10x Genomics, Inc.

Hello, everyone. Welcome to the 10x Genomics second quarter 2023 earnings conference call. I will now hand the call over to your host, Cassie Cournot. Cassie, please go ahead.

Thank you, and good afternoon, everyone. Earlier today, 10x Genomics released financial results for the second quarter ended June 30th, 2023. 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 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 securities laws. 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. Connectionomics 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. We will host a question and answer session after our prepared remarks. We ask analysts to please keep to one question and one follow-up so that we may accommodate everyone in the queue. With that, I will now turn the call over to Serge.

Thanks, Cassie, and good afternoon, everyone. On today's call, I will start with an overview of our strong second quarter performance in both single cell and spatial. Next, I will share an update on our progress and momentum in each of our three platforms, highlighted by our customers' tremendous enthusiasm for and rapid adoption of Xenu. I will then turn the call over to Justin for a more detailed look at our financials. business trends, and outlook for the rest of the year. We delivered a strong second quarter, with revenue growing 28% year over year to $147 million. Our results were driven by growth across our single-cell and spatial portfolios, led by solid performance and execution in Americas and EMEA, and strong demand for instruments across all three platforms. This was partially offset by continued headwinds in China, as Justin will discuss. The clear highlight this quarter is our momentum in spatial biology. In Q2, we leveraged our manufacturing scale and expertise to quickly ramp Xenium shipments, yet even so, orders outpaced shipments. Not only is Xenium increasingly recognized as the best performing platform for in-situ analysis, but we have also continued to see strong demand for a vision suite of spatial discovery tools. This quarter's results reinforce the strengths that have always differentiated us, the velocity of our world-class innovation engine, backed by our broad commercial and manufacturing scale. We continue to work to improve efficiency and drive operational excellence throughout the company so we can maximize and deliver on all of the incredible opportunities ahead. Now, let me share more about each platform, starting with Chromium, the unambiguous leader in single-cell analysis. In Q2, driven by strong performance in Americas and EMEA, Chromium consumables once again delivered double-digit year-over-year growth, despite ongoing challenges in China. The performance, scalability, and ease of use of our broad consumables portfolio is an important differentiator that continues to resonate with researchers and drive demand. In particular, we're seeing momentum continue to build for Chromium Flex. We're now one year into this launch, and it's clear we're still just getting started. The increasing traction and enthusiasm from our customers further strengthens my conviction that Flex has the potential to be transformative to the Chromium franchise over the long term. Looking ahead, we expect to launch a feature barcode application for FLEX later this quarter. This new assay will enable researchers to simultaneously profile gene expression and cell surface proteins on a cell-by-cell basis across multiplex samples in millions of cells. This is part of our long-term plan to broaden the menu of applications within the FLEX portfolio by enabling more samples, more scale, and more analytes. As we expand the capabilities available in FLEX and more customers see the power and performance of this assay, we expect it will keep driving placements of Chromium X series instruments. We're seeing strong demand for the X series as placements increase sequentially and are up robustly year to date. We're pleased with the continued traction we're seeing for the X series across a broad range of researchers, whether they're new to 10X, first-time instrument owners, or existing chromium controller users upgrading to this powerful tool for single-cell analysis. We believe the positive momentum we're seeing for our chromium instruments and consumables reinforces the long runway we have ahead, both within our initial home court of cellular atlasing and beyond. We have established strong beachheads in translational and biopharma applications. but it's still very early relative to the expected large potential. Two recent papers highlighted the power of our single cell portfolio in translational research, revealing particularly inspiring insights into the future of cancer care. In Nature Medicine, researchers published a new gene signature uncovered with 10x tools that could help determine the persistence of CAR-T cell therapy. And a study in the journal Blood showed how 10X single-cell analysis, together with the power of AI, could provide a crystal ball for predicting drug response in chronic myeloid leukemia. It's awesome to see the continued growth of our Chromium portfolio in translational research. We believe our first-to-world single-cell FFP capabilities exclusively on Flux will help open up even more single-cell research in translational and biopharma settings moving forward. Now, turning to spatial, where both our Visium and Xenium platforms delivered very strong growth during the second quarter. In Visium, we continue to see robust demand for our SiteAssist instrument, which is now one year into launch. It's clear SiteAssist has removed three key workflow challenges with the initial manual Visium assays. By giving researchers a better experience and a better workflow and better data, SiteAssist is driving increased demand and spurring more routine use of the Visium platform. In fact, this quarter, sales of our SiteAssist-based consumables doubled our instrument-free assays, reinforcing how SiteAssist is now the preferred method for Visium research. With Cytasys as the foundation, we continue to invest to expand the breadth of capabilities available on the Visium platform to enable more analytes and more applications. This quarter, we launched our Visium Cytasys gene and protein expression assay. Our unique morphology-first workflow enables researchers with three analytes in one, Hyplex protein, whole transcriptome RNA, and H&E staining. all on the exact same tissue section. In addition, our team continues to make excellent progress on Visium HD, which will be offered exclusively on SiteAssist. This ambitious project has been as exciting as it has been challenging. But these are precisely the types of challenges 10x is built for. And the data is looking spectacular. We can't wait for our customers to experience the power of unbiased whole-transcriptome spatial discovery at single-cell scale resolution. We look forward to sharing more updates on VisimHD as we get closer to launch. Now, turning to Xenium, which we firmly believe is the best performing platform for in-situ analysis. What this quarter's results demonstrate is the momentum we have as we bring the whole-of-company effort to capturing the full Xenium opportunity. We have momentum with researchers, as more and more labs independently complete their own Xenium experiments and gain immediate access to powerful, high-quality data. We have momentum in manufacturing and operations, where we ran production faster than we initially expected. We have momentum with our commercial team for the high velocity of orders during the quarter and the continued focus on delivering a world-class customer experience. And we have momentum with our product roadmap as we've continued to expand our broad menu of targeted and custom gene panels and deployed new firmware and software updates to deliver even higher levels of sensitivity and throughput. This incredible progress is a testament to the strength of our innovation engine, the scale and expertise of our manufacturing network, the breadth and depth of our commercial function, and the talent and dedication of our team. With our unique combination of differentiated chemistry, high-end sophisticated components, and powerful onboard software, Xenium is a premium instrument carefully engineered to optimize performance straight out of the box and well into the future. We invested to build a best-in-class system so we could deliver best-in-class performance. With every run, researchers are seeing directly that Xenium's real differentiation was never in the rhetoric, it was always in the results, which they are now routinely generating in their own labs with their own precious samples. We built Xenium to just work in the hands of researchers, the same as our other products. What that means is Xenium just works with very high specificity, ensuring the vast majority of signals are true biological transcripts rather than misleading noise. In our analysis data sets, Xenium's full discovery rate was less than 1.5%, which we believe is best in class. This excellent performance has not been corroborated by multiple customers. Xenium just works with high sensitivity, even on difficult tissues, enabling researchers to reliably measure their genes of interest, even when those genes are lowly expressed. We expect that sensitivity will get even more of a boost with the latest version of our onboard software, which we released last month. Xenium just works with best-in-class throughput. Xenium enables researchers to analyze the most tissue area in the least amount of time using the fewest number of slides. Our recent software update builds on our already leading throughput. Researchers can now run 12 one centimeter square tissue sections in about a week. Based on a competitor's user guide and recommended run time, it would take six weeks to scan the same amount of tissue. Xenium just works on a broad range of tissues, from mouse brain to more complex human samples, including breast, brain, colon, skin, lung, lymph node, and more. Xenium also generates high-caliber results on various sample types, including fresh rodents, FFP, and tissue microarrays. And Xenium boasts an efficient and easy-to-use workflow, which we've heard some customers describe as easier than Chromium. Xenium just works with a broad menu of fit-for-purpose and customizable gene panels to help customers answer their specific research questions. We're now shipping five pre-designed validated panels and expect to launch three more by the end of the year. With each of these offerings, researchers can also spike in their own custom genes to ensure they aren't limited in any way by gene selection. In addition, in Q2, we launched a fully custom gene panel to give researchers maximum flexibility. Our differentiated menu of pre-designed, partial, and fully custom gene panels is increasingly validated in the field and resonating well with researchers who appreciate the ability to study their exact genes of interest. In fact, more than half of our panel orders to date have incorporated some level of customization. As part of our exciting and ambitious ZM roadmap, we're also planning to launch a 5,000 Plex panel in mid-2024. Generally, more Plex comes with more tradeoffs. As you dial up Plex, you may need to dial down sensitivity, specificity, and throughput. This can lead to Plex quantity without data quality. With Xenium's unique chemistry, however, we can scale to many thousands of genes and still deliver high levels of specificity, sensitivity, and throughput, all of which are critical to the utility of these assays. And lastly, Xenium just works with its differentiated approach to software and data analysis. Xenium is the only platform to feature comprehensive primary and secondary onboard analysis in parallel with the instrument run. This means researchers can see their results on a Xenium instrument immediately after the run is done, without requiring massive uploads, onerous downloads, time-consuming data transfers, or expensive cloud subscriptions. Customers who want more of instrument interpretation can easily do so using Xenium Explorer or a wide variety of open-source tools. We build Xenium to be the best performing system for in-situ analysis, both at launch and for the long term. Beyond our gene panel pipeline, we're driving a robust multi-year Xenium roadmap that we expect to feature in-demand applications like isoform mapping, SMV detection, xenografts, CAR-T tracking, and gene fusions, among many other applications. These differentiated capabilities can be uniquely enabled by Xenium's chemistry. Altogether, this remarkable combination of features is earning rave reviews from our customers. One even told us he jumped for joy when seeing his Xenium data for the first time. This enthusiasm from our customers, along with the system's proven strength, performance, and momentum in the field, should reinforce the fact that 10X is leading the way in spatial biology and has been for a decade. Through our internal investments and acquisitions of emerging companies such as Spatial Transcriptomics, ReadCore, and Cartana, we have built incredible products, developed foundational intellectual property, and have deep experience with customer insights that have been instrumental to our technology leadership. At 10x, we absolutely relish the opportunity to help funders and scientists take their ideas and transform them into products that can be used by researchers to fundamentally change our understanding of biology. Our unwavering commitment is to our mission and to driving innovation to push science forward. We have invested well over $1 billion in research and development to bring new tools to researchers, and we will always strive to do what is right by our customers. That means delivering breakthrough products that perform as promised. After all, there is no cutting corners when it comes to cutting-edge technology. We've made the necessary investments in both R&D and IP to build a premium product that delivers exceptional performance. Seeing this validated time and again by our customers has given us even greater confidence in the potential of this product to lead the next revolution in the life sciences. I firmly believe that Xenium may be one of the most transformative technologies in our industry in decades. It's up to us to lean in and capture the tremendous opportunity we have ahead. Seizing this opportunity is our top priority, and we're going to leverage our strong foundation, broad commercial reach, and solid financial profile to deliver on the full promise and potential of this technology. Before turning the call over to Justin, I would like to give an update on our intellectual property portfolio, which is an essential part of our innovation engine. During the quarter, we achieved a significant milestone as we now have more than 2,000 patents issued or pending, including more than 70 issued and allowed in the second quarter alone. Of these, more than 350 relate to in-situ technology. As we have said, it is our general policy not to license our patents to others, but to protect our sole right to own and practice our patents. We will be steadfast in our focus on protecting the inventions that scientists have worked so hard to create, as our innovation is what fuels and funds the development of future TENX technologies that benefit researchers and ultimately patients around the world. We are executing on our mission with a solid foundation built on incredibly strong fundamentals. Our team is fully dedicated to driving growth, improving operational excellence, and leveraging the unique strengths that have always set 10X apart. With that, let me turn it over to Justin for more detail on our financials.