10x Genomics, Inc. Q3 FY2024 earnings call

• Commercial Reorganization: Implemented major sales restructuring with disruptions, re-architected commercial infrastructure, filled open roles, and improved focus.
• Chromium Portfolio: Launched GEM-X Flex (cost per cell <$0.01), GEM-X Universal Multiplex (approx $560 per sample), Chromium Xo (most affordable single cell instrument at $25,000), and advancements in protocols, workflows, and software.
• Spatial Platforms: Visium HD reorder trends positive, Visium CytAssist adoption solid, Xenium 5K adoption continuous with sequential growth in runs.

Total revenue for the third quarter was $151.7 million, down 1% year-over-year. Consumables revenue totaled $126.2 million, up 10%. Chromium consumables revenue was $96.5 million, down 4% YoY due to lower average prices but increased volumes. Spatial consumables revenue was $29.7 million, up 111% driven by demand for Visium HD and Xenium 5K. Instrument revenue decreased 45% to $19.1 million, with Chromium instruments at $7.6 million (down 38%) and Spatial instruments at $11.4 million (down 50%). Services revenue was $6.4 million, up 48%. Geographically, Americas decreased 11%, EMEA grew 18%, and APAC increased 15%.

Full-year revenue is expected in the range of $595 million to $605 million, representing a 3% decline from the prior year. Q4 guidance reflects half macro headwinds and half impact from commercial reorganization, with no typical Q4 seasonality. Focus on maintaining balance sheet and disciplined spend in 2025 planning.

Material risks and uncertainties from forward-looking statements, including macro environment, customer spending, and commercial reorganization execution.

Q: 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, EMEA and APAC held up a lot better for you in the quarter relative to the Americas. And you highlighted the bulk of the commercial restructuring was focused on the Americas. So, that makes me feel that it's mainly the commercial re-org that was the driver of the $50 million versus incremental macro deterioration 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 GEM-X Flex and Universal Multiplex having comparable gross margins, so just trying to put all of that together in terms of gross margin and free cash flow dynamics. Thank you.

A: Sure. Tejas, thanks for the question, let me take a stab at it. So, on the Q4 guide, a couple things to consider in way we're sort of thinking about 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. So, the commercial one, and I think we talked about and Serge got into in the scrip, what I would mention around the macro is we'd 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 EBIT-muted, perhaps, in prior years, but we're still expecting some of that. And I think as you can see from what we've guided here for 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 end up with about half of that guide down coming from the macro. And then on the internal side from a commercial re-org, we still have a significant number of open requisitions, filling those roles with topnotch talent, but that certainly continues to be an impact for us 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, 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 hand, expand the market to the market opportunity, we're able to do that actually at comparable gross margin to the existing base consumables business. The last thing, just the second part or related part of your question around cash flow-positive, yes, we've talked about that in Q3. I did mention just now here on the call, from a working capital perspective, we expect that to [up] (ph) a bit. But as we noted in Q1, we had a roughly $20 million payment that we made that was sort of an unusual payment related to an asset acquisition. And so absent that, 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.

Q: Hey, guys. Thanks for the time here. I'm going to start with instrument. You said a couple weeks ago that Xenium and Visium 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 Xenium promotion and Chromium Xo and GEM-X. Just can you get us more comfortable that the elasticity is actually there, and that the funding for larger projects is materializing? Thank you.

A: Yes, thanks, Tycho. So maybe on, first of all, the Xenium and Visium dynamic, so wanted to clarify, we have said before the Xenium instruments, in particular, got affected by the macro environment more so in an outsized way relative to the rest of our product portfolio. But once you take that out of the equation, all the products were similar relative to our expectations. And as we've been saying all along, Xenium has been affected, particular acutely by sort of the macro headwinds and the funding pressures of customers because this is sort of the big price instrument, and such. As far pricing action, so there's elements to this. You mentioned promotions. Yes, we've been running on some of our products, on Xenium instruments. There is 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 pricing, and especially that applies to on the single cell side, as we've been saying for a while, we believe there is tremendous potential in single cell to grow. And a big barrier to further growth is its price. And its price, it can be a barrier along multiple dimensions, whether it's price per sample, price per cell or price metric to 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 already relative to despite average -- along with price decreases. We have seen based on 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 slight incremental -- substantial incremental top line revenue. We've also seen examples of customers who have adopted Flex, which if you adopt it in a -- at sufficient scale, Flex Assay, you can drive down substantially your price per sample. And we have seen the dynamic with the customers, that as they adopt it due to the greater extent their volumes increase. 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.