10x Genomics, Inc.

Thank you for standing by, and welcome to the 10x Genomics Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press Start and the number 1 on your telephone. Please be advised that today's conference is being recorded. I would like to hand the conference over to our speaker today, Eric Jaschke. Director of Investor Relations and Strategic Finance. Thank you, sir. Please go ahead.

Thank you. Earlier today, 10X Genomics released financial results for the second quarter ended June 30th, 2021. If you have not received this news release or if you'd like to be added to the company's distribution list, please send an email to investors at 10XGenomics.com. An archived webcast of this call will be available on the investor tab of the company's website, 10xgenomics.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 security flaws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. You should not place undue reliance on forward-looking statements. Additional information regarding these risks, uncertainties, and factors that could issued today, and in the documents and reports filed by 10X Genomics from time to time with the Securities and Exchange Commission. 10X 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 Saxinov, our CEO and co-founder, and Justin McInerney, our Chief Financial Officer. In addition, Brad Clutchfield, our Chief Commercial Officer, and Eric Whitaker, our general counsel, will be available for Q&A. With that, I'll now turn the call over to Serge.

Serge? Thanks, Eric. Good afternoon, and thank you for joining us. On today's call, I will start with a brief overview of our performance and solid execution during the second quarter. Next, I will discuss our progress in enabling broad adoption of single-cell analysis as we continue to advance our vision of bringing it to every biology researcher in the world. In addition, I'll share more about our relentless focus on innovation and the investments we're making to power a future enabled by single cell and spatial biology. I will then turn the call over to Justin for a more detailed look at our financials and outlook for the year. Revenue for the second quarter totaled $116 million, up 170% year-over-year and 9% sequentially, driven by increasing adoption of our products. We're pleased with our team's strong execution this quarter, as we continue to deliver on our commercial plans and advance our R&D pipeline. As we anticipated, customer lab operations returned to near-normal levels during the quarter. And while some labs experienced lingering COVID-related impacts for much of the period, the majority of customer sites were open to in-person meetings with our sales and support teams by the end of Q2. However, subsequent to quarter end, rising case counts and emerging variants have increased uncertainty in our operating environment, which Justin will discuss further. Now, moving to our results. We saw strong demand for our Chromium instruments. During the quarter, we initiated a price change to the Chromium controller to position it strategically within our expanded instrument lineup ahead of the launch of Chromium X. As a result, we saw approximately 100 incremental placements during the quarter, bringing many new customers into the 10X ecosystem. Adoption of our single-cell and spatial consumables continues to grow. With the ability to measure gene expression, proteins, epigenetic programming, immune features, and other modalities, our customers have access to a comprehensive toolkit for integrating biology at the right resolution and scale. The breadth of these offerings is resonating well within our growing customer base. Take our Multium solution, for example. It has had an impressive trajectory since we began shipping less than a year ago. The ability to analyze gene expression and epigenetic programming from the same cell is inspiring rapid adoption with existing customers, as well as customers new to 10X and to single-cell approaches more generally. Directly connecting regulatory signals with cellular function is essential to understanding biology at its most fundamental level. In a recent preprint featuring Multium, researchers analyzed cells from human pituitary samples to uncover diverse regulatory mechanisms involved in stem cell development. Multium allowed these scientists to identify and characterize uncommitted stem cells and determine the transcription factors and epigenetic mechanisms that shape their fate and function. These findings should help develop therapies to treat endocrine diseases caused by pituitary deficiencies and tumors. Adoption of our Visium solution also continues to expand. Since launch, the number of preprints and publications with Visium has increased each quarter as more and more users progress through their experiments and generate relevant insights. And to date, there have been more than 120 publications and preprints featuring Visium technology. In one recent Visium preprint, researchers performed an in-depth spatial analysis of somatic mutations in benign and malignant prostate cancer tissues. These researchers were able to identify small clonal cells not evident from visual assessment and which would have been overlooked by typical histological analysis. Additionally, the study showed that copy number variations in the regions which encode cancer drivers often occur in tumors in benign tissue regions typically ignored by pathologists. This study showcases the power of unbiased spatial approaches for uncovering the biology of tumor progressions. which could lead to improved early detection of cancers and improved patient outcomes. This quarter, we also launched and began shipping Visium for FFPE, enabling, for the first time, true unbiased facial gene expression analysis in FFPE samples. Early demand has been strong, as pre-marketing activities inspired both new and existing customers to initiate pilot studies. We are encouraged by the adoption of Visium FFPE to date, Though, as we said in the past, it will likely take time for initial customers to progress through their pilot studies and onto large experiments. Looking to the future, the interest we're seeing affirms our view of the wide applicability of this product in both the discovery and translational setting. After the quarter end, we announced the availability of ChromiumX. This platform represents a huge advance for single-cell genomics, as it will allow our customers to supercharge the experiments, interrogating as many as a million cells in a single run at a significantly lower cost per cell. ChromiumX was developed in response to the desire of many of our early customers to run ultra high throughput experiments. We're pleased with the initial response and look forward to getting it in our customers' hands this quarter. The Chromium platform has come a long way since we introduced the Chromium controller five years ago. We launched this platform with a vision of making single cell analysis accessible to every biology lab in the world. And we have made tremendous progress toward that goal. There are now thousands of customer labs using our products and more than 2,800 papers across a wide diversity of journals and research areas. And in turn, these publications are helping inspire a broad spectrum of researchers by validating our solutions across an increasing number of applications. While thousands of labs are using our products, we're still very early in realizing our vision. There are well over 100,000 researchers globally available to 10X, and we estimate that two-thirds of them could already benefit from single-cell and spatial genomic applications. With this in mind, we have consistently pursued a strategy focused on broad access to bring new researchers into our ecosystem. The success we had this quarter with instrument placements to new labs is an example of that strategy. As our solutions become more widely adopted, we're increasingly reaching new customer profiles, Many of these customers are less experienced with single-cell workloads and high-content experiments, unlike our earlier adopters. In particular, sample prep and data analysis are important areas where these customers face greater challenges. With the launch of our load throughput and self-lux kit and introduction of the 10x cloud earlier this year, we have made important progress in addressing some of these barriers. Since launch, the demand for self-lux has been particularly robust, and we have seen strong interest in our 10X cloud solution, especially among our users who are not bioinformaticists. Moving forward, we will continue to prioritize the tenets of customer success, enabling access and addressing barriers to adoption as we lay the groundwork for continued growth and expansion into the best opportunity ahead. The strength and talent and commitment of the 10X team give us tremendous confidence as we advance this vision. The team's ability to persevere despite challenges related to the pandemic has been consistently impressive. Because of their efforts, we have been able to maintain a rapid velocity of product introductions, including the breakthrough launches such as ChromiumX and Visium for FFPE. At the same time, we have been making significant progress on our extensive R&D roadmap to deliver many future products. Developing and launching these products will be highly ambitious even under normal circumstances. Our ability to maintain our planned cadence of product introductions in the face of a pandemic underscores this important competitive differentiator and is a testament to our entire organization. We strongly believe that single-cell and spatial approaches represent the future of biology. Over the past several years, it has become increasingly clear that complex cellular heterogeneity is a pervasive feature of all human tissues and is fundamental to understanding all biological systems. Technologies that resolve this heterogeneity and enable single-cell resolution on scale will be critically important for unlocking future scientific discoveries and clinical applications. Our Chromium platform is an established leader in single-cell analysis. While we have rounded out its core set of capabilities with the recent product launches, including Chromium X, this platform remains early in its development and adoption. We plan to continue to add capabilities and improvements in the future to enable broad adoption and create additional value for existing customers. Visium and spatial biology more broadly are even earlier. Our core discovery customers have been adopting Visium since its launch in late 2019, and with introduction of FFP this quarter, we have expanded access to translational researchers. We will continue to invest aggressively in this platform to add fundamental new capabilities and breakthrough features as part of an extensive product roadmap. We're in the process of building a sophisticated factory here in Pleasanton to develop the next generation of high resolution Visium consumables. This effort is a result of multiple technical innovations that we believe will give us a set of highly differentiated capabilities that don't exist anywhere else in the world. We expect our vertically integrated capabilities to provide a powerful foundation to enable new products and growth in the future. With our in-situ platform, we're continuing to expand our investment to build a third complementary platform to Chromium and Visium, which will help transition many of the discoveries made with those platforms to the clinic in the future. We will also invest broadly in our organization, including our R&D and commercial teams and our global operations, to support broadening adoption of our products. Finally, last week, we announced a worldwide settlement of all our litigation with BIRA. This settlement resolves more than 25 separate matters and over eight years of litigation between the companies. We were scheduled to go to trial on our claims against Bayer and Celci products this week. In that litigation, we had assorted the Celci products and printed six of our patents. This settlement broadly cross-licenses each company's intellectual property related to single-cell analysis, with the exception that we did not license patents related to certain application areas and technologies under development. Importantly, the settlement also does not include intellectual property related to spatial or in situ approaches. Each company will make royalty payments through 2030 while the license runs for the life of the patents. From a financial point of view, we expect the agreement to be cash positive for us when considering cost savings from litigation, our ability to offset certain payments against other licenses, and the reduction in past royalties related to the Delaware litigation. Any payments of royalties by BIRA on its sales and services would be incremental to this. We expect the impact to our gross margins will be less than 1%, also excluding any potential royalty payments from BIRA. Apart from the financial benefits, this agreement eliminates the distraction and uncertainty of litigation. This is a victory for science and allows us to turn our full attention to our mission of mastering biology to advance humans' health. We were able to achieve this outstanding result in part from the strength of our intellectual property, which now includes over 1,150 patents issued and pending. We believe that our deep and broad patent portfolio is a key competitive differentiator, and we will continue to defend the technology breakthroughs which have resulted from our significant investment in research and development. I would note that it is our general policy not to license our patents, but to protect our sole right to own and practice them. Before turning it over to Justin, I'd like to thank our employees for their continued hard work and dedication so far in 2021. We entered the year with highly ambitious goals, and our ability to develop and deliver so many great products to our growing customer base is a testament to your commitment and execution. With that, I will now turn the call over to Justin for more details on the financials.