10x Genomics, Inc.

Thank you for standing by. My name is Mark and I will be your conference operator today. At this time, I would like to welcome everyone to the 10X Genomics third quarter 2024 earnings conference call. Today's call is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Cassie Kernel, Senior Director, Head of Investor Relations and Strategic Finance. Cassie, please go ahead.

Thank you, and good afternoon, everyone. Earlier today, 10X Genomics released financial results for the third quarter ended September 30, 2024. If you have not received this news release or if you would like to be added to the company's distribution list, please send an 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. 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 for his first earnings call with 10X, Adam Page, our new chief financial officer. We will host a question and answer session after our prepared remarks. We asked analysts to please keep to one question so that we may accommodate everyone in the queue. With that, I will now turn the call over to Serge.

Thanks, Cassie, and good afternoon, everyone. Revenue for the third quarter declined 1% year-over-year in line with our pre-announcement. Our results this quarter fell short of our expectations. This was primarily caused by more disruption than we had anticipated from the sales restructuring we implemented this quarter, and by cautious customer spending, particularly around capital purchases as we continue to navigate a challenging macro environment. While these changes in our commercial structure are necessary to drive our growth and strategy, We expect to see continued headwinds and also expect cautious customer spending to persist. We now expect full year revenue in the range of $595 million to $605 million. At the midpoint of the range, this implies flat fourth quarter revenue compared to our third quarter results and represents a 3% decline from the prior year.

Adam will talk through more of the details of our updated guidance range shortly. There is no question our revenue growth in 2024 has been disappointing.

The year has had a number of moving pieces that have made it particularly challenging. We initiated major product transitions across all of our platforms and significantly evolved our sales organization. All of this with a backdrop of a difficult macro environment and changing competitive dynamics across the portfolio. Despite these current headwinds, we continue to believe we're on the path to the most significant transition in the tool space since the introduction of NGS. We have the leading portfolio of single-cell and spatial technologies, and we envision a world in which most tissues will be analyzed using our products. The strategies we're pursuing to accelerate on this pathway are, first, to evolve our commercial structure in order to foster widespread use of our technologies. Second, to create increasingly accessible price points so that we can drive ubiquitous use of our tools across all samples. We intend to be a leader on price, and with our new product launches, we believe we now have the best cost structure for customers across a wide range of experiments. We have shown over and over our ability to extend our technological leadership and push frontiers. With these new offerings, we believe we are now the leader in both technology and cost. And third, to advance our capabilities with new products, workflows, and software in order to enhance ease of use and drive more adoption. Finally, we intend to accomplish these objectives with a diligent approach to investment and cash management. I am confident that the steps we are taking will enable us to reach more customers, execute consistently across the portfolio, and drive the broad democratization of our technologies to reach the full potential of the large opportunity ahead. For the rest of the call today, I will discuss what we're doing to advance our strategies and why we're confident they will set us up for future long-term growth. Adam will then provide more detail on our third quarter financials and specific impacts to our outlook for the rest of the year. Let's start with the changes we've been making to our commercial organization. As we shared on our last earnings call, we re-architected our commercial infrastructure from the ground up making foundational changes to transform how we engage with our customers. We sell to a diverse set of customer types and research segments. And we designed a new sales structure to focus our team to better serve all their distinct needs, whether in academic or biopharma settings, scaling up top tier customers, driving more adoption among emerging users, or bringing new researchers into the ecosystem. To accomplish this, we added specialization to key areas By creating a distinct capital equipment team explicitly focused on driving Xenium instrument placements, creating a distinct biopharma organization which is focused on better serving the unique needs and expansion opportunities in that sector, and adding a dedicated team to nurture new and emerging accounts, the next generation of Tenex customers. In addition to this specialization, we also recalibrated territory sizes to make each territory more manageable and to drive more efficient utilization of our sales force. While these changes were necessary, they did cause more disruption than we anticipated. Ultimately, this is the largest disruption in the areas where the sales structure changed the most. For example, over 40% of customer accounts in the Americas changed sales coverage within a quarter. And our new biopharma and capital equipment teams still have a large number of open roles. Our teams now have an improved focus and more defined roles with targeted incentives. I am confident these were the right changes to make and see them already creating more clarity and rigor in our processes. There is still work to do to realize the full potential of our commercial organization. We're working fast to fill our open headcount. Account executives are still onboarding and getting up to speed with the new customers and territories. We expect it will take time before we see the full benefit and impact from our new approach. We're confident these changes will help us deliver the best experience to our customers, open up new opportunities, and drive efficient growth across the portfolio. Turning to our Chromium portfolio, as we have been communicating for some time, driving into price elasticity has been a particular focus for us. We recently took another step in this direction by launching new products and capabilities aimed at lowering the cost and ultimately expanding access of single-cell analysis. First, we're setting a new standard for the cost per cell for researchers with the launch of GEM-X Flex. Customers can now run millions of cells for less than one cent per cell, an over five-fold reduction compared to previous products. We're bringing a highest performing and most flexible assay to our new GEM-X technology architecture. GemX Plex enables broader opportunities for mega-scale CRISPR screens, cell sequencing projects, and multi-site translational studies, among others. Second, to decrease the cost per sample, even at a small scale, we launched GemX Universal Multiplex. With this product, researchers can batch and run four independent samples up to 5,000 cells each for approximately $560 per sample. This is a new multiplexing capability for our flagship GMX universal 3-prime and 5-prime gene expression assays, which we launched in March of this year. Furthermore, even while we're lowering cost barriers for our customers, these two products have comparable gross margins to our current consumables. Finally, to address capex barriers, we launched Chromium XO, our most affordable single-cell instrument, at a U.S. list price of only $25,000. Chromium XO serves as a budget-friendly entry point into routine, high-performance single-cell analysis. XO enables researchers to generate high-quality data with less hands-on time, labor, and experimental costs compared to non-TenX workloads. Our GemX universal three-pronged single-plex and multiplex assays are available on the XO. With these launches, we're addressing a primary bottleneck for our customers, price. At the same time, we have also delivered new protocols, capabilities, and software to enhance ease of use and drive more adoption. Chromium Flex, for example, should be uniquely suited to open up more translational research. It is the only commercial single-cell assay compatible with FFP samples, which are often constrained by limited cell quantities. With Gemma X-Flex, we've delivered a four-fold reduction in required cell inputs, significantly expanding the opportunity to include vast amounts of biobank clinical samples that were previously off-limits for single-cell research. Another example is the unique on-chip multiplexing workflow built into GemEx Universal Multiplex, which is an efficient and elegant way for researchers to analyze more samples in a single run. On-chip multiplexing eliminates the need for upstream sample tagging simplifying the process, and reducing hands-on time compared to other sample multiplexing methods. And we have introduced new solutions for upstream sample fixation to improve the workflow, whole block fixation to expand sample compatibility, and library prep automation to enable greater throughput. On the software side, we delivered automated cell annotation, making it easier and faster for researchers to go from experiment to insights. Cell annotation is a fundamentally hard problem and a critical part of most types of single-cell analysis. With this new capability, we're addressing one of the biggest challenges in data analysis for our customers. Altogether, we're excited about the strength, differentiation, and leadership of our single-cell portfolio, and believe the new products, workflows, and software we've introduced will enable more researchers to adopt single-cell methods for more studies. more often. For additional product information, we encourage you to refer to the supplemental materials we posted on our investor relations website along with the earnings release. As we continue to execute on single-cell, we are also motivated by the immense potential of our spatial platforms. We were encouraged by spatial consumables usage this quarter with the continued adoption of Visium HD and Xenium 5K. Within the Visium platform, we're seeing the majority of labs order Visium HD, and now that the initial wave of customers is starting to move past evaluations, we're beginning to see good reorder trends. In addition, we're seeing the majority of new to Visium customers start with HD, an encouraging sign of the benefits this product brings to researchers. Adoption of our Visium site assist instrument continues at a solid pace. Our experience over the years has made it clear that an instrument like SiteAssist is key to delivering a complete solution for customers. SiteAssist is critical for enabling a robust and straightforward workflow, one that allows customers to use standard histology slides. Additionally, by ensuring consistency, precision, and preservation of spatiality, SiteAssist is integral to high-quality data and more accurate scientific results for our customers' experiments. Within the Xenium platform, we saw continuous adoption of Xenium 5K and Q3, leading to overall Xenium consumables revenue growth sequentially. And we continue to see encouraging utilization trends with sequential growth in the number of runs. We consistently hear very strong feedback from our customers on these products, on the data quality, and on their ease of use. These complementary spatial platforms support a broad spectrum of customers' use cases and accommodate the ways their research and research questions may evolve over time. As we look forward, I'm encouraged by the underlying progress we're making and motivated by the immense opportunity I see ahead. Understanding biology requires measuring molecules, cells, and tissues at large scale and high resolution. Our technologies are delivering these fundamental capabilities to researchers around the world. But these are still very early days. My conviction is fueled by our customers, both the work they're doing today and their ambitions for the future. I came away from last month's Human Cell Atlas General Meeting energized by the community's plans to take on larger, more complex studies, to embark on high-impact translational projects, and to explore new single-cell and spatial applications that could transform the world's understanding of health and disease. Conversations like these reinforce my belief that single-cell and spatial continue to be some of the most exciting and game-changing opportunities in the life sciences. While we continue to see strong adoption with cutting-edge genomics researchers, we believe there is an even larger opportunity across the broader space of academic research whether in basic science or in translational applications. This opportunity spans across many different fields, including oncology, immunology, neuroscience, metabolic health, women's health, infectious disease, aging, and multiple others. We know this opportunity exists because we see early interest and use from many new kinds of customers, just not yet routinely or at scale. Even among our well-established academic customers, we're seeing interest in running larger-scale experiments, whether moving towards translational applications, analyzing large patient cohorts, or embarking on massive cell screening campaigns. In Biopharma, there is increasing interest to apply single-cell and spatial technologies across the entire continuum of the drug development process. For example, many groups are focused on applying single-cell and spatial tools for target identification and drug discovery, especially in the context of large-scale CRISPR experiments or combinatorial drug screens. In preclinical work, the emergence of organoids as a superior research model should open up a broad range of use cases, including characterization of disease development, progression, and therapy mechanism of action. We believe cell therapy development is another exciting opportunity, as our tools have the potential to accelerate biomarker discovery and screening enhance cellular environment profiling, and support drug product characterization. And there exists an even larger space of translational applications to apply our technologies to clinical trials, which in many ways is only now becoming possible. We have built a sizable franchise with single-cell and a solid foundation in spatial. And while this year has certainly had its challenges, we firmly believe there is a vast opportunity ahead and that we're the best company to deliver on it. Before I turn it over to Adam, I'd like to officially welcome him to 10X. On our last call, we announced he would be joining us as our new CFO, and I'm really excited to have him on board. With that, I'll turn it over to Adam.

Thank you, Serge. It's great to be here at 10X working with such a dedicated and resilient team. I'll start by reviewing our financial results for the three months ended September 30, 2024, and will then provide further details on our updated outlook for 2024. All growth rates provided will be on a year-over-year basis, unless otherwise noted. Total revenue for the quarter was $151.7 million, down 1% driven by weaker instruments revenue, primarily Xenium instruments. offset by stronger contributions from consumables. Looking at our revenue breakout, total consumables revenue was $126.2 million, up 10%. Chromium consumables revenue was $96.5 million, down 4% year over year, driven primarily by lower average prices, offset by increased consumables volumes. spatial consumables revenue was $29.7 million, up 111%, driven primarily by continued demand for the new spatial consumables products introduced this year, Visium HD and Xenium 5K. Moving on to instruments, total instrument revenue decreased 45% to $19.1 million. Chromium instrument revenue was $7.6 million, down 38% driven by fewer units sold. Spatial instrument revenue was down 50% to $11.4 million, driven by a lower number of Xenium instruments sold. Services revenue was $6.4 million, up 48%. Looking at our revenue by geography, America's decreased 11% to $87.8 million. EMEA grew 18% to $37.9 million, and revenue in APEC increased 15% to $26 million. The most significant changes in our commercial reorganization were in the Americas, which contributed to the regional disparities. Turning to the rest of the income statement, gross profit for the third quarter was $106.4 million, compared to $95.5 million for the prior year period. Gross margin increased to 70% from 62% the year prior, driven by change in product mix, which was predominantly fewer Xenium instruments. Total operating expenses for the third quarter decreased to $147.9 million, compared to $190.3 million for the prior year period. This decrease was primarily driven by a $41.4 million in-process research and development expense related to an agreement to acquire certain intangible and other assets in the prior year period. R&D expenses decreased to $66.2 million compared to $66.5 million for the prior year period, primarily driven by lower personnel expenses, including stock-based compensation expenses, partially offset by higher laboratory materials and supplies. SG&A expenses decreased to $81.7 million compared to $82.4 million for the prior year period, primarily driven by lower personnel expenses, including stock-based compensation, partially offset by higher outside legal expenses. Operating loss for the third quarter was $41.5 million compared to a loss of $94.8 million in the third quarter last year. This includes $33.9 million of stock-based compensation as compared to $40.2 million of stock-based compensation for the corresponding prior year period. Operating loss in the third quarter of 2023 included $41.4 million of in-process research and development expenses. Net loss for the period was $35.8 million, compared to a net loss of $93 million for the third quarter of 2023. We ended the quarter with $398.2 million in cash and cash equivalents. Turning to our outlook for the rest of the year. As Serge mentioned at the beginning of the call, we now expect full year revenue to be in the range of $595 million to $605 million, representing a 3% decrease from full year 2023 at the midpoint. At the midpoint, our updated guidance range implies approximately flat fourth quarter revenue compared to our third quarter results. Within Chromium, We are assuming a continuation of decreasing price per reaction while assuming an uptick in volumes. Within spatial, we are assuming similar results to what we experienced in Q3. The drivers of our assumptions are, first, ongoing headwinds from our commercial restructuring. While we implemented the new structure in mid-Q3, our efforts remain ongoing as we make new hires to fill our redesigned territories and teams train new sales reps, and solidify processes. And second, the macro environment continues to be challenging. We are still seeing cautious customer spending putting pressure on both CapEx purchases as well as larger consumables projects. Given this, we are not counting on the typical seasonality that we tend to see in Q4. While we anticipate these factors will impact Q4 and into next year, I want to affirm that we are taking the appropriate and necessary steps to take advantage of our opportunity. We are taking a disciplined look at our spend in our 2025 planning. We generated $18 million of cash in Q3, but I would note that much of this is due to timing, and we expect this to offset in Q4. We are focused on maintaining a strong balance sheet going forward. At this point, I'll turn it back to Serge.

Thanks, Adam. The endpoint is clear. Biology needs to be analyzed at the single-cell level and in spatial context. However, as 2024 has shown, the path together is not linear. I'm incredibly grateful to the 10x team for staying focused on our mission and our customers as we navigate this period of change and push through these challenges. I have strong conviction that the actions we're taking now are necessary to deliver a long-term opportunity and fulfill the promise of single-cell and spatial biology. We will continue to execute with urgency and excellence as we work to foster widespread use of our technologies and create value for all stakeholders. With that, we will now open it up for questions.

Operator?

We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. Your first question comes from the lineup page at Savant with Morgan Stanley. Please go ahead.

Hey, guys. Good evening. Thanks for the time here. Serge or Adam, perhaps, maybe I'll start with one on the quarter and the outlook here. So, you know, EMEA and APAC held up a lot better for you in the quarter relative to the Americas, and you highlighted, you know, the bulk of the commercial restructuring was focused on the Americas. That makes me feel that it's mainly the commercial reorg that was the driver of the 50 million cut versus incremental macro deterioration, you know, relative to your prior guide. So can you just confirm that? And then the second part of my question is, how should we be thinking about gross margin dynamics and your prior target of being cash flow positive here over the next few quarters? Because there's a few moving pieces, right? So you've got the meaningfully lower price points on the Chromium that you're enabling for the customer base. But then you've got the macro stuff. And you also, Serge, I think in your prepared remarks, talked about, you know, Gemex Flex and Universal Multiplex having comparable gross margins. So just trying to put all of that together in terms of, you know, gross margin and free cash flow dynamics. Thank you. Sure. Okay, Josh, thanks for the question.

Let me take a stab at it. So on the Q4 guide, a couple things to consider, you know, in the way we're sort of thinking about the incremental call down is it's about half from the macro environment and half of it coming from internal commercial reorganization work that we're doing. The reason, so the commercial one, you know, and I think we talked about and Serge got into in the script, what I would mention around the macro is we've historically seen a step up from Q3 to Q4. And we were still, even in the prior guide, anticipating that type of seasonal step up, even if it was a bit muted perhaps in prior years, but we're still expecting some of that. And I think as you can see from what we've got it here from Q4, we're anticipating that doesn't occur. We don't see a step up from a CapEx perspective and even some of the larger consumables projects that we would tend to see in Q4, also not anticipating that to be the case. So, you know, you end up with about half of that guide down coming from the macro. And then, you know, on the internal side from a commercial reorg, we still have a significant number of open requisitions filling those roles with top-notch talent. But, you know, that certainly continues to be an impact force here in Q4. The other piece of your question or the other question that I'll answer on gross margin dynamics It's important to note that the products that we've launched are actually at comparable gross margins to our existing portfolio. So, you know, that's part of the innovation engine here at 10X. And it's part of the reason that we're, as we're trying to democratize single-cell, get products into the hands, expand the market, the market opportunity. We're able to do that actually at comparable gross margins to the existing sort of base consumables business. last thing just the sort of second part related part of your question around cash flow uh positive um yes we talked about that uh in q3 i did mention you know just now here on the call from a working capital perspective we expect that to flip a bit um but as we noted in q1 we had a roughly 20 million dollar payment that we made um that was you know sort of an unusual payment um related to an asset acquisition and so absent that you know we're still pretty darn close to being cash flow positive for the year. And that's still the way that we're thinking about our business, is really being mindful of our cash balance along the way.

Your next question comes from the line of Tico Peterson with Jefferies. Tico, your line is now open.

Hey, thanks. I'm going to start with instruments. You said a couple of weeks ago, I think that Xenium and Vizium missed equally, and that was part of the reason that you're not losing share. That seems different than what you're saying now. So I'm wondering if you can clarify that. And then as you work through the sales transition, do you have a sense of what percentage of orders that dropped out of the funnel are likely to be just pushed out versus unrecoverable? I guess, how do we get comfortable that there's not share loss underway and things are dropping out of the funnel? And then Serge, I want to push you on pricing because you've gotten more aggressive with the ZNM promotion and Chromium XO and GemX. Just, you know, can you give us more comfortable, get us more comfortable that the elasticity is actually there and that the funding for larger projects is materializing? Thanks.

Yeah, thanks, Saiko. So maybe on the first part of the Zinium and Visium kind of dynamic, just wanted to clarify, we have said before the Zinium instruments in particular got affected by the macro environment more so in an outsized way relative to the rest of our product portfolio. uh but once you take that out of the equation uh all the products were similar relative to expectations um so and uh yeah and as we've been saying all along Xenium has been affected uh particularly acutely by sort of the macro headwinds and uh the um the funding pressures of customers because this is the big sort of big price instruments and um as far as uh uh sort of uh pricing action. So there's different elements to this. I mean, you mentioned promotions. We, you know, we've been running on some of our products on Xenium instruments. There's nothing I would say here necessarily extraordinary relative to just the normal course of business that we do. We have ongoing promotions on different products, and there are some happening this quarter as well. And as far as more general sort of pricing, especially as it applies to kind of on the single sale side, We, you know, as we've been saying for a while, we believe there's tremendous potential in single cell to grow. And, you know, a big barrier to further growth is price. And that's, you know, price, it can be a barrier along multiple dimensions, whether it's price per sample, price per cell, or price of entry to kind of the minimal size experiment. And we've been addressing those throughout the year, and our strategy overall, long-term strategy, is to drive these prices down over time. We do have strong conviction in elasticity. I mean, we have seen, we are seeing some volume growth, you know, already relative to, you know, despite average along with price decreases. We have seen based on sort of geographic price actions that we've taken in the past, we have seen that resulting in volume growth and over time over the course of a few quarters actually growing substantially enough to drive incremental substantial incremental top line revenue. We've also seen examples of customers who have adopted flex, which if you kind of adopted in a sufficient scale, flight chassis, you can drive down substantially your price per sample. And we have seen the dynamic with the customers that as they adopted to the greater and greater stem, their volumes increased and over time those volumes drove substantial expansion and top line revenue as well. It's not an unusual dynamic. It's actually quite common in the history of our industry and we expect it to play out here as well. And we now have

the empirical evidence to support that view.

Your next question comes from the line of Doug Schenkel with Wolf Research.

Doug, the line is now open.

Hey, good afternoon. So as many of you know, I'm a New England Patriots fan. They're a historically great franchise that's having a really, really bad season. I don't expect them to win, but I do want to see progress. I want to know things at bottom. and that they're on track to improving. In some ways, I see parallels to how I'm looking at 10X right now. So with that in mind, how do we know you're making progress and have the right plan in place and that you're not going to be mired in last place for years to come? What metrics can you share that can demonstrate you've learned from some of the mistakes, some of the things that you've miscalculated over the last several quarters? And really, what can you share that assures us that you're tracking to become a winning organization again? And specifically, what should we look for in the fourth quarter that would resemble a win? Because clearly, if you just meet guidance, that's not going to be good enough. What should we be looking for that actually suggests that you're on the verge of turning this around? Thank you.

Thanks, Doug.

So, I mean, first of all, as I mentioned in my call, I think in my remarks earlier in the call, you know, 2024 has been – Disappointing. And it is also the case that over the past couple of few years, while there has been progress and really exciting milestones that we have met and achieved, we have had our challenge. For sure. In particular, we identified several years ago that we needed to scale our organization to reflect the growing complexity of the products and our markets and our segments and our customer base. And the short story there is that the changes that we had tried to make over the course of the last couple of years has just not gone deep enough. Uh, it's clear we've learned from from those changes from the incremental adjustments we try to make, and it's the big driver, the big rationale for going through the commercial transformation right now. It's taking those goals that were identified early on and executing on them now in a comprehensive manner. We believe we're on the right track. You know I. The overall approach we take as a company is like once it's clear what decisions needs to get made, we move fast. And I appreciate again that we're going through a period of disruption and gain right now. I do have conviction we're in the right path. You can look to see that specifically in regions where the disruption has been released, we are actually performing relatively well, in some cases quite well. We're looking forward to continuing on these changes, and yes, it's going to take some amount of time for them to work through the system across the company, across all the regions, across all the product categories. As we look to Q4, we certainly do expect to see some improvements, but we have to be guarded in our assumptions at this point. We are still going through the, we still have a lot of open roles. We're still building up and filling out the commercial organization. And we're still in a very challenging macro environment. But I am confident that we're on the right path and we're going to start seeing sequential improvement.

Your next question comes from the line of 10 areas with Stifel. Ben, your line is now open.

and guys thanks serge maybe more on the commercial fixes going forward how much of what you need to do here relates to filling those open sales rows roles that you mentioned which is pretty straightforward versus implementing discrete changes in processes and just ways of going about things which is harder and then relatedly what in your mind represents sort of a line in the sand drop dead time point when it comes to your expectation for the company being fully on track, driving the level of visibility and the level of execution that you need to be successful here. Thanks. Yeah, yeah.

So you're right. Well, so first of all, a big part of what we need to do is fill in open roles. As we mentioned, we do have a lot of on the call. We have a lot of open roles on our Genium CapEx team. We have a lot of open roles in the Biopharma teams and other teams are also not fully staffed yet. So that is a big part of what needs to happen over the coming quarters. At the same time, you're right that there is also a big element of working, of training people and having people kind of grow into the new structure, new ways of working together, clarity around interactions between roles and getting used to the new processes. That is also a work in progress. I'm seeing lots of improvement on upfront, consistent improvement on pretty much weekly basis, but it does require adjustment in how people work, and so we have to be cautious in assuming sort of immediate changes here. And so when I kind of put these together, when I think about filling in open roles and having the new salespeople having the time to wrap up, which usually takes an order of a couple of quarters, after them coming on board, you should look at sort of the middle of next year as the time frame for all of these changes to be in place and for the organization to be really rocking.

Your next question comes from the line of Dan Brennan with TD Cohen. Dan, your line is now open.

Great. Thank you. Thanks for the questions. Maybe just on pricing and single cell, Serge, if you don't mind, there's a lot of different permeations of your products. So the thing we're trying to get a sense of is the investments that you made in price, you know, are they more niche or are they more expensive? So is it possible to zoom out and just give us a sense, if we look back, say, a year ago, what your, like, price per sample might be across, you know, like, all your volumes? Kind of where that stands today. Like, how much have you invested in price? And now where does that gap stand today? Do you think of your own price say versus where, you know, kind of the competition stands and do you need to further invest in price? And then finally, like with this investment in price, do you think like you're growing above market in line with market or just how do you think about your growth versus the broader single cell market growth? Thanks.

Yeah.

Yeah.

So, um, yeah, good question. Uh, unfortunately, you know, the answer is actually somewhat complicated. Uh, because there's lots of different types of experiments that our customers run. There's lots of different types of customers, and different things matter to them, right? And so that's why, you know, we talked a lot about price per sample, but there's other metrics as well, like price per cell, price per experiment, and price per sample in different contexts. We're cognizant of those sort of all those different dimensions. And as we've been saying for a while, the key to one of the keys, major keys to unlocking the single cell market is to drive down these price barriers over time, which is what we have been doing over the course of the past year. Certainly the introduction of the GMX architecture earlier in the year was one step in that direction. You know, was a 10% drop in per sample pricing there, but over 50% were 2X drop in per cell pricing. We further launched this quarter product, Gemma X-Flex, that really increases the scale of what's possible with single-cell, being able to run really, really large mega-scale experiments, and also now setting a new standard for price per cell, going down to one cell per cell. We're also in the process of launching our new product for one-shoot multiplexing for our universal assays. on GEM-X, 3-prime and 5-prime, also addressing, specifically addressing the per sample price, getting down to under $600 a sample relative to well above $1,000 for other assays. And so we're kind of making changes across a number of variables, and I think we're driving, we're in a good position now to address a lot of these bottlenecks. This is not the last of it. As we said before, over time, we do expect to drive down prices of these products further. As we've done here, we like to do it by launching new products and new configurations. And also, this will drive the expansion of the market, and that's our primary goal here. As far as market share is concerned, there has been Certainly a competition in single cell since the beginning of these segments. This has been a competitive segment, especially over the last couple of years. I would say there hasn't necessarily been a market change in the dynamic in the last quarter. There's maybe more aggressive presence in some of the new entrants going after our customers, putting pressure on price, creating some distractions, elongating sales cycles, adding some friction to the process. But fundamentally, We keep hearing from our customers that they really appreciate we have the best products, the best quality, the best workflow, the best breadth of applications, the best service. And so by and large, customers keep coming back to us for all those reasons. And of course, now with all these new products that we have been releasing, we're also setting new standards on price so that customers really don't need to compromise. Again, we always take competition seriously. We will continue to take it seriously, but we're very confident in our strategy to be able to both address competition and grow the market.

Your next question comes from the line of Mason Carrico with Stephens. Mason, your line is now open.

Hey. Thanks for taking the questions here. On the new chromium products and the pricing headwinds that are associated with them, could you just walk us through your expectations around customers converting over to these assays, how it will impact growth over the next several quarters? At what point do you think we largely lap these headwinds? And really, ultimately, is it possible we have another year of chromium revenue flat or declining, or is your baseline expectation that volumes next year offset that pricing headwind?

Yeah, I mean, good question. So clearly we're launching new products right now. And as with low prices, the pattern that we have seen with our products, with other products, is that usually it takes some of the time for the elasticity effects, for higher volumes to kick in. and uh and compensate for the decreases in price so over time and that time frame is typically three to four quarters you expect to see incremental growth and top line revenue from pricing changes because of elasticity but in the meantime uh you do uh expect to see some uh some pressure on the top line some amount of headwinds uh so that's kind of that's how we're thinking about it now again these are uh products that are meant to um kind of transition customers gradually at these new price points, but we do expect there to be some new returns.

Your next question comes from the line of Punit Soda with Learing Partners. Punit, your line is now open.

Yeah, hi, Serge. I'm wondering if you can, you know, size the sales force and give us an idea of how many positions are still open I mean, my question is, why wouldn't this take six to nine months from now for the Salesforce challenges to normalize? You have new people coming in, new relationships need to be built. Plus all the challenges that you pointed out with the end market and you have new products launching into the market as well. So could you elaborate a bit on that? And then my second part of my question is, you know, when you look at the Xenium installs, can you... clarify where they landed versus the 40 to 50 install expectation because you know clearly that's a new product in the market it's been gaining ground it's it's it's one of the leading products um clearly numbers papers are growing grants are growing so um just trying to understand what's holding that back is it just largely capital equipment um Salesforce that you mentioned, or is there anything fundamental that's happening with the spatial already at this trajectory, in the trajectory of this market at this point? Thank you.

Yeah, let me take this question first here. So, I mean, first of all, kind of zooming out, you know, we do, when you look at the indicators of demand, fundamentally, there's lots of interest from our current customers in doing more. When you talk to them, There's interest in doing more in the near term. There's new customers kind of being intrigued by this technology. And there's a lot of interest in kind of looking out to scaling up significantly for the future. The same sort of data you see in general surveys of customers in terms of expectations of growth. You also see funding signals that are quite strong, quite robust going forward. When you look at our kind of utilization, the instrument that we have haven't have been installing, but that is also been quite healthy, which is also an indicator of kind of down the line demand and food board wall for future installs as as our existing customers kind of you know, drive discoveries and publish their findings and develop the market. So you know, we also know that you know CapEx environment has been particularly challenged in recently. particularly on kind of higher priced items like Xenium. And as we've been saying, we're going through a major commercial transformation that in part is focused on precisely this issue is kind of creating the right focus and the right sales force to sell this kind of product. And between those two Two areas, yes, that has put quite a bit of pressure on our Xenium sales. This quarter certainly was a disappointment. Q3 was a disappointment in that regard. But again, I don't think, given those two factors, you really need to resort to any questions around the fundamentals of the demand here. We absolutely strongly believe in this franchise and its potential and absolutely still see this

potential to be the largest revolution in lifestyle tools since NGOs.

Your next question comes from the line of Rachel Vattensdal with JP Morgan. Rachel, your line is now open.

Great. Thank you. So, I wanted to dig into spatial assumptions and the performance this quarter. So, first off, can you give us placements for Xenium and Visium in 3Q? We're getting roughly 30 placements for Xenium. So, is that the right ballpark for what you guys did in 3Q? And then in terms of 4Q guidance, you mentioned in the prepared remarks that you're assuming spatial to be similar to what you saw in 3Q. You're not assuming standard seasonality in that 4Q timeframe, so how should we think about placements for Xenium and Visium next quarter? Are you expecting those to grow sequentially?

Rachel, it's Adam here. Yeah, I mean, I think you're about right as it relates to Q3 in terms of the Xenium placement center that you quoted there. And that is what we're anticipating for Q4. Again, absent, you know, in different macro environments, we would have anticipated a Q3 to Q4 bump from a CapEx perspective. That isn't what we've factored into the current guide. And then I think as Serge had just mentioned on the prior or, you know, one of the earlier questions, utilization perspective, you know, we're continuing to see really nice growth. And so from a consumables standpoint, you know, we anticipate the number will be pretty similar to where we were in Q3, which would be really nice growth over prior year.

Your next question comes from the line of Kyle Mixon with Canaccord Genesee. Kyle, your line is now open.

Thanks, guys. Serge, I think you mentioned it's going to take until mid-next year for the benefits of the commercial regularization to fully take shape. you know, how much like visibility or confidence do you have that there's going to be this like inflection point in the middle of next year? And with the CapEx and China headwinds potentially kind of abating by that time, is it fair to say you could kind of return to like revenue levels or growth rates that you're happy with by the second half of next year?

So, look, on the commercial side, I think it's fair to expect that there should be these timelines are pretty firm. We do have plans and we're rapidly filling in open RECs and given enough time to kind of do for people to to get used to working in the new environment. I think we we do feel optimistic about that time frame getting through it in terms of yeah, as we look to the second half of the year, that certainly is going to be a significant factor. As far as macro is concerned, I don't know that it would that one can say at this point that it's going to get better. So our baseline assumption is that macro situation is going to stay similar to what it has been so far.

Your next question comes from the line of Patrick Donnelly with CD. Patrick, your line is now open.

Hey, guys. Thanks for taking the questions. Serge, maybe just one on the expense side. I mean, you guys are talking a lot about, you know, filling a lot of open spots, you know, well into next year. And at the same time, you're talking about discipline spending and focusing on some level of profitability. Can you just talk about, I guess, the balance between those two, you know, where some costs are coming down, what some of the hiring is going up, or is that just kind of replacing? And then the second one is just on the competitive landscape. You know, it seems to be coming up a little bit more tonight. Can you just talk about what you're seeing there? Is it, some of the homebrew stuff we've seen some papers on over the past couple months? Is it other players, bigger players that maybe acquired smaller assets? It would be helpful just to talk through what you're seeing on the competitive side. Thank you, guys.

Yeah, so on the cost side, I would emphasize, yes, as we're going through this commercial change, we do have a lot of open roles, and we're adding headcount in those areas. But at the same time, the new structure is meant to be substantially more efficient than what we had before, where we had role redundancies and overlays and overlaps. And so while there is a modest investment that we're making in terms of, you know, kind of increasing test counts, I actually expect it to be materially more efficient and set us up really well to grow efficiently and gain a lot of leverage. which again in the context of our strong balance sheet and the focus on cash management should set us up really well into next year and beyond. As far as competition is concerned, the dynamic again hasn't changed on a spatial side, I would say, in the last quarter. We've been doing well in winning based on the performance of our products. It's been like a system team this year. No issues. I don't think there's been a change in the dynamic this past quarter. On the single sale side, again, there's been more players and arguably acting more aggressively out there. And I'd say for the most part, it's really just kind of the smaller companies that have been doing that.

And I don't think the overall dynamic has really changed much either way.

Your next question comes from the line of Michael Riskin with Bank of America. Michael, your line is now open.

Hey, guys. Thanks for squeezing me in. I want to follow up on an earlier point talking about spatial and just some of the trends you're seeing there. And I want to drill in on the consumable side of things. I think you touched on this in some of the earlier questions. But, frankly, I just want to make sure my math squares out. So if I'm looking at our model and I'm looking at consumables revenue for spatials overall, you know, I've got you at 26 and change million in one queue. 29 and two q and you know 29 and a half and three q's so i know you've had a number of product rollouts uh both on the visium side and on the xenium side but if i look at your install base now it's 50 higher now for xenium instruments than it was at the end of last year so to your comment on utilization and just sort of you know demand for the instruments i can see how xenium demand could be lower because of the macro you'd still think that the consumables would have ramped up just because the install base is higher So is that a matter of timing, people drawing down inventories, maybe reordering trends, anything you can talk about? And just where I want to lead with this question is, where do you think that spatial consumables could grow next year going forward? Just looking at the trends over the last couple quarters, it's flatlined a little bit more than we would have thought. Thanks.

Yes, I think it's probably important to kind of tease apart sequential kind of dynamics versus year-over-year comparison. You know, when I think about sequential, there's been kind of a number of moving pieces because of the new product launches in particular, and kind of the BOLUS, for example, Visium HD customers that are coming in initially and getting them and kind of getting through the BOLUS. Similar sort of dynamics on Genium 5K when you have an initial customer interest, and there's always some amount of pent-up demand in the early quarters, which kind of smooths this out. subsequent, which is why we kind of pointed to nice progress on reward rates and kind of those dynamics on the ZMHD now coming into play. On the Xenium side, we're seeing kind of some of the underlying data coming through on the utilization through telemetry data we're getting that looks encouraging and is showing consistent growth. So yeah, the underlying dynamics are encouraging uh but they do get somewhat to mask sometimes by these kind of broader conscious and uh and and sequential dynamics i would also point to that uh the consumables you know across the entire product line were kind of effect were affected in q3 by the same sort of commercial transformation headwinds that we saw across the board and so you have to also take that into account and that's why you kind of want to go back and also look at year-over-year comparison and there you do have uh very encouraging

Your next question comes from the line of Subbu Nambi with Guggenheim Securities. Subbu, your line is now open.

Hey, guys. Thank you for my question. And how...

Not sure if it's you or us, but you're not coming through clearly.

Can you hear me now?

Yes.

Guys, what are the applications where you believe the cost of single-cell sample prep is the biggest gating item to driving volume growth? And how would you characterize your ability to drive elasticity, given that sample prep is only one component of the cost equation for users?

Yeah, I mean, good question. So in terms of why pricing the barriers, so first of all, there has been a theme with our customers since almost the beginning of single-cell. And that theme has been growing more and more as you talk to customers, as you look at existing customers, you look at what prevents them from using more when you go do surveys of potential customers that are looking to adopt single-cell the number one theme and it just comes up over and over and over again is price. It is also kind of when you look at how customers actually make decisions as to how much to allocate the single cell experiments versus others, the decision, like the marginal decision is really about price. In some sense, it's the inside per dollar, right? And we see this again and again, again, whether it's applying for grants or designing an experiment, customers have to think hard about whether to allocate the next marginal dollar to single-cell or not. In many cases, they have a strong preference to running single-cell routinely on all their samples, but they end up compromising substantially, allocating it only to a small fraction of their samples, a small fraction of their budget, because of price. So lots and lots of evidence from customer behavior and customer feedback that price is a big issue. We've also now seen examples where in the past, in a geographically targeted way or with specific customers, where we have had experience of reducing prices and then seeing volumes pick up on the timeline roughly as you would expect based on general experience in our space, how long it takes for people to design experiments and maybe get additional grants. to do more, and we have seen consistently this experience without the three or four quarters, the volume more than overtakes the headwinds in price and creates a lot more demand and a lot more revenue. Now, as far as the other part of the workload being only a part of the overall cost equation, that is true. The way the dynamic has worked over the past several years is that sequencing prices have been coming down, been coming down a lot, especially recently. And at this stage, it's really the price of our part of the workload that largely determines the cost of the experiment.

And that creates the opportunity for us, particularly in this moment of time, to really drive into real estate.

Your next question comes from the line of Matt Lauru with William Blair.

Matt, your line is now open.

Good afternoon. You mentioned that single cell volumes grew in the quarter and chromium consumables have been up sequentially in the last two quarters. Could you maybe frame for us what single cell volume growth was in the quarter, what it looked like year to date, and perhaps how it compares to where you were at a year ago, and then maybe those numbers within the context of market growth? In other words, is your volume growth starting to return to market growth?

Well, so as far as volume growth is concerned, this is we're currently here to reaction kind of reaction metrics, which we share on an annual basis, and we'll share that kind of when we are doing our Q4 call. Another sort of kind of indicator to maybe keep in mind is that You can look at the volume growth in terms of reactions. You can also look at volume growth in terms of the numbers of cells that are analyzed. And on that account, because of the new product that we've been launching that can accommodate higher and higher throughput, the actual growth in cell number has been really robust and significant as well. So again, indicating directionally at least overall growth in the market and

particularly robust growth when it comes to, you know, the fundamental unit of sort of analyzing biology.

Our last question comes from the line of Matt Sykes with Goldman Sachs. Matt, your line is now open.

Hi. Thanks for taking my questions. I just want to go back to the commercial changes, just given the impact that you saw in this quarter. You've outlined your timing for the new hires and when they could potentially ramp their productivity. But just on the existing sales force who also saw very significant changes in their territories and accounts, I guess just two quick questions. One, are you confident that they've bought into these new changes from a morale and motivation standpoint? And two, how should we think about those existing sales folks re-ramping their productivity given all the changes they've experienced? Do you think it will coincide with the potential timeline for new hires or could they adapt more quickly?

um over the next maybe two to three quarters versus sort of six to nine good outline for new new hires thanks yeah so um i mean a couple things uh first of all like we do have a lot of really really talented people on the team and in fact uh we you know a lot of the changes that we've been making is specifically to help them unlock their full potential right to give them a clear focus clear direction so it can really, really perform in this new, much cleaner, much simpler structure. And I'm personally excited about it. I think a lot of people on the team are really excited about it. And we see there's a lot of positive momentum on the team. It has been a tough, tough transition, and I do recognize it. And a lot of them, I really, really appreciate strongly how how much they have worked their way through the transition, oftentimes driving sales when they might not be comfortable, and to the same extent that they would have been in the past, that we're making sure that the customer is really, really served well, despite not knowing precisely how the new structure is going to settle in. you know going forward uh you know different people are going to be adopting and different parts of organization on different time frames um i do think some people are you know already are on a really really kind of good trajectory and operating really well other people will take a bit a bit longer to adopt uh but ultimately the bottom line is that yes i've expected by by the middle of next year uh the whole team will be in a really good shape and uh working really well together executing driving

Ladies and gentlemen that concludes today's call. Thank you all for joining. You may now disconnect.