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Hello, everyone, and welcome to the 10x Genomics’ First Quarter 2023 Earnings Conference Call. My name is Bruno, and I will be the operator of today. I will now hand over to your host, Cassie Corneau. Cassie, please go ahead.

Thank you, and good afternoon, everyone. Earlier today, 10x Genomics released financial results for the first quarter ended March 31, 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 e-mail to [email protected]. 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. So 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 risks 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 Saxonov, our CEO and Co-Founder; and Justin McAnear, 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 first quarter performance across our leading portfolio of single cell and spatial technologies. Next, I will discuss our progress, momentum and the exciting opportunities we have ahead in each of our three platforms. And I’ll share why based on early yet overwhelmingly positive feedback we hear from our customers, we firmly believe Xenium is the best system for in situ analysis. Then I’ll turn the call over to Justin for a more detailed look at our financials, business trends and outlook for the rest of the year. 2023 is off to a solid start with first quarter revenue growing 17% year-over-year to $134 million. These results reflect the momentum we’re seeing across our spatial portfolio fueled by the recent launches in both Visium and Xenium and the strength in Chromium consumables. Regionally, the Americas and EMEA teams saw improvement after a slowdown in the prior year period, while APAC came in to lower our expectations. As we look to the year ahead, it’s all about execution and impact. We are coming off the biggest and the most exciting year of product launches in our history, and our team is fully focused on driving adoption and ensuring our customer success. We’re continuing to push our innovation engine with new capabilities in all three platforms, and we are working to improve scale, efficiency and operational excellence throughout the company. All this so we can maximize and deliver on the incredible opportunity we have ahead. Now let me share more about each platform, starting with Chromium, the unambiguous leader in single cell analysis. In Q1, Chromium consumables continued their solid trajectory and returned to double-digit growth. This was driven by strong performance in the Americas and EMEA as nearly every assay in our entire broad single-cell portfolio grew year-over-year in both regions. The performance, ease of use and tremendous scalability of our consumables portfolio across a wide range of applications and analytes is an important differentiator for 10x that creates real value for our customers and their research. This quarter, in particular, we continue to see increasing traction and customer enthusiasm for Chromium Flex, the new gold standard for single-cell gene expression. With its robust fixation, superior performance, built-in multiplexing, cost advantages and broad sample compatibility, we believe Flex will be transformative to the Chromium platform over the long-term. It’s very early in this launch. Yes, it’s clear that momentum is building. We’re hearing multiple examples of customers, who achieved amazing results in their initial evaluation and are now planning larger studies that leverage the assay’s built-in multiplexing to run more samples at lower per sample costs. One customer shared how Flex, the first and only single cell assay to work with archival FFPE samples, revealed new signatures in bladder cancer blocks, some 15 years old that are eye opening to pathologists. The palpable enthusiasm we’re seeing reinforces our belief that Flex has the potential to become our new flagship assay for single cell gene expression. It’s drawing more researchers into the 10x ecosystem as new customers increasingly choose Flex as their first 10x assay of choice. And just like we’ve always done, we’re continuing to invest to broaden the menu of applications available in the Flex portfolio to enable more samples, more scale and more analytes. Later this year, we expect to expand our feature barcode application to Flex to simultaneously profile gene expression and cell surface proteins on a cell-by-cell basis across multiplex samples and millions of cells. We believe the additional plug and play multi-omics capabilities on Flex will open up more opportunities within disease research and translational settings. Flex is exclusively available on Chromium X Series instruments, and as such, we expect placements to accelerate as more customers appreciate the power and performance of this assay. The Chromium X Series is by far the most powerful tool available for single cell analysis, and we believe there’s a long runway ahead with both new and existing customers. All together, this is why I firmly believe despite all the progress we’ve made single cell is still just getting started. Now, turning to Spatial, where both our Visium and Xenium platforms exceeded our expectations during Q1. We launched Visium only a few years ago, and since then, Visium has emerged as the clear leader in NGS-based spatial technology, used in thousands of labs and having generated the largest number of public datasets by far. Last year’s launches of CytAssist and FFPE v2 have further accelerated adoption of the Visium platform. These new products helped solve the key challenges our customers had historically faced with the Visium workflow. CytAssist also opens up more samples and more sample types for Visium research, providing customers with a better experience and better data. This quarter, we launched protocols for both fresh frozen and fixed samples, now enabling all major sample types to run on CytAssist. Demand for CytAssist remained solid in Q1. It’s been particularly exciting to see these placements drive increased Visium utilization. CytAssist-based consumables became the preferred method in Q1, surpassing our instrument-free assays, a trajectory we expect to continue. And it’s not just our existing power users who are adopting CytAssist. This instrument is bringing new labs into the 10x ecosystem: A large fraction of our placements in Q1 went to labs that were either new to the Visium platform or new to 10x entirely a promising indicator of potential future growth. These trends demonstrate why we’re confident CytAssist is the future of the Visium platform. We’re continuing to invest and innovate in the Visium franchise, developing new capabilities that will be exclusively available on CytAssist. This quarter, we plan to launch Visium Gene + Protein Expression, empowering researchers with three analytes in one, high-plex protein, whole transcriptome RNA and H&E staining all on the same tissue section. This will be the first and only assay of its kind to offer a morphology-first workflow, preserving pristine H&E staining patterns conducted upfront. Linking an information-rich image with its complementary molecular analytes on the same tissue section enables researchers to both cross-validate their findings and obtain a new level of understanding. Now, turning to Xenium, which we believe is the best performing platform for In Situ analysis. It’s exciting to see the incredible momentum and traction we’ve built since we first started shipping Xenium in December, and we couldn’t be more pleased with the initial feedback we’re hearing from our customers. We set out to build Xenium so it just works in the hands of researchers the same as our other products. To have our customers tell us this and show us through their routine use is a testament to the strength of our innovation engine and the talent and dedication of our team. Our customers have not only praised Xenium’s performance and ease of use, but also their entire experience engaging with the platform. They’ve given rave reviews to our field teams for their support during installation and training, which shows the real impact of the Commercial breadth, depth and scale we’ve built over the years. It is awesome to have the key design specs we intended and marketed for launch, now developed, delivered and in regular use in the field. Researchers are seeing that it’s a system’s on-market features not on-paper futures that deliver real value and lead to exciting new discoveries. To see our initial customers generate powerful results and stunning images on Xenium, run after run has been deeply rewarding and motivating for our team. In fact, since the end of January, our customers have completed dozens of successful Xenium runs with their own precious samples, ranging from mouse brain to more complex human samples, across various tissues including breast, kidney, skin, lung and various sample types, including Fresh Frozen, FFPE and tissue microarrays. The feedback they’ve shared after independently completing the entire workflow from sample prep to data analysis validates Xenium’s differentiation and performance advantages across a number of fronts. To start, thanks to unique features inherent in our chemistry, Xenium delivers excellent sensitivity and specificity, which are the necessary foundations of any high-quality, trustworthy In Situ system. We compared information in a competitor’s marketing materials to our own data sets and found Xenium is currently up to six times more sensitive. Xenium also delivers much higher specificity, giving customers confidence that each transcript detected is the intended one and that there’s no false or phantom genes or cells in their samples. In another comparison using a competitor’s marketing data, we found Xenium delivers up to 42 times better specificity than the other platform, where 6% to 25% of the transcripts in each cell can be misleading. Beyond performance, Xenium’s ease of use, efficient workflow, and best-in-class throughput are also resonating very well with our early customers. Researchers can use our entire slide area, enabling maximum flexibility to run single large sections, multiple smaller sections or even tissue microarrays. With Xenium, researchers can analyze the most tissue area, in the least amount of time, using the fewest number of slides. In addition, our gene panel strategy – designed to help customers answer their specific research questions is also resonating well. Our approach combines a growing menu of targeted gene panels, optimized by tissue type, with the flexibility to add in large numbers of custom genes. This quarter, we will continue to expand our content menu with the planned launch of new tissue-specific panels and a multi-tissue panel optimized for cancer research. 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, we recently launched a fully custom gene panel for maximum flexibility. Our unique combination of predesigned and fully custom panels is increasingly validated in the field, giving researchers the ability to measure the genes they need at high performance and high throughput. This all comes together with our differentiated approach to software and data analysis, which is the best demonstration of the caliber and performance of an In Situ platform and essential to ensuring a positive customer experience and to enabling routine use. Everyone in the field has talked about how challenging it can be for researchers to handle the large amounts of data produced by In Situ instruments. However, challenges like these play exactly to one of our key strengths. We have invested and built world-class software and data analysis expertise since the earliest days of the company, in contrast to others who outsource this critical function. We have brought our team’s proven software prowess to Xenium, and the result is yet another area where the 10x approach is a big differentiator that’s making a big impact with our customers. Xenium is the only platform to feature comprehensive primary and secondary onboard analysis in parallel with the instrument run, including cell segmentation and clustering results. This enables researchers to directly access their data on the Xenium instrument immediately after the run is done, without the need for onerous post-instrument analysis or massive uploads, downloads or data transfers. Customers who want more off-instrument interpretation can easily do so using Xenium Explorer or a wide variety of open source tools. We’re confident that our differentiated approach is flexible, fast and significantly reduces the computational burden on customers. We’ve built Xenium to be the best performing In Situ platform, both now and for the future. Xenium is backed by an ambitious and exciting multi-year roadmap. We’ve already demonstrated a number of these future capabilities, including the ability to scale to many thousands of genes. In addition, Xenium’s chemistry uniquely enables isoform mapping and SNV detection, real game-changers that simply aren’t possible on other platforms. The real-world feedback we’ve received from our early Xenium users is giving us better insights faster and helping us to prioritize our roadmap so we can deliver researchers precisely what they want. Overall, we feel really good about our early progress and momentum. There’s tremendous potential ahead with Xenium, and we’re bringing the whole-of-company effort to capture it. We’ve already made significant improvements in our installation and training times, and we are increasingly confident in our scaling as we move through the year. The kinds of projects our customers are already running indicate that Xenium may be one of the – if not the most transformative technologies in our industry in decades. We believe our platforms, each on their own, are by far the best in class in their respective fields. Each provides a different lens on biology and can be used together to provide even more value and reveal the deepest biological insights. Our progress across each of our platforms continues to reinforce my conviction that one day just about all tissue samples, whether for research, clinical or therapeutic applications will need to be analyzed at single cell resolution, large scale and in the right context. We firmly believe our technologies are critical to accelerating the mastery of biology and advancing human health. With that, let me turn it over to Justin for more detail on our financials.

Thank you, Serge. I’ll start by reviewing our financial results for the three months ended March 31, 2023, and will then provide an update on our outlook for 2023. Total revenue for the quarter was $134.3 million compared to $114.5 million for the prior year period, representing a 17% increase year-over-year. Given the differences in regional dynamics this quarter, I am going to start with our revenue by geography. Americas’ revenue of $78.8 million grew 32% over the prior year period. EMEA revenue of $28.4 million grew 38% over the prior year period. And revenue in APAC was $27.1 million, a 21% decrease year-over-year. As discussed on our last call, we saw an impact to sales in China at the beginning of the quarter. While we believe activity levels are recovering, there is typically a lag in reorders after such disruptions, as distributors and service providers work through existing inventory. We also instituted price increases at the beginning of Q1, and customers typically buy ahead of such increases, particularly service providers, and we believe this also contributed to a larger inventory position in Q1 that customers are continuing to work through. As we shared at our Investor Day last December, starting this quarter, we will be providing a breakout of consumable and instrument revenue by Chromium and Spatial. Starting with consumables, total consumables revenue was $112.4 million, an increase of 15% over the prior year period. Chromium consumable revenue was $101.1 million, up 11% year-over-year and Spatial consumable revenue was $11.3 million, up 69% year-over-year. Turning to instruments, total instrument revenue was $19.2 million, an increase of 33% over the prior year period. Chromium instrument revenue was $11.6 million, down 19% year-over-year and Spatial instrument revenue was $7.6 million. As a reminder, our CytAssist and Xenium instruments launched in Q2 and Q4 of last year, respectively, and we did not have material spatial instrument revenue in Q1 of last year. Finally, services revenue was $2.7 million, which increased 29% over the prior year period. Turning to the rest of the income statement. Gross profit for the first quarter of 2023 was $98.4 million compared to a gross profit of $89 million for the prior year period. Gross margin for the first quarter was 73% compared to 78% for the first quarter of 2022. The gross margin decrease was driven primarily by the impact of shifting product mix due to newly introduced products and inventory write downs. Total operating expenses for the first quarter of 2023 were $150.4 million compared to $130.8 million for the first quarter last year. R&D expenses were $67.1 million compared to $64.1 million for the first quarter of 2022. SG&A expenses were $83.3 million compared to $66.7 million for the first quarter of 2022. The increase in R&D and SG&A expenses during the quarter were primarily due to increased personnel related costs and operational expansion. Operating loss for the first quarter of 2023 was $52 million compared to a loss of $41.7 million for the first quarter of 2022. This includes $42.1 million of stock-based compensation compared to $26 million for the corresponding prior year period. Net loss for the period was $50.7 million compared to a net loss of $42.4 million for the first quarter of 2022. We ended the quarter with $418 million in cash and cash equivalents and marketable securities, net of restricted cash. Turning to our outlook for 2023, we are raising our guidance and now expect full year revenue to be in the range of $590 million to $610 million, representing growth of 14% to 18% over full year 2022. Our updated guidance reflects our first quarter performance as well as Xenium momentum based upon the overwhelmingly positive feedback we are seeing from early customers along with better visibility into our operational ramp. With increased Xenium momentum, we expect overall company gross margin to trend lower as more instruments are sold. Xenium consumables have a gross margin comparable to our existing products, however, the Xenium instrument currently carries a significantly lower margin than our other instruments. As we continue to scale our manufacturing capacity to produce more units, the cost per instrument will decline. There are also opportunities for component cost reduction, which we have not yet undertaken, that will improve instrument margin over time. Our goal with Xenium was to make the best-in-class instrument. To do that, we used a number of high end components, prioritizing performance and time to market over cost. This is a strategic investment we are making given the potential utilization for the instrument, where, over time, annual consumable revenue streams could be significant. We believe these are wise near-term investments to make and it does not impact our view of our long-term financial profile. We have now substantially completed and moved into our new operations facility in Pleasanton, a key enabler of increasing Xenium production. The timing of capital expenditures has shifted and we expect to see final payments transact in Q2 and Q3, and in the next 12 months we expect $60 million to $70 million of total capital expenditures, with the majority incurred over the next two quarters. We still expect a significant reduction in capital expenditures in the back half of this year and continue to drive towards becoming free cash flow positive. We will maintain a disciplined and targeted approach to OpEx spend throughout the year, however, we expect some increases over 2022 due to increased stock-based compensation expense as a result of previous equity grants, additional headcount to support new products and increased litigation expenses as we continue to defend our intellectual property. Our strong cash position gives us the flexibility to invest in support of our strategic priorities, while still protecting our balance sheet. At this point, I’ll turn it back to Serge

Thanks, Justin. Before we open it up for Q&A, I want to take a moment to thank our team, who work tirelessly to ensure our customers’ success. It is their relentless focus on our mission that sets 10x apart. Our products are powerful, helping to drive fundamental advances in our understanding of health and disease. We just achieved an exciting milestone, as our products have now been cited in more than 5,000 peer-reviewed papers, enabling discoveries across a wide range of application areas. Underscoring that achievement, a recent article in The Economist and a December paper in Nature Medicine both highlighted the tremendous progress made by the Human Cell Atlas over the past five years, the incredible breakthroughs enabled by our technologies and the potential impact on the future of medicine. It’s more clear than ever that it’s still early days. We believe there are massive opportunities ahead, and we are in a very strong position to capture them. I couldn’t be more optimistic and confident about the future. Thanks again to our team for all you’re doing every day to push 10x, our mission and science forward. With that, we will now open it up for questions. Operator?

Thank you. Our first question comes from Dan Arias from Stifel. Dan, your line is now open. Please go ahead.

Hey guys. Thanks for questions here. Justin on spatial instrumentation and the $7.6 million revenue, can you help us with the split between Xenium and CytAssist and then on Xenium for the year? How do manufacturing constraints figure into the equation and how we should think about just the placement cadence for the year? Should we expect that to be a pretty even step up over the quarters or do you think there’s some back end loading there for the model?

Hey, Dan. Thanks for the question. As far as the split in our Spatial revenues for Xenium and CytAssist, we don’t split that out. But it was a solid quarter for CytAssist and for Xenium as well. We’re quite happy with the results for both. As far as our manufacturing constraints, we continue to make progress operationally. We’ve got more visibility into the operational ramp than we do before. And so we are continuing to feel more bullish as the year continues, as far as us having the operational capability to place instruments at the pace that we’d like to place them according to prioritizing customer success as part of the rollout.

Okay. And then maybe just on chromium growth, Serge, if you had to take apart the drivers there and think about what’s working for you this year, how would you rate the importance of the moving parts there when it just comes to availability of new products versus overall selling and operating environment versus improvement on the commercial side? And then just to translate that to the guy that you have, Justin, is low to mid-teens for chromium still the forecast for the year, or has that evolved? Thanks.

Hey, Dan. Yes, so I think on the chromium side globally, the conditions that certainly change globally macro wise, so I would put that as probably the sort of the strongest factor especially since there’s a still a pretty big difference geographically if you look at the results. Pretty substantial growth we saw in EMEA and AMR and really across all product lines. So that does suggest that there is just general underlying strong momentum behind the franchise. We did – if you think about the product lines, the sort of the big underlying story underneath is flex, the progress of that. It’s still quite early, and that’s a relatively moderate contributor to the overall chromium franchise. So I wouldn’t put it up as sort of a primary driver. It’s not yet at that scale. So that’s how I would look at it. But that said, it’s certainly as it’s increasing, it will become one over time as special as we think about kind of new applications, new customer adoption, kind of driving into more translational use cases. The trajectory is right. I’m just still quite early in our cycle.

Hey, Dan, this is Justin. For the second part of your question in regards to Chromium and the guide, when we introduce guidance on the last call, we gave a starting point for the growth by Chromium and by Spatial. I don’t expect that we’re going to update those percentages on each earning’s call going forward. But in looking at the changes to our guidance range on this call, we’re taking the range up by $10 million on both the lower end and the higher end. And that represents the beat that we had in Q1 including a more bullish view on Spatial specifically Xenium. As far as talking about some of the drivers of Chromium like Serge mentioned, Chromium was strong in AMR and EMEA. We had overall weakness in APAC, but the growth rates in AMR and EMEA were in the 20%. And so when we’re looking at our outlook for the rest of the year, we’re offsetting that against the weakness that we saw in China in Q1 and that we expect to continue on into Q2.

Okay. Thanks guys.

Our next question comes from Dan Brennan from Cowen. Dan, your line is now open. Please go ahead.

Great, thanks. Thanks for the question guys. Maybe just on China, I know you started off and you gave a lot of color in the prepared remarks. Maybe could you just walk through a little bit, kind of how we should think about the progression throughout the year? Any color on how the quarter ended, how second quarter started off, and just yes, just kind of your original expectations, kind of what’s now included for China?

Sure Dan. This is Justin. I’ll take that to start. Maybe I’ll just start overall with APAC. APAC overall was down 20% year-over-year, and that was driven by China, which was down about 36% year-over-year. And our business model in APAC as a whole and is different than an AMR and EMEA where we primarily sell through distributors. And in China, the distributors and customer is the service providers. And so there’s two levels of sales there. And so inventory, the service providers, as we mentioned last quarter that was higher because of the lockdowns, but that was exacerbated by pull forward from the price increase that we implemented at the beginning of the year. And so service providers and distributors in particular do tend to have a larger pull forward in advance of price increases just due to the concentration and the throughput of the overall product they sell. So from what we can tell the inventory levels are still high at the service providers and distributors. We expect to see a Q2 that is roughly similar to Q1 and then we expect to see some recovery in the back half of the year.

Got it. Okay. and then maybe just on Xenium, any early, Serge, appreciate the prepared remarks that you have a lot of color on the competitive dynamics or the competitive profile, if you will, sensitivity specificity and other metrics. So kind of what are you seeing early on in Xenium launch? Obviously Nanostring has the big backlog and they had the early access program, so they’ve had a year lead, like any color on win rates. And as you look at the opportunity set, like what have you learned thus far from the launch? Sounds like you’re bumping up your guidance on the Spatial side, but any color, maybe just in terms of the opportunity, if you think of the next few years for Xenium from what you’re seeing so far early in the field?

Yes, Dan, so our view of the opportunity has always been bullish, right? Overall in future opportunity and now with specifically with this Xenium launch. So always the long-term potential here is massive, and that has not changed. If anything, kind of our experience with our customers, the speed with which they’re eager to adopt these platforms and run their samples is only reinforcing that conviction. We are, I mean, you are right that others have been kind of talking about their products for quite a bit longer there. But when I look at the trajectory of the market right now, our placements and how rapidly our customers are getting up and running the systems, how many samples are running through these systems and the fabular systems that are just built to have high throughput to enable this the very, very large utilization. The trajectory is very clearly is on our side. So feeling really good where we are right now just based on the early on these early learnings and our initial experience with the customers. And it is very much again, leaning into the strength specifically we’ve developed here and for the platform itself really driving usage going forward. And so yes, so we’re feeling good, doesn’t make trajectory in the moment and also the tremendous potential as we look over the coming years.

Our next question comes from Tejas Savant from Morgan Stanley. Tejas, your line now open. Please go ahead.

Hi, guys. Good evening. So, Serge, maybe I’ll start with Xenium, some of the seems Dan – and Dan have hit upon over here. So just to kick things off, I mean, you sort of thrown down the gauntlet on the relative specs versus the competition. Do you expect to publish those data sets at some point? Or are any customers running similar head-to-head experiments that we can hope to see here? And would you share a little bit of color on – I know you don’t like to quantify the backlog, but just from a qualitative sense, have orders increased month-over-month through May? And did they outpace shipments in the first quarter, i.e., did your backlog grow versus where it was at the start?

So in terms of comparisons, Tejas to your first question, as I talked about in my prepared remarks, we actually went and kind of give the benefit of doubts to others and look through the marketing materials and kind of compare that performance against what we’re seeing with Xenium. We actually – if you go through our website, you could also see those comparisons on those numbers. The challenge over time in these cases is that while our systems are being run at a very rapid clip to others, maybe not so much. And so yes, we do expect there’s going to be head-to-head and there’s going to be comparisons. But like I said, we’re feeling really good at where we currently are and the feedback we’re getting from our customers. And as far as the question of bookings and backlog we don’t comment on bookings. We do feel good about our momentum. Our sales team is fired up with all the releases we have had with the launch of the Catalyst program, with the success our initial customers are having, really a lot of momentum in the field. Right now, a lot more content that’s coming. And so our sales team is fired up and we feel good about the trajectory of this interest from customers.

Got it. That’s helpful. And then a quick follow-up on Chromium and then just to clean up for you, Justin. So on the Chromium, Serge, you’ve talked about sort of the possibility of flex cannibalization on the portfolio here. Is it playing out as you anticipated? Or are you actually seeing that sample elasticity come through a little bit quicker? I know you mentioned some large sample projects here that you were looking at. And then Justin for you, you laid out a few sort of moving parts on the free cash flow line, but maybe I didn’t catch this. Did you give a timeline around when you expect to be free cash flow breakeven? Is it potentially now a 2024 event? Or do you still expect to get there by year-end? Thank you.

Yes. So Tejas, let me start with the Flex question. Now just to emphasize again what I said earlier, Flex is quite early in a cycle right now. Most people who have bought Flex and are still buying Flex, the customers are buying still the single Flex version of it, meaning to kind of to test it, to adopt it because a lot of customers have been running through pilots. More and more customers are coming out of the sort of the pilot phase and scaling up. And those customers are scaling up consistently into the multiplex version of these kits. But there’s still a relatively small number relative to our overall Chromium franchise. And so that is to say it’s too early to say which way sort of the elasticity is going to play out and on what time scale. We would expect that initially is going to put some pressure because first you adopt that sort of multiplex workflow and then you start scaling up into larger and larger projects, right? And we’re still in that initial phase when people are most people testing the product. Some people are progressing further and some have now started ordering large multiplex kits. So we’ll see how that plays out.

And Tejas, this is Justin. To your question on free cash flow, Yes, that’s still our goal, and that’s what we’re driving towards. We believe that we can achieve that by the end of the year. And that’s, of course, not taking into account any significant non-recurring events. When we’re looking at the levers as far as free cash flow towards the end of the year, what I would see as the biggest lever there towards the end of the year would be the inflection of the Xenium ramp. If we find that ramp is increasing more steeply right now towards the end of the year, i.e., planning even more units for the following year, there could be working capital strains on free cash flow. But I think that would be a good thing if we find ourselves in that situation at the end of the year.

Our next question comes from Patrick Donnelly from Citi. Patrick, your line is now open. Please go ahead.

Hi, guys. Thanks for taking the questions. Serge, maybe another one on Xenium. Now that you’re getting some systems out there, can you just talk about the customer reception? I mean, are you seeing any cannibalization with Xenium and the rest of the spatial portfolio? Are you seeing it more synergistic with customers looking to expand kind of build out a spatial portfolio? And then any metrics you guys have in terms of backlog or any way to think about that would certainly be helpful. But maybe just on the cannibalization side to start.

Yes, that’s a good question, Patrick, right? It’s something that we’ve been thinking about and we had questions about. I think it’s too early to see cannibalization certainly when we look at Xenium and Visium. In fact, if anything, there is a great amount of complementarity to the platforms and to the use cases. And we’re seeing customers actually buy into the full ecosystem. In fact, we have customers who are buying multiple platforms, meaning the Chromium X, the CytAssist and Xenium together and the setting up workflows that make use of all three. So I think at this stage, there is a lot of complementarity. It is an open question how this will all evolve. There’s certainly a lot of interest right now, a lot of intense interest around Xenium with like the sort of early adopters, the technologies. And people are definitely spending a lot of their sort of mental bandwidth now on Xenium, which might on the margin effect some of the experience which might have run otherwise, let’s say, Chromium. But I think that’s a relatively minor element right now. I think the platform is largely complementary. And as this – as the markets evolve, we’ll see how it shakes out between different applications. But the overall – overarching principal pieces that we talked about is that regardless of how things shake out, we feel really good about our position because we have all three platforms, and this is by design. And there’s a reason why I invested in all three platforms.

Okay. That’s helpful. And Justin, maybe a follow-up on Dan’s question there on China. Can you just talk about – I don’t know, any metrics you have, whether it’s activity levels that you saw throughout the quarter and in April, did you see any stimulus activity as well in terms of helping out there? And just trying to kind of get a feel for that ramp coming out. Obviously, I assume January was very bad and then things should improve from there. But I’d love just any color you have, that would be helpful.

Yes, Patrick, as far as China goes, we didn’t see anything as far as stimulus. In fact, with some of our customers, we saw drivers in the other direction where customers with funding and liquidity issues. And specifically, some customers that were having longer payment terms imposed upon them by their customers. And so, I would say more signs of headwinds there than tailwinds overall.

And maybe one thing, Patrick, too, I would just kind of add, the landscape in China is different than the rest of the world. We’re selling there through two layers of intermediaries, through distributors, through service providers. The vast majority of our business there is run through service providers. And especially given the last couple of years, things tend to be kind of murky, right? We don’t see as much into the end customer usage patterns, and then for the last couple of years because our team’s internal – our China team has not been on the ground nearly as much. And certainly, our outside of external China team has only just – like a little over the last few weeks have been able to come back for the first time. So our visibility in China generally has been somewhat limited, has been murkier, but we expect to gain greater visibility in the coming quarters.

Our next question comes from Matthew Sykes from Goldman Sachs. Matthew, your line is now open. Please go ahead.

Great. Thanks for taking my questions. Maybe first just on Chromium instruments, came in a little bit lower than what we were expecting. But Serge, you made some comments about you expect sort of increased momentum in the later part of the year. Is that Flex, you think, just maturing and driving Chromium X adoption? Or are there other kind of tailwinds that you see for Chromium instrument specifically for the latter part of the year.

Well, so Matt, in terms of Chromium, I talked about more just general momentum that we’re seeing on a kind of a macroeconomic side. All the – we’re seeing a nice pickup in AMR and EMEA across basically all applications of Chromium. And we generally have reasonable expectation that sort of will roughly continue for the rest of the year. I didn’t really comment on the instruments themselves. I mean I’ll let Justin talk to that.

Hi, Matt. Yes, I can add to that. You’re right, when you look at Chromium instruments revenue, it was down 18% year-over-year, but there’s a few things there to unpack. First is when you’re looking at the Chromium X and iX split at this time last year, it was weighed heavily towards the Chromium X instrument. And that was part of the high throughput being adopted by customers who had the need or wanted to use high throughput in the near future. Over time, we’ve been seeing the mix shift more towards the iX. And in fact, this past quarter iX was over 50% of the Chromium X and iX split. So revenue was down, but if you look worldwide at units for the Chromium X and iX that went up on a unit basis year-over-year in the low-double digits. And so overall, we feel really good about the Chromium business and where it’s headed. We don’t think that instruments are a constraint right now for customers who want to use 10x consumables. And overall, we’re focused on driving the consumables and instruments as well. But the primary focus is on consumables. And then as far as looking forward, with Flex, Flex is only available on the X Series. And over time, Flex is going to drive a complete upgrade cycle as far as the customer base goes. And so that’s going to be a key driver of placing primarily iXs in the future and eventually turning over that instrument installed base to the X Series.

Got it. That’s really helpful color. Thanks, Justin, Serge. And then Serge, maybe just one for you. You mentioned as you launched Xenium, the level of sort of sophistication of the components was high just given the importance of the launch, but that over time you could maybe improve the gross margin of the instrument by either changing or substituting. I’m not sure what term you use, but I’m just curious to what extent can you actually kind of make those components different or improve the gross margin of the instrument outside of obviously scale and larger volumes, but are just – are there things that you can do within the component mix that can actually improve the gross margin profile of the Xenium over a longer period of time without compromising performance and everything else that goes with it?

Matt, I mean, yes, we certainly – there’s certainly have lots of opportunities for that to for Xenium, we have – as we build the platform right now, we optimize, prioritize the performance and time to market. That was our focus. And we feel really proud of the instrument and how well it works. But certainly going forward, there’s lots of opportunities for us to tighten the costs and to bring those down without affecting performance.

Our next question comes from Kyle Mikson from Canaccord. Kyle, your line is now open. Please go ahead.

Justin, I was wondering if the first quarter 2022 was like a normalized year-over-year comparison for the Chromium business that we’re looking at here, there were a few headwinds last year, but 2Q is when the challenge is really were most obviously just curious about that. And if you could just talk about 2Q a bit here going forward in 2023, what are you expecting for instruments growth for Chromium compared to the 7% you just did here? Thanks.

Hey, Kyle, as far as last year goes, I do think that the first half of the year when we are looking year-over-year, I do think it’s a fairly easier compare, right now. I do think that when we get into the back half of this year, it is going to be a more challenging compare. Q1 and Q2 last year were relatively flat to one another. And then we saw the pickup in Q3 and Q4. As far as the Chromium placements for the rest of the year, we’re not going to guide to a specific number. But I would caution against extrapolating the Q1 results for the rest of the year. We had a price increase that went into effect at the beginning of this year. Instruments and consumables went up 5% and 8% respectively. And this past Q4 was a really strong quarter for instruments. And so let’s see I think how the rest of the year goes on placements, like I mentioned, Flex is going to be driving more Chromium X and iX over time, specifically the iX, eventually it’s going to drive a complete upgrade cycle. And I think the only variable there is just the amount of time it’ll take to do it.

Okay. That was great. And then the 7% I just quoted was for total Chromium just FYI, but that was great. And just following-up on the pricing increases, so you did, I think, consumable increased to 8% this year, right? So maybe Serge, how is that progressing through the different levels of the customers, I guess, the high volume, low volume, any ordering trends that you’re seeing them on the consumable so far?

Yes. So I would separate the price – annual price increases the work that we do from the more like strategic trajectory of elasticity of demand. The first one is just sort of the cost of doing business. We do this annually. We increase these prices. There was more – obviously there was more inflation this last year. So we’ve did a somewhat higher increase than we had done in previous years. As far as elasticity of demand goes, we – our strategy is to do that through product configurations, and that’s where the Flex Kit and the specifically the multiplexing capability of Flex comes in. That’s still very much in the early stages of market penetration. As I said earlier, most customers so far have – are in a stage of testing the kit. A lot of them have run pilots. Some of them are now scaling up into routine use. But that’s a relatively small number, especially relative to our overarching or overall revenue base. So I think it’s substantially early to be kind of looking at the elasticity effects of the Flex Kit. We’ll see how that plays out over the coming quarters, but it’s terrible.

Our next question comes from John Sourbeer from UBS. John, your line is now open. Please go ahead.

Hi, hello. This is calling for John. Serge on the call – on the quarter. So quick question on the Xenium side. Can you provide a simple color on the cell segmentation of the Xenium? And how do you think the cell segmentation of Xenium compare with your competitors like that…

Yes. So cell segmentation is a – like is a critical component of any In Situ platform, any In Situ system, and we knew that from the very beginning. So we invested a lot in the development and cell segmentation and have taken a very kind of foundation oriented multi-facet approach to solving this problem. The initial release with our – what’s on our currently on the Xenium platform is a really good, highly performance, nuclear based segmentation which we strongly believe is outperforming anything else that’s out there. And our customers already generating really great results and really good insights using the nucleus based method. And generally, we’ve gotten positive feedback. Now that’s only at the start. It’s kind of the foundation. There’s a lot more work to be done, a lot more improvements to really to build on top of us. We talk about this at AGBT in February, the AGBT Conference where what we’re doing to build on top of our current approach and we’ll be rolling out additional capabilities around membrane staining, around cytosol staining, other and further improvements in algorithms going forward. So we believe we’re in a really good spot right now relative to everything else that that’s out there and there’s a lot more improvements than we’ll be enrolling in the coming – over the coming quarters in a huge.

Thank you. That’s very great comment. Just one follow-up here shipping here to CytAssist, where are you seeing kind of like the most demand is coming from? Is it the new customer, existing customers, or what type of customer can you provide more color on this? Thank you.

Yes. So the majority of CytAssist customers have been prior Visium users as you would expect. But the interesting thing that we’ve noted is actually quite a few of like a very large fraction are actually new to Visium completely. And actually some of them are new to 10x entirely. So I think that suggests that there is a – there is substantial potential for Visium to go well beyond that initial user base of the Visium. So the instrument less manual workflow and suggest that they’re at the market for CytAssist is actually substantial and larger than what we might have thought before. It is – we’re getting great feedback from CytAssist across the customers. We just had a customer talking – telling us that they managed to ship dozens and dozens of slides across continents, look really old FFPE, like challenging FFPE slides tissues, and it worked on – like CytAssist the data work on every single slide. So kind the results that you don’t like, don’t expect. And it’s really, really rewarding to see the instrument working as designed and in many ways, even better than our initial expectations.

Our next question comes from Julia Qin from J.P. Morgan. Julia, your line is now open. Please go ahead.

Hi, good afternoon. So just a couple follow ups here on Chromium. I think it’s nice to see early signs of price last sort of for the playing out. Could you give us some more color on the distribution of Chromium pull through? How concentrated – is concentrated that’s top tier customers. Or are you now seeing more broad-based distribution of large scale projects? And how do we that – how do we tie that with your previous commentary on the mix of Chromium iX versus Chromium X?

So Julia – so the comments that I made previously were more along the lines of – we do see flex adoption, but it’s still very early in the – in adoption cycle. And so it’s too early to comment on kind of precisely how the price elasticity is playing out. Obviously, in the long run, we do feel that there’s tremendous price elasticity in this market, and we do expect to drive into that. And the flex is going to be one of the primary ways for us to do that. As far as sort of pull through and the usage patterns of our instruments, I think they’re fairly – I don’t think there’s necessarily been a huge material shift that our customer base is not very concentrated. It’s very diverse and there’s not a single customer that’s a dominant sort of part of our revenue base. It’s quite dispersed. It’s quite robust in that sense. We do have large studies that some customers are running. There’s some big multithousand sample publications. We also have a lot of customers who are running consistently more sort of on a one-off basis, individual some tools that come in, some that are doing basic developmental biology studies that that are project oriented. So it’s a fairly dispersed gamut of usage. And I wouldn’t say that there’s been necessarily a huge material change recently.

Okay. That’s helpful. And then on Xenium, without getting necessary too quantitative, could you give us maybe some color on the customer flex in your order funnel given the throughput advantage? Are you seeing more kind of CRO customers or are you seeing a more even distribution with the biopharma and academia customers as well? And given the throughput advantage, do you think the customers will have enough samples to actually take advantage of the throughput capacity of Xenium and how should we think about the pull through level of the system?

Yes. In terms of the customer mix, I’m not sure if there’s – that there’s a huge difference from what we’ve seen with our other platforms kind of in the early stages of launch. It is a healthy mix of biotech, pharma, academia, some service providers, some CROs for sure, like we’re seeing that and it’s encouraging. I mean, obviously this is a brand new kind of platform, so the customers tend to be quite sophisticated and quite forward leaning in terms of adoption. Your question is whether people will actually have samples. Look, I mean, to some extent time will tell, but our – the early indicators are that that’s not an issue at all. People have been jumping in and running samples. I mean, we’ve had multiple customers who’ve run through dozens of samples and many, like multiple, multiple runs. And as far as the – what it means for pull through, I mean, we’ll see it like if the instrument was designed, sort of if you kind of do the math, the max possible pull through is an order of $1 million, it’ll – yes, we’ll – but it’s way too early to comment on as to what like sort of average use case is going to be.

Our next question comes from Mason Carrico from Stephens. Mason, your line is now open. Please go ahead.

Hey guys, thanks for taking the questions. My first one on Chromium Flex, any incremental color you can provide on feedback flex from pharma customers? How are you thinking about the adoption curve and ramp of this product for pharma in 2023 and 2024 compared to your academic customers?

Yes, that’s an interesting, that’s a good question. Because obviously Flex has particular resonance with translational customers, right? And it worked with FFPE samples. Now I think at this stage, it’s too early to say like, the first people who are going to be exploring this kit, who are in fact exploring this product are more on that academia side. Now they’re more on the translational side. And as they work through and validate the performance of this product, then we expect the farmer will start picking it up. That’s the trajectory that all these products go through. You do need to kind of go through academia and let these products kind of go through their basis and get that validation initially. And then they naturally get picked up on farm. So I do expect that to happen over time, but not yet in that cycle.

Okay. Got it. Thanks. And on CytAssist for customers who have bought a CytAssist instrument, let’s say, early on. Have you seen an increase in their Visium consumable consumption since they purchased the platform? And if so, are you – is there an opportunity to see a benefit to Visium consumable growth in the back half of this year? And as we enter 2024, given the number of placements in the second half of last year and likely in the first half of this year?

Hey, Mason, this is Justin. I’ll take that one. That is something that we’ve been looking at. The CytAssist improves a number of workflow issues for customers. And so even customers that are – that were buying just the regular Visium before, we looked at their usage pattern before and after a CytAssist purchase. And we are seeing an increase in usage of post CytAssist purchase. And we also think that it has the benefit of bringing in newer customers who wouldn’t have tried the regular Visium without the instrument. And so I think it’s a little too early to extrapolate that out fully. But with the data that we have right now and what we’ve been able to see it does look like it’s truly driving more usage with customers.

Our next question comes from Michael Ryskin from Bank of America. Michael, your line is now open. Please go ahead.

Great. Thanks for taking the question, guys. I’ll just ask one just keep things moving. In response to an earlier question, you said something along the lines of, when you’re talking about what are the factors that are driving the improve performance in Chromium, you kind of cited macro condition globally, particularly if you look at Americas, EMEA versus China. So I’m just wondering if you could expand on that a little bit, macro can mean 57 different things. Is it funding environment? Is it access to clinical samples? Is it just expand on that a little bit and probably both for America and EMEA.

Yes. So I wouldn’t say that necessarily it’s access to clinical samples just to kind of maybe take your last point and just because like I mentioned it, we’re seeing this effect on multiple applications and some of them are much more discovery oriented than translationally oriented. I would say, obviously, last year was depressed Q1 due to various factors, and we certainly have been coming out of that. Q2 was also fairly depressed. So I think it’s just sort of the level of activity with these kind of products with our customers has been picking up generally in those – in these geographies. And I think part of it is the story that we have been kind of expecting that people kind of are ramping up, they’re getting back in the labs doing, starting our projects collaborations, and that’s now sort of bearing fruit. And we do see it as a sort of continuation of the pattern. We started seeing the back half of last year. The Q3 was better somewhat than Q2 and Q4 was better than Q3. And so that’s how we’re – that’s what we’re referring to.