Good afternoon. Thank you for attending the 10x Genomics Second Quarter Earnings Call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I'd now like to pass the conference over to your host, Cassie Corneau with Investor Relations and Strategic Finance at 10x Genomics.

Thank you. You may proceed..

Thank you, and good afternoon everyone. Earlier today, 10x Genomics released financial results for the second quarter ended June 30, 2022. 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 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; Justin McAnear, our Chief Financial Officer and Jim Wilbur, our Chief Commercial Officer.

With that, I will now turn the call over to Serge..

Thanks, Cassie. Good afternoon and thank you for joining us. Revenue for the second quarter declined 1% year-over-year in line with our pre-announcement in mid-July. Our results this quarter fell short of our expectations as we navigated challenges in both the macro environment and with our execution.

While some of these issues are behind us, we expect others will persist into the back half of the year. Based on these lingering headwinds in our first half results, we now expect full year revenue in the range of $500 million to $520 million, representing growth of 2% to 6% over the prior year.

While our topline growth this year will be slower than our previous expectations, we firmly believe the underlying opportunity for single cell and spatial technology is as strong as ever. On our call today, I will focus on what we're doing to ready our organization for a next phase of growth.

Justin will provide more details on the specific impacts to our second quarter revenue and our outlook for the year, as well as give additional color on steps we're taking to strengthen our financial profile. I'm proud of our track record of product innovation and the growth we’ve delivered over the past few years.

We have progressed at a truly rapid pace amidst a very challenging environment. And with that incredible speed, we have quickly outgrown some of the processes and systems that got us here. And while we have some work ahead of us, we are building from a great foundation. For starters, our fundamentals are incredibly strong.

We're focusing on the strength that have always differentiated us, driving our innovation engine, providing a superior customer experience and investing in long term. In parallel, we will improve our execution and implement tools and processes, so we can increase leverage and scale to the next level of growth.

And finally, I continue to have full confidence in both our vision and our approach to achieving that vision. We have built leading platforms for single cell and spatial biology and we're just getting started.

As the only company to have the three fundamental technology approaches for single cell and spatial biology under one roof, we're uniquely positioned to be the best partner to help researchers around the world interrogate, resolve and master biology. Now, let me share a bit more about our progress and pipeline in each of our three platforms.

Starting with Chromium, which is the unambiguous leader in single cell analysis. During the quarter, we continued to see solid demand for Chromium X Series instruments. We are proud of the broad appeal and demonstrated success of the (ph) in its first full year since launch.

Customers are enthusiastic about the new platform and its expanded capabilities, including access to our fixed RNA profiling kit, which is exclusively available on X Series. Turning to consumables where the breadth, performance and workflow of our broad menu of assays is an important differentiator for us and for our customers.

As planned during the quarter, we began shipping two new kits designed to help make more samples and more sample types available for single cell analysis. It has been great to see the early energy for both our nuclei isolation kit and our fixed RNA profiling kit.

The nuclei isolation kit, our first offering to help ease sample preparation provides a simple scalable workflows to make frozen tissues and previously challenging sample types more accessible for routine single cell analysis.

This is a great example of how our continued innovation and workflow simplification will help expand our opportunity, bringing new labs and researchers into the 10x ecosystem and increase utilization among existing customers. It's early, but we're really excited by the strong initial adoption of this kit.

We're also really pleased with the early feedback on our fixed RNA profiling kit, which we believe has the potential to be transformative to the Chromium franchise over the long term.

This assay enables researchers to lock in cell states at the point of sample collection and removes time and transport constraints typically associated with single cell workforce.

It also offers a number of significant advantages including improved gene sensitivity, increased sequencing efficiency and built in sample multiplexing to achieve lower price at scale. While adopting a new workflow takes time, researchers have been running pilot experiments and side-by-side comparisons to see firsthand the performance of this assay.

The feedback with has been universally positive. At the AGBT conference in June, we demonstrated how our fixed RNA kit can also unlock for the first time ever FFPE preserved samples for single cell analysis. This is a groundbreaking capability that we believe has the potential to be a real game changer as it opens up vast volumes of archival samples.

Given that all the progress to date in single cell has been made using fresh or fresh frozen tissues, we expect this breakthrough capability should enable much more research, particularly in translational settings. Looking forward, we are excited about our Chromium pipeline. We're on track to launch BEAM-Ab and BEAM-T by the end of the year.

Now, turning to Visium, while we're still early in the Visium lifecycle, we continue to be encouraged by the wider sustain adoption of the platform as the leading tool for our unbiased spatial discovery. In Q2 with saw increasing adoption of Visium FFPE which exceeded fresh frozen and sales for the first time.

To date, our customers have relied on Visium in almost 300 papers and pre preps. This is an important leading indicator and it also demonstrates the success, the discovery and translational researchers are already having with the current Visium platform. In June, we began shipping Visium CytAssist, our first spatial instrument.

While it's still very early, we are pleased with the initial response and demand we're seeing from customers. By addressing the key challenges our customers have faced with the Visium workflow, CytAssist will enable more routine use of the Visium platform. It should also significantly expand the number of samples that can be run on Visium.

We believe that ease of use, overall experience and performance is much better for customers and the data generated using the instrument is superb. CytAssist will be a key enabler for the Visium platform going forward. In June, we also launched the second version of our Visium FFPE assay.

We're making it available exclusively on CytAssist so customers can take full advantage of the instruments ease of use and higher quality data. This new kit will give researchers higher performance and better and more reliable workflow and an added flexibility of larger captured areas.

I also want to provide an update on Visium HD and our work to develop a high resolution whole transcriptome offering. This has proven to be a very ambitious undertaking. Bringing up this new technology and associated manufacturing capabilities at the quality, scale, and resolution our customers expect is taking more time than we anticipated.

As a result, we no longer expect to launch Visium HD this year. While we aren't providing an updated timeline right now, we are fully committed to delivering this capability to researchers as soon as we can. Turning to Xenium. We continue to make great progress in the platform, which we expect to begin shipping by the end of the year as planned.

At AGBT, the energy, interest, and enthusiasm from customers were stoppable and exciting to see so broadly. Internally, what has been particularly inspiring to our team is a strikingly powerful data we've been getting from our experiments, showing great levels of sensitivity, specificity and flex on challenging samples.

This has been reinforced by the positive reactions of customers with whom we have shared the data. We build the Xenium platform with several key design principles in mind. The goal is to be able to determine cell types and cell space in the tissue of interest and measure what each cell is doing.

Apart from used to work across a wide range of tissues, sample types, applications and biological systems. And importantly, Xenium was designed to enable routine use.

We believe from launch, Xenium will have the highest throughput of any in-situ instrument enabling researchers to analyze the most tissue area of single molecule resolution in the least amount of time.

And finally, we just designed Xenium to scale with customers evolving research needs, Future kits will be able to support the measurement of thousands of genes and infectious proteins on the same section. We firmly believe in Xenium's differentiated position, both at launch and as we look ahead at our comprehensive long-term roadmap for the platform.

Our team has established collaborations with key opinion leaders to inform and validate the development of future gene balance. We're combining this customer input with our wealth of single cell data to design a broad menu of high quality curated gene balance, specific to both tissue types and application area.

Researchers will also have the ability to have large numbers of custom genes. We believe our leadership in single cell and spatial transcriptomics gives us a particular advantage with Xenium because most in situ experiments make use of single cell data to determine the genes of interest and to contextualize in situ analysis.

Stepping back, we continue to have every confidence in our technology leadership across each of our three platforms. We believe our cadence of technological advancement and velocity of new product launches is unrivaled. Our pipeline is exciting and ambitious and has already resulted in five major product launches this year.

Looking forward, we are eager to build on this momentum and our track record of breakthrough technologies. Now, let's spend a few minutes on commercial. For the past few years, we've grown incredibly fast, too fast that the infrastructure we built didn’t always scale with us, especially in commercial areas.

In recent quarters, it has become clear that what got us to this point of growth wasn't going to get us to the next. We're proud of the breadth and talent of our global commercial team. This is a group that has worked tirelessly to drive adoption of our technologies and support customers at every phase of their experiments.

Our challenge and our opportunity is to make sure our team has the right leadership, tools and processes, so we can increased leverage, scale to the next level of growth and unlock the massive opportunity we have ahead of us.

Implementing better systems and tools will help us improve both our commercial execution and the customer experience in a number of ways, and here a few I'd highlight. First, we will reduce friction in the sales process and make ordering and reordering more efficient for our customers and our sales team.

Second, we'll establish more rigorous and metric driven sales tactics to consistently manage our customers through every step of the sales cycle. We'll do this by establishing universal processes, robust training programs and better analytics that help with customer outreach and engagement.

And third, we believe the right processes and systems will help us improve visibility and information flows, both within commercial and between commercial and the rest of 10x. Altogether, we believe these will help our sales be more efficient and effective with our time and know how to prioritize their efforts to have the biggest impact.

This is essential as we further expand the breadth and depth of our portfolio, increase adoption with existing customers and continue to make inroads with new customer segments and applications. Now, I'm really excited to have Jim Wilbur on board as our new Chief Commercial Officer to lead this work.

Jim has dedicated his entire career at building transformational tools in the life sciences. He comes to us from Meso Scale Discovery, highly regarded global leader in instruments and assays that have revolutionized protein measurement. Jim understands and his passion about the and both at strategic and at very granular level.

He knows what drives customer and sales team behavior. He has a deep scientific and technical background, pride and developing high performing teams and is fundamentally a builder which I fact mean because we have so much more building ahead of us. He is a seamless fit with the 10x mission and culture and we're thrilled to have him here.

Now, I'll turn it over to Jim to say few words..

Thanks Serge. I'm really excited to be here. What struck me about this opportunity is the scope and scale of what's possible. It’s already well-established that single cell analysis has been transformational in our understanding of biology.

My belief, and I know it's one you all share, is that its biggest single cell has become is really just getting started. I believe the future will bring an enormous expansion in the number and types of researchers and investigators using these tool and the types of questions that are going to get asked and answered.

It's been an amazing start that has absolutely exceeded my expectations. We're building on a great foundation and we'll give our talented team the resources and support they need to get absolutely everything out of the tremendous opportunity ahead. This journey towards ever higher levels of commercial excellence is going to be fun..

Thanks, Jim. In addition to our broad commercial reach and powerful innovation engine, we see our strong cash position as an important differentiator, especially in this environment. We will be deliberate in protecting it, while also continuing to invest in our strategy and long-term growth.

Last week, we took action to reduce our global workforce by approximately 8%. You heard me say it's the people of 10x who make the magic happen, which is what make decisions like these so difficult. While the actions we made affected every organization there was less impact among our R&D and field-based customer facing teams.

The changes were made , especially for those directly impacted but they were necessary to make 10x more resilient in the current environment and more focused on our mission to drive our next phase of growth. We don't expect these changes to have a material impact on our near-term execution or our long-term growth trajectory.

Looking at the work ahead, we're incredibly grateful to our team for their dedication to our customers and tireless pursuit of our mission. To recognize their hard work and impact, we are making investments to further strengthen redemption and sustain the team's high engagement.

As I shared at , during times of change we are staying focused on what's constant, our mission and our opportunity. We expect that in the future, just about old tissue samples, whether for basic research or for clinical diagnostics will need to be analyzed as single-cell resolution in spatial complex and at large scale.

The endpoint is clear, but as 2022 has shown, the path together is not linear. Yet through their research discoveries and publications, our customers remind us with increasing frequency of the tremendous potential of our technologies to accelerate the mastery of biology and ultimately Advanced Human Health.

Here are just a few of the recent discoveries and pressing questions that have inspired and motivated our team in recent months. In Times Magazine we saw publications of the first large-scale cohort studies linking population genetics with single cell sequencing.

These studies rebuild an extensive catalog of molecular signatures in autoimmune diseases, opening the door to a new era of functional genetics. Our tools enabled the discoveries of molecular signatures in two recent studies of age-related macular generation and glaucoma.

These studies will help with better diagnosis and treatment of these devastating eye diseases. One of the central questions in CAR-T therapy is teasing out what determines success and survival of injected CAR-T cells.

Our customers are using our immune profiling and gene expression solutions to help answer that question in order to improve and help administer T cell therapies. And just last week, (ph) published a large study of samples from patients who suffered heart failure.

The research has performed single nucleus RNA sequencing on close to 1 million cells to reveal the underlying biology and point to interventional opportunities and personalized treatments. It is clear that discoveries like these have enormous potential to transform how we predict, diagnose, treat and ultimately cure disease.

This is why we do what we do. This is why despite all the progress we've made, we believe it's still early days, and this is why we are so confident in the end point and that 10x is the best company to deliver on it. Now let me turn it over to Justin for more details on our financials..

Thank you, Serge. Total revenue for the three months ended June 30, 2022, was $114.6 million compared to $115.8 million for the prior year period, representing a 1% decrease year-over-year. Revenue was flat compared to the first quarter of this year.

Consumables revenue was $97.9 million, increasing 1% over the prior year period and flat compared to the first quarter of this year. Instrument revenue was $14.7 million, decreasing 13% from the prior year period and up 2% from the first quarter of this year. Service revenue was $1.9 million increasing 7% over the prior year period.

Our Q2 results were impacted by macro headwinds, as well as some internal challenges. This was particularly evident outside of the U.S. Starting first with APAC. Revenue for the second quarter was $18.1 million, decreasing 15% from the prior year period and down 47% compared to the first quarter of this year.

Revenues in the region were impacted by lockdowns in China that increased in scope and duration beyond the assumptions that we shared on our Q1 earnings call in early May. They extended into June and spread beyond the Shanghai area, impacting customer activity and resulting in lower sales. Turning to EMEA.

Revenue for the second quarter was $25.6 million, decreasing 11% from the prior year period and up 25% from the first quarter of this year.

While revenues in the region improved sequentially, results were impacted by unfavorable currency fluctuations, delayed customer reorders related to the previously discussed cold chain logistics issue and some execution challenges.

In the Americas, revenue for the second quarter was $70.9 million, increasing 8% over the prior year period and up 19% compared to the first quarter of this year. Turning to the rest of the income statement. Gross profit for the second quarter was $86.9 million compared to a gross profit of $110.9 million for the prior year period.

As a reminder, in the second quarter of 2021, we booked a onetime reversal of $14.7 million of accrued royalties related to a litigation settlement. Gross margin for the second quarter was 76% compared to 96% in the prior year period.

The decline in gross margin was primarily due to the accrued royalties reversal in Q2 2021 as well as changes in product mix and the increased manufacturing and logistics costs. Total operating expenses for the second quarter were $150 million, an increase of 24% from $121.3 million for the second quarter of 2021.

The increase in operating expenses was primarily driven by higher personnel expenses, including stock-based compensation, increased research and development expenses and infrastructure costs, partially offset by a decrease in outside legal expenses.

R&D expenses for the second quarter were $70.7 million compared to $53.4 million for the second quarter of 2021. SG&A expenses for the second quarter were $79.3 million compared to $68.7 million for the second quarter of 2021.

Operating loss for the second quarter was $63.1 million compared to a loss of $10.3 million for the second quarter of 2021, primarily due to the impact of increased personnel-related expenses. This includes $36.3 million of stock-based compensation for the second quarter of 2022 compared to $26.9 million for the second quarter of 2021.

Net loss for the period was $64.5 million compared to a net loss of $11.1 million for the second quarter of 2021. We ended the quarter with $500 million in cash and cash equivalents and marketable securities, net of restricted cash.

As we are operating in a macro environment with increased economic uncertainty, we implemented a reduction in force of 8% of our global workforce to reduce spending, preserve cash and strengthen our financial profile.

We estimate that we will incur between $5 million and $6 million of costs consisting primarily of cash severance, which we expect to recognize in the third quarter of 2022. In addition, we have canceled a number of open hiring requisitions and reduced our near-term hiring plan, while implementing targeted reductions in non-headcount spend as well.

Our goal is to be free cash flow positive by the end of 2023. Over the next few quarters, we expect elevated levels of capital expenditures and subsequent cash burn as we finish construction of our operations facility in Pleasanton. Completion is expected at the end of Q1 2023 and we are evaluating options to finance the facility after completion.

Now, turning to our revenue outlook for 2022. We now expect our full year 2022 revenue to be in the range of $500 million to $520 million, representing growth of 2% to 6% over full year 2021. In the first half of the year, we experienced a slower-than-expected rebound as we emerge from the pandemic environment.

This was driven in part by macro factors, some of which we expect to continue into the back half of the year.

While we continue to have confidence in the tremendous opportunity our products are unlocking and the underlying demand for our technology, we are adjusting our expectations for the second half to reflect a more modest rate of increase and lingering macro headwinds.

Thus, we expect Q3 revenue growth in the low to mid-teens percent over Q2, and we'd also expect Q4 to exhibit the same seasonality that we've seen in the past, barring any material changes to the macro environment. We look forward to providing additional information on our business at an upcoming Investor Day planned for later this year.

Stay tuned for more details to come. At this point, I'll turn it back to Serge..

Thanks, Justin. Before we start Q&A, I want to thank our team. The work we do at 10x is both challenging and exciting. And that's what makes it meaningful and worth it. I'm so proud of this team and the tremendous impact you are making. I couldn't be more optimistic and confident about the future.

Thank you for all you're doing every day to push 10x, our mission and science forward. With that, we will now open up for questions.

Operator?.

Absolutely. We will now begin the Q&A session. The first question is from the line of Matt Sykes with Goldman Sachs. You may proceed..

Hi. Good afternoon. Thanks for taking my questions. Maybe the first question, I really appreciate all the color on '22 and the macro factors involved there. I know it's -- you might give some more details later this year, but any kind of early view on how we should think about '23 just in terms of growth? You've got a lot of new products coming on.

I know Visium HD has been delayed, but there's number of new products coming on that could impact that growth rate.

But in terms of rebound, if we assume some of the macro factors start to dissipate the end of this year, any kind of color you can provide us with and what '23 may look like for you?.

Hi, Matt. First off, there's a lot to be excited about when we think about 2023. So as you mentioned, a lot of new products coming out, it's going to be the first full year of Xenium. It's going to be the first full year of CytAssist and fixed RNA as well.

And I also think that we're going to start to see us reaping some of the benefits to improvements in just systems and tools and processes that we've spoken about on the commercial side as well. But as far as giving any color past that, right now I think we'll get through Q3 and Q4 without forecasting too far ahead of what we're seeing.

And we will share more of a view on the key drivers on 2023 later in the year in the Investor Day that we mentioned..

Got it. Thanks, Justin. Appreciate it. And then maybe one for Jim or Serge. Just you talked a little bit about some of the commercial strategies you're going to put in place when harnessing the data analytics.

Could you maybe give a little bit more color in terms of where you feel like the greatest areas of improvement could be, whether it's engagement with existing customers or maybe trying to penetrate new areas? And what the type of efforts that you put together in terms of data analytics? How that could enhance that? I'm just trying to get a sense for from a timing perspective how we could expect to see some of these changes you're going to do to commercial strategy as it start to take place? Thank you..

Yes. I would emphasize, maybe to step back a little bit, a lot of what we're going to be doing, a lot of what we're going to be implementing matches more around the mechanics of commercial execution, not the fundamentals of the strategy.

We feel that we firmly feel that we are confidence in our markets and in the customers that are out there and that we're approaching our markets with the right set of products and the right high-level strategy. Now in terms of all the tools and the metrics that we're going to be -- systems we are going to be implementing.

You kind of step back and think from first principles, we have -- you mentioned that we’d have to focus on adding new customers to the ecosystem. We also need to focus on increasing the usage with existing customers.

And if you think about where -- how our business has evolved over the last several years, there's just been a huge increase in the complexity of our portfolio and also in just the shared number of customers that we have.

And so it is on us to make it our teams, certainly our sales reps and others, the tools -- much better tools to -- for them to know how to best spend their time most effectively and most efficiently and have the right analytics, information flows and tools. So that's going to be the Everest, I think there's a lot to be done across the board.

It's not any specific area that I would point to. It's a huge opportunity, and it's not going to be the kind of thing where it just sort of flip the switch necessarily, but over the coming quarters, we should expect to see good progress..

Thanks very much..

Thank you. The next question is from the line of Derik De Bruin with Bank of America. You may proceed..

Great. Thanks for taking the question. This is Mike Ryskin on for Derik. I want to follow up on Matt's second question there.

Jim, I realized that you've only been in the role for a couple of weeks now, but wondering if you could give us a little bit more of an update on your thoughts on some of the commercial revamps going forward? How do you think about retention of the existing sales force versus some turnover that we've already seen and we could probably expect to continue to see.

Can you give us a time line on how long you think until the organization will be in the right place to sort of implement the strategy? I guess put in another word, for how much longer is there going to be a revamp versus when will you be ready to go forward?.

So Mike, let me pick up that question. As you alluded to, Jim, he has been here for all of its business days, so I want to be careful in terms of -- in terms of on the specifics here. One thing I do want to emphasize, like I said in the previous answer is, the team is very strong. The commercial team all around is strong.

And in terms of -- we believe in the team and what we have been focused on is bringing the new leadership and the new tools and the new systems and new processes, right? So it is going to be a function over the next several quarters as we proceed and implement those changes. I think -- I don't think there's a lot more to add.

And I would caution again, focusing too much on the team turnover, which has not really been the case at this point..

Okay. Great. And then maybe a follow-up. In the past couple of quarters, there's been a lot of discussion about Halo users and non-Halo users and sort of as the installed base has grown, how the divergence of some parts of the customer base and the utilization that comes with that.

I was wondering if you could give us an update on that sort of -- are you noticing continuing trends there? Have some of the efforts you've taken to address that has that improved? Just to give us a little bit of a sense of what's going on the pull-through per system or maybe on the utilization side of things? Thanks..

So I wouldn't say there's been a huge change since when we talked about it earlier in the year. Those data does tend to be -- there's been a lot of puts and takes so far this year.

So it's hard at this stage to make any confident statements around these kind of longer-term guidance, which you -- which makes more sense to summarize in the course of across more like a year cadence.

Overall, some similar trends we've seen before where instrument owners have consistent usage and consistent brands and daily users tend to be more episodic and use the products less..

Great, Thanks..

Thank you, Mr. De Bruin. The next question is from the line of Dan Arias with Stifel. You may proceed..

Good afternoon, guys. Thanks for the questions. I have a little problem in my phone or hopefully that doesn't get in the way of been able to ask these here. But Serge or Justin, maybe just back on new products, but more focused on this year.

Should we think about some of the key new portfolio elements there, fixed RNA side of things, et cetera, playing a role in the 3Q to 4Q step-up that you’ve alluded to as a part of the outlook?.

We do -- we certainly feel good about these products. I’ve mentioned there in particular, it's a new instrument. So there's quite robust demand we're seeing from customers. Certainly, as you've heard me saying multiple times now, fixed RNA profiling is a very exciting product.

The one note of caution there is that, it's a new workflow, it takes some amount of time for people to benchmark it against our previous workflows. So there's going to be some amount of ramp that we still need to kind of see how that performs..

And Dan, as far as the step up from Q3 -- as far as the step-up from Q3 to Q4 goes, what we're really getting across there is just we'd expect Q4 to exhibit the same type of seasonality that we've seen in the past.

And then typically, with new products, we don't typically subscribe too much volume to new products right at launch or right after launch. And we're always launching new products, and they do typically take a number of quarters to get traction before they become meaningful..

Okay. Maybe, Serge, just as a follow-up, I wanted to ask a question about CellPlex. As you've thought about the moving parts and the dynamics in the single cell market today, and you think about that product seemingly being important for the long-term adoption of single cell.

I'm just curious if you think in the short term that there's any negative impact that you're seeing on consumables growth just from reducing the per sample cost but maybe not seeing the volume increases at the same magnitude this year?.

Yes, this is something that we've been watching, I would say, on several fronts. CellPlex is one high throughput, HD kits is another one that has sort of some of the similar dynamics of reducing price per data point in order to drive volume.

I would say so far, to the extent that we feel like has fairly minimal kind of the extent of cannibalization on that front. There is some, but that also has opened up some new projects and studies. So on the net, I don't think there's a material change yet that we're seeing..

Okay. Appreciate it guys. Thank you..

Thank you. The next question is from the line of Tejas Savant with Morgan Stanley..

Hi, guys. Good evening and thanks for the time here.

So Serge or Justin, perhaps, can you just share some color on trends in July and into August here? I'm just trying to sort of juxtapose what is essentially sort of the mid-teens miss for 2Q versus the $100 million plus that you're taking down the guide by? And any specific color on Americas growth here? Was that essentially related to commercial missteps year-over-year, 8% a little bit underwhelming?.

Hi, Tejas. As far as your first question goes on trends to date, when we gave our updated guidance, we also gave some color on how we expect Q3 to go with a low to mid-teens percent increase from Q2 to Q3. And so far this quarter, the trends that we're seeing support that view.

And then as far as your second question, just around overall growth in the different regions. The biggest impacts that we've seen are in APAC and EMEA, to a lesser degree in AMR. But within all regions we have seen some degree of slowness coming out of the first part of the year..

Got it. That's helpful. And then just as a follow-up. One of your peers in spatial here called out this mix shift, if you will, away from multicellular resolution platforms to single cell or subcellular imagers.

What are you hearing from your customers? And what does that imply for your Visium platform going forward, particularly in terms of the HD slippage here into next year?.

So we haven't seen, like, I would say, a material slowdown in Visium adoption. I think it's been sort of a different sort of use cases in many ways, and it's still quite early in that market. So it has been -- Visium has been growing, especially Visium FFPE has been growing quite robustly.

So from that perspective, I think we're feeling good about the Visium trajectory, especially now with coming out, which should put an additional sort of acceleration to the platform. But we absolutely see the excitement around in projects and you refer to what's happened at the AGBT, we're certainly investing very aggressively in Visium.

I'm really looking forward to launching that platform later this year. A lots of interest from customers, a lot of excitement internally here as well..

Got it. Thanks for the time, guys..

Thank you. The next question is from the line of Patrick Donnelly with Citi. You may proceed..

Hi, guys. Thanks for taking the questions. Maybe a similar ran to Tejas’s first question there. Just in terms of the visibility, Justin, can you talk about overall the visibility for this business? I mean, obviously, three months ago you guys maintained the guidance. You kind of knew about the Europe and China headwinds where you were somewhat known.

North America seems like it came in pretty light.

Can you just talk about just the general trends, visibility into the overall business as we move forward here?.

Hi, Patrick. Sure. So I think before getting into the core of the question, I'll just talk a little bit about the drivers for Q2. The biggest drivers on the Q2 miss were the extended lockdowns in China and also the currency impact as well. So just a few things on that. On China, historically China has been about 15% of our business.

And when you look at Q2, they did a fraction of what they have done before. And when we did our earnings call in the last cycle, when we reiterated guidance we also shared our assumptions for that guidance update, which had the China lockdown abating basically in May.

And they didn't and they extended into June, and they also increased in scope as well. And then currency. Currency was a material issue in Q2 as well. Keep in mind that 45% of our revenue is outside the U.S.

And when you look at 2022 revenue, whereas about 17% is indirect foreign currency, we also have distributors that we sell through that we sell to -- that we sell to in U.S. dollars that sell to customers in foreign currency.

So I think the impact of currency as it shifted over the whole of Q2 impacted more than that 17% that's in the direct foreign currency. I think it extended past that as well. And so then also you have the impact of China currency and then just the growth rates that we were expecting coming out of the pandemic environment.

And it was a pretty depressed Q1 with the Omicron impact in the first quarter. And coming into Q2 into Q3 and Q4, we did expect a higher acceleration and we haven't seen it yet. And so really, while we're expecting a more modest increase today and still an improvement, it's not to the degree that we were expecting earlier in the year.

And for right now, we're going to forecast what we're currently seeing with a more modest growth rate on top of that..

Understood. Okay. And then one, Serge or Justin can answer this one. I mean just in terms of kind of the balancing of kind of growth and profitability, you guys came out of the IPO, obviously, spent pretty aggressively going after this big opportunity, you put up great results for a couple of years stretch there.

Now kind of pruning the workforce and being focused on profitability. Can you just talk about how you guys balance that internally, again, still talking about the opportunity being very significant at the same time, focused on profitability.

So maybe just talk about how you find that balance where you kind of direct the incremental dollars from here and kind of think about chasing growth versus, I guess, profitable growth versus kind of any growth. Maybe just a little bit of color there. Thank you..

Yes. So I'll say like, first of all, at a very high level, we're still very much in growth mode. The opportunity is huge. It's actually grown larger than at the time of the IPO and I have every confidence this is as big a thing as it has ever existed in life science tools. And so it's our job to realize this opportunity.

And that's our number one priority. Now stepping back, if you look at, again, what has happened since over the last couple of years, since that deal, we've doubled the size of the team in the last two years. And it's not just the size that we've increased, the team organizational complexity, more layers, more roles, sometimes over specialized roles.

And so there's an element of streamlining the organization kind of in -- really reflecting on the current economic environment, reflecting our current revenue rate doing some amount of adjustments to the organization and being more careful and deliberate with how we spend going forward.

And so it is definitely a balance, but the first order, like we're absolutely investing and expecting lots of growth. But now we're also doing it with a constraint that Justin put out there driving towards being free cash flow positive..

Got it. Thanks, Serge..

Thank you. The next question is from the line of Daniel Brennan with Cowen. You may proceed..

Hi, guys. Thanks for taking the questions. Maybe the first one is on single cell. So you highlighted Serge upfront incredibly positive fundamental environment, but obviously, the last couple of quarters hasn't been as evident to us.

So can you just give us some insight on what the underlying market in single cell is growing at? Has there been any slowdown from 3D spatial cannibalization? And between the drag from the one-off factors and how your base business is doing, it'd be interested to get some more color there. I know there was a question earlier on the halo effect.

So maybe you can just give us a little more flavor there. And I have a follow-up. Thank you..

Yes. So as far as -- on the first half of the year had a whole lot of different effects, puts and takes from different sizes. So it's a little hard to infer long-term thanks from just what happened in the last two quarters. We go back to first principles of the fundamentals. That has not changed.

Like people need single cell resolution, they certainly need it for applications all across life sciences, all across biology. So no question around that.

As far as questions in terms of cannibalization for spatial -- 3D spatial, I don't think that can be a material effect at this point given that there is not really much of both technologies out there, and we certainly would be seeing that on our side as well as that were happening.

I think it's more broadly the slowdowns we've been seeing recently again these broad macroeconomic factors that Justin mentioned and also generally, we're still -- everybody is still trying to figure out what is the kind of the new world of research look-like coming out with the pandemic environment over the last two years..

Okay. Got it. And then on 3D Spatial, well, I know you haven't really broken out specifics on the business in the past.

It would help to get some color around how we think about the relative size of that business and/or your share? And when we think about, at least, if you're not going to share that, but at least if you would think about the new product impact '23, like is this an incremental driver to year-over-year growth or just potentially a material driver of growth? Thanks..

Hi, Dan, I'll start with that. So we don't currently -- you're right, we don't currently break Visium out. We will talk more about our plans for that at the Analyst Day that we talked about in the prepared remarks.

But I can tell you, as far as trends go, over the last few quarters it's relative percent of overall revenue, it hasn't fluctuated too much, meaning, it's been consistent volume-wise with the rest of the business..

Thank you. The next question is from the line of Julia Qin with JPMorgan..

Hi, Good afternoon and thanks for taking the question. First on Visium HD.

Could you give us a little bit more color on the nature of the delay and give us a little more detail on what's the bottleneck that remains to be addressed? And how confident are you that it's going to be addressed in the rough near term?.

Yes. So as I said, there is -- this is like a very ambitious undertaking. We've been involved new technology, new manufacturing capabilities. And while the initial data for look really good, we run to some technical and manufacturing schedule scaling those. So we are committed to delivering the capabilities.

But -- and we know it can be fundamentally, it can be done because we have the data to show that can be done. But it will take more time. And we are adjusting our product development approaches here, but we're not ready yet to talk about the specifics or an updated time line..

Got it.

And then on Visium, just making sure if you're still on track to launch that by year-end? And are you taking preorders to take advantage of this year's customer budget?.

Yes. So on Visium, we are on track to launch it before the end of the year, and we have started taking preorders for these instruments precisely -- partially for that reason..

Got it. Thank you..

Thank you. The next question is from the line of Matt Larew with William Blair. You may proceed..

Hi, good evening. I want to just quickly follow up there on Julia's first question.

Could you just confirm is it technical feasibility issues that you're still working to address? Or are those issues that you solve and it's a matter of scale up and manufacturing where the quality and consistency needs to be maintained? Just trying to assess that whether this is a technical feasibility or feasibility at scale issue?.

Well, it is really feasibility at scale issue, because, again, internally, we have shown that it works, we see in the data and then transitioning into a scale is where there have been new challenges that we have encountered..

Okay. And you mentioned last quarter that the delays with HD were affecting current Visium demand.

Has that still been the case? And are you sensing that customers are trialing other products? Just curious what your conversations with customers have been about the delay?.

Well, it's still very early. So we'll have to see how that plays out with customers. Like I said last time, HD was stalling some customer sales. It may actually unlock some going forward, but it's too early to speak at this stage..

Okay.

Justin, based on results year-to-date, I was just curious, are you still expecting to see year-over-year growth in Chromium instrument placements?.

Hi, Matt. Good question. Earlier, we had said that we expected to be roughly flat year-over-year. I think with what we've seen so far actualized in Q1 and Q2 and then just the adjusted expectations that we have for the back end of the year. I would say at this point, we'd expect it to be flat to slightly lower than last year..

Appreciate the detail. Thanks..

Thank you. The next question is from the line of Kyle Mikson with Canaccord Genuity. You may proceed..

Great. Thanks guys for the questions. Justin, you mentioned the goal to be free cash flow breakeven or positive by the end of '23. Obviously, that's a quarterly number you can get there.

Could you just talk about like the underlying assumptions behind the expectation, at least directionally, like right?.

Hi, Kyle. So as far as us putting out the goal to become free cash flow positive in 2023 -- by the end of 2023, we feel that hitting that -- it's an important milestone for us to hit to make sure that we have the right financial profile on our path to becoming a profitable company.

And so obviously, there's different revenue scenarios that we're looking at for 2023. As we've shown right now, we are adapting to the environment that we're in, and I expect that we will continue to do so to the degree that it makes sense without hurting our longer-term growth prospects.

So we'll share more about, like I said, the drivers for the 2023 top line later in the year. But we are committed to making sure that our spend is appropriate to the top line that we're experiencing.

And also, just a few other points that we made on the call, we are expecting elevated levels of CapEx over these next few quarters, but I do expect those to drop off. So just on the spend side, that's a key factor to understand that once that operations facility is complete in roughly the Q1 2023 time frame, you will see a drop off in the CapEx.

And we expect to spend roughly $140 million to $150 million CapEx over the next 12 months, but a good portion of that is front-loaded into the next couple of quarters..

All right. That was great. Thanks for that. And then for Serge, just given some of the departures recently among the commercial and the marketing leadership as well as the reduction last week.

I was just wondering if you could talk about what gives you optimism that you're not going to suffer from any brain drain or a slowdown in your trademark kind of product innovation pipeline strategy? You alluded to retention earlier in your prepared remarks. Just was wondering if you could kind of expand on that..

Yes. So I just want to emphasize, the retention comment was made very much with forward -- with a forward lens. We have not had really material departures in terms of brain drain or -- in fact, I would say the level of talent in the company right now is as high as it has ever been, in fact, probably higher than it has ever been.

So I feel very confident going forward, especially from that perspective..

Okay. Great. Thanks, guys..

That concludes the Q&A session and also concludes today's call. Thank you for your participation, and enjoy the rest of your day..