Ladies and gentlemen, thank you for standing by, and welcome to the 10x Genomics Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today Mr. Eric Jaschke, Director of Investor Relations and Strategic Finance. Thank you, sir. Please go ahead..

Thank you. Earlier today 10x Genomics released financial results for the second quarter ended June 30, 2021. If you have not received this news release, or if you would like to be added to the company's distribution list, please send an email to investors@10xgenomics.com.

An archived webcast of this call will be available on the Investors tab of the company's Web site 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 Justin McAnear, our Chief Financial Officer, in addition, Brad Crutchfield, our Chief Commercial Officer, and Eric Whitaker, our General Counsel; will be available for Q&A. With that, I will now turn the call over to Serge.

Serge?.

Thanks, Eric. Good afternoon and thank you for joining us. On today's call, I will start with a brief overview of our performance and solid execution during the second quarter.

Next, I will discuss our progress and enabling broad adoption of single cell analysis as we continue to advance our vision of bringing into every biology researcher in the world. In addition, I'll share more about our relentless focus on innovation and the investments we're making to power a future enabled by single cell and spatial biology.

I will then turn the call over to Justin for a more detailed look at our financials and outlook for the year. Revenue for the second quarter totaled $116 million, up 170% year-over-year, and 9% sequentially driven by increasing adoption of our products.

We're pleased with our team's strong execution this quarter, as we continue to deliver on our commercial plans and advance our R&D pipeline. As we anticipated customer lab operations returned to near normal levels during the quarter.

While some labs experienced lingering COVID related impacts for much of the periods, the majority of customer sites were open to in-person meetings with our sales and support teams by the end of Q2.

However, subsequent to quarter end rising case counts and emerging variants have increased uncertainty in our operating environment, which Justin will discuss further.

Now moving to our results, with a strong demand for our Chromium instruments, during the quarter, we initiated the price change for the Chromium Controller to position us strategically within our expanded instrument lineup, ahead of the launch of Chromium X.

As a result we saw approximately 100 incremental placements during the quarter bringing many new customers into the 10x ecosystem. Adoption of our single cell and spatial consumables continues to grow.

With our ability to measure gene expression proteins, epigenetic programming in new features and other modalities, our customers have access to a comprehensive toolkit for interrogating biology of the right resolution and scale. The breadth of these offerings is resonating well within our growing customer base.

Take our Multiome solution for example, it has had an impressive trajectory since we began shipping less than a year ago. The ability to analyze gene expression and epigenetic programming from the same cell is inspiring rapid adoption with existing customers as well as customers new to ATAC and to single cell approaches more generally.

Directly connecting regulatory signals with cellular function is essential to understanding biology at its most fundamental level. In our recent preprint featuring Multiome, researchers analyzed cells from human pituitary samples to uncover diverse regulatory mechanisms involved in stem cell development.

Multiome allow these scientists to identify and characterize uncommitted stem cells and determine the transcription factors and epigenetic mechanisms that shape their fate and function. These findings should help develop therapies to treat endocrine diseases caused by pituitary deficiencies and tumors.

Adoption of our Visium solution also continues to expand. Since launched, the number of preprints and publications with Visium has increased each quarter, as more and more users progress through their experiments and generate relevant insights. And today, there have been more than 120 publications and preprints featuring Visium technology.

In one recent Visium preprint researchers performed an in-depth spatial analysis of somatic mutations from benign and malignant prostate cancer tissues. These researchers were able to identify small renal cells, not evident from visual assessment, and which would have been overlooked by typical histological analysis.

Additionally, the study showed the copy number variations in the regions which encode cancer drivers over the current tumors and benign tissue regions typically ignored by pathologists.

This study show showcases the power of unbiased spatial approaches for uncovering the biology of tumor progression, which could lead to improved early detection of cancers and improved patient outcomes.

This quarter, we also launched the biggest shipping of Visium for FFPE, enabling for the first time true unbiased spatial gene expression analysis in FFPE samples. Early demand has been strong as pre marketing activities as far as both new and existing customers to initiate pilot studies.

We are encouraged by the adoption of Visium FFPE to-date, though, as we said in the past, it will likely take time for initial customers to progress through their pilot studies and onto large experiments.

Looking to the future, the interest we're seeing affirms our view of the wide applicability of this product in both the discovery and translational setting. After the quarter end we announced the availability of Chromium X.

This platform represents a huge advance for single cell genomics, as it will allow our customers to supercharge the experiments, and they're getting as many as a million cells in a single run at a significantly lower cost per cell.

Chromium X was developed in response to the desire of many of our early customers to run ultra-high throughput experiments. We're pleased with the initial response and look forward to getting it in our customers' hands this quarter.

The current platform has come a long way since we introduced the Chromium Controller five years ago, we launched this platform with a vision of making single cell analysis accessible to every biology lab in the world. And we have made tremendous progress toward that goal.

There are now 1000s of customer labs using our products, and more than 2800 papers across a wide diversity of journals and research areas. And internal of these publications are helping inspire a broad spectrum of researchers by validating our solutions across an increasing number of applications.

While 1000s of labs are using our products, we're still very early in realizing our vision. There are well over 100,000 researchers globally available to 10x and we estimate that two-thirds of them could already benefit from single cell and spatial genomics obligations.

With this in mind, we have consistently pursued a strategy focused on broad access to bring new researchers into our ecosystem. The success we had this quarter with instrument placements in new labs is an example of that strategy. As our solutions become more widely adopted, we're increasingly reaching new customer profiles.

Many of these customers are less experience with single cell workloads and high content experiments, unlike our earlier adopters. In particular samples breadth and data analysis are important areas where these customers face greater challenges.

With the launch of our Low Throughput and CellPlex kit and introduction on the 10x cloud earlier this year, we have made important progress in addressing some of these barriers.

This launch the demand for supplies has been particularly robust and we have seen strong interest in our 10x cloud solution, especially among our users who are not buying for medicines. Moving forward, we will continue to prioritize the tenets of customer success.

Enabling access and addressing barriers of adoption has laid the groundwork for continued growth and expansion into the best opportunity to have. The strength and talent and commitment of the 10x team give us tremendous confidence as we advance this vision.

The team's ability to persevere despite challenges related to the pandemic has been consistently impressive. Because of their efforts, we have been able to maintain a rapid velocity of product introductions, including the breakthrough launches such as Chromium X and Visium for FFPE.

At the same time, we have been making significant progress on our extensive R&D roadmap to deliver many future products. Developing and launching these products will be highly ambitious even under normal circumstances.

Our ability to maintain our plan capabilities of product introductions in the face of a pandemic underscores this important competitive differentiator and is a testament to our entire organization. We strongly believe that single cell and spatial approaches represent the future of biology.

Over the past several years, it has become increasingly clear that complex cellular heterogeneity is a pervasive feature of all human tissues and is fundamental to understanding all biological systems.

Technology is the result is heterogeneity and enable single cell resolution of scale will be critically important for unlocking future scientific discoveries and clinical applications. Our Chromium platform is an established leader in single cell analysis.

While we have rounded out its core set of capabilities with the recent product launches, including Chromium X, this platform remains early in the development and adoption. We plan to continue to have capabilities and improvements in the future to enable broad adoption and create additional value for existing customers.

Visium and spatial biology more broadly, or even earlier, our core discovery of customers have been adopting Visium since its launched in late 2019 and with introduction of FFPE this quarter, we have expanded access to translational researchers.

We will continue to invest aggressively in this platform, doing fundamental new capabilities and breakthrough features as far as to extensive product roadmap. We're in the process of building a sophisticated factory here in Pleasanton to develop the next generation of high resolution Visium consumables.

This effort is a result of multiple technical innovations that we believe will give us a set of highly differentiated capabilities that don't exist anywhere else in the world. We expect our vertically integrated capabilities to provide a powerful foundation to enable new products and growth in the future.

With our In Situ platform, we're continuing to expand our investment to build a third complimentary platform to Chromium and Visium, which will help transition many of the discoveries made with those platforms to the clinic in the future.

We will also invest broadly in our organization, including our R&D and commercial teams and our global operations to support broadening adoption of our products. Finally, last week, we announced the worldwide settlement of all our litigation with bioRxiv.

This settlement results more than 25 separate matters and over eight years of litigation between the companies. We were scheduled to go to trial on our claims against bioRxiv salesy products this week. In that litigation, we had a sort of the salesy product who prints six of our products.

This settlement broadly across licenses, each company's intellectual property is delayed a single cell analysis, with the exception that we did not license that related to certain application areas and technologies under development. Importantly, this settlement also does not include intellectual properties related to spatial or In Situ approaches.

Each company will make growth payments through 2030 or the license grants for the life of the patients.

From a financial point of view, we expect that agreement to be test positive for us when considering cost savings from litigation our ability to offset certain payments against other licenses, and the reduction in past royalty is related to the Delaware litigation.

Any payments of royalty for bioRxiv on a sales and services would be incremental to this. We expect the impact to our gross margins will be less than 1% also excluding any potential royalty payments from bioRxiv. Apart from the financial benefits, this agreement eliminates the distraction and uncertainty of litigation.

This is a victory for science and allows us to turn our full attention to our mission of Mastering Biology to advance human cells. We were able to achieve this outstanding result in part from a strength of our intellectual property, which now includes over 1150 patents issued and pending.

We believe that our deepened broadband portfolio is a key competitive differentiator and we will continue to distemper technology breakthroughs, which have resulted from our significant investment in research and development.

I will note, they just our general policy not to license for patterns, but to protect our sole rights to own and practice them. Before turning it over to Justin, I'd like to thank our employees for their continued hard work and dedication so far in 2021.

We entered the year with highly ambitious goals and our ability to develop and deliver so many great products for a growing customer base is a testament to your commitment and execution. With that, I will now turn the call over to Justin, for more details on our financials..

Thank you Serge. Total revenue for the three months ended June 30 2021 was $115.8 million, compared to $42.9 million for the prior year period, representing a 170% increase year-over-year and a 9% increase quarter-over-quarter. Consumables revenue was $97.1 million, which increased 184% over the prior year period.

Instrument revenue was $16.9 million, which increased 131% over the prior year period. Service revenue was $1.8 million, which increased 25% over the prior year period. The increase in consumable revenue this quarter was primarily driven by growth in the instrument installed base and decreased impact of the pandemic on customer operations.

The increase in instrument revenue was driven by increased instrument placements during the quarter. Service revenue increased due to a large number of instruments coming off of their initial one year warranty and underpaid service contracts. America's revenue for the second quarter was $65.8 billion, which increased 225% over the prior year period.

EMEA revenue for the second quarter was $28.8 million, which increased 146% over the prior year period. APAC revenue for the second quarter was $21.3 million, which increased 95% over the prior year period.

Turning to the rest of the income statement, gross profit for the second quarter was $110.9 million, compared to a gross profit of $32.9 million for the prior year period. Gross margin for the second quarter was 96% compared to 77% from the prior year period.

The gross margin increase was driven primarily by a one-time reversal of $14.7 million of accrued royalties to cost of sales as a result of the settlement with bioRxiv. Total operating expenses for the second quarter were $121.3 million, an increase of 68% from $72.3 million for the second quarter of 2020.

The increase in operating expenses was driven by increased personnel related expenses due to ongoing expansion within R&D and the commercial organizations, including stock based compensation, increased costs related to facilities expansion, and increased information technology spent in support of general expansion of our operations.

R&D expenses for the second quarter were $53.4 million, compared to $27.5 million for the second quarter of 2020. The increase was driven by $14 million in increased personnel related expenses, including stock-based compensation, and the $8 million increase in expenses related to lab materials, supplies and equipment.

SG&A expenses for the second quarter were $68.7 million, compared to $44.4 million for the second quarter of 2020. The increase was driven by $15.9 million dollars and increased personnel related expenses, including stock-based compensation and $3.3 million of external legal fees and a $2.7 million increase in expenses related to IT and facilities.

Operating loss for the second quarter was $10.3 million, compared to a loss of $39.4 million for the second quarter of 2020. This includes $26.9 million in stock-based compensation for the second quarter of 2021 compared to $13.9 million for the second quarter of 2020.

Net loss for the period was $11.1 million, compared to a net loss of $40.2 million for the second quarter of 2020. We ended the quarter with $622 million in cash and cash equivalents net of restricted cash.

The increase in cash from the prior quarter includes proceeds from option exercises and positive operating cash flow partially offset by capital expenditures related to our operational expansion of facilities. Now turning to our outlook for the remainder of 2021.

We look forward to a strong finish to the year as we build on our progress to-date, and continue to feel our rapid pace of innovation. We remain confident in the long-term trajectory of the business and we'll continue to invest heavily in our team and facilities to support this vision and serve our ever increasing customer base.

On our last call, we noted there was a wide range of operating efficiencies with enter customer labs to the COVID-19 and the lingering impact was likely to persist through this second quarter. This largely played out as expect.

Towards the final weeks of the quarter, we began to see a marked improvement, and the majority of our customer labs had returned to near normal operations by the end of June.

While these improvements were encouraging, more recently, we have seen some customer labs reinstating COVID related protocols due to the emergence of a Delta variant and closing access to outside visitors. The situation is increasingly uncertain.

And due to the extent an increased restrictions impact our customers' ability to progress through their experiments, or limit our access to their sites, it's possible that we can see an impact on our business in the back half of 2021.

Given this environment, we are maintaining our full year revenue guidance for 2021 a $480 million to $500 million, representing growth of 61% to 67%, over full year 2020. At this point, I'll turn it back to Serge..

Thanks, Justin. As we look ahead, we firmly believe that single cell in spatial analysis represent the future of biology, the vast majority of biological tissue samples will need to be analyzed with single cell resolution on spatial context.

While it's still very early, the investments we're making our platforms have well positioned to make that future, a reality. With that we will now open it up for questions. Operator..

Hi, good afternoon, and thank you for taking my questions. If I could start with just a couple of questions on the quarter, and then kind of pivot to a longer term question. It looks like instrument revenue, if I'm doing the math, right, increased over 50% relative to Q1.

Just going back to your prepared remarks if I did that, right, which hopefully I did.

Was this a function of the ASP change for the Chromium Controller that you referenced increasing the number of placements you were able to make in the quarter? And if that's right, it does seem like this was probably a record placement quarter for you if I'm doing all this math, right.

Is it plausible, you could actually increase the installed base by 40% this year because it does seem like you're tracking to something like that?.

Hey Doug, this is Justin. So going back to the beginning part of your question, you've got it right.

We lowered the price of the Chromium Controller to $35,000 in advance of the launch of Chromium X to make sure that we had that product positioned appropriately in what's going to be our new lineup of products between the Chromium Controller the IX and EX.

And as Serge noted in his remarks that drove about 100 placements, in addition to what we expected, we would have done this quarter so 100 incremental, overall. And so yes, with that kind of growth that we've seen in Q2 and year-to-date year to date, demand for instance is strong, especially at this price point.

And so that could drive a pretty large increase in installed base this year. Okay now Doug, you might have found out..

Okay, that's always good to know, I can still do that. So thank you for that. And then, I guess the bigger picture question, as you're rolling out new consumable kits on new instruments, and I prominently have the Chromium X in my head, as I'm thinking about this.

The assumption is that there's going to be elasticity in the market as you and I'm kind of using elasticity liberally here. But as you both reduce the cost per data point, as you're allowing researchers to profile more features, in many instances for the same price per cell, and also increasing the throughput.

So how many cells can be processed in a certain amount of time? At points when we've seen that in tools in other categories, there has been a periodic lag that's quickly overcome over time, but it could take a quarter or two for the elasticity to play out the way one expects it to longer term.

I'm just wondering if that's a dynamic that we should be keeping in mind as you're rolling out new products and new kits, and if so, how you're incorporating that into guidance as we think about the second half of the year? Thank you..

So Doug, this is Serge, let me pick up on that question.

So we definitely think the fair amount of the elasticity of demand and especially as it relates to different use cases, you mentioned from Chromium X, so with that, of course, we have the high throughput kits coming out where the cost per cell is going to be a significantly lower, while people are running larger experiments.

So this is kind of an almost a classic case of push it on the elasticity on the per cell level, but toward larger experiments. We also earlier in the year, we launched our CellPlex kit, which I mentioned in my remarks as well, which by the by converse, by mixing multiple samples together, the customers can effectively get a lower price per sample.

And, that has sort of a, on the one hand referred to potentially putting some pressure on our revenues, because instead of paying some amount for every sample, now, it's just kind of compressing multiple samples into one lane in the near term. By elasticity coming, that will drive more usage.

It's still early, I would say for either to talk with great confidence about how these effects are going to be like are shaping out, certainly right in our CellPlex, we're feeling good about it. It's doing robustly well, in line with our expectations, customers are adopting it.

At this stage, a lot of adoption is coming from people who have previously run homebrew approaches for what's called cell hashing and kind of converting now to CellPlex. There's also new use cases, new customers who are picking it up. And we're seeing both kinds of examples where on the one hand, there is an experiment that got scammed..

..

Sorry, like we're also seeing examples where studies that were previously not possible, they're just too expensive now they are becoming possible. So we're definitely feeling good about it, I don't think it's the kind of thing that's going to play out in a material way, like in a quarter or two.

It's a longer term kind of dynamic, and an incremental next more solid state, first you kind of have to expect the people to actually adopt the instruments, and then the new work was kind of those larger experiments. So it's not just a simple switch that happens in a quarter or two to scale up to those kinds of experiments.

But over time, certainly the more should trend there..

Super helpful detail and sorry to interrupt. The only thing I was going to ask as a follow-up is, so it sounds like given how much thought and how much detail you just shared.

The assumption is this isn't going to have a major impact in terms of like how you're guiding the second half, or it doesn't represent a risk based on the cadence of when products are coming out that you could be off by a quarter or two in terms of when the elasticity materializes, is that right?.

Yes, that's right Doug. This is not going to have a major impact on how we're thinking about that's for the second half..

Second half. Okay. All right, thanks, guys..

Thank you. Next up, we have Tycho Peterson from JPMorgan. Your line is open..

Hey, good afternoon, a couple follow-ups on the pipeline, maybe similar to kind of Doug's thinking here. But as we think about I'll start with FFPE capabilities, you mentioned it'll take some time for customers to expand beyond the pilot studies.

How are you thinking about that ramp and how important will CytAssist to be next year and kind of really, maybe opening up more of that market on the clinical side?.

Yes, that's a good question as early right. And we certainly are excited about CytAssist, and it's going to be, by the time when it comes out, it's likely to be an accelerator. It is hard to tell at this stage, again, we need to see the customers actually going through the pilot studies that come back to the other side to know for sure.

We do know that some people are kind of gearing up for doing larger studies in the absence of CytAssist. And I mean, I guess the other thing to also keep in mind is that 50% of the FFPE customers are new to 10x. So these are new in people.

So overall, the launch is going well very much in line with our expectations and it's going to take some more time for us to learn the sort of how people are actually ramping but there's definitely nice encouraging early signs..

And then I guess similarly on Chromium X, obviously the ability to enable routine million cell experiments is attractive, I guess how important this kind of the funding backdrop here. I mean, the good news is the NIH is getting better and better.

But how important is it for lab to kind of line up funding here? Or do you think this is something that they've already kind of secured funding for.

I am just trying to understand the grant dynamics here that could obviously drive the adoption?.

Yes, I mean, I think there's definitely a mix. I mean, there's people who have money available. And the part of the reason why we started talking about it earlier this year is for that reason, so that they can sort of start preparing for that.

But we're also, we've been helping our customers in the grant application precisely an anticipation of this coming, and that's a longer cycle. So it's definitely - it's a mix.

Definitely there'll be people who have money, especially with our pricing, but there's definitely also a larger cohort, that will be more against cycled kind of a feel for that..

Okay. And then just lastly, for Justin, I appreciate the thought process and not raising guidance during the pandemic.

I'm just curious, I mean, is this a real issue now that you're seeing that labs are not allowing access? Or is this just being a little bit prudent knowing cases are going up? And then can you also comment just on how we should be thinking about margins, I know you said less than 1% impact from the settlement, what was the Chromium price adjustment, I'm wondering if there's any impact on margins in the back half of the year?.

For the first part of your question, we have seen instances of customers, large customers that have shut down access to our sales and support staff, and we're getting new information every day on this.

But even in the area where our headquarters is located, we're under a new mask mandate now and we're watching closely what kind of changes they're going to be to the local guidelines.

As far as the second part of your question, can you please repeat that?.

Gross margin?.

Yes, it takes some margins in the back half of the year. I know you said it was a less than 1% impact from the bioRxiv settlement.

But also within chromium pricing adjustment, can you just talk on how you think about gross margins in back half of the year?.

Sure. So the price adjustments have been part of our plan for some time. So that's been incorporated into the guidance that we've given before. And in the past, we've guided a slightly decreasing gross margin each quarter, also partially due to newer products with lower gross margin profiles becoming a larger percent of our overall revenue.

And then if you look this quarter, without the impact of the one-time reversal of a bioRxiv. Other accrued contingent liabilities related to the bioRxiv settlement, you can see that we would have followed that profile that we've laid out previously..

Okay, that's helpful. Thank you..

Thank you. Moving on, we also have Tejas Savant from Morgan Stanley, your line is open..

Hey, guys, good afternoon, just one on Visium FFPE, for you Serge.

I mean can you just talk about traction following the launch and how you're going about sort of differentiating the product among translational researchers who perhaps may have a GeoMx already up and running? And by when do you expect to see the early customers be done with their pilot studies and scaling up to larger work? Is that a '22 dynamic at this stage?.

So let's say that, so the launch is going in terms of - as I said, the launch is going well, we're encouraged by both the interest and how people are adopting the product. As far as kind of how we're looking at relative to GeoMx. So we certainly have customers.

But if you are looking at both platforms, the big difference here is that you don't have to pick your regions of interest, you see the full slide, you see the full expression across the entire tissue slide.

And I think this is really important, especially people who are doing research, where you don't necessarily, like kind of almost by definition, you don't know the answer ahead of time. So that is really, the crucial point of differentiation I would say.

In terms of the timing and it's going to be arranged, some people who look like they're going to be getting through this fairly quickly, but I won't say that.

Especially I would say, in the like in a COVID environment where there's whenever you're adapting a new technology, there's all kinds of restrictions around it, some that people don't even anticipate until they kind of get through the product.

So I'd be cautious in terms of assuming that people can just sort of sprint through these, especially as the new customers. We've been seeing that there's again, all these constraints put the pressure on how fast people can get through the initial experiment. So I wouldn't say that this is more of a point to kind of there..

Got it, right. And then on a similar way, and I mean any color you can share on the order funnel here ahead of the Chromium X and IX launches.

And how many of those customers do you think are new to 10x versus those already kind of using the Chromium Controller or perhaps familiar with you via Visium as I'm such?.

Yes, that's a good question. I mean obviously this is very early. I mean, we just started talking to our customers with a concrete specs and pricing. So very early, initially our goal with this platform has been we're into get to the high end of our users.

And this is where like our focus has been, and this is where a lot of the demand has been coming from. At the same time we're still very early, but there's quite a few new customers as well that are coming up with interest in the platform, especially kind of maybe more on the biotech side of the world..

Got it. And then just a couple of housekeeping ones for you, Justin, I mean. I know you mentioned, Bio-Rad and you guys will be paying royalties to each other. So how should we think about an offset to that 1%? Because if I heard right that sounds like it was a gross number that could be partially offset by inbound payments from Bio-Rad.

And then separately, any color you can provide an OpEx cadence in the back half of the year will be super helpful?.

As far as the Bio-Rad, I mean Tejas, we don't know what kind of payments we'll get from them in the future. So that the comments that we made around the having less than 1% impact, any payments that we received from Bio-Rad would be incremental. So right now, with that statement we're assuming zero..

Very helpful.

And then the OpEx piece?.

Our OpEx continues to increase each quarter as we execute on our hiring ramp. Headcount is one of the biggest drivers there. In the last call, we talked about how we plan to hire 400 heads this year. And if you look at where we ended Q2, we've hired just over 200. So we're well on track there. And we'll continue to execute on that hiring ramp.

And so you'll see OpEx continuing to increase quarter-over-quarter as we add those additional heads..

Very helpful. Thank you..

Thank you. Your next question comes from the line of Derik De Bruin, from Bank of America, your line is open..

Hey, guys, thanks for taking the question. This is Mike Ryskin on for Derik. I want to go back to the point on the instrument placements growth in the quarter have gotten a lot of questions from clients, just want to make sure I flesh this out thoroughly. The call you provided I believe wasn't incremental 100 placements versus expectation.

But I mean it's something in the 325 to 350 total units, sound about right.

I just want to make sure we're thinking through the overall weighted ASP appropriately?.

So Mike keep in mind there is Connects in there as well and Q2 was a really strong quarter for Connect. The increase from Q1 to Q2, it was a pretty good was a pretty good increase. And part of that was driven by some instruments that we had shipped out, but not been able to fully install and get up and running due to COVID restrictions.

And we're able to get on site and get those installed this past quarter. But Connect is still a very low percentage of the overall instruments that we're shipping each quarter. So if you look at the range that we have talked about in the past that 50 to 55,000, you can divide the bookends of that into our total revenue.

And that would get you basically a number that does not include Connects, and then I would take it down from there a little bit just assuming a smaller percent of Connects in there as well. Connect is roughly five or six Chromium is at this point, as far as in terms of revenue..

Okay, all right. I appreciate that. And then on that big jump in Chromium this quarter. Does that - it was a little bit more than we would expect given your commentary on the price cut.

Does that give you any thoughts on sort of what the elasticity of demand is for the instrument? I mean, does that lend to potential further cuts down the road, given what we know about the model is just how much of this is about driving install base.

If you've got some opportunity there is that something we could be seeing down the road further flexibility there just to really drive the installed base?.

So it's definitely something that we're keeping a close eye on. We lend a lot when we when we dropped the price down to 35,000. It was a promotion, which we then made permanent as we started Q3. And so I think some of that could be driven by the urgency of having a promotion that's expiring at the end of the quarter.

And what that means as far as when the price has made $35,000 on a long-term basis, we'll have brought the measure head over time..

Okay, appreciate that. Thanks..

Thank you. And next one, we also have David Westenberg from Guggenheim Securities, your line is open, sir..

Hi. Thank you for taking the question.

So I'm going to keep going with that kind of that theme on that higher placement thing, and maybe walk up models, and you guys kind have a chance to kind of pull me down here because with that higher instrument number, you've had really good pull through and you've kind of converted those customers in the past to be going up and driving that consumable towards that 150 price.

As we build out our models, should we be actually lowering that consumable pull through following that great instrument placement number?.

Yes, that's a great question, David. We've talked about $150,000 a good pull-through number to base a model on for near term purposes. But, obviously, as you add more instruments to that, and you increase the denominator, that's going to bring the pull-through down. And that's one of the dynamics that we've highlighted quite a bit over time.

In the near term, I think we still feel good about $150,000 being a good number to use.

But keep in mind as we place additional instruments, and we bring on additional customers, there's no guarantee that the new customers are going to ramp exactly the same as the previous customers have, especially ones they are buying in at a lower price point, they weren't buying in at the previous higher price point.

So there's information that we'll learn over time, I probably wouldn't make any drastic changes to what we said before. But we think that generally, what we're seeing is still going to be in line with what we put out before..

Perfect, and I'm going to kind of stick with this a similar three of consumable pull-through.

Kind of when you when you think about Chromium X, I believe you you've mentioned in the past that it's really kind of for those top 10% customers, and it goes back to kind of Doug's question about elasticity demand, as you decrease prices, would there be any kind of way to quantify the way you were maybe thinking about that decrease in pricing? I mean, say, were you thinking about the customer doing 30% reduction in pricing and doing 50% increase in pull-through, I mean, any way to quantify it would be great, if you can, maybe there's a tiny bit of conceptualization you can do.

And then just as a reminder on because you have such a wide group of ranges in terms of your customer pull-throughs, can you remind us maybe what that top decile might do in terms of your revenue, if you're comfortable given that? And I'll take my rest of the questions offline..

So your first question on Chromium X, and so the dynamics there, it's way too early to say certainly not like in any kind of a number, grounded way, in terms of how much the reduction on price per cell will drive total stem, I think that's the kind of thing that probably also manifests itself, not over a single quarter as I said before, but kind of more on the timescale of multiple quarters, if not years, where people actually have to conceptualize new kinds of experiments.

And oftentimes, I should put in graphs to kind of get more money to run those kinds of experiments. So I wouldn't say - I think it is way too challenging, even though sort of on a conceptual level to think about what their trade off would be sort of any kind of a near term basis.

I think we do believe that ultimately, kind of, as you think a really big picture, and really long-term that, as everything kind of trends toward single solid resolution, there's no escaping the fact that should drive. The exact trajectory, though, like at this stage, like we're reflecting the very beginning of this, in fact it's hard to estimate.

I think your second question was around, sort of dispersion the different types of customers. But then so yes, I mean, there's definitely dispersion. I mean, one of the things that's been interesting for us normals from the beginning, we do have a pretty wide diversity of customers. So it's not like super concentrated with just a few usual suspects.

We do have our early customers, some of those most sophisticated ones our hedis vendors, but not they do not dominate our revenue by any stretch.

It is also the case that just I was alluding to, as we have been placed more instruments, especially kind of getting into new labs over the course of the last year and a half since the start of a pandemic, we brought in 1000 new customers and their ramp has been slower, potentially kind of exacerbated by the effects of COVID.

But again, everyone has been kind of increasing their usage..

Thank you..

Thank you. Your next question comes from the line of Patrick Donnelly from Citi, your line is open..

Hey, thanks, guys.

I know in prior quarters I think Brad kind of talked about labs coming back, a bit conservative ordering smaller amounts of kits, given the shelf life not wanting to get stuck with them in case things shut down again, have you guys seen that these as Justin, when you talked about a month ago, things start to look maybe a little more normal, now they're kind of backed up to a bit of a pause? Is that what's happening, maybe can you just talk through, I guess what you're seeing in terms of order patterns from customers comfort on a go forward?.

Hey Patrick, this is Brad. I think that's waning quite a bit, but that things change daily now. So at this point, we'll wait and see what happens. But generally, I think for the most part, people are confident they're back in the lab, and I think a lot of the data shows that there hasn't been a transmission in the lab.

I mean, these are scientists, so we hope they know what they're doing. So ultimately, I think that's probably not a factor anymore, if it's a second or third over factor..

Okay, that's good to hear. And then Serge, maybe just on the Chromium Controller, obviously nice to see the 100 incremental placement there.

Can you just talk about the customers where you're seeing adoption, any surprises in terms of applications were that seeing more adoption than you expected on a kind of lower end?.

Well, most of it surprises so much. But we have talked about also for some of the time, and have made concerted efforts on the marketing organization to start reaching new customers to 10x. So especially with a neuroscience, infectious disease, that was obviously kind of accelerated by COVID.

So those are kind of these new customer segments, and then that has been bearing some fruit getting into these areas. That's what I would going through..

Yes, and maybe just last one on the Chromium X. I know you Serge you talking about, talking specs and pricing with customers just recently it doesn't seem like it.

But should we be expecting a bolus of demand or customers who are kind of holding off to order this and now they're going to come in waves or anything? It doesn't, again, doesn't seem that way, but just want to make sure?.

Yes, I don't think there would have been sort of a huge some that kind of dynamic, I think this is definitely sledding for our customers. And our early, especially some of our earliest most forward-looking customers that have been kind of asking for this kind of capability for a while.

So definitely there is some amount of kind of baked in demand that's coming, but I'm not sure if I'm classified is like a huge sort of tsunami kind of deal..

Understood. Thanks, guys..

Thank you. Your next question comes from the line of Matt Sykes from Goldman Sachs, your line is open..

Hi, thanks for taking my questions. Just maybe first, just following up on Tejas question OpEx, just specifically as it relates to sort of inflationary pressures and then more specifically, on the labor side, obviously you guys have made great headway in terms of increasing your headcount.

I'm just wondering, are there any inflationary pressures on that in terms of wages and what you have to pay to bring new people on board? Or has it been fairly consistent throughout the year?.

Market is hot right now, right down there. So we just updated our ranges recently, and we looked at how much the market has moved last time that we did that kind of analysis, which wasn't that long ago. And there's definitely been movement higher in the market. And so we - it's in our plans right now, but yes, we are seeing that a little bit..

So that's accounted for in your current plans right now, that inflation?.

Yes..

And then just a quick question, just on the overall comments on sort of the resurgence in COVID, and the things that are going on with the labs, most recently.

Is there any regional aspect to that, obviously, it's surrounding where there's resurgence, but I'm just wondering if there's any regional differentiation into how labs are reacting most recently to the resurgence?.

Yes, this is Brad. Yes, it's pretty much - it's fairly dynamic across all of our regions, one thing that we're following closely is the UK where we saw being hit fairly hard by the Delta variant. And there was some somewhat acute limitations, but those kind of went away fairly quickly.

And now we're seeing things starting to emerge there, which I think is hopefully something we can all look forward to. But overall generally right now, the world is going backwards when it comes to adding more of these protocols in sort of restrictions.

But again, to be clear, this is not closing labs, are going home kind of thing, this is just normal things.

And the most important thing is our ability to get on site, there's a lot of support people out there, they've done amazing things virtually, but there's nothing, no substitute for being on site, shoulder to shoulder with our customers and helping them in some cases, just giving them confidence, because these are big experiments and there's an element of risk.

So, in general, I think it's very dynamic, but I think we're prepped to get through it..

Great. Appreciate the color. Thank you..

Thank you. Your next question comes from the line of Matt Larew, from William Blair, your line is open..

Yeah, hi good afternoon. You've talked in the past about the potential for a consumer pull-through on Chromium Connect to be about 2x Chromium Controller, and we're about 18 months since launch.

So just curious what you're seeing from early adopters of connect in terms of pull-through, and then perhaps two related comment on potential pull-through for Chromium X.

But if it isn't, then be curious for your comments there, too?.

Our plan from Chromium Connect in our longer term assumptions is that it would be between two and 3x that have the Chromium Controller. But keep in mind with many of these instruments placed during the pandemic, and many of them just coming online recently in the last two quarters, we obviously aren't seeing that now.

And we aren't seeing anything that is having an impact on the average Chromium pull-through right now, either..

Okay, and then last quarter, you mentioned that some customers who on-boarded during the pandemic, were having more trouble getting golems Visium, and I think you alluded to trying to provide additional competition support.

So just curious whether it was the ability to interact with customers in-person or any additional capabilities services you offer, if that was something that was improved on in the quarter?.

This is Brad, I think, in general, yes, we - helping people onboard a new technology is best done in-person, let me just be clear about that.

But and so I think over time, we've actually increased our - certainly deliberately increased our resources around support, because ultimately, we are expecting to be back in front of our customers, and that's an area where we think we can add a lot to help customers faster through the workflow.

And that goes even just with Chromium as well as Visium..

Okay, so just one more on your main number, obviously was very strong and maybe that was just a one-time order or some pent up demand.

But just kind of curious if there's anything driving that number in the quarter?.

Certainly, that specifically. Yes, when you look at the quarter-over-quarter increases, by region, there was a pretty big increase for EMEA, there's an increase for AMR as well.

But EMEA was primarily driven by just labs that were previously either shut down or running with reduced capacity, just coming back towards more closer to normal operations by the end - in Q2..

Okay, thanks, Justin..

Presenters, there are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may all disconnect..