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Thank you for standing by. My name is Mark, and I will be your conference operator today. At this time, I'd 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 speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Cassie Corneau, 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 [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. 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 Saxonov, our CEO and Co-Founder, and for his first earnings call with 10x, Adam Taich, our new Chief Financial Officer. We will host a question-and-answer session after our prepared remarks. We ask 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 the 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 bolster 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 tend 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 showed over and over our ability to extend our technological leadership and push frontiers. With these new offerings, we believe we're 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'm confident that the steps we're 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 for 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 our 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 have a 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 10x 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 disruptions than we anticipated, ultimately this is the largest disruption in the areas where the sales structure changed the most. For example, over 40% of customers accounts in the Americas changed sales coverage within the 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 on-boarding and getting up to speed with the new customers and territories. We expect it will take time before reaching the full benefit of 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 lower 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 $0.01 per cell, and over five-fold reduction compared to previous products. We're brining our highest performing and most flexible assay to our new GEM-X technology architecture. GEM-X Flex enables broader opportunities for mega scale CRISPR screens, cell atlasing projects, and multi-site translational studies, among others. Second, to decrease the cost per sample, even at a small scale we launched GEM-X 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 GEM-X Universal 3 prem and 5 prem 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 growth 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 cost compared to non-10x workflows. Our GEM-X Universal 3 prem singleplex 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 FFPE samples, which are often constrained by limited cell quantities. With GEM-X Flex, we've delivered a four-fold reduction in required cell input, significantly expanding the opportunity to include the best amounts of biobank clinical samples that were previously off-limits for single cell research. Another example is the on-chip multiplexing workflow built into GEM-X 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 insight. 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 with the new products, workflows, and software we've introduced, we'll enable more researchers to adopt single cell methods for more studies, more often. For additional product information, we encourage you to refer to the supplemented materials we posted on our Investor Relations website, along with the earnings release. As we continue to execute on single cell, we're 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 CytAssist instrument continues at a solid pace. Our experience over the years has made it clear that an instrument like CytAssist is key to delivering a complete solution for customers. CytAssist 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, CytAssist 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 in 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 at 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, Americas decreased 11% to $87.8 million. EMEA grew 18% to $37.9 million, and revenue in APAC 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 to get there 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 [Operator Instructions]. Your first question comes from the line of Tejas 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, 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.

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.

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

Hey, thanks. 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? Thanks.

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.

Your next questions come from the line of Doug Schenkel with Wolfe Research. Doug, your line is now open.

Hey, good afternoon. So, as many of you know, I'm a New England Patriot 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 if things have bottomed, 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 at 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, first of all, as I mentioned in my remarks earlier in the call, 2024 has been disappointing. And it is also the case that over the past couple -- few years, while there has been progress and really exciting milestones that we have met and achieved, we have met our challenges, for sure. And in particular, we identified several years ago that we needed to scale our organization to reflect the growing complexity of the products and our market 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 years had just not gone deep enough. It's clear we've learned from those changes, from the incremental adjustments we tried 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 a right track. The overall approach we take in the 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 pain right now. I do have conviction we're in the right path. You can look to see that specifically in the regions where the disruption has been the least; we are actually performing relatively well, in some cases quite well. We are 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 feel we 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 roads. We're still building up and filling out the commercial organization. And we're still in a great 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 Dan Arias with Stifel. Dan, your line is now open.

Afternoon, 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 roles which you mentioned, which is pretty straightforward versus implementing discreet 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.

Yes, Dan. 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 Xenium 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. The same time, you're right that there is also a big element of training people and having people 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, and seeing lots of improvement on that front, 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 immediate changes here. And so when I put these together, when I think about filling in open roles and the new sales people having the time to ramp up, which usually takes on the order of a couple of quarters after them coming onboard, should start -- you should look at the middle of next year as the timeframe for all of these changes to be in place, and for the organization to be really locked in.

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

Great, thank you. Thanks for the questions. Maybe just on pricing in single cell, Serge, if you don't mind, there's a lot of different permeations of your product. So, the thing we're trying to get a sense of, is the investments that you made in price, are they more niche, are they more expense? So, is it possible to zoom out and just give us a sense if we look back, say, a year ago, what your price per sample might be across all your volumes, where that stand 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 the competition stands, and do you need to further invest in price? And then finally, with this investment in price, do you think while -- 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.

Yes, Dan. So, good question. Unfortunately the answer is actually somewhat complicated 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, 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 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 GEM-X architecture earlier in the year was one step in that direction, it was a 10% drop in per sample pricing there, but over 50% or 2X drop in per cell pricing. We further launched this quarter a product of GEM-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, drawing it down to one cell per cell. We're also in the process of launching our new product for on-chip multiplexing for our universal assays on GEM-X 3 prem and 5 prem, also addressing, specifically addressing the per sample price getting down to under $600 a sample relative to well above a thousand 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've said before, over time, we do expect to drive down prices of these products further. We, as we've done here, we like to do it by launching new products and new configurations. And we'll 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 sort of 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 dynamics in the last quarter. There's maybe more aggressive presence on 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 on that front either. We, again, we always take competition seriously. We will continue to take it seriously, but we're very confident in our strategies 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'll 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?

Yes, good question. So, clearly we're launching new products right now. And as with lower 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 compensate for the decreases in price. So, over time, and that timeframe is typically three to four quarters, you expect to see incremental growth in top line revenue from pricing changes because of the elasticity, but in the meantime, you do expect to see some pressure on the top line, some amount of headwinds. So, that's how we're thinking about it. Now, again, these are products that are meant to kind of transition customers gradually into these new price points, but we do expect there to be some new return on investment.

Your next question comes from the line of Puneet Souda with Leerink Partners. Puneet, your line is now open.

Yes, hi, Serge. Wondering if you can 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 sales force 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, when you look at the Xenium installs, can you clarify where they landed versus the 40 to 50 install expectation, because clearly that's a new product in the market. It's been gaining ground. It's one of the leading products. Clearly numbers, papers are growing, grants are growing. So, just trying to understand what's holding that back. Is it just largely capital equipment, sales force that you mentioned, or is there anything fundamental that's happening with the spatial already in the trajectory of this market at this point? Thank you.

Yes, Puneet, let me take this Xenium question first here. So, I mean, first of all, kind of zooming out, 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 an 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 with scaling up significantly for the future. The same sort of data you see in general service of customers in terms of expectations of growth. You also see funding signals that are quite strong, quite robust going forward. And then, also when you look at our kind of utilization of the instruments that we have been installing, so that has also been quite healthy, which is also an indicator of kind of down the line demand and should bode well for future installs as our existing customers kind of drive discoveries and publish their findings and develop the market. So, we also know that the category environment has been particularly challenged recently, particularly on kind of higher priced items like the Xenium. And as we've been saying, we're going through a major commercial transformation that in part is focused on precisely this issue in kind of creating the right focus and the right sales force to sell this kind of product. And between those 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 licensed tools in NGS.

Your next question comes from the line of Rachel Vatnsdal with J.P. Morgan. Rachel, your line is now open.

Great, thank you. So, I wanted to dig into spatial assumptions in 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 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 this to grow sequentially?

Rachel, it's Adam here. Yes, I mean, I think you're about right as it relates to Q3 in terms of the Xenium placements that you quoted there. And that is what we're anticipating for Q4. Again, absent, in different macro environments, we would have anticipated a Q3 to Q4 bump from a CapEx perspective. That isn't what we factored into the current guide. And then, I think as Serge had just mentioned on the prior, or even one of the earlier questions, utilization perspective, we're continuing to see really nice growth. And so, from a consumables standpoint, 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 Mikson with Canaccord Genuity. 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. How much like visibility or confidence do you have that there's going to be this inflection point 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 for people to get used to working in a new environment. I think we do feel optimistic about that timeframe, getting through it. In terms of, yes, as we look to the second-half of the year, that's only going to be a significant factor. As far as macro is concerned, I don't know that one can say at this point that it's going to get better, right? 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 Citi. Patrick, your line is now open.

Hey, guys, thanks for taking questions. Serge, maybe just one on the expense side, I mean, you guys are talking a lot about, filling a lot of open spots 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, where some costs are coming down while 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. 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 of months? Is it other players, bigger players that may be acquired, smaller assets? It'd be helpful just to talk through what you're seeing on the competitive side. Thank you, guys.

Yes. 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 kind of increasing headcount, 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 the 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 a consistent theme this year. No issues, I don't think there's been any changes in dynamic this past quarter. On the single sale side, again, there's been more players and arguably are 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.

Your next question comes from the line of Michael Ryskin 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 Frank, 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, I've got you at 26 and change million in 1Q, 29 in 2Q and 29.5 in 3Q. So, I know you've had a number of product rollouts 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 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 of quarters, it's flat lined a little bit more than we would have thought. Thanks.

Yes. So, I think it's probably important to kind of choose a far sequential kind of dynamics versus year-over-year, compared to like, when I think about sequential, there's been kind of a number of pieces because of the new product launches in particular and kind of the bullets, for example, Visium HD customers that are coming in initially and getting them and kind of getting through the bullets, similar sort of dynamics on Xenium 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 smoothens out subsequent, which is why we kind of pointed to nice progress on reorder rates and kind of those dynamics on Visium HD 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, yes, the underlying dynamics are encouraging, but they do get somewhat masked sometimes by these kind of product launches and sequential dynamics. I would also point to that the consumables, across the entire product line were kind of affected in Q3 by the same sort of commercial transformation headlines 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 very encouraging trends.

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

Hey, guys, thank you for taking my question. And how -- elasticity --

Subbu, I'm 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 scaling 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?

Yes, I mean, good question. So, in terms of why price being a barrier, 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 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 to single cell experiments versus others, the decision, like the marginal decision is really about price, and sometimes it's the inside per dollar, right? And we see this again and again and 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, 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 of after three or four quarters, the volume more than overtakes the headwinds of price and creates a lot more demand and a lot more revenue. Now, as far as the kind of out part of the workload being only a part of the overall cost equation, that is true. That said, 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 overall cost of the experiment. And that creates the opportunity for us, particularly in this moment of time, to really drive into realistic.

Your next question comes from the line of Matt Larew 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 a 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 referring 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 the fundamental unit of sort of analyzing biology.

Your 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 can 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 over the next maybe two to three quarters versus sort of six to nine, to that line for new hires? Thanks.

Yes, Matt. So, I mean, a couple of things. First of all, we do have a lot of really, really talented people on the team. And in fact, 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 they can really, really perform in this new, much cleaner, much, over that 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 that a lot of them, like I really, really appreciate strongly 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, but we're making sure that the customer is really, really served well, despite like not knowing precisely how the new structure is going to settle in. And going forward, different people are going to be adopting at different parts of the organization on different timeframes. I do think some people are, already are on a really, really kind of good trajectory and operating really well. Other people will take a bit longer to adopt, but ultimately the bottom line is that, yes, as I expected by the middle of next year, the whole team will be in a really good shape and working really well together to execute the drive.