2

As one customer at AACR told me, FFP changes everything. Our FFP capabilities available in all three platforms open up vast archives of biobank samples along with exciting possibilities for new biological discoveries. These capabilities reflect yet again how we listen to our customers, think deeply about their research and build innovative products to accelerate and advance their work. We believe the long term potential for single cell and spatial is boundless. While we're focused on delivering in 2024, we will remain steadfast in maintaining the long term orientation that has always guided us.

Speaker 2

I have every confidence when I say we're still just getting started. With that, let me turn it over to Justin.

Speaker 3

Thank you, Serge. I'll start by reviewing our financial results for the 3 months ended March 31, 2024, and will then provide an update on our outlook for 2024. All growth rates provided will be on a year over year basis unless otherwise noted. Total revenue for the quarter was $141,000,000 up 5%. At a high level, the quarter played out largely in line with total revenue expectations, with stronger contributions from spatial, partially offsetting lower chromium contributions.

Speaker 3

Looking at our revenue breakout, total consumables revenue was $110,300,000 down 2%. Spatial consumables revenue was $26,400,000 up 134%. This growth was driven primarily by our Xenium platform along with strong adoption of VIZIOM HD, which started shipping at the end of Q1. Chromium consumables revenue was $83,900,000 down 17%. Some of this year over year decline was expected.

Speaker 3

As discussed on our year end earnings call in mid February, we anticipated headwinds for Chromium revenue in the Q1, while customers began their transition to the new GEMX products. As part of this transition, we anticipated that customers would trial GEMX and would not stock up on either the legacy or newly introduced products at quarter end. While we believe this increased trialing created stronger headwinds for chromium consumables in Q1, we are nonetheless encouraged by the initial adoption and enthusiastic feedback from customers thus far. The lower price of GEMEX will continue to drive some near term revenue pressure, but over time, we believe there is elasticity that will more than offset the lower price. We also believe that the stronger than anticipated spatial demand took some customer mind and wallet share away from Chromium this quarter.

Speaker 3

As Serge shared, we are seeing both new and existing customers prioritize spatial studies given the burgeoning interest in the space. How this plays out over time remains to be seen, but we continue to believe in the power of our full portfolio and offering customers a comprehensive suite of products to fit various needs. Moving on to instruments. Total instrument revenue increased 33% to $25,500,000 Spatial instrument revenue was up 133 percent to $17,600,000 primarily driven by XENIUM instrument placements. We also saw sustained demand for our Cytus' instruments as customers purchased the instrument along with Visium HD consumables.

Speaker 3

Chromium instrument revenue was $7,900,000 down 32% driven by fewer units sold. Services revenue was $5,200,000 up 91% driven by increased service contracts revenue and increased C and EM instrument training and installation revenue. Looking at our revenue by geography, Americas revenue grew 1% to $79,600,000 EMEA revenue grew 22 percent to $34,700,000 and revenue in APAC decreased 2% to $26,700,000 Turning to the rest of the income statement. Gross profit for the Q1 was $92,900,000 compared to $98,400,000 for the prior year period. Gross margin declined to 66% compared to 73% in the Q1 of 2023, primarily due to a change in product mix driven by Xenium Instruments.

Speaker 3

Total operating expenses for the Q1 increased to $154,400,000 compared to $150,400,000 for the prior year period, driven by higher legal expenses and cost for facilities and IT, partially offset by lower personnel expenses. R and D expenses increased slightly to $68,600,000 compared to $67,100,000 for the prior year period, primarily driven by higher facilities and IT cost and increased personnel related expenses. SG and A expenses increased to $85,800,000 compared to $83,300,000 for the prior year period, primarily driven by increased outside legal expenses and higher facilities and IT costs, offset by a decrease in personnel related expenses. Operating loss for the Q1 was $61,500,000 compared to a loss of $52,000,000 in the Q1 last year. This includes $36,100,000 of stock based compensation compared to $42,100,000 of stock based compensation for the corresponding prior year period.

Speaker 3

Net loss for the period was $59,900,000 compared to a net loss of $50,700,000 for the Q1 of 2023. We ended the quarter with $371,800,000 in cash and cash equivalents and marketable securities. We burned $17,000,000 of cash over the course of Q1, while making a $20,000,000 payment in January related to the asset acquisition that we recognized in Q4 2023. Turning to our outlook for 2024, we continue to expect full year revenue to be in the range of 670 dollars to $690,000,000 representing growth of 8% to 12% over full year 2023. We believe this range represents a balanced view for the year.

Speaker 3

It incorporates both the upside we've seen in spatial and the headwinds we are experiencing now in Chromium, which we expect to continue into Q2 as additional customers trial and transition to Genex. When looking out over the next 12 months, we are anticipating about $15,000,000 to $20,000,000 of total capital expenditures. We are maintaining cash 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. Ultimately, our goal is to self fund our innovation and scale by investing cash generated back into our business.

Speaker 3

At 10x, we continue to be laser focused on execution to drive growth and impact. We are excited about the strong enthusiasm for the products we launched in Q1 and look forward to providing more updates on our progress throughout the year. With that, we will now open it up for questions. Operator?

Operator

Thank And with that, we'll take our first question from Mason Carriko with Stephens.

Speaker 4

Hey, guys. Congrats on the quarter, particularly in the tough macro backdrop. If you could, could you give us some maybe just a bit more insight into the adoption trends and early feedback on HD and GEMX? How many of your Cytusys customers have purchased HD at this point? And how do you think about that driving sustained demand for Cytusys this year?

Speaker 4

And then similarly, adoption rates among existing customers on GEMEX and has initial interest made you maybe more bullish on the opportunity for Chromium in the back half of this year and into next year?

Speaker 5

Hey, Mason, this is Justin. I'll take the first part of that and then Serge can add some more color. So as far as VIZIYAUM goes and looking at the SD versus HD split, I'd say roughly half half. And when we're looking on the Chromium side around the Gen Max adoption, if you're looking over the last month as in Q2 to date, seeing roughly about a third of the Chromium consumables on Gemax. And back to the Visium side, with the launch of HD, we have seen that driving sustained demand for the Cytosys.

Speaker 5

We do think that anticipation of the Visium HD launch helped us place CytoSys in particular in the back half of last year. And we are expecting that to be a catalyst for Cytusys placements going forward in 2024. Same thing with GEMAX. That is a product that you need a Chromium IX in order to run. And we do think that that's also going to be driving chromium IX placements throughout 2024 as well.

Speaker 2

Yes. As far as the so the Pb alkaline products is concerned, it has been very positive. So HD obviously has been perhaps our most anticipated product to date. Lots of customers were excited and lots of customers were excited to get their hands on the product. And the early sentiment coming back from seeing the data, seeing the data coming from their samples is very, very positive.

Speaker 2

So all the investments we made along the way improving the chemistries, the workflows, importantly, Cytosis and now putting HD on top of it has really seemed to be bearing fruit and resulting in great feedback from customers. On the GEMEX side, the sentiment is also very, very positive. We're just now kind of going through the cycle where the initial customers who got who ordered and got their Genex regions are actually getting the data back and now talking about their results. I mentioned in my prepared remarks this testimonial from Fred Hutch. We're hearing from other customers, very pleased with the fact that there is a substantial boost to performance, great improvements along the number of axis and also lower price.

Speaker 2

So the feedback has been really positive. People were really excited when we first revealed Gen X in the middle of February and a lot of customers have been ordering it now to trial it to test it against the next gen products that are out there. And the feedback that's coming back has been very positive.

Operator

We'll take our next question from Patrick Donnelly with Citi.

Speaker 6

Hey, guys. Thanks for taking the questions. I want to focus on single cell, just given the results there a little light in terms of what we are looking for. Justin, I know you talked about maybe this weakness or softness lingers into 2Q

Speaker 3

as people kick the tires on some

Speaker 6

of the new products and trials and things. Can you just give us some sense of visibility into what that growth trajectory looks like? How are you thinking about that piece, let's call it single cell chromium for

Speaker 3

the year? Just want to try to think about, again, the cadence this year and the overall expectations for this year on single cell. It would be appreciated. Yes, Patrick. Thanks for the question.

Speaker 5

When we're thinking about single cell for the year, I go back to the three factors that we're seeing impact single cell right now. And so the first is the Gemax transition. We're talking about a limited timeframe in Q1 that launched in the last month of the quarter. And so there's a limited amount of data that we're going off of for that. But we did see a higher adoption rate than we were originally planning.

Speaker 5

And then looking at the customer ordering patterns, we were able to see impacts with customers that ordered GEMEX, ordering smaller kit sizes, smaller number of reactions, and just smaller number of orders overall. And as we can tell too, some customers are still waiting to get their results from that. And so this trial is something that doesn't happen right away. It's over a somewhat extended period of time. And so as I just said earlier for Q2 roughly to date about 1 third has been on Chemaex.

Speaker 5

And so a higher uptick than we initially expected, but then we would expect a more linear transition for the rest of the year with be substantially cut over by the end of the year. And the other impact that we're seeing is that of spatial. And that's a product that's drawing more mind and wallet share on the customer side towards spatial from single cell. And so we'll see how those both play out throughout the rest of the year. As far as the GEMX transition, that could be more transitory.

Speaker 5

We do expect an impact in Q2, I think similar to what we've seen in Q1. Just looking overall and this is more broadly than just single cell. If we're talking about Q2, I would expect that the top line somewhere mid single to high single digits sequential increase over Q1. So maybe 7%, 8% revenue increase Q2 over Q1. And then the last part is just the macro impact overall for single cell.

Speaker 5

And I think this is impacting things on the instrument side, probably seeing more of an impact on the instrument side. We are hearing of CapEx budget pressures, elongated purchase cycles. And I think specifically when you're looking at Chromium, when you have a number of spatial instruments out there as well, customers are having to make hard choices. And I think that's having a bigger impact on the chromium side than it is on the spatial

Operator

side. We'll take our next question from Dan Arias with Stifel.

Speaker 7

Afternoon, guys. Thanks for the question. Serge, just sticking with the transition and the validation for GEMEX, Where is the confidence in understanding the timelines associated with that process? How would you compare it to other processes for your other single cell kits? And Justin, if I could, just to kind of finish off Patrick's question there.

Speaker 7

Last quarter, you said you expected Chromium revenues to grow this year. Does that view still hold just given the way that the start of the year has played out? Thanks.

Speaker 2

Yes, Dan. Thanks for the question. So as far as the transition to Genex, if I were to put it in a historical context maybe, things to keep in mind is that it is a straight up replacement over the existing products. It's literally a product that's better on multiple dimensions with very little trade offs that people have to make and it's at a lower price. So we do expect that once people go through their initial validation to confirm our claims to make sure they replicate in their own hands and their own samples, the transition should happen relatively quickly.

Speaker 2

So kind of a different kind of thing than what we had seen previously with Flex, for example, which is a very different kind of work flow for different kinds of applications over time, different kinds of customers and also likely faster than what we had seen previously, for example, with the Next Gen transition, which didn't tail some trade offs and not necessarily huge performance advantages. So the question is what is the feedback that people are going to be, the customers are going to be giving us and what are they going to be actually seeing in their own hands. And so far, it has been very positive. And so we're feeling optimistic that as they go through this transition that they will be happening on a pretty rapid pace relative to our previous product introductions.

Speaker 5

And Dan, as far as the second part of your question, given the results that we've had in Q1, it's certainly going to be more challenging to achieve growth year over year in Chromium. So at the midpoint of our guidance range, we are modeling more spatial upside and we're also modeling more chromium downside. And so with some of the headwinds that we're seeing related to the GEMEX transition, we do think by the end of the year, those will smooth out. We definitely saw an impact in Q1 and we're expecting to see an impact for that in Q2 as well. As far as the offset coming from spatial, to the extent that chromium growth is being impacted by spatial, we would expect to see an offsetting upside in spatial.

Speaker 5

And that's what gives us the confidence to keep our guidance range the same, dollars 6.70 to $690,000,000 that we had on the last call.

Operator

We'll take our next question from Doug Schenkel with Wolfe Research.

Speaker 8

Good afternoon. So, I'm going to try to package in 2 different things here. First, just as a follow-up to Dan's last question, keeping in mind you launched GEMEX with a week or 2 left in Q1. That obviously stalled the market a bit, but it doesn't sound like I'm hearing anything to suggest that there was momentum or there is momentum coming off that launch over the last 5 or 6 weeks that makes you feel like you can get close to target on single cell. So this is not just the timing issue.

Speaker 8

There are other dynamics that are basically hitting performance here on the single cell side. I just want to make sure the answer to that is yes. And then my second unrelated thing I want to talk about is Bruker's purchase of NanoString. That brings to market a high quality company with a much more formidable commercial and innovation infrastructure, a much bigger balance sheet. Obviously, they're poised to invest here.

Speaker 8

How is the emergence of Bruker as a direct competitor changing how you budget and tactically plan? Thank you.

Speaker 2

Thanks, Doug. So let me take the first question. So on Chromium, so I mean, first of all, just stepping back at a high level, Chromium, not like it's not fundamental, the franchise is not where we wanted to be, where we think it should be. We've been talking about for several quarters and there's been a lot of focus on spatial among our commercial team and actually more generally for the company in the last few years. And we've been making efforts to shift more of a balance and more focus, more resources onto Chromium.

Speaker 2

And we still have a lot of work to do on that front and a lot of work continues. For this particular quarter, like you mentioned, there is the Gen X transition. I would just say that we actually announced Gen X in mid February. So it's not just the last few weeks, the last couple of weeks of the quarter, it's kind of a longer stalling period and it had a substantial impact on the quarter. We're also seeing, like I said in my prepared remarks, more attention from customers on spatial.

Speaker 2

So kind of as we're making internal efforts to bring more research to bear on the program, we're also fighting a little bit of that headwind from the market. And then of course, there's sort of macro factors in play as well in terms of pressure on budgets and this elongated sales cycle. Again, I would say stepping back, like I said before, from first principles and based on our customer feedback, we see a tremendous long term opportunity here. We're still very early in that opportunity and we're taking many steps to realize that opportunity. On the question about Bruker, so with the spatial field like we've said before is very attractive.

Speaker 2

We've seen that for several years going back. We made a lot of investments in innovation and product development because of that conviction. It's not surprising that new companies are going to be entering the space. Again, very attractive field, very attractive applications. We've done a great job of developing products that customers that really resonate with customers.

Speaker 2

We've been getting great feedback. And that's really our North Star. And we continue to make investments in rolling out new products. That's how we've established our leadership now in spatial. And we anticipate as we progress through the coming quarters and coming years that that's going to keep propelling us to a greater and greater success in the market.

Operator

We'll take our next question from Dan Brand with TD Cowen.

Speaker 9

Great. Thank you. Thanks for the questions. Maybe just a follow-up and then a couple other parts on single cell and spatial. So I know part of the push coming into this year was the reorientation of sales incentives to get them to focus more on single cell surge.

Speaker 9

I think you just mentioned there's still a lot more work to do. So maybe if you can just clarify that. Secondly, I'm just wondering, obviously, Serge, you sound extremely bullish on the untapped opportunity and the demand elasticity. So obviously, we're working through this Genex transition right now. But could you speak to as we're through this transition, it sounds like by year end, kind of how we would think about what a steady state single cell kind of growth could look like?

Speaker 9

And then, C, you've talked more about cannibalization on this call than in the past, but arguably that also drives more spatial growth. So I'm just wondering as we think about the cannibalization like is your outlook for single cell growth lower today than it would have been given this cannibalization? And is there an offset on higher spatial growth? Thank you.

Speaker 2

Thanks, Dan. So a number of questions in here. So let me kind of go through them in sequence. So first of all, it shows us the efforts that we're making on Chromium. Yes, you're right.

Speaker 2

So we identify that as a priority and we've been making progress. It does take time. I would say, one of the like the foundational elements here is it starts with leadership. And we have great new leadership in place across all our 3 regions now this quarter, AMR, EMEA and APAC. We also have a great interim CCO leader in place, Minna Mostafa, who's been doing an amazing job in the transition.

Speaker 2

And we have been implementing a number of initiatives within the commercial organization to bring more focus on Chromium. So we've talked about in the past about setting up explicit quote targets around Chromium, the chromium business. We have not had that in the past. We're creating a great amount of specialization within the commercial team to provide more headroom, more bandwidth for salespeople to be able to spend more time and more focus on Chromium. We also have implemented direct KPIs and management expectations around driving chromium.

Speaker 2

We're also putting to bear more marketing resources and campaigns specifically for chromium as well. And we do expect that that's going to bear fruit in the coming quarters for sure. And of course, this is being done on the background of really exciting product launches as well. And then your second question on elasticity. Yes, I commented a lot in the past around the fact that yes, we do believe there is a tremendous elasticity of demand in the single cell market.

Speaker 2

And one way you can look at it is from 1st principles. Biology, like I've said before, really should be studied in single cell context and the vast majority of it currently is not studied that. Well, most people who should be using single cell are currently not using it. And we know that price is a major obstacle to them using it. And we hear it and that's the second sort of chain of evidence.

Speaker 2

We hear it a lot from our customers consistently that price is a major obstacle, both in terms of new customers who are interested in single cell when they see price that tends to turn them away or at least slow them down in adoption. We hear from existing customers who are interested in making single cell becoming a more routine part of their research as opposed to a method of exception when you need to get really, really deep insight into a particular sample. And then we hear it from our customers who want to scale to really large projects. The main obstacle consistently is price. And so we do see a lot of opportunities both from first principles and based on the feedback we've been hearing from customers.

Speaker 2

And we've been making efforts, Gemax is a strong example of that to kind of walk down the price curve and to generate increasing demand. We've got strong conviction that over time, this will lead to the expansion of our total market. And then kind of the third point you mentioned was around the trade offs with spatial. And it is definitely the case that there's a lot of there's been a lot of excitement around spatial recently, especially with the launch of Busy ImageHD with the progress we've been making on XENIUM. And it's certainly the case that we're seeing customers making those trade offs, thinking about their budgets, their mind share, where they're going to be kind of spending their time.

Speaker 2

This was true. We've talked about in the past for certainly for early technologists, people who are specifically focused on what is the latest and greatest innovation. They are looking at spatial where in the past they might have been looking at single cell and other customers too. And also this interest from customers is drawing attention of our sales team as well naturally and as one might expect. Now it is not the case that people are just switching over from single cell into spatial.

Speaker 2

The insights that you get, the kinds of research questions you can ask and answer are complementary. They're different. And we're also seeing a lot of customers that are new to this whole ecosystem coming in through spatial, people who've not done single cell before, people who've not even done genomics before. And so there is going to be ebb and flow as customers kind of figure out specific use cases as new technologies come to prominence to figure out the precise appropriate use of them. Ultimately, we see huge potential for all 3 of our franchises.

Speaker 2

We expect them to coexist and complement and supplement each other. And we expect that there is great future ahead for Chromium and really for the whole portfolio.

Operator

We'll take our next question from Matt Larew with William Blair.

Speaker 10

Hi, good afternoon. Maybe just picking up on that last point, Serge. Obviously, for a long time, you've been talking about the value of the ecosystem and building a portfolio of platform assets within the ecosystem. Could you maybe update us with sort of the proof points you track internally to validate that thesis, be it adoption of new spatial technologies by perhaps legacy single cell customers or retention of single cell customers in labs where they might have other 10x products that they've committed to? Is there anything that speaks sort of strategically to the value you're seeing of having different modalities in house?

Speaker 2

Yes. So I would say there's good kind of example data and substantial number of anecdotes and examples of customers purchasing platforms together when they're kind of looking at kind of setting up their genomics infrastructure where they buy their biosynthesis, they buy chromium, they buy xenium and they contemplate kind of use cases that combine all 3 platforms. We're also seeing kind of results getting published in papers and data sets that get released and a consistent kind of feedback when we talk to customers that oftentimes people do use these platforms together. It's rare that you have a xenium run for example without that doesn't make use of some single cell information. And same to some extent, same for bizium.

Speaker 2

And we see kind of the interest going back and forth where people might run a xenium experiment and then kind of look at the Visium or chromium to put those results in context. Or going the other way, you run your Chromium experiments, you generate data and then you want to follow-up and validate it using Xenium with the for your specific biological system. So we see plenty of examples in there, a lot more of them getting published along those lines. I do want to emphasize it's kind of early in this whole process in terms of collecting kind of reliable statistics because all these products are coming at customers pretty fast at this stage and it is a pretty dynamic field. But when we look at, again, the use cases and applications, we see plenty of evidence of customers being excited about using multiple platforms.

Operator

We'll take our next question from Matt Sykes with Goldman Sachs.

Speaker 11

Good afternoon. Thanks for taking my questions.

Speaker 2

Maybe this is

Speaker 11

a bit premature, but I know you've addressed the cannibalization comments, but I just wanted to take a little different take on it. And just given your comments on spatial taking time to wallet share from single sale, is there a way to maybe effectively manage the potential cannibalization if you believe this focus stays in spatial? Meaning, would you want to use this transition to spatial to your advantage just try a much more proactive approach to cannibalization? Are they encouraging existing Chromium customers where spatial makes sense towards spatial, which I'm sure you're doing commercial standpoint. But I just think that given sort of your earlier comments about the ecosystem, keeping the customer within the 10x platform is probably the first priority and therefore maybe actively managing that cannibalization could help sort of ease that transition into it or is that just too early at this stage to really go forward with those efforts?

Speaker 11

Thanks.

Speaker 2

Yes. So one thing I would say, you have to be careful using the word cannibalization because it's not so much a substitution where people kind of are getting results they could have gotten with chromium using these spatial technologies and approaches. You can't. They're complementary. They extend, they complement, they supplement.

Speaker 2

So it's important to keep that in mind. I think for us, our North Star is really kind of customer success and delivering the value for their particular applications and their questions. And so we want to present the full solution to our customers and the way that our sales team kind of interacts with our customers is to really try to understand deeply what are they looking, what are the questions they're asking, what are the research goals and then making sure they understand the capability of the products to give them the most efficient way to get to those goals. And so I think I would frame it as less about what we are driving for ourselves, but making sure that we've got the full set of solutions that our customers can take advantage of.

Operator

We'll take our next question from Subbu Nambi with Guggenheim Securities.

Speaker 12

Hey guys, thank you for taking my question. Regarding performance in China, revenue was down 16% in the quarter. Could you provide any initial color on the status of the strategy here given that inventory is piling up created some obstacles in last year? How did 1Q fare? And are there any material updates regarding your priority to continue building up backup sales force in China?

Speaker 3

Hey, Savoo. Thanks for the question.

Speaker 5

As we talked about on our previous calls over the last year, we've worked actively to bring down inventory levels at the distributors and service providers. And just for the context here, we sell to distributors who sell primarily to service providers who actually perform the service for the end customer. And so then when there's any kind of fluctuation in the demand at the end, you can have inventory stack up at either one of those levels of the chain. And so we saw that throughout last year. And each quarter we work to bring those inventory levels down.

Speaker 5

We developed closer relationships with the service providers and shared more information with them and they were able to share more information with us. We've also made some progress on adding distributors in the region to reduce the burden on any given one and also allow us to get closer to the customers as well. And so going back to the last part of 2023, Q3 and Q4 played out roughly like we expected them to. I would say the same with Q1. And at least right now at this level of demand, we do think that we have we don't think that we'll see the same issues that we saw last year with inventory, but that could change if demand changes like it did at

Speaker 3

the beginning of last year.

Operator

We'll take our next question from Michael Ryskin with Bank of America.

Speaker 13

Great. Thanks for taking the question. I hate to belabor the curling facsimile point, but I just want to ask sort of a big picture theoretical question, not just focusing on the Q1. If you take a look at chromium consumables over the last couple of years now going back to 2021, 2022, I think it's safe to say that that's been somewhat disappointing over the last 2 years plus. There's been a number of different issues, commercial missteps.

Speaker 13

Justin, you're just talking about China headwinds. Now you've got the GEMEX transition. The broader macro, you're having some of the shift of the spend into spatial, I won't call it cannibalization, but call it what you will. Given that performance over the last 2 years, I mean, and your comments on what feels like a revised chromium consumables outlook for this year, it sounds like you're not expecting to hit the levels you were talking about before. Is there some deeper issue at play here, where it's not just any one of these, whether it is competition and someone brought up the NanoString, but there are a number of smaller vendors coming into the single cell market that are making inroads in the market, whether it is just budget constraints from customers, whether it is price elasticity.

Speaker 13

Just I mean, is there a way we can revisit the single cell opportunity in the near term and maybe take over it from that perspective?

Speaker 2

Yes, Michael. Yes, let me kind of take that. So I mean, a fair point. There has been, I mean, a number of legitimate reasons why Chromium has been particularly buffeted over the past couple of years. The fact is our business in China went down a lot over this current period.

Speaker 2

So that certainly put a lot of pressure. We are, this quarter, like I said, going into a particular product transition. So those factors are all at play for sure. But ultimately, the question of the underlying potential of Chromium there is still there for the same reasons we've always articulated. Like I said earlier, most of our first principles, most researchers should really be using single cell analysis to understand their tissues.

Speaker 2

That's where the biology is and that certainly is not the case now. And like we said before, the main obstacles to that are workflow ease, which we're in the process of addressing through various means and price, which we're also addressing through a number of steps. And then also driving greater awareness through commercial execution and general market development. We do believe there's lots of robust growth ahead, but those obstacles do need to get addressed and we are in the process of addressing them. The question of competition is, yes, certainly it's a relevant one.

Speaker 2

There's always been some competition in single cell, sometimes more, sometimes less. Over the last year, a couple of years, there have been a few more players that have come into the space. We've talked about this before. There is compared to a year ago, there's somewhat more awareness and somewhat more prevalence of them out there. I would still say that the story is largely the same.

Speaker 2

Customers do trial them, which does create introduce some friction to sales process. It does put pressure on prices. But by and large, customers come back to us due to all the various advantages our products have, like much better performance, much better data quality, much better workflow, much better breadth of applications, customer support and all the other things that people love about 10x. So it's still largely the same story and we the reason we've been successful up to now is because of the product innovation and the product quality and that is a North Star. The goal is to keep delivering value to customers.

Speaker 2

We're continuing to invest in that both in terms of product development and in terms of customer focus. And we believe the much, much larger opportunities to drive the overall growth of the market relative to the effects of any particular type of competition.

Operator

We'll take our next question from Tejas Sabat with Morgan Stanley.

Speaker 14

Hey, guys. Good evening and appreciate the time here. So I have one on single cell and then one on Vizium HD. So starting with single cell, you mentioned in an earlier answer that the main obstacle to larger projects was price. And you've talked about the commercial refocusing as well.

Speaker 14

But I just want to get a sense of how open you are to deeper and more accelerated price cuts on Chromium versus the 10% that you've got for the Gemax launch. And I understand that that could mean incremental downside to the near term guide and perhaps it then puts your commercial folks on more even footing versus some of the incumbents or the new entrants you were talking about and helps reignite customer interest to pull the trigger on larger projects? And then my unrelated second part of the question is on Vizium HD. Really good to see the strong start there and I know there's an interplay of different dynamics here. But to what extent did initial stocking from new users play a role in the upside?

Speaker 14

Is there a possibility of a natural sort of sequential breather maybe a couple of quarters out before we see the big inflection that you've talked about given the strong customer interest and how they were clamoring for this product to come through?

Speaker 2

Hey, Tejas. Thanks for the questions. So let me talk to the first one. So you're right. So with GeoMx, we showed a 10% drop in per sample price.

Speaker 2

Now I do have to say that's a substantially larger drop in the per sale price because you get a lot more throughput with GEMEX and something that a number of customers appreciate. Your larger point as to whether we intend to drive further into the price, yes, over time, for sure. We talked about the fact that ultimately we want to reach the price point of $100 a sample. We're excited by that. We will drive the technology and the products in that direction.

Speaker 2

We just want to be careful in how we do that and kind of stepping into that kind of commensurate with our other efforts in terms of driving demand and in terms of driving sample volume. So certainly, customers should expect to see more along this trajectory and those are the considerations that we're going to keep balancing as we proceed through the upcoming quarters and upcoming years. Maybe on the second question, I can start. So certainly, there has been a lot of pent up interest in Busim HD. And we do anticipate there were a lot of customers that came into sort of into this quarter with pent up demand.

Speaker 2

And we'll kind of have to see it. It's early to make a determination around how much of demand we're seeing right now is sort of the initial bolus versus what the sustained trajectory looks like. There's again, there's good indications based on the feedback we're getting from customers once they actually see the data, but it's still very early days

Speaker 1

on that front. We'll take

Operator

our next question from Luke Sorgat with Barclays.

Speaker 15

All right. Thanks for the question. So can you guys help us give us a sense of how many zines you placed? And then any type of directional commentary on I know you don't typically break it out, but the contribution of Visium versus Xenium in that revenue base on spatial and how that trended? And then really just kind of figuring out the momentum within those two businesses to offset the single cell decline for you guys to be able to hit that full year guide because the back half step up is now outsized of what you've done in the past?

Speaker 5

Yes, Luke. This is Justin. I'll take that. In looking at the Xenium Instruments on our last call, we talked about a quarterly range of roughly 50 to 75 per quarter. For Q1, it was about 50.

Speaker 5

We would expect that to continue to ramp throughout the year from the lower end to the high end. With what we've seen so far last quarter and this quarter with pressures on CapEx budget, elongated purchase cycles, I would expect that it would be closer to 50 again. When we're looking at and that's for Q2. And then when we're looking at VIZIAM versus XENIUM overall, looking back at Q1, roughly half and half between each of those on the spatial side. When looking on the consumable side, when you're looking from Q4 into Q1, most of the growth that we saw sequentially from Q4 into Q1 was driven by VIZIUM HD.

Speaker 5

And so there is there has been a lot of excitement around VIZIOM HD, like Serge said. We've got to see what the sustained level is. But I would say that the initial level that we've been seeing has been exciting. And then there's the potential for the zenium consumables to ramp up throughout the year. We haven't released too many details on that.

Speaker 5

I would say that we're still looking at a wide variety of usage across the customer base. But we are seeing good trends as far as increasing use over time when we're looking back at the older cohorts versus the new cohorts. And this is also allowing a couple of quarters for ramp up as well. And so I do think that there's upside on both the Visium side and the Zenium side within spatial when we're looking at offsets between chromium and spatial and our outlook for the rest of the year.

Operator

We'll take our next question. I do apologize. We'll take our last question from Kyle Mixon with Canaccord Genuity.

Speaker 16

Great. Hey guys, thanks for the questions. Quick follow-up on the single cell questions, I think for Serge. You remiss a lot in that business this year, Genex, upstream fixation, other things. That includes additional resources this year that replaced those that were kind of taken out, shifted to the spatial last year.

Speaker 16

Wanted to ask what the company's ROI is in single cell today given that these decelerating kind of decreasing even negative growth in some cases? And does that kind of make sense to keep investing at this pace if the returns become less attractive and kind of make the argument that maybe like shift those that focus to spatial possibly, I guess, just in line with some of the cannibalization questions earlier? Thanks.

Speaker 2

Thanks, Kyle. So, look, we see AQ, like I said earlier, potential large market potential in all three platforms. We are going to keep investing in all three platforms. Over the past several years, we made very, very large investments on the spatial front. We talked about in the past how much we shifted resources onto Xenium.

Speaker 2

Bringing up HD was also a pretty massive undertaking. There is at this stage, we don't see any reason to let go of Chromium. We're anywhere near it. In fact, the investments we're making right now, we feel like have potential to open up a lot of new use cases and much broader use cases with much broader categories of customers. So we are certainly managing the spend and investment across our 3 platforms very carefully and continuously and feel good about the balance and the amount.

Operator

Thank you. With that, we do conclude today's presentation. Thank you for your participation today and you may now disconnect.

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Key Takeaways

  • Total revenue grew 5% year-over-year to $141 million, driven by strength in spatial consumables and instruments that partially offset Chromium headwinds.
  • Spatial consumables revenue surged 134% to $26.4 million and instrument revenue climbed 133% to $17.6 million, reflecting strong early demand for the new Vizium HD and Xenium platforms.
  • Chromium consumables revenue declined 17% to $83.9 million as customers trialed the newly launched GemX technology and delayed stocking of legacy products.
  • The new GemX microfluidics technology offers over a two-fold reduction in cost per cell and materially higher performance, with early customer validations supporting long-term single cell adoption.
  • Management reiterated full-year 2024 revenue guidance of $670 million to $690 million (8%–12% growth) and expects to drive positive cash flow while funding ongoing R&D.
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Earnings Conference Call
10x Genomics Q1 2024
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