we'll kick things off. Thank you for joining us. My name is Michael Ryskin. I'm on the Bank of America Life Science Tools and Diagnostics team, along with the other Senior Analyst on team, Derik De Bruin. Joining us for our next session is 10x Genomics, we're excited to host Serge Saxonov, co-founder and CEO, and Justin McAnear, Chief Financial Officer. Serge, Justin, thanks for coming in. Glad to be here. Um- Thanks for having us. Format will be the same, fireside chat. I'll poll for questions a couple times. Don't be shy. Just raise your hand and we'll get you in. Just to kick things off, guys, the usual opening question. You know, you've reported on Q results recently, updated the guide. Could you give us some, you know, the puts and takes of the quarter, some key points? You know, what did you see as the quarter unfolded? Yes. Overall, we feel good with how the quarter ended. There were definitely some regional dynamics in play and some differences between product lines as well. You know, regionally, we saw some weakness in China. China was a little bit worse than we thought it would be, with higher inventory levels and us selling through, basically two different levels with distributors to service providers to the end customer, on the heels of the biggest price increase that we've taken, in history. That was offset by, more than offset by the strength that we saw in AMR and EMEA. You know, if we think that the China weakness overall is relatively transitory as we get to the back end of the year, then I think that's good news overall. As far as Q2 goes, in China, we do expect on a dollar basis sequentially, Q1 to Q2, China to be roughly flat. On the product side, definitely saw some good strength on the spatial side, with CytAssist, solid demand continuing from, you know, Q3, Q4, into Q1. Not quite at the same level as the two launch quarters, but solid demand for CytAssist nonetheless, and also some, you know, some good indications that it could be driving incremental Visium revenue. Also, Xenium continues to ramp steadily, based upon the great initial feedback that we're getting, and feeling more bullish on the Xenium trajectory, enough to increase the guidance. Great. Maybe a couple other points I wanna touch on. One, I mean, you discussed China, weakness, transitory. What about Americas and EMEA? Both of those were in the thirties, really strong growth. What really stood out for you there as to why you're able to sort of jump back up that quickly? Well, I think it was a relatively easy compare year-over-year. Q1 in last year was challenged, as was Q2. I think there's a few different ways to think about it. One is that this is a continuation of the ramp that we were seeing in Q3, Q4 continuing on into Q1. You know, one that we expected to see a little bit earlier last year. As far as China, just to talk a little bit more about that, you know, China's still murky with the different levels that we're selling through. You know, the fact is that inventory levels are higher. you know, we will be, you know, we'll be digging more into that in the, in the coming months as well. When you say inventory levels, are you referring to more on the consumable side? Yeah. It's the consumable side. It's basically what the service providers hold that the distributors sell into once they order from us. Whenever there is a price increase like we had at the end of the year, you know, they try to make the most of that and buy ahead. When you couple that with a disruption like lockdowns, you know, there's a magnifying effect of those two. Yeah. All right. Well, also wanna touch on some of the growth drivers you highlighted. First, I mean, let's talk about CytAssist. It's been about a little over, I think, nine months now, maybe a little bit more than that, since you launched it. Really strong uptake way last year and early this year. You know, anything you can comment on in terms of install base, which customers you're seeing the best traction with? We have been, we had reasonably high expectations going into the CytAssist launch based on our experience with the Visium product, and specifically kind of identifying that, as excited as we were by the initial Visium launch, by the fact that it really has this potential to bring the worlds of genomics, molecular biology together with histology and pathology, we also realized afterwards that it also presents its own challenge because you actually need to bring together these people who are not used to working together, and the logistics of the workflow of making, preparing slides and then having to do molecular biology on them and training the people, and cross-training them on this, in these areas is really challenging. CytAssist addresses all of that. It simplifies, it kind of removes all these logistical complexities because it allows histologists to prepare the slides the way they've always prepared them, and allows now the molecular biology to be done at a different site by molecular biology experts. It also greatly simplifies the workflow. It also allows people now to access all the slides that have been prepared, biobank samples from the archives and so on. On top of that, it also produces really nice data, better quality data than anything else that's been there. It had a lot of really nice things going for it. There was some amount of pent-up demand that got You know, built up in anticipation of our launch. One of the awesome things to see is that actually, sort of our expectations have been validated in the market as based on reactions from customers. You know, they've started running, people have started scaling. Mm-hmm. as Justin suggested that actually we are now finding that it drives increasing consumable usage as well, on the Visium side. There's. It's very clear to us now, this is really the way to run the Visium type of workflow. You really need that instrument. You need this, you need the CytAssist and sets us up. I think this is the foundation of the franchise really going forward. Is there a scenario in the future where Visium is only available on CytAssist, or is there, you know, any appetite to maybe with next iterations to sort of move in that direction, just to make it the same razor blade model? We are fairly convinced that CytAssist is really the way to run this. It's really the future of the platform, or all the future iterations of assays will be based around CytAssist. Okay. All right. In terms of that, you know, higher utilization or whatever you wanna call it, any way to quantify it? Is it just the beginning of an uptick or, you know, 10%, 20%, just directional numbers. Yeah. It was significant enough to stick out to us, like outside- Okay. of general noise that you would think looking at, looking at data like that. I would caution that there's still relatively few data points over a shorter timeframe, so we've just gotta be careful about interpreting that. From the initial results that we saw, it looks meaningful. Okay. All right. Then maybe on Xenium, another another area of strength, you talked about, you know, maybe just take a step back, compared to some of your prior product launches. This is an area where, at least from the beginning, there's a lot of chatter on competitive landscape and how it stacks up versus other platforms. Maybe just to start with, what do you see as the key areas of differentiation, or what are customers citing as key areas of differentiation for you? Yeah. Maybe a couple of points. First of all, I would suggest that when we first launched single cell, it's easy to forget now... Yeah. That was actually a pretty competitive landscape back then. Mm-hmm. What we, you know, emphasized back then certainly was throughput, cell number and quality of the product. A lot of the same criteria apply here as well. We'll talk about throughput as being a big differentiator relative to other in situ platforms that are on the market, because we knew from the beginning that was one of the key design specs. Like a necessity for moving this technology from being an awesome general kind of exploratory proof of concept technology to something that could be a commercial product, is being able to run meaningful numbers of samples through this, so that you can actually get good pull through going and have a commercially viable platform. We've always emphasized that, and we've built a system, and that is resonating for sure. Also, what we've built the system to, as well as to, is to optimize for data quality. Sensitivity, specificity, a lot of it comes back down to our fundamental chemistry that we're using on the platform, but also all the other optimizations we've done across the board, whether it's optics, hardware, software, chemistry and so on. It is clear now that we are in the market in the first place, and we've done this study, which we put up on our website as well to help people compare us against other platforms, is that we have far superior specificity. Again, it's almost definitionally kind of comes down to our chemistry and also much better sensitivity than platforms out there. The quality of the data is really, really spectacular. Now that comes along with big investments that we made in the workflow. We've gotten lots of kudos from customers around that, and also data analysis and software. This is something that we see as a particular strength of ours. Going back to the very founding of the company, we've invested a lot in building up capabilities around software, data analysis, bioinformatics, and we've brought them to bear in the development of this platform, which is a particular challenge. The data that comes off of just the basic readout, the images are enormous. Lots and lots of data that's being generated by this instrument. We've put a lot of compute, tons of compute onto the box itself to process this data, to analyze so that it's seamless and easy to use to the customer. That's another sort of feedback that we've gotten. The whole sort of experience, end-to-end, run to run, from starting with your sample to getting insights is has been really, really encouraging. Who are the types of customers that are some of your early placements on Xenium? Is it someone that's been Chromium, Visium, and potentially CytAssist user in the past? Is it usually people within the ecosystem, or are you bringing in new customers? Yeah. I mean, one thing to kind of keep in mind is the calibration element. It's hard to find if someone is going to be, kind of jumping in to adopt this kind of a cutting-edge technology, it's very unlikely that they would not have, used single cell at some point in the past several years, right? Yeah. Almost definitionally, the vast majority of our customers who are adopting Xenium are also have been Chromium users. Quite a few of them have also have used Visium and CytAssist. Although we do have some new customers, but by and large, these are sort of either new companies being formed or new kind of a new PI, a new lab that's being formed. We're also seeing customers who are kind of going in all in on the 10x ecosystem. Again, maybe it's a new company that's being formed, and we get a purchase order that combines a Chromium X, a CytAssist, and a Xenium all together. There's a Pretty substantial amount of sort of within ecosystem buying. I do think there is a substantial interest more from translational use cases. I've heard lots of interest from customers in how this can ultimately go into the clinic or become a kind of a clinical solution later on. I think that's still early. This is kind of looking down the road. Right now we're still very much in a sort of early adopter technology evaluation phase. Okay. You know, you've been shipping them, the Xeniums, for a few months now. Any early feedback you're getting from customers and sort of is that something you talked about, a measured gradual ramp as you go through the year? You know, I imagine you're incorporating some of that feedback and learning from it as you continue to refine both operations and the platform itself. Well, the feedback has been really, really great from the beginning. It is true, like going into this, launching the very first instance of a platform of this complexity, we went in with eyes wide open, fully expecting that, you know, there's going to be, there should be issues. You learn things in the field that you don't, you can't ever catch fully internally. Certainly there have been, yes, issues that will pop up here and there, and our teams have been phenomenal at jumping and addressing them. We've been getting lots of kudos from our customers around the sort of the help that we're giving them. By and large, the experience has been really great, and the feedback has been really good, which has given us confidence to certainly press increasingly on the platform in terms of sort of internal manufacturing and operations and scaling our external positioning as well. For sure we're feeling really pleased and encouraged by the early customer experience. We see tons of demand out there. We're certainly leaning into this now with the sort of the full force of the 10x organization. When you talk about some of that feedback, I mean, you're constantly making refinements to your existing technologies where you're, you know, putting out newer versions of the chemistry, newer versions of the instrument. Is the feedback you're getting more on the operational side or, I mean, you talked about already specificity, sensitivity, and strengths. Are there any areas there where people are trying to push you a little bit more or a little bit less, sort of like where's the focus? Right. We talked at the AGBT conference a couple months ago. We talked about sort of our roadmap and talked about some of the areas we're working on. One of the great things about being in the market is now you can use the information gained from the market to help you adjust your priorities. We're certainly doing that. We've done that always. That's been sort of mostly in the DNA of the company. We try to be very responsive to customer re-requests, so we can turn around next generations of assets, next generations of features. We're doing that actively, and we are kind of in real-time adjusting some of the internal priorities. The universe of things we should be working tends to be pretty clear, but it's the question of like, what is that rank order? It's, you know, it's great to get this customer feedback now, very clearly, to, you know, to keep feeding that in. That's one of those things. It's an advantage that builds on itself. As you're getting success in the market, that's what we learned with Chromium, you can press that advantage by taking that early feedback and feeding that back into product development and then extending your lead as you bring those features back to the customer. Definitely doing that. Lots of work, lots of work ahead. Like I said from the beginning, one of the things that excites us about this platform in general, there's tons and tons of headroom for innovation going forward. It's an awesome platform that we're starting with, there's tons more to do. We'd probably expect to, you know, keep pressing on the, on the gas here. When you think about the three different, you know, I still think about as three different platforms, you know, single cell, spatial in situ, as three separate ones. You talk about how a lot of it is sort of goes to the same customers. They're gonna do one, they're gonna do the other, right? Are you seeing more and more workflows being developed with that incorporate multiple platforms where first you're gonna run it on the Chromium, then you're gonna run it on Visium, then you're gonna run the sample on Xenium? Is there? You know, are your customers starting to link these somewhat disparate technologies together? There's definitely interest in workflows we're seeing from customers where they are kind of running these samples. In particular, you know, we demonstrated this ability. You can run your Xenium experiment and then take the same section and actually put it on a Visium run, on a CytAssist and get the full data. It's mind-blowing. Then in fact, we've seen people now talking about using our Chromium Flex to then also on the same section to actually analyze the RNA. There's lots, there's lots of possibilities. People are definitely exploring it. Now, this is sort of the cutting edge of the customers who are really willing to press on that. I think, more typical is to use, you know, you run your sort of, your Chromium experiment to get a census of the cells in your sample, and then you run your Xenium now and, you know, Visium as well to map those populations of cells you find the Chromium to kind of understand what's going on under specific spatial features. We'll see. Still very early days, obviously, with all sort of, with both spatial platforms. We do see certain interest in that at the very least, and a number of people are working on that too. Yeah. Yeah, I mean, it sounds like you think that there's opportunities to leverage the different technologies to, you know, complete different parts of the picture, right? Right. I mean, in fact, we published a preprint, last end of last fall, kind of showing how you can use all three technologies on a breast cancer FFPE sample to actually discover new things that would not have been possible with any technology alone. It's certainly not possible with any other tools out there. It's pretty mind-boggling what you can actually see. Got it. Any questions in the audience? No. Please. Right. Obviously, you can also personalize a little, at least, you can call out your own folks. In terms of the set panels, I think you've got 2 out so far. How many do you need to sort of meet 80% of your customers' needs? Yeah, a couple of things. The question, just repeat. Yeah. Yeah. The question is, the panels, for presumably for Xenium, how many do you need to meet, kind of 80% of customer needs? Timing. What's that? Timing. Timing. Yeah. A couple of things. First of all, the panel. We're rapidly expanding the number of panels that are available. We actually have a fully custom option, so you can actually make a fully custom panel. This is a new capability that we released, but that, in principle, covers every use case. We do also wanna make it easier on the customers with more standardized panels. We're releasing panels that are specific to particular tissues, but also panels that are specific kind of cut across applications, multi-tissue panels that scan, you know, all kinds of cancer genes or immune genes. I think on a pretty short timeframe, I mean, we're talking about imminently, like in the next, over the next quarter or two, basically should have a coverage of certainly like, you know, if you think about 80% use cases. Okay. just in terms of. Okay. Just in terms of what we're hearing about, your major competitor, you know, for Xenium, that there's sort of like this land grab, you know, strategy, and maybe there's discounting and people are just placing machines in labs. Does that not matter because the space is so big and there's so many labs to be in? Is it that, you know, someday somebody will replace a competitor machine because they've seen that the data is so good from Xenium? Like, what's the thinking there? Yeah, I mean, big picture-wise, I think one nice thing about being in our industry actually is sort of research tools in general, the best technology, usually wins. We certainly focused on building the best technology, the best experience, the best customer value. That gives us from the, like, high amount of conviction that we've got the best product, which will ultimately win the market. There's definitely dynamics in the marketplace right now in terms of placements, and we certainly would rather get a placement than not get a placement. If nothing else, that's the better decision for the customer, and we wanna do the right thing for the customers across the board. Certainly we're feeling right now like tons and tons of momentum on our side. There was a lot of noise kind of in the ecosystem up until now. Lots of marketing claims, lots of promises. We've been very careful to stick very close to what we were actually going to deliver, and we feel like we're delivering it now, and we've made it very clear. We actually put a very detailed comparison on our website of our, the performance of our system with competitors. I think the value proposition was very clear. We're leaning into that, and we're certainly aiming to, you know, to convince every lab that's out there to make the right choice, which is to go with our instrument. All right. Justin, maybe we'll come back to you for a couple. Yeah. Just again, going back to the update you gave about a week ago when you raised the fiscal year guide. I mean, you had a solid 1Q. We talked about, you know, interest you've seen for CytAssist and Xenium. You raised the guide by $10 million at the midpoint. If you think about what you saw for the business and what you saw from a demand perspective for markets, what changed? What stood out the most for you from February to May, where you had more confidence in numbers? Well, going back to our fourth quarter earnings call last quarter, when we talked about our initial guidance range, you know, the one area that we were more conservative on was the Xenium ramp. Based upon everything that we, you know, that we've been seeing as far as how that ramp's been going, you know, we've had the confidence to raise that. I would attribute, you know, in addition to rolling in the beat, I would attribute the guidance range mainly to the increased view on how Xenium is gonna ramp this year. Okay. The other component is you've been talking more and more about free cash flow positive, at least 4Q specifically. You know, what are the moving pieces there? Yeah, no, thanks for asking about that. Like, we've been talking about it, but we've been taking actions, as well in controlling costs and, you know, really across the company and across the leadership team. Like, we've got commitment to basically drive and achieve free cash flow positive. You know, we're keeping headcount increases to a minimum. There's some real targeted increases around supporting the Xenium ramp, but really internally, we're focusing on finding efficiencies and controlling costs. One thing that I did talk about on the earnings call was as we head into the end of this year, you know, our goal is free cash flow positive by the end of this year and to maintain that for, you know, for full year 2024, have free cash flow positive as well, and basically, you know, ramp from there. you know, as we come into the end of this year, thinking about just things that could put pressure on that, you know, one thing that could put some pressure on that would be how the Xenium ramp is looking at the end of this year, heading into next year with the lead times that we have for components, and extra capacity that we, you know, that we could need by that time to get up and running. I think that would provide some pressure, you know, at the end of the day, as dedicated as we are to hitting free cash flow positive by the end of the year, like at the end of the day, we're still gonna make the best decision for the long-term health of the business. The color on the Xenium RAM, just to make sure I understand you, the rationale there is in the beginning, that product line is gonna be more instrument heavy. Xenium as an instrument has lower gross margins than the rest of your instrument base. As that becomes a bigger and bigger part of the business, that's gonna be a little bit of a drag on gross margins temporarily, and then over time, you're gonna get operational efficiencies and also volume leverage consumables, and that's gonna turn the other way? That's a great recap. Yes. As the consumable streams pick up, you know, we do expect that that business is going to be very comparable to the other businesses that, you know, the other, the other businesses that we have within 10x. And so, you know, instrument heavy, we did say that was significantly lower margin than our existing products. There are opportunities to improve that in the future. This year we are gonna see some improvement as the volume increases. As far as component cost reductions, you know, we have things identified, but action hasn't been taken on those yet, and probably won't be this year. Right now we've got a great instrument in the hands of customers that's working well, and we don't wanna mess with that too much right now. Okay. The other part of the P&L in terms of, you know, not just headcount, but investment decisions and priority areas in terms of innovation, going forward, what's really front of mind for you there? Yeah. Lot of things. First off, we're, you know, we're continuing to invest heavily in R&D. Innovation, our innovation engine is the lifeblood of the, of the company. You know, we look at opportunities both organically and inorganically. You know, when we look at inorganic opportunities, it's not acquiring a revenue stream. We've got a great track record of acquiring early stage technology and turning that into a finished product, or using that to accelerate a product that's in the pipeline. We've also, you know, acquired IP to support the development of our products, because it is important to make those investments there as well. You know, as far as the IP that we've acquired goes, you know, that really is an important investment when you look back at the end of, you know, 2020. We did, you know, we did our follow-on offering. We acquired two companies at that time that formed the basis, along with our own efforts towards developing Xenium. Those two companies combined were over $400 million, and a large part of that was IP. You know, with the heavy investment like that, it's really, it's more of a duty, less so a choice, to defend that. We do have, you know, litigation costs that go along with that as well. You know, we do have decent litigation costs this year with the number of lawsuits that are going on around the world to defend those investments that we made. When you talk about R&D, in terms of organic investments, are you thinking more, you know, along the lines of Chromium Flex, you know, again, new kits, new capabilities, or are we thinking new platforms altogether? We're right now we've got plenty to do on our existing platforms. Yeah. Even Chromium, which is the most mature of our three kind of verticals, has lots and lots of headroom, we're certainly investing in it aggressively. Visium is still very early, obviously, in its cycle. Xenium, like I said, tons and tons of headroom to keep investing. We have lots and lots to do in our core franchises. At the same time, we're always thinking hard about, like, the future and where, you know, where the world is going, and there's additional technologies are out there that could, you know, that could make sense for us as, again, as we think about where the world is going. Yeah. Yeah. I mean, it's not like you waited for Chromium to be tapped out before you went into Visium. Right. It's not like you waited for Visium to be mature until you went into Xenium. For sure. All that makes sense. Any other questions from the audience? With that, I think I'm gonna ask Derik's default closing question, which is, what's misunderstood, what's underappreciated, about 10x? Yeah, it's interesting. I think, he asked that question right after maybe the IPO, like first cycle after the IPO. He asks it every time. Back then maybe it was like people were still kind of trying to understand this whole single cell thing and what is it useful for and why is it important. I think, you know, if I come back to the company itself, I mean, oftentimes we ask questions around, you know, performance of particular, you know, instrument or what happened in a particular quarter and how the sort of markets are evolving or, like a particular customer segment is evolving. The thing that I'd like to kind of emphasize and step back, 10x is not so much about a particular opportunity, a particular technology or, a particular market in a, in a point of time. We really build the company around capabilities. We, we believe there's a huge, huge potential in life sciences and technology development. New technologies are key to unlocking these opportunities and we want to be incredibly good at building out technologies for the life sciences. The company fundamentally is about capabilities. What you see in terms of products, in terms of markets, in terms of franchises that we end up building is a manifestation of those underlying capabilities, and that's what is really the kind of the source of the value. Great. With that, thank you very much. Thanks for joining us. Serge, Justin, appreciate it. Thank you. Thanks.