Good evening and thank you for attending today's 10x Genomics Third Quarter 2022 Earnings Conference Call. My name is Daniel and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for question-and-answer session at the end.

I would now like to pass the conference over to our host Cassie Corneau, Head of Investor Relations and Strategic Finance. Cassie please proceed..

Thank you and good afternoon everyone. Earlier today, 10x Genomics released financial results for the third quarter ended September 30th, 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 e-mail 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; and Justin McAnear, our Chief Financial Officer.

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

Thanks Cassie. Good afternoon and thank you for joining us. Today, I will start with a brief overview of our performance during the third quarter. Next, I will discuss our progress momentum and the exciting opportunities we have ahead in each of our three platforms.

I'll touch on what we're seeing in the market from a commercial perspective and then hand the call over to Justin for a more detailed look at our financials, business trends, and outlook as we get ready to close out the year. Revenue for the third quarter was $131 million, up 5% year-over-year and 14% sequentially.

Our sequential results were driven by a recovery outside of the US and strong growth in instrument sales fueled by Visium CytAssist in its first full quarter since launch. Let me share more about our recent progress and pipeline in each of our three platforms starting with Chromium, the unambiguous leader in single cell analysis.

In Q3, we once again saw solid demand for Chromium X Series instruments among both new and existing customers. More than a year after the platform is launched, researchers continue to value the X Series for its expanded capabilities and exclusive menu including access to the Fixed RNA Profiling Kit.

Turning to consumables, we know the breadth of performance and ease of use of our assays is an important differentiator that creates real value for our customers.

This quarter we saw a continued shift towards our high-throughput kits, which offer researchers the flexibility to analyze more samples or more cells at a size and scale previously considered unattainable.

While it's still early, we're really pleased with the initial adoption of positive feedback on both our Nuclei Isolation Kit and our Fixed RNA Profiling Kit.

Both of these recent launches are a testament to how our continued integration around sample preparation and workflow simplification can open up more samples and more sample types for single cell analysis. The Nuclei Isolation Kit with a simple and scalable workflow helps researchers extract clean nuclei from their samples.

It opens up new possibilities for customers working with frozen tissues and other previously challenging sample types. We're excited by the initial uptake and traction we're seeing for this product, particularly among multiome users.

In addition, there's increasing enthusiasm for our Fixed RNA Profiling Kit, which addresses a critical need for many of our customers and helps expand the potential of single cell analysis and larger-scale multi-site studies and translational research. This product has a number of breakthrough capabilities.

It enables researchers to lock in cell states at the point of sample collection removing time and transfer constraints typically associated with single cell workflows due to the need to work with live tissues. It also unlocks FFPE preserved samples for single cell analysis and new-to-world capabilities that opens up large volumes of archival tissues.

This kit includes built-in multiplexing to enable parallel processing in multiple samples, with an easy workflow and at a lower price per sample. And it is both our highest sensitivity, and most sequencing efficient assay, yet. Together, these features make it an incredibly powerful product.

Our customers are starting to experience this first hand, as they continue their pilot studies and benchmark against our flagship gene expression assays. This process takes time, as we knew it would.

And there's work to be done to further educate a new pool of researchers, on how they too can get so much out of this product's capabilities and expand single cell analysis to previously inaccessible sample types and research questions.

While it's still early, the word from customers so far has been very positive, including comments that this is the best product we've ever launched. Given this exceptional feedback, we believe the Fixed RNA, Profiling Kit has the potential to be truly transformative to the Chromium franchise over the long term.

We're also preparing for the introduction of our new Barcode Enabled Antigen Mapping product known as BEAM. We're on track to begin taking pre-orders for both BEAM-Ab and BEAM-T later this month as planned.

This offering, which is built on top of our Immune Profiling assay, will enable researchers to analyze up to millions of B or T cells to determine their antigen binding at high plex and high resolution.

Precisely because of this scale throughput and resolution, we believe BEAM can revolutionize the process of antibody and T cell discovery and help researchers quickly translate the power of natural immune response into new therapeutics. We believe this product will be particularly relevant to our pharma and biotech customers.

Now, I'd like to share more about Visium, the leading platform for unbiased spatial discovery. While it's still early in the Visium life cycle, we're proud of our Q3 progress and we're pleased with the initial momentum we're seeing with CytAssist.

CytAssist, our first spatial instrument was designed to solve the key challenges, our customers have faced with the Visium workflow. We believe the ease of use overall experience and performance of CytAssist, will enable more routine use of the Visium platform.

In addition, CytAssist will open up the archives of tissue sections previously stored on standard glass slides, significantly expanding the number of samples that can be run on Visium. Again, it's early, but we are encouraged by the positive feedback we've heard so far from customers who have completed their initial runs.

And with the exclusive launch of Visium FFPE version two on CytAssist, we saw FFPE continue its growth trajectory outpacing fresh frozen in sales.

This new version helps researchers take full advantage of CytAssist's ease-of-use and achieve higher performance, thanks to a better more reliable workflow and the added flexibility of larger capture areas.

We finished Q3, with confidence in our leadership in spatial biology driven by both new customer adoption and record reorders from existing customers.

Visium has now been cited in more than 365 papers and pre-prints, demonstrating the growing traction we're seeing with researchers worldwide as they increasingly turn to Visium to uncover, new biological discoveries. Last month, we took time to celebrate a few of these key discoveries, at our second annual Spatial Biology Symposium.

We had an enthusiastic crowd on hand, as we brought together leading researchers and pioneers in the field to discuss the future of spatial biology and to share more about Xenium, our upcoming platform for in situ analysis. We continue to make great progress on the Xenium platform and expect to begin shipping by the end of the year, as planned.

As we get closer to launch, more and more customers have seen Xenium data and we recently made data broadly available on our website for the first time. We've been really pleased, with the initial customer reviews and it's clear that the advantages of our platforms are resonating well.

Customers have been impressed with the key capabilities inherent, in how we designed the system both for launch and longer term, backed by a robust pipeline innovation track record. Ahead of launch, the platform's advantages and sensitivity and specificity and throughput have emerged consistently in our conversations.

In addition, our gene panel strategy, based on the extensive input from customers is increasingly validated in the field. Our approach combines a growing menu of focused panels, targeted to tissue type and application with the capability to add in large numbers of custom genes.

Coupled with Xenium's high sensitivity and specificity, we believe this approach will best enable customers to answer their specific research questions. Importantly, Xenium is designed to leave the tissue morphology intact, a differentiator that's resonating well with customers.

This will enable additional insights from the same tissue section post-run, through H&E or IF staining, so researchers can look at correspondences between the molecular data and the morphological images.

It's also becoming clear to researchers that Xenium's ability to rapidly process substantial numbers of samples will help them use the system routinely and get their answers faster. We enabled routine use in two key ways; first we believe from launch Xenium will have the highest throughput of any in situ instrument in its class.

Researchers will be able to use the instrument to analyze the most tissue area of single molecule resolution in the least amount of time. Second, Xenium builds on our track record of software leadership to shorten the path from instrument to insight. We will know the complexity and size of data needed for in situ analysis is enormous.

Yet these are precisely the hard problems we built 10x to address. Xenium will offer an on-instrument primary and secondary data analysis including cell segmentation in parallel with instrument run.

It will process data in slide so that it can be quickly and easily transferred to all the instruments for further analysis and interactive visualization using our new Xenium Explorer desktop application. This project greatly reduces the complication of burden on the customer.

It is yet another example of how we bring together our multidisciplinary expertise, R&D capabilities and relentless customer focus to solve hard challenges and develop solutions that just work.

Together this unique combination of performance advantages gives us full confidence in Xenium's differentiated position both at launch and as we look ahead at our comprehensive long-term roadmap for the platform.

We've often said that we believe having all three technological approaches Chromium, Visium, Xenium together will create real value and impact for the research community. Last month we published a preprint on bioRxiv that demonstrates this.

The preprint explores the power of our combined technologies to reveal biological insights not attainable using any one technology or method alone.

More specifically we show the unique insights that can be gained when analyzing human breast cancer FFPE tissue using Chromium's fixed RNA profiling, Visium CytAssist and Xenium Analyzer, which DeciBio deemed as study trifecta. This is precisely the kind of work our customers have been looking to do.

It shows how they can get answers to the exact questions they've been trying to ask. The preprint showcases the strikingly powerful Xenium data representative of what customers can expect at launch.

It also demonstrates how the high resolution and sensitivity of our combined technologies can uncover additional molecular detail not identified with existing tools. And that's the thing that's really powerful here. What Xenium revealed could have changed how this cancer was classified and perhaps even how the patient was diagnosed and treated.

This is one of the main examples showing the long-term clinical potential of our technology. Across our three platforms, 2022 is on track to be the most ambitious and exciting year of product launches in our history. We built 10x to be an innovation engine.

We see our team's ability to rapidly build breakthrough products as a core competitive advantage. Our team has already delivered several major new products this year and we're looking forward to capping off 2022 with the launches of BEAM and Xenium. And yet we're still just getting started.

That's never been more clear than when we're spending time with customers as I've personally been doing in recent months. The enthusiasm for our technologies is palpable. It's incredibly energizing to hear all of the exciting things researchers worldwide are planning with our products.

And it was particularly validating to have the head of a leading cancer center allocate to me that Xenium is the future of clinical diagnostics and that every biopsy will one day need to be analyzed on our platform.

We continue to see increasing evidence that single cell and spatial methods will ultimately become the standard for a large fraction of life science research. One notable example is the recent formation of the NIH BRAIN Initiative, a new global collaboration formed through $500 million in funding.

This five-year effort led by the Allen Institute will map out the first comprehensive cell atlas of the human brain. September's edition of Nature Medicine features another example, a joint article we published with Parker Institute for Cancer Immunotherapy and other leaders from academia and industry.

That article outlined the roadmap of single cell and spatial tools to accelerate the development of cell therapies. Examples like these further strengthen my conviction in the endpoint.

We firmly believe that in the future just about all tissue samples whether for basic research or for clinical diagnostics will need to be analyzed on single cell resolution with spatial context and at scale. Our goal shared by the scientific and clinical community is to bring this future forward.

We are working to put the commercial systems and infrastructure in place to deliver this future and scale for the next levels of growth and impact. We're implementing better tools and better processes so we can be a better partner for a broader base of researchers. We're working rapidly with a solid starting point and a passionate team.

This is a top priority for us and we're excited about how things are shaping up. I continue to have full confidence in both our vision and our approach to achieving that vision. Our fundamentals are incredibly strong. We're navigating a dynamic and uncertain environment right now, yet we're doing so from a solid foundation.

Our team is staying fully focused on driving executional excellence and building on the strengths that have always differentiated us. First, driving our innovation engine and delivering on our R&D road map. Second, providing a superior customer experience. And finally, investing in the long term with both discipline and focus.

The scope of our ambitions requires us to take the long view, which is what we've always done since the earlier days of the company. We firmly believe our team's relentless pursuit of our mission and our behavior and commitment to our customers will put 10x in the best position to get absolutely everything out of the incredible opportunity we have.

With that, let me turn it over to Justin for more details on our financials..

Thank you, Serge. Total revenue for the three months ended September 30, 2022 was $131.1 million compared to $125.3 million for the prior year period, increasing 5% year-over-year, primarily driven by higher volume of units sold and growth due to new customers, partially offset by unfavorable foreign exchange fluctuations.

Quarter-over-quarter revenue increased 14% consistent with the expectations that we shared on our August earnings call. Consumables revenue was $108.1 million, increasing 2% over the prior year period and up 10% from the second quarter of this year.

Instrument revenue was $20.9 million, increasing 22% from the prior year period and up 42% from the second quarter of this year. The increase in the instrument revenue was mainly driven by CytAssist sales with over 100 placements in its first full quarter of launch. Service revenue was $2.1 million flat year-over-year. Looking at our regional results.

Revenue for the Americas was $77.6 million, increasing 10% over the prior year period. EMEA revenue for the third quarter was $27.9 million, increasing 8% over the prior year period. Finally, APAC revenue for the third quarter was $25.6 million, decreasing 13% from the prior year period.

While APAC revenue decreased year-over-year, it was the largest contributor to the quarter-over-quarter increase with regional revenue increasing 41% over Q2. As expected this was driven by increased activity levels in China.

The results are encouraging but rolling lockdowns, travel restrictions and other disruptions, are ongoing and may continue to have adverse impacts. Turning to the rest of the income statement. Gross profit for the third quarter was $100.7 million compared to a gross profit of $100.8 million for the prior year period.

Gross margin for the third quarter was 77% compared to 80% in the prior year period. The decline in gross margin was primarily driven by changes in product mix due to newly introduced products and increased manufacturing and supply chain costs.

Total operating expenses for the third quarter were $140.7 million, an increase of 21% from $116.7 million for the third quarter of 2021.

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

R&D expenses for the third quarter were $67.3 million, including $1.4 million of one-time restructuring expenses compared to $54.6 million for the third quarter of 2021. SG&A expenses for the third quarter were $73.4 million, including $2.5 million of one-time restructuring expenses compared to $62.1 million for the third quarter of 2021.

Operating loss for the third quarter was $40 million compared to a loss of $15.9 million for the third quarter of 2021, primarily due to the impact of increased personnel-related expenses. This includes $33.5 million of stock-based compensation for the third quarter of 2022, compared to $26 million for the third quarter of 2021.

Net loss for the period was $41.9 million compared to a net loss of $17.2 million for the third quarter of 2021. We ended the quarter with $452 million in cash and cash equivalents and marketable securities, net of restricted cash.

As anticipated, in Q3 we had elevated levels of capital expenditures, as we continued the build-out of our operations facility in Pleasanton. In the next 12 months, we expect of capital expenditures, mostly front-loaded into the next two quarters, with over two-thirds of that going to fund the facility construction.

Our goal remains to be cash flow positive by the end of 2023. Now, turning to our revenue outlook for 2022. We continue to expect our full year 2022 revenue to be in the range of $500 million to $520 million. While this is a wider range than we've typically carried going into year-end, it reflects the uncertainty in the macro environment.

With regards to our gross margin, we expect our existing products' gross margin to be relatively flat in Q4. And the overall company gross margin will depend upon how many Xenium instruments are sold.

While we expect Xenium consumables to carry a gross margin that is more comparable to our existing products, the instrument is a lower gross margin product and its mix will have an outsized impact on the overall company margin, especially for the initial placements.

Overall, despite the lingering headwinds, we remain confident in the opportunity in front of us and in our mission to advance science forward. In line with prior years, we look forward to providing our outlook for 2023 on our year-end earnings call in February. At this point, I'll turn it back to Serge..

Thanks, Justin. There is a lot to look forward to as we close out the year, launching Xenium and BEAM, driving towards commercial excellence and hosting our first Investor Day on December 8. This is the first time since the IPO that we'll work through in detail what makes the next 10x.

We look forward to engaging and educating the investor community on how our growth portfolio of leading technologies is fueling scientific discovery and the opportunity ahead. I will also share more about our plans from a commercial perspective to deliver on our next phase of growth.

And we'll highlight the strengths that continue to differentiate us from our innovation engine and IP position to our manufacturing scale and software expertise, to our incredibly talented multidisciplinary team. You've heard me say it's the people of 10x, who make the magic happen. I'm so proud of and grateful for them.

Our team are working tirelessly across all fronts for a strong close to the year. Their passion for our mission and commitment to our customers is truly inspiring. I want to thank our team for all they do every day to push 10x and science forward. With that, we will now open it up for questions.

Operator?.

The first question comes from the line of Edmund Tu of Morgan Stanley. Please proceed..

This is actually Tejas on.

So, maybe two -- can you hear me?.

Yes. .

Yes. So first one on Xenium for me here. Can you just talk to the customer traction you're seeing post AGBT in terms of qualitative color on the preorders and how those stand versus three months ago? And Serge, if you can just comment on your manufacturing readiness at this stage and also the possibility of bundled selling.

I know you highlighted the breast cancer preprint here.

But is that sort of a prelude to making a bigger push via a bundled approach next year when all three platforms are live?.

Chromium X, CytAssist and Xenium together. And we definitely see that as certainly something that we're seeing from the customers' side. And we are happy to promote that through our commercial efforts as well. And I think that sets us well for next year as well..

Got it. That's helpful. And I'll follow up quickly here on the geographic trends that you're seeing. And perhaps, Justin you can chime in as well.

How has Europe been trending for you in the last six weeks or so in terms of instrument placements, consumables as well as any signs of decision time lines elongating? And similarly on China, can you just comment on access to academic labs and service providers here on a sequential basis?.

Yeah. Tejas, this is Justin. I'll take that one. As far as any recent trends in Europe, I would say the biggest impact that we've seen is just the currency issues, no new trends to call out and no comments on incremental trends over the last six weeks.

Currency impact for us overall year-over-year when looking at Q3 about a few million dollar impact year-over-year when we look at the rates that the transactions were translated in for this year compared to last year. In China, there hasn't been any notable new trends that we've seen.

I would say that it's in line with what we shared last quarter around rolling lockdowns and travel restrictions, but just still not back to 100% and just some uncertainty there overall on what the coming..

Got it. I appreciate the color. Thank you..

Thank you. The next question comes from the line of Dan Arias of Stifel. Please proceed..

Afternoon guys. Thanks for the questions. Justin on Chromium, how are you thinking about the way that you finished the year on pull through? It sounds like activity is picking up a little bit.

So should we expect second half annualized averages to be higher than the first half? And do you think you might see some sequential improvement to finish the year in 4Q over 3Q?.

Hi, Dan. So as far as how we're thinking about the end of the year, we shared before that we haven't seen anything that would say that Q4 would exhibit a different kind of seasonality than we've seen in the past. And we don't think so much in terms of pull-through more in terms of just what the overall consumable revenue is going to be.

And if you look at last year, it was about a 15% increase from Q3 to Q4. And then thinking about this year, if you were to go to the midpoint of our range and you were to assume that the instrument revenue was pretty similar to Q3 maybe a little bit more, you're looking at about a 15%, 17% increase to get from Q3 to Q4 at the midpoint of the range.

And so yes, I would say that what we're looking at for the midpoint is similar to what we've seen in the past and we haven't seen any indications that those past trends would be far off..

Okay. Helpful. And then maybe on the spatial side, some questions in the marketplace on Visium HD and the extent to which that still fits fully into the plans for high-res spatial work.

Can you just sort of update us on how important of a product that is to the portfolio? And then whether you think you might be able to put a time frame on product availability at this point?.

Yes, I'll take that Dan. Yes. So, first of all, like definitely seeing a lot of interest from our customers around Visium HD. It's one of the -- one of those really exciting capabilities product that people are interested in. So within the company we have a very strong commitment to that product -- that product line and the platform for sure.

And the team is working hard on it as well. So we're not ready to give an update on the time line at this point, but we are absolutely committed to bringing it to market and those capabilities. We're excited and something we're driving too hard..

Okay. Thank you, Serge..

Thank you. The next question comes from the line of Patrick Donnelly of Citi. Please proceed..

Hey, guys. Thank you for taking the questions. Just a follow-up on Dan's question Justin on the 4Q side. Obviously, you talked about kind of a wider range of outcomes.

I guess, with two months left here, how do you think about kind of the low end and high end, the key levers to kind of drive each? Obviously, I know it tends to be a little bit back half loaded in terms of some of the instrument placements.

But maybe just talk about I guess the visibility and the macro impacts you talked about kind of just the moving pieces there?.

So as far as just the weighting throughout the quarter goes, we are typically more weighted into the third month than the first two. And so -- and sometimes even with Q4 that's even more so than some of the other quarters. I think the key variables for Q4, I think, China is one. Like I said earlier, we're not back to 100% there.

There is still this lingering level of disruption and some level of uncertainty as far as what that could turn into. And as far as currency fluctuations, we've basically modeled parity for the euro. That's our biggest foreign currency denomination that we sell in.

In 2021, about 17% of our revenue was in direct foreign currency and it's the euro followed by the British pound. And so if the dollar strengthens even further, there could be additional impacts there as well. And so really what I see is APAC in particular China and Europe being the biggest variables as far as how Q4 will go..

Okay. That's helpful. And then maybe just to take another step further, I know you don't want to talk to 2023 just yet, but in terms of some of those moving pieces when you think about high level kind of next year the China uncertainty maybe that lingers.

Maybe just kind of talk about what moving pieces we should think about for the next year? Not trying to pin you to a growth rate by any means. You have seen new products come on. You mentioned Xenium, Visium HD things like that. So maybe just talk again the moving pieces.

And will we get a guidance at the Analyst Day? It'd also be helpful just to know what to expect there..

Well when talking about 2023 -- thinking about 2023, it's not all uncertainty and downsides. There's a lot of upsides as well. So I think you hit on some of them, but it's going to be the first full year of Xenium. It's going to be the first full year of CytAssist and also for our fixed RNA product.

And so as Serge shared on the prepared remarks, there's really some great enthusiasm around those products right now. As far as 2023 guidance, I mentioned earlier that we'll be sharing that in February like we normally do on our Q4 earnings call. .

Okay. Thank you guys..

Thank you. The next question comes from Kyle Mikson of Canaccord Genuity. Please proceed..

Hey, guys. Thanks for the questions. I guess on the fourth quarter, consumables wasn't low, but it wasn't like as strong as maybe we could have expected. And then, instruments was great given the, I guess over 100 CytAssist placements.

Maybe just talk about why utilization was pretty soft relative to 2Q, where we would have thought that it was going to be that kind of large headwind. And then on CytAssist, like there's, 100 units of run rate going forward and with the ASP close to the $75,000 list price.

And then, on just given like that dynamic, I mean the Chromium placements like how could that progress in 3Q -- oh, sorry, how did that progress in 3Q? And like what it should be kind of going forward given like the strong kind of new instruments out there. Thanks..

Hey Kyle, I'll start with that. I think I'll take your middle question first on CytAssist. So that's a $75,000 list price instrument. Like all of our instruments the average selling price is lower than that.

When we had the Chromium Controller at a $75,000 list, the ASP was in the $50,000 to $60,000 range and this isn't that much different than the Chromium Controller as far as ASP to list price.

As far as dynamics around instrument placements, we have pretty much completed the transition from the Chromium Controller to the Chromium iX and the X as far as what's, our leading selling instruments now. There's still a small amount of Chromium Controllers being sold, but by far the placements are Chromium iX and X.

And we've shared in the past that about half of those placements are going to existing customers roughly half of those going to new customers. So there hasn't been any notable shift of that to-date. Initially, the Chromium X was selling at a higher rate than the Chromium iX.

But we're looking at a roughly even distribution between those two, right now..

Okay..

You had the first part to that question..

Want me to repeat any part of it, yeah, the beginning..

Yeah. Just the beginning..

So utilization was probably like a bit soft in the third quarter.

I'm just wondering, like, why that would have been given the second quarter probably had a big kind of headwind, I guess?.

Yeah. So I think on that one, I think a lot of the dynamics are similar to what we talked about last quarter. You have sort of the tale of three regions where APAC and EMEA had kind of several region-specific effects especially around currency and some measure of lockdowns in China. We saw decent growth in AMR in terms of quarter-over-quarter.

But this remains a complex environment. And there's not a single factor that has outsized importance. Right now we're focused on driving what we talked about before executional excellence to just unlock the next phase of growth. And fundamentally, we have very strong conviction and opportunity and are positioned in it..

Okay. That's great. And then just Serge one for you, on the kind of Visium HD, I guess, it's not exactly delayed but just like kind of leaning forward here.

How much of that is basically self-inflicted like maybe just emphasize Xenium as essentially like to direct customers towards that instrument rather than like this new Visium kit given the resolution the output might be kind of similar between the two platforms. Recognizing that obviously Xenium is not going to be like whole transcriptome just yet.

And just piggybacking off the prior question look I mean are you pretty confident both can kind of coexist once both are commercially available?.

So we are confident in all three platforms and we certainly feel very excited about Visium especially as we're seeing the traction around CytAssist they're kind of relieving some of these bottlenecks and problems we have around the workflow. So I think there is -- we're seeing that on the ground huge potential.

And Visium definitely very strong interest in Visium HD. And like I said we're working hard to deliver that to customers. At the same time in parallel lots of interest in Xenium. And we do see the two platforms coexisting. And they actually coexist in a pretty nice and complementary way. And we talk to customers we hear that.

We're driving that through our positioning and what we showed scientifically in our preprint as well Visium is really the best spatial discovery platform. It's the best approach for doing that. Once you have sort of the system the genes that you're interested in once you've kind of zeroed in on those, then Xenium becomes quite compelling.

And that's what we're seeing there. So we do see as both platforms kind of get out to the market, and both make sure that they're going to be coexisting in a pretty complementary way..

Great. Thanks, guys..

Thank you. The next question comes from the line of Dan Brennan of Cowen. Please proceed..

Great. Thanks for taking the questions. Maybe the first one just on Xenium. Obviously, you highlighted the preprint and a bunch of questions thus far.

I'm wondering, are you taking orders at this point? And if so, could you give us any color about the order trend and/or number? And then related to that Serge, you obviously talked about the positioning of Xenium.

Like, what type of share you think Xenium can ultimately capture in this market? And then the third part of the question is, there's a lot of other new product's coming out? And there is some concern that, there could be a delay as customers try to evaluate all these products? I'm just thinking ahead like, what's the ramp potential you think in 2023 and you think that like customer decision-making could kind of hold back the ramp?.

So, the first -- yeah. So, orders we are taking orders, Dan. And we have been – as I kind of mentioned we've been taking them now for the last couple of months. And it's been accelerating.

The trajectory has been great and indicative of customer demand, especially our commercial team is out there spreading the word and as people are getting their hands on more and more data.

So, really, really encouraging trends as we look to the end of the year and look into next year, as far as market share question is concerned around Xenium, I think its way early, right? The market is not even there yet. The platform is not there yet, but we feel very confident about this position.

We've built it to have a really comprehensive set of features and a comprehensive set of capabilities that we are bringing both at launch and as we will roll them out over the coming quarters and then years. So we do feel really good about where we will take this platform and the model the market is going to grab.

But it is very early days, especially as we think about how – what is the trajectory of the growth of that market in the coming years. And then in terms of customer evaluation, yeah, I mean, it is definitely pretty buzzy and in many ways confusing time right now. Lots of companies talking about lots of different capabilities.

Certainly, lots of intense interest from customers, but not a lot of clarity, yet about the capabilities but when we are – in our conversations we talk to customers to what are the capabilities of Xenium, it feels like it's going to clear up pretty well pretty soon. And so that makes us optimistic about the potential for the ramp next year..

Great. And then maybe just on Fixed RNA, you called it truly transformative.

Just wondering like, what did it take – or how do we think about the adoption curve for biotech and pharma? Like, how long does it take those customers to evaluate? Do you need a lot more publications out there? Just walk us through a little bit what the potential is in that customer group and when we could begin to see traction in the numbers?.

Yeah. I think, there's sort of almost a multistep process here.

First, as we roll out this kit the initial stage is getting evaluated by a lot of sort of the key opinion leaders, people who do kind of look at new technology kind of the single cell – core single cell customers, because their opinion kind of almost matters the most in terms of influencing others to take this – we're kind of in that phase right now.

A lot of people are running pilots. A lot of people are kind of running benchmarks. And all the feedback we've been getting from those people has been very positive.

And then kind of you imagine leveraging those evaluations to then go to the broader set of customers initially for us it is still kind of academia, but also growing out on translational customers. We see that happening over the coming quarters.

And on the heels of that you expect that biopharma now like with that product being, sort of, validated in those initial stages on the academic side we'll pick it up and especially kind of as we think of getting this further -- kind of downstream in a development pipeline within pharma.

And there we also -- part of what we need to do is do a good job of marketing on the marketing side to approach them appropriately in terms of the problems they are looking to solve for this new kit. And so that would be kind of the step three. .

Great. Thank you..

Thank you. The next question comes from Julia Qin of JPMorgan. Please proceed..

Hi. Good afternoon. So I appreciate you highlighted the new customer traction driven by CytAssist.

I'm curious, is this mix of CytAssist adoption between new and existing customers in line with your original expectations? And for the existing Visium user base, how are you thinking about their adoption of CytAssist? And for those new customers that you are getting with CytAssist are these new to spatial customers or are they competitive wins?.

So Julia, a couple of things. It is early right now, right? CytAssist has only been out for one full quarter. So we have to be careful with extrapolating trends going forward. A lot of the initial adoption is actually going to existing customers certainly people who have used Visium before and also a lot of the customers who are single cell users too.

I think this is where sort of the bulk of the initial placements has been and where a lot of the interest has come from. Like I mentioned before we also -- we've had a lot of interest from customers kind of coming at us with the interest in all three platforms. And so we've just been driving bundled sales for us as well. So this is where it's starting.

And those customers are also most best set up to evaluate so the impact of the CytAssist and put it through its paces pretty quickly. And then we see it expanding on to -- further within our existing customer base and then to draw new customers and who have been a little bit maybe before on the sidelines because of workflow constraints. .

Got it. That's helpful.

And then picking up on the new commercial process that you mentioned last quarter, I was just curious if you could provide an update on the implementation here? And what would you define as success? And how do you keep track of the progress there?.

Well, so this is the kind of thing that doesn't -- it's not -- let me just wish as you pull and everything changes. Some of the changes take time to implement. Some of them are faster. We're really excited about how things are shaping up and the progress we are making.

Again the focus is on improving execution implementing new tools and processes so we kind of can scale to the next level of growth. We've made some changes some of them having to do with soft organization. We made some leadership changes in Europe with the goal of kind of streamlining the structure and bringing closer connections to the headquarters.

We've started making some changes in terms of our online sales process, brought on an online quoting tool, which is kind of the first of an online ordering, better experience for our customers, improved efficiency internally. And we're in the process of rebuilding our processes for managing opportunities, sales funnel and forecasts.

And that should have pretty clear near-term impact and -- in terms of bringing just cortical process of forecasting but it's also important as we lay the foundation for improved processes in the longer term..

Great. Thank you. Appreciate the color..

Thank you. The next question comes from Michael Ryskin of Bank of America. Please proceed..

Great. Thanks for taking the question, guys. First I want to follow-up on CytAssist comment for the quarter. You called out a pretty big contribution 100 placements, certainly more than we thought you would do so congrats on that. It seemed like it drove a really big chunk of the estimated revenues any way you slice it.

So I'm just curious, were there any sort of big pre-sales there and maybe some pent-up demand? What I'm trying to get at is, is this some pull-forward from 4Q or just a good jumping-off point from where you can roll placements even further in 4Q and next year on a quarterly basis?.

Hey. Good question, Mike. Just being the first full quarter launch of CytAssist, we knew there was strong demand for this product. We knew that customers were eager for it. This was an instrument that was developed based upon customer feedback that resulted from our close relationship with customers and helps improve the workflow overall.

So, like I said, we knew that the demand was going to be strong. Typically with new products there is a spike in the full quarter of launch. And then things tend to smooth out after that and then pick back up again. So, it's still early and so, we'll see how it trends throughout Q4 as well..

Okay. And then sort of related to that, it's still obviously very early days, given it's the first quarter but are you seeing any change in Visium revenues with customers wanting to have the CytAssist? Are they doing more runs? Are they buying more consumables? Any I don't want the utilization or the consumption word but you know what I mean.

Are they becoming more higher volume Visium customers? What is the census?.

Yes Mike. It's too early to say at this stage. People have just gotten their instruments and they've run -- they've done the first runs and come back with thumbs up. That's where we're at right now. So, it's not yet to the point where they've come back with additional work where we can get any kind of sustainable estimate of their new usage patterns..

Okay. And if I can squeeze in a quick follow-up on China. Given the dynamics in 2Q versus 3Q, you called out the huge jump sequentially in China revenues, I think 40% quarter-over-quarter -- 41%. You go through a distributor in China I believe.

So anything you can talk about inventory stocking destocking with this big jump in 3Q sort of a replenishment, because I imagine if things were -- in the second quarter a lot of those consumables might have expired and then you might have had to replenish supplies.

So anything you can talk about inventory level or something that China is specifically?.

Mike as far as China goes we think this is more activity-driven rather than variances in stocking up. If anything we did hear some things towards the end of the quarter of service providers just with having recession fears in general wanting to carry less inventory overall. So, yes, I think it's more activity-driven than stock-driven. .

All right. Thanks so much..

Thank you. Next question comes from Matt Sykes of Goldman Sachs. Please proceed..

Hi. Good afternoon. Thanks for taking my questions. Maybe my first one Serge for you. You mentioned in your prepared comments about the solid demand for Chromium X and kind of in conjunction with the Fixed RNA and Nuclei Isolation Kit.

Could you maybe talk about maybe a change in momentum in Chromium X because of those new kits? I understand it's, sort of, a catch 22. You kind of have to have the instrument to run the kit.

But just have you seen an inflection in Chromium X with these new kits? And do you think we're at the early stages of that potential inflection?.

Yes, good question, Matt. So I would hesitate to quote an inflection. I think we are seeing strong interest and good feedback from the kits the Fixed RNA Profiling Kit in particular because that's the one that you need to do the test.

We are seeing more interest in the iX relatively speaking which also kind of goes along with the interest in Fixed RNA Profiling. But again like you're saying catch 22 a little bit people need the instrument in order to test the kits and they need to test the kit in order to test the capacity of the instrument. And so we're going through that process.

We feel optimistic because again all the reviews coming back from a new product are really positive which speaks well for the ultimate demand. But I think we're still kind of early in that iteration cycle. .

Got it. Thanks for that color. And then in previous quarters you talked about trying to drive higher utilization amongst the halo customers. And I know COVID was a big obstacle into getting into those labs and driving that utilization.

Has there been any progress on that just given some of the COVID headwinds at least in the US have lessened a little bit? Have you been able to drive some higher utilization within that customer base?.

There isn't really anything materially new I think to say on that around halos and instrument owners. I mean, we are -- we've been focused kind of on both. The commercial team has been out there. I don't think there's a material change to talk about.

We've got the new products that are meant to simplify the workflow which should give us -- make it easier for new people to be, kind of, come in and become the key users of single cell workflows.

We're also with the nuclei -- specifically the nuclei kit and the Fixed RNA Profiling Kit you -- we have we will have now going forward more visibility into some of the halo users because this is sample prep -- at least part of these products are sampler products for customers that have been previously, we've been pretty blind to that run their core reaction centrally.

So we have some of these new threads that we'll be pulling on as well but it's still kind of early to comment about any material changes. .

Got it. Thanks. Helpful color. Appreciate it..

End of Q&A:.

Thank you. That was our final question. So this will conclude the conference call. Thank you for your participation. You may now disconnect your lines..