Hey, everyone, good morning. My name is Tejas Savant, I'm the life science tools and diagnostics analyst here at Morgan Stanley. It's my pleasure to host 10x Genomics, and speaking on behalf of the company, we are lucky to have Serge Saxonov, CEO, and Justin McAnear, CFO. Welcome, gents. Before we get started, quickly, important disclosures, please see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. And if you have any questions, do reach out to your sales rep. So maybe, Serge, just to set the stage, so much has gone on over the last, you know, few months for 10x. What are some of the things you want to get across to the investor community, and what are you most proud of this year? Yeah, so it has been a busy, busy year, busy last few years, I would say. Sitting here right now, the thing that I would first probably highlight is the launch of Xenium, our latest, biggest, really exciting platform. We started shipping right at the very end of last year, and it has been on this amazing trajectory. The company has put a lot of resources, a lot of really hard work into making the platform and getting it to market, and it's been incredibly gratifying to see A, the demand from customers, and B, the performance of the platform in customers' hands. And now that it's getting out there and getting installed and customers are running it, the feedback has been just phenomenal. Mm-hmm. And that has been, like, really, really gratifying and one of the one of the most amazing things to see, especially as we look, you know, backwards over the last several months. At a high level, I would also emphasize, it's been nice to see this past year the progress we've made on the Chromium product front, especially if you look outside of Asia, it's been really nice, robust growth on our franchise and progress on the kind of the fundamental product capabilities that we feel like set it up really nicely for long term from robust growth for the long term. Made some nice progress on Visium and in terms of setting up that platform also for the long-term growth- Mm-hmm ... and, on the product side. And then, and just kind of, overall, I would say, you know, a lot of the things that you're seeing now in the manifestation in the terms of the product launches, in terms of customer traction, is really a manifestation of the work that has been done over the past several years within the company, in terms of the product development, in terms of scaling up, all the different functions within the company, and, and taking the long-term focus. That's something that I always emphasize- Mm-hmm ... something I thought about, and oftentimes you don't see, you don't see what's happening internally until it comes out. I mean, right now, you're seeing the manifestation of all that work, and also what you're now seeing, setting us up for the future, especially for that, for that mindset. Got it. So let's take a closer look at Xenium. You know, you recently placed your 100th Xenium instrument there end of August. You know, I think that would imply by our math, little north of 30 units in the first two months of the quarter. How much of a ramp do you typically see in the third month of the quarter? Really strong placements here in the first couple of months. And we've got an investor in bounds, another doubling of that, you know, 30 plus is fair to expect for the Q3 here. Maybe I'll talk about just, Justin says it's okay to answer. Well, yeah. Yeah, maybe add some color, and I can- Well, let me just talk in broad strokes about the trajectory of Xenium out there in customers' hands. So, you know, coming out, you know, we've talked about there's a lot of demand for this technology, a lot of demand in the near term and huge potential for the long term. It's been really gratifying to see kind of right off out of the gate, we talked about in the last earnings call, just how much initial demand and the velocity of orders coming out of the gate has been very good. What we've been seeing now more recently is, you know, there's that sort of inherent demand that's out there that's driving placements, but also now that customers are generating their data and talking to other customers, and sort of that word of mouth is spreading, that's leading to more systems and more order and more demand. And so there is sort of this compounding effect that's also that we're now benefiting from. Got it. Yeah, you know, what I would add on the press release is, it was a really important milestone for us to mark, but the key point to take away from that press release is not just that we've, you know, placed 100 instruments, but it's just the great customer feedback that we highlighted, and it's front and center in that release. And then, also keep in mind, when you've got a new product that is mostly manufacturing operations limited- Mm-hmm. Right now, it's not exactly linear, as far as how we're producing and shipping. So I wouldn't try to read too much into it or extrapolate numbers based upon that. Got it. So on that point, actually, Justin, you know, have the manufacturing and operations improvements continued to ramp in line with your expectations here? Where do you currently stand on the manufacturing capacity and pace of installation versus your, you know, I guess, your steady-state internal goals for those metrics? Yeah, well, first of all, we're really proud of what our team has been able to accomplish, and we had some great success in Q2- Mm-hmm I n basically, you know, bursting through some of the constraints that we had. But once you do that, you encounter new constraints. And there's challenges that the team has faced every day and every week that we've mostly been able to overcome. But right now our focus is to maintain a steady level of healthy manufacturing. And we're investing in advance as far as getting components inbound to make sure that we have the inventory to press further later on. But right now, it's just making sure that we can reliably manufacture what we did in the previous quarter. Got it. Serge, back to you. Do Xenium orders still sort of handily outpace shipments? And what percent of some of the recent order and placement strength you've seen as being related to some of the special promotions you're running for, you know, CosMx customers. Is there a timeline for that sort of promotion to end? Well, so I would emphasize again, the general trajectory here, the high level trajectory of the business. The demand is there, and now the demand is getting reinforced by the feedback that we're seeing from customers. We certainly, you know, work hard to accommodate customers, maybe the ones who might have made the wrong decision in previously, helping them kind of get onto the Xenium platform. And, you know, we'll keep doing that as necessary. But, big picture-wise, you know, we're seeing tremendous tremendous demand and, and really robust interest in the platform going forward. Got it. So a two-parter on the slope of the adoption curve, right? On the one hand, you know, Justin, you pointed out the manufacturing and certain sort of operational challenges that you work through as part of any new launch. But then on the other hand, you know, Serge, you talked about the positive reinforcement, the virtuous cycle happening, and perhaps you see this in the orders, where there's clusters of orders, where one customer orders the Xenium, has a good experience with it, and then that sort of generates a bunch of orders, you know, at labs where that are affiliated to that customer. Do you see that happening? The second part of that question is really, you know, sometimes with these new launches, you get that initial bolus from key opinion leaders, then there's a bit of a plateau in the ordering, and then you get a second peak further down the road. So I think those are all relevant dynamics. You definitely see with all these technologies, and to some extent we expected that, there's going to be an initial bolus of demand, especially for something that has been sort of in the ether for a long time. At the same time, there's obviously been a clear competitive dynamic. So at the same time, yes, we do see customers, as they learn about other people's experience, becoming more inclined to buy the instruments. In fact, we've seen customers who have bought an instrument, have run it, and then based on the results of the data, would then buy another one. And we've perhaps seen that dynamic play out as well. So I think, yes, there's definitely multiple sort of vectors at play, which is why it's useful to take a high-level view and seeing it just, you know, how often do you see launches like this one out of the gate? You see this many instrument in a brand-new market, in a brand-new field, at this kind of price point and this kind of complexity, you know, come out of the gate, with such velocity. Very hard for me to think of another predicate. Got it. Got it. In terms of just the competitive landscape, right? So, you talked about, you know, some of these customers coming over to the Xenium, finding the light, so to speak. But, you know, typically, when you do miss out on an RFP, and customers, you know, decide to go with someone else's instrument, what is the pain point, right, that makes them sort of reach that decision? And then secondly, outside of the transcriptomics, you know, sort of related competition, we've had, you know, Bruker pushing harder with CellScape, you know, Tecan recently acquired Lunaphore. Do some of those transactions change the competitive dynamic at all for you? So far, in terms of what's happening on the protein side, it has largely been sort of more of a complementary kind of thought process that we see with customers and the market dynamics. We do anticipate, we've talked about launching a protein capability on Xenium next year. So we're very excited about that, and I think that should be a very powerful capability. So that may change the dynamic somewhat, but it's not really not yet driving kind of our market as much. And in terms of you know, sort of RFPs and how those are coming through, I think a lot of it is just sort of the question of the past. We've been very careful not to kind of not to speak to the platform until we're ready to speak to the platform, and so that created an impression in some customers' minds around capabilities of other platforms that weren't necessarily and that was sort of that was the thing that was creating some initial headwinds, but I think all of that is turning pretty rapidly in our favor. Got it. And based on your customer conversations, how much of a differentiating factor does your onboard primary and secondary analysis provide? Is there any way to quantify sort of the time and cost savings that that enables for the average customer? Yeah. I think in many ways, it's huge. It's something that's easy to underestimate, and there's a tendency in our industry to kind of not pay as much attention to software as perhaps it deserves. And we knew from the very beginning, this platform is going to be... This technology is gonna be a beast in terms of how much computation it requires. And this is one of the fundamental advantages and capabilities that we've built out of the company, precisely that sort of prowess in software development, algorithm development, and data analysis. And we applied that prowess to the development of the platform from the very beginning. And I think it is clearly manifesting itself in the platform's performance and success. All the software is built to be, to run on the instrument in line, on board. So we put a lot of compute onto the instrument. And then what that means is that once the compute's happening in parallel to the instrument run. So once the instrument is done, pretty much immediately, the customer can now work with the data, and we also build really nice visualization tools to let them work with the data. So no time lag, and no additional cost. Mm-hmm. And those costs can get really, really, challenging if you don't do things right, because, again, large amounts of data, very difficult to move around and very costly to store and to analyze. So we, from the beginning, we built a system to make sure those were not gonna be barriers and challenges to our customers. ... Got it. Turning to, you know, Xenium consumable, it's, you know, you've said it's too early to get to the steady state pull-through just yet, but how do you think about sort of max pull-through, you know, on the platform? And in steady state, would sort of 25%-30% of that max pull-through be a fair assumption to use for, you know, for our models eventually? Yeah, I wouldn't, I wouldn't get too aggressive on the modeling at this point, and, and there's a, there's a few things to consider about that. You know, one is just right now, it's very early days, and there's a pretty wide range as far as utilization. We have some early customers that are just ready to go and have it loaded up, and we have others who are focused on the custom panels- Mm-hmm. and are taking the time to go through that design process before they ramp up, ramp up the consumables. You know, so again, still pretty early days, you know, but there is some basic math that you could do just for, you know, rules of thumb. And so, you know, the theoretical capacity of it is probably, you know, just under a million, but it wouldn't be reasonable to assume that that's gonna be the average. Mm-hmm. And so you can make some assumptions around, you know, what would one run every two weeks be, or, you know, one run a week. Mm-hmm. You know, as far as which one of those, it'll be, I think time will tell. Got it. So, you know, you talked about sort of 5K Plex in mid-2024, adding new features, including, you know, FMD and Isoform Mapping, et cetera. And then there's the multi-omic co-detection piece as well. Which of these three sort of categories excites you the most? Well, so I think the ability to detect other types of variants is really, really exciting, and something that's unique to our platform and something that was, I think a lot of people... It's easy to underappreciate because it would not necessarily be clear to people that it would be possible. So being able to detect SNPs, for example, in the context of cancer and actually being able to visualize them, where they are in the tumor progression, is an incredible capability. It's very exciting, and we have a number of customers who are, like, just, you know, sort of dying for that capability- Mm-hmm. because they see that as the future of cancer analysis. It's very exciting. It is actually something that's possible to do with the system already, if you know how to design the probes and if you have sort of the specific targets in mind. Certainly, we are interested, we are excited about the 5K, and especially with the quality of the data that- Mm-hmm ... will be, will be generated by, by that capability. And, you know, co-detection, again, with the, with proteins, is something that our customers are also, interested in. It's, it's exciting as well, but I would, I would go back to say it's like, yeah, the sort of capability of detecting, other types of variants, it is really exciting, and then it feels, again, I've said this before about this platform, it feels like science fiction in many ways. Mm-hmm. Got it. Switching gears to, you know, Chromium, let's talk about, you know, placements a little bit. How are you sort of balancing your commercial focus between your single-cell portfolio and your spatial portfolio, particularly given the excitement around Xenium? And as we look to, you know, next year, are sort of flattish to slightly up placements a fair way to think about how that install base grows? So let me just start in terms of just the commercial focus. And so one thing, and we've talked about this before, in terms of the full sort of company focus, we brought a lot of attention, a lot of investment to Xenium. Across R&D, certainly across operations, and especially this year, a lot of focus has been on Xenium, for sure. And that definitely kind of tipped the balance somewhat in terms of, you know, the time and attention of our sales team. That has been a priority, and that has borne fruit. Clearly, it has been a very successful set of decisions that we have made. Going forward, we certainly want... We intend to keep driving in spatial and Xenium in particular, but we'll also put, you know, additional focus now onto the Chromium franchise. I think, like I said, there's been a lot of nice progress on that front as we look into our core geographies, and it's set up really nicely for future expansion, both in terms of just the sort of the core usage of our existing customers, in terms of adding new customers due to the additional capabilities and kind of the progress of the, you know, the products that have been launched relatively recently and how much those have to grow going into next year. Yeah, and as far as the second part of the question, I think it's a little too early to start talking about expectations for, for 2024 placements. But, you know, a few things to keep in mind as we finish out this year and head into next year is, you know, the Chromium franchise has been really strong, putting aside the challenges that we've had in, in China. When you look at the Chromium consumables, year over year, up over 20%, year to date in both AMR and EMEA- Mm-hmm ... and basically in the mid-teens overall, when you include consumables and instruments, year-to-date year-over-year. Flex is something that customers that understand it and have used it are really excited about. Mm-hmm. That's a driver for Chromium iX and X placements. As far as our Chromium install base, it's still, I think, a relatively smaller percent overall of those that have upgraded into the Chromium X or iX. Mm-hmm. I think that there's plenty of room for X and iX to continue to grow on the Chromium instrument side. Got it. Serge, your thoughts on just the traction for some of these instrument-free approaches in single-cell, you know, Parse Flu and Scale Bio, et cetera. Do you run into them more often than before? And what's been sort of the user feedback, you know, on some of these approaches? ...Yeah, I mean, so one point of context is that a lot of these approaches have actually been around since, you know, roughly 2016, so these combinatorial split pool approaches. And customers have dabbled in them across the years. There's been somewhat more starting, and we talked about this about, you know, a year and a half ago or so, there's been more prevalence, at least of the companies, trying to kind of push them into this market, and so it created some amount of noise. We've always had some amount of background competition in the single-cell markets. Companies come and go, you know, usually trying to compete on price and to some extent throughput, depending on how you define it. And I don't think that the story has necessarily changed materially. If you look at, you know, if you look at the price points where you can get to with a Chromium, especially if you look at the Flex, but also, you know, the approaches that you can use on the high throughput kits with other products on Chromium, you can get to really nice price points and really massive throughputs. At AGBT earlier this year, we showed experiments running 8 million cells in a single run on Chromium. And so, those are not real advantages for any of those approaches. Then we have much better quality data, much wider set of applications, much better support, everything, like, just fundamental superiority in basically every dimension of product features, and a very large install base. So, there isn't. I don't think there's necessarily a material change in terms of the market, there's of the competitive dynamics. There's, yeah, there's some increased amount of presence out there by those companies, but we've seen it in the past. They come and go. And, you know, we keep coming back to just the fundamental superiority of our innovation engine- Mm-hmm. and the products, and making sure that the customers are successful and love what we do. Got it. On the Flex, how should we think about just, you know, balancing the fact that, you know, initially, there's a little bit of lower revenue per sample, and then eventually, you expect, you know, strong elasticity of demand as customers run, more samples? And over what time frame do you think that sort of comes through in your, in your numbers? Yeah. So the thing is, there's a lot of different variables at play here, so kind of giving an average number ends up being challenging. So one is just the awareness factor for people to learn about Flex. It's something that takes quite a bit of time, especially because, and something that we've been learning, there's so much of the current usage is already so well established with the existing products, our gene expression, our 3' prime, our 5' prime products. And so switching people over to something new, like Flex, which has amazing features and amazing benefits to offer, but is a different kind of a product, a different kind of chemistry, takes amount of time for people to become aware of it, to become aware of the capability. I still, I go out in the field, I talk to some, like, very top customers, and I tell them, "Hey, like, now you can do single-cell FFPE," and it still blows their mind, even though the capability has been out there for some amount of time. People don't necessarily internalize these things. So there's a, you know, some amount of time lag as people kind of learn about Flex, try it, right? And then there's the question of, like, from trying to, like, actually scaling up, and then from scaling up, scaling up to the point where the lower price per sample over, is overcome by the volume, right? And so, you know, we've seen the scaling up going from, you know, trying to pilot, and we've seen this consistent pattern where you do... You try a small experiment, you go to a larger experiment, and you go to a larger study, and that takes, you know, you think in terms of couple of quarters, 2, 3 quarters time. And then, you know, you probably need to give it another sort of quarter or 2 in terms of scaling up to larger studies that would not have been possible in the absence of the product and price point. And we're seeing that. There's a number of customers out there that are contemplating larger and larger studies that weren't- Got it. in contemplation before. Got it. Is Feature Barcoding now live on Flex, Serge? Feature Barcoding for protein detection, yes, on Flex. There's a little wrinkle. It's been live on the single plex Flex. It's now live on multiplex, so you can do kind of the, the products have then become full featured. I see. Very exciting capability. Got it. So just stepping back, as you think about the Chromium franchise, you know, do you think sort of 15% growth in steady state is a fair way to think about it over the, the medium term? Or is it sort of hard to frame that number at this point because, you know, you don't know how much appetite there will be for spatial, which may or may not sort of, you know, take away from some of that single-cell enthusiasm in the near term. How do you think about that dynamic? So, yeah, a couple of things. It is, like we always said, there's greater for us, there's greater certainty around the endpoint, and especially with the endpoint, when you combine sort of our three franchises, three platforms, it's very clear to me that, and our customers, when you talk to them on press, that ultimately, the future has to come down to where you measure everything with single-cell context and with spatial context, when that's relevant, right? That's got to be the future. We're all headed in that direction. How it splits out between the, you know, the sort of three different technological approaches, that's a little harder to tell. Clearly, there's always gonna be a place for dissociated approaches- Mm-hmm. Like for by Chromium, lots and lots of applications. Of course, Chromium is here now, and it has a lot of momentum going forward. And so we feel really good about the expectation that Chromium should be a robust, should have long-term robust growth for a long time to come. Precisely how that translates into specific numbers, you know, around 15% or, you know, slightly higher, slightly lower, so it's a bit hard to tell, especially since these dynamics tend to be not strictly linear, not strictly monotonic, because there's lots and lots of customer segments that the platform is set to go into- Mm-hmm. You know, at different velocity at different times. And so again, feeling really, really good about the long term. I think there's tons of robust growth ahead of us, both in the near term and in the long term. Precise numbers are kind of necessarily somewhat challenging to put on. Fair enough. Justin, one for you. I mean, as you think about the midpoint of the guide this year, you know, how should we think about, you know, upside versus downside? You know, you called out China. One of the themes that's, you know, come up more and more in my conversations here in the last couple of days has been the anti-corruption crackdown, as a bit of an incremental headwind. I don't know if it really applies to you, in China as much, but, you know, Just give us an update on, on the distributor inventory situation and what you're hearing from your customers on the ground. Yeah. So I guess to start with the first part of your question, just how we think about guidance, overall. So on our last earnings call, we raised our guidance range to $600-$620, midpoint of $610, based upon the strength that we saw in spatial, driven by Xenium. And that was, you know, partially offsetting some of the weakness that we saw in China- Mm-hmm C ontinuing on. And then we talked about what our expectations were for the rest of the year, in China specifically, was that Q3 and Q4, we expected to be roughly flat, to Q2. And so we did have higher inventory positions, and that's something the team is continuing, to work through. And so we are working with our customers to bring those inventory positions down. Mm-hmm. And so really, you see a bigger impact on the shipments in the current period. We're in a situation where you're bringing inventory down quarter-over-quarter. Overall in China, you know, we're, you know, we feel good about the customer optimism that we're seeing. And you know, just overall, how our products are regarded there. As far as the anti-corruption crackdown, that's nothing that we've heard of specifically right now that would impact our business there. Got it. In terms of, you know, the Xenium launch impacting gross margins, how do you think about sort of that dynamic playing out, you know, into the back half of this year and into 2024? Yeah. So first off, there's a few important points to take away. The first is that for, you know, the base of our existing products, gross margins are relatively stable, and the change that we're seeing in gross margin right now is due to the investment that we're making in Xenium instrument placements. And keep in mind, this instrument was one that we optimized for performance and time to market, and we sought to build the best instrument in the space, and we feel that we succeeded at that. And so right now, the way that we're looking at Xenium instruments is, it's all about prioritizing placements right now for the consumable pull-through that will follow. Mm-hmm. So as we continue to place more instruments, there will be an impact, there will be an impact on the gross margin. Over time, as the consumable streams ramp up, those will help offset the margin of the instrument. There are cost reductions that we've already taken, although relatively small ones. As we ramp up the volume overall, there's gonna be some benefit from just the fixed cost being spread over more instruments. But keep in mind too, you know, right now we've got a really well-performing instrument. Mm-hmm. We don't wanna mess with that too much in the near term as far as swapping out components. So, you know, we feel good with the balance that we're striking right now with optimizing the placements and the profile that we have. But we do feel that it will continue to improve over time. Got it. And just sort of, you know, pulling on that string a little bit more in terms of, you know, your OpEx and expectations for cash flow breakeven, should we sort of assume that given the sort of really good sort of momentum you're seeing on the Xenium franchise, free cash flow breakeven probably sort of comes through in the first half or mid-2024 timeframe? So just to be clear, this is something that we're still driving towards in Q4. I think it's gonna be close. I think it could easily be on one side or the other, and it could come down to shifts in working capital. You know, right now, putting that goal out there and getting the whole company behind controlling our cost while still trying to balance our aspirations for growth, it's been really important and really proud of how the whole company's been able to rally behind that. Driving that discipline was huge. But I think in the near term, the pressures that we're gonna see on Q4 are gonna be the Xenium inventory build, some of the investments that we're continuing to make for installation, training, and support- Mm-hmm ... as we seek to place more Xenium instruments over time. And then just the placements of the instrument itself. It has been a competitive environment out there. There has been a lot of noise, although the performance data is starting to come through right now, and that's gonna be a good tailwind for us. We have had to discount the instrument deeper than we normally would've. And so we'll see how those trends emerge or change towards the end of the year, but there has been some pressure there. Got it. Last question for you, Serge, on the ongoing litigation. You know, you've got a decision coming up, sounds like on the other side of September nineteenth here, so fairly quickly in terms of the European UPC. So just how do you feel about that? Any updates from the hearings that have already happened? And beyond, you know, that sort of decision, how should we be thinking about sort of, you know, the next key dates to watch for and how this thing eventually sort of settles out? I didn't say settles in, I said, how this settles out. Like, we've got we've got multiple cases on multiple patents and multiple jurisdictions on multiple products going. And you know, I'm not gonna go into details on this, but obviously we've invested a lot in R&D. We invested... We've said from the beginning, we we we made those investments with in order to you know, to build out this franchise and to make sure that we can practice these inventions ourselves. So we have no intention to license our our intellectual property, but our focus is really on the customers, like I said. This is all in the service of making sure we can develop the very best products to the customers and deliver the very best experience, and that's what the full company is focusing on right now, and that's what you're seeing happening in the field, and you're seeing the fruits of that. So, that's what I would emphasize. Got it. Covered a lot of ground. Thank you so much for your time, guys. Appreciate it. Thank you. Thank you.