10X Genomics Inc (TXG) 2021 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the 10x Genomics Second Quarter 2021 Earnings Conference Call.

(Operator Instructions) Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Eric Jaschke, Director of Investor Relations and Strategic Finance.

Thank you, sir.

Please go ahead.

Thank you.

Earlier today, 10x Genomics released financial results for the second quarter ended June 30, 2021.

If you have not received this news release or if you'd 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.

You should not place undue reliance on forward-looking statements.

Additional information regarding these risks, uncertainties and factors that could cause results to differ appears in the press release 10x Genomics issued today and in the documents and reports filed by 10x Genomics from time to time with the Securities and Exchange Commission.

10x Genomics disclaims any intention or obligation to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise.

Joining the call today are Serge Saxonov, our CEO and Co-Founder; and Justin McAnear, our Chief Financial Officer.

In addition, Brad Crutchfield, our Chief Commercial Officer; and Eric Whitaker, our General Counsel, will be available for Q&A.

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

Serge?

Thanks, Eric.

Good afternoon, and thank you for joining us.

On today's call, I will start with a brief overview of our performance and solid execution during the second quarter.

Next, I will discuss our progress in enabling broad adoption of single cell analysis as we continue to advance our vision of bringing into every biology researcher in the world.

In addition, I'll share more about our relentless focus on innovation and the investments we're making to power future enabled by single cell and spatial biology.

I will then turn the call over to Justin for a more detailed look at our financials and outlook for the year.

Revenues for the second quarter totaled $116 million, up 170% year-over-year and 9% sequentially, driven by increasing adoption of our products.

We're pleased with our team's strong execution this quarter as we continued to deliver on our commercial plans and advance our R&D pipeline.

As we anticipated, customer lab operations returned to near-normal levels during the quarter.

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

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

Now moving to our results.

We saw strong demand for our Chromium instruments.

During the quarter, we initiated a price change to the Chromium Controller to position it strategically within our expanded instrument lineup ahead of the launch of Chromium X. As a result, we saw approximately 100 incremental placements during the quarter, bringing many new customers into the 10x ecosystem.

Adoption of our single cell and spatial consumables continue to grow.

With the ability to measure gene expression proteins, epigenetic programming, immune features and other modalities, our customers have access to a comprehensive toolkit for interrogating biology at the right resolution and scale.

The breadth of these offerings is resonating well within our growing customer base.

Take our multiome solution, for example.

It has had an impressive trajectory since we began shaping less than a year ago.

The ability to analyze gene expression and epigenetic programming from the same cell is inspiring rapid adoption with existing customers as well as customers new to 10x and to single-cell approaches more generally.

Directly connecting regulatory signals with cellular function is essential to understanding biology at its most fundamental level.

In a recent preprint feature in multiome, researchers analyzed cells from human pituitary samples to uncover diverse regulatory mechanisms involved in stem cell development.

Multiome allow these scientists to identify and characterize uncommitted stem cells and determine the transcription factors and epigenetic mechanisms that shape their fate and function.

These findings should help develop therapies to treat endocrine diseases caused by pituitary deficiencies and tumors.

Adoption of our Visium solution also continues to expand.

Since launch, the number of preprints and publications with Visium has increased each quarter as more and more users progressed through their experiments and generate relevant insights.

And to date, there have been more than 120 publications and preprints featuring Visium technology.

In one recent Visium preprint, researches performed an in-depth spatial analysis of somatic mutations in benign and malignant prostate cancer tissues.

These researchers were able to identify small clonal cells not evident from visual assessment and which would have been overlooked by typical histological analysis.

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

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

This quarter, we also launched to begin shipping Visium for FFPE, enabling for the first time, true unbiased spatial gene expression analysis in FFPE samples.

Early demand has been strong as premarketing activities inspired both new and existing customers to initiate pilot studies.

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

Looking to the future, the interest we're seeing affirms our view of the wide applicability of this product in both the discovery and translational setting.

After the quarter-end, we announced the availability of Chromium X. This platform represents a huge advance for single-cell genomics as it will allow our customers to supercharge the experiments, interrogating as many as 1 million cells in a single run at a significantly lower cost per cell.

Chromium X was developed in response to the desire of many of our early customers to run ultra-high throughput experiments.

We're pleased with the initial response and look forward to getting it in our customers' hands this quarter.

The Chromium platform has come a long way since we introduced the Chromium Controller 5 years ago.

We launched this platform with a vision of making single cell analysis accessible to every biology lab in the world.

And we have made tremendous progress towards that goal.

There are now thousands of customer labs using our products and more than 2,800 papers across the wide diversity of journals and research areas.

And in turn, these publications are helping inspire growth spectrum of researchers by validating our solutions across an increasing number of applications.

While thousands of labs are using our products, we're still very early in realizing our vision.

There are well over 100,000 researchers globally available to 10x, and we estimate that 2/3 of them could already benefit from single cell and spatial genomics applications.

With this in mind, we have consistently pursued a strategy focused on broad access to bring new researchers into our ecosystem.

The success we had this quarter with instrument placements to new labs is an example of that strategy.

As our solutions become more widely adopted, we're increasingly reaching new customer profiles.

Many of these customers are less experienced with single cell workflows and high content experiments, unlike our earlier adopters.

In particular, sample prep and data analysis are important areas where these customers face greater challenges.

With the launch of our low throughput and CellPlex kit and introduction of the 10x Cloud earlier this year, we have made important progress in addressing some of these barriers.

Since launch, the demand for CellPlex has been particularly robust, and we have seen strong interest in our 10x Cloud solution, especially among our users who are not bioinformaticists.

Moving forward, we will continue to prioritize the tenets of customer success, enabling access and addressing barriers to adoption has laid the groundwork for continued growth and expansion into the vast opportunities ahead.

The strength and talent and commitment of the 10x team give us tremendous confidence as we advance this vision.

The team's ability to persevere despite challenges related to the pandemic has been consistently impressive.

Because of their efforts, we have been able to maintain our rapid velocity of product introductions, including the breakthrough launches such as Chromium X and Visium for FFPE.

At the same time, we have been making significant progress on our extensive R&D road map to deliver many future products.

Developing and launching these products would be highly ambitious even under normal circumstances.

Our ability to maintain our planned cadence of product introductions in the face of a pandemic underscores this important competitive differentiator and is a testament to our entire organization.

We strongly believe that single cell and spatial approaches represent the future of biology.

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

Technologies to resolve this heterogeneity and enable single cell resolution of scale will be critically important for launching future scientific discoveries and clinical applications.

Our Chromium platform is an established leader in single cell analysis.

While we have rounded out its core set of capabilities with the recent product launches, including Chromium X, this platform remains early in this development and adoption.

We plan to continue to have capabilities and improvements in the future to enable broad adoption and create additional value for existing customers.

Visium and spatial biology more broadly is even -- are even earlier.

Our core discovery customers have been adopting Visium since its launch in late 2019.

And with the introduction of FFPE this quarter, we have expanded access to translational researchers.

We will continue to invest aggressively in this platform to a fundamental new capabilities and breakthrough features as part of an extensive product road map.

We're in the process of building a sophisticated factory here in Pleasanton to develop the next generation of high-resolution Visium consumables.

This effort is a result of multiple technical innovations that we believe will give us a set of highly differentiated capabilities that don't exist anywhere else in the world.

We expect our vertically integrated capabilities to provide a powerful foundation to enable new products and growth in the future.

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

We will also invest broadly in our organization, including our R&D and commercial teams and our global operations to support broadening adoption of our products.

Finally, last week, we announced a worldwide settlement for all our litigation with Bio-Rad.

This settlement results more than 25 separate matters and over 8 years of litigation between the companies.

We were scheduled to go to trial on our claims against Bio-Rad Celsee products this week.

In that litigation, we had assorted the Celsee product to infringe 6 of our patents.

This settlement broadly cross licenses each company's intellectual property related to single cell analysis with the exception that we did not license patents related to certain application areas and technologies under development.

Importantly, the settlement also does not include intellectual property related to spatial or in situ approaches.

Each company will make growth abatements through 2030, while the license front for the life of the patents.

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

Any payments of royalties by Bio-Rad on the sales and services would be incremental to this.

We expect the impact to our gross margins will be less than 1%, also excluding any potential royalty payments from Bio-Rad.

Now apart from the financial benefits, this agreement eliminates the distraction and uncertainty of litigation.

This is a victory for science and allows us to turn our full attention to our mission of mastering biology to advance human health.

We were able to achieve those outstanding results in part from the strength of our intellectual property, which now includes over 1,150 patents issued and pending.

We believe that our deep and [broadband] portfolio is a key competitive differentiator, and we will continue to [discern] the technology breakthroughs, which have resulted from our significant investment in Visium development.

I would note that there is our general policy not to license our patents, but to protect our sole right to own and practice them.

Before turning it over to Justin, I'd like to thank our employees for their continued hard work and dedication so far in 2021.

We entered the year with highly ambitious goals and our ability to develop and deliver so many great products to our growing customer base is a testament to your commitment and execution.

With that, I will now turn the call over to Justin for more details on the financials.

Thank you, Serge.

Total revenue for the 3 months ended June 30, 2021, was $115.8 million compared to $42.9 million for the prior year period, representing a 170% increase year-over-year and a 9% increase quarter-over-quarter.

Consumables revenue was $97.1 million, which increased 184% over the prior year period.

Instrument revenue was $16.9 million, which increased 131% over the prior year period.

Service revenue was $1.8 million, which increased 25% over the prior year period.

The increase in consumable revenue this quarter was primarily driven by growth in the instrument installed base and decreased impact of the pandemic on customer operations.

The increase in instrument revenue was driven by increased instrument placements during the quarter.

Service revenue increased due to a large number of instruments coming off of their initial 1-year warranty and on the paid service contracts.

Americas revenue for the second quarter was $65.8 million, which increased 225% over the prior year period.

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

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

Turning to the rest of the income statement.

Gross profit for the second quarter was $110.9 million compared to a gross profit of $32.9 million for the prior year period.

Gross margin for the second quarter was 96% compared to 77% from the prior year period.

The gross margin increase was driven primarily by a onetime reversal of $14.7 million of accrued royalties to cost of sales as a result of the settlement with Bio-Rad.

Total operating expenses for the second quarter were $121.3 million, an increase of 68% from $72.3 million for the second quarter of 2020.

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

R&D expenses for the second quarter were $53.4 million compared to $27.5 million for the second quarter of 2020.

The increase was driven by $14 million in increased personnel-related expenses, including stock-based compensation and an $8 million increase in expenses related to lab materials, supplies and equipment.

SG&A expenses for the second quarter were $68.7 million compared to $44.4 million for the second quarter of 2020.

The increase was driven by $15.9 million of increased personnel-related expenses, including stock-based compensation, $3.3 million of external legal fees and a $2.7 million increase in expenses related to IT and facilities.

Operating loss for the second quarter was $10.3 million compared to a loss of $39.4 million for the second quarter of 2020.

This includes $26.9 million of stock-based compensation for the second quarter of 2021 compared to $13.9 million for the second quarter of 2020.

Net loss for the period was $11.1 million compared to a net loss of $40.2 million for the second quarter of 2020.

We ended the quarter with $622 million in cash and cash equivalents net of restricted cash.

The increase in cash from the prior quarter includes proceeds from option exercises and positive operating cash flow, partially offset by capital expenditures related to our operational expansion.

Now turning to our outlook for the remainder of 2021.

We look forward to a strong finish to the year as we build on our progress to date and continue to fuel our rapid pace of innovation.

We remain confident in the long-term trajectory of the business, and we'll continue to invest heavily in our team and facilities to support this vision and serve our ever-increasing customer base.

On our last call, we noted there was a wide range of operating efficiencies within our customer labs due to COVID-19, and the lingering impact was likely to persist through the second quarter.

This largely played out as expected.

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

While these improvements were encouraging, more recently, we have seen some customer labs reinstating COVID-related protocols due to the emergence of the delta variant and closing access to outside visitors.

The situation is increasingly uncertain and due to the extent and increased restrictions impact our customers' ability to progress through their experiments or limit our access to their sites, it's possible that we could see an impact on our business in the back half of 2021.

Given this environment, we are maintaining our full year revenue guidance for 2021 of $480 million to $500 million, representing growth of 61% to 67% over full year 2020.

At this point, I'll turn it back to Serge.

Thanks, Justin.

As we look ahead, we firmly believe that single cell and spatial analysis represents the future of biology.

The vast majority of biological tissue samples will need to be analyzed with single cell-resolution and spatial context.

While still very early, the investments we're making in our platforms have us well positioned to make that future a reality.

With that, we will now open it up for questions.

Operator?

(Operator Instructions) Your first question comes from the line of Doug Schenkel from Cowen.

If I could start with just a couple of questions on the quarter and then try to pivot to a longer-term question.

It looks like instrument revenue, if I'm doing the math right, increased over 50% relative to Q1.

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

Was this a function of the ASP change for the Chromium Controller that you referenced increasing the number of placements you were able to make in the quarter?

And if that's right, it does seem like this was probably a record placement quarter for you, if I'm doing all this math right.

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

Doug, this is Justin.

So going back to the beginning part of your question, you've got it right.

We lowered the price of the Chromium Controller to $35,000 in advance of the launch of Chromium X to make sure that we had that product positioned appropriately in what's going to be our new lineup of products between the Chromium Controller, the IX and the X. And as Serge noted in his remarks, that drove about 100 placements in addition to what we expected we would have done this quarter.

So 100 incremental overall.

And so yes, with that kind of growth that we've seen in Q2 and year-to-date, we could -- demand for instruments is strong, especially at this price point.

And so that could drive a pretty large increase in installed base this year.

And that's (inaudible) Doug.

Okay.

That's always good to know.

I can still do that.

And then I guess the bigger picture question, as you're rolling out new consumable kits on new instruments, and I prominently have the Chromium X in my head, as I'm thinking about this.

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

So how many cells can be processed in a certain amount of time?

At points when we've seen that in tools in other categories, there has been a periodic lag that's quickly overcome over time, but it could take a quarter or 2 for the elasticity to play out the way one expects it to longer term.

I'm just wondering if that's a dynamic that we should be keeping in mind as you're rolling out new products and new kits?

And if so, how you're incorporating that into guidance as we think about the second half of the year?

So Doug, let me -- this is Serge.

Let me pick up on that question.

So we definitely think a fair amount about the elasticity of demand and especially as it relates to different use cases.

You mentioned Chromium X. So with that, of course, we have the high throughput kits coming out where the cost per cell is going to be low -- significantly lower, while people will be running larger experiments.

So this is kind of almost a classic case of pushing on (inaudible) per cell level, but toward larger experiments.

We also, earlier in the year, launched our CellPlex kit, which I mentioned in my remarks as well, which by mixing multiple samples together, the customers can effectively get a lower price per sample.

And that has, sort of, on the one hand have had potentially putting some pressure on our revenues because instead of paying some amount per -- for every sample, now it's just kind of compressing multiple samples into one lane.

In the near term, elasticity can potentially drive more usage.

It's too early, I would say, for either to talk with great confidence about how these effects are going to be -- like are shaping out certainly right now.

CellPlex, we're feeling good about it.

It's doing robustly well in line with our expectations.

Customers are adopting it.

At this stage, a lot of the adoption is coming from people who had previously run homebrew approaches for what's called cell halving and kind of converting now to CellPlex.

There's also new use cases, new customers who are picking it up, and we're seeing both kinds of examples where, on the one hand, there is an experiment that got (technical difficulty) we are also seeing -- sorry, like we're also seeing examples where studies that were previously not possible.

They were just too expensive, now are becoming possible.

So we definitely feel like good about it.

I don't think it's the kind of thing that's going to play out in a material way like in a quarter or 2. It's a longer-term kind of dynamic.

And in Chromium X, more so.

I would say, first, you kind of have to expect the people to actually adopt instruments and then bringing workflows and then kind of those larger experiments.

So it's not just a simple switch that happens in the quarter or 2 to scale up to those kinds of experiments.

But over time, certainly, the (inaudible) should trend there.

Super helpful detail.

I'm sorry to interrupt.

I mean the only thing I was going to ask as a follow-up is, so it sounds like given how much thought and how much detail you just shared, the assumption is this isn't going to have a major impact in terms of like how you're guiding the second half or it doesn't represent a risk based on the cadence of when products are coming out that you could be off by a quarter or 2 in terms of when the elasticity materializes.

Is that right?

Yes, that's right.

This is not going to have a major impact on how we're thinking about guidance for the second half.

Next up, we have Tycho Peterson from JPMorgan.

A couple of follow-ups on the pipeline, maybe similar to kind of Doug sneaking here.

But as we think about -- I'll start with FFPE capabilities.

You mentioned it will take some time for customers to expand beyond the pilot studies.

How are you thinking about that ramp?

And how important will CytAssist be next year kind of really maybe opening up more of that market on the clinical side?

Yes, that's a good question.

That's early, right?

And we certainly are excited about CytAssist.

And it's going to be -- by the time -- when it comes out, it's likely to be an accelerator.

It is hard to tell at this stage, again, we need to see the customers actually going through the pilot studies and come back to the other side to know for sure.

We do know that some people are kind of gearing up or doing larger studies in the absence of CytAssist.

And I mean I guess the other thing to also keep in mind is that 50% of the FFPE customers are new to 10x or piece of new people.

So overall, the launch is going well, very much in line with our expectations, and it's going to take some amount of time for us to learn the sort of how people are actually ramping.

But there's definitely nice encouraging early signs.

And then, I guess, similarly on Chromium X, obviously, the ability to enable routine million cell experiments is attractive.

I guess how important is kind of the funding backdrop here?

I mean the good news is the NIH looks getting better and better, but how important is it for labs to kind of line up the funding here?

Or do you think this is something that they've already kind of secured funding for?

I'm just trying to understand the grant dynamics here that could obviously drive the adoption.

Yes.

I mean I think there's definitely a mix.

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

But we're also -- we've been helping our customers with grant applications precisely in anticipation of this coming, and that's a longer cycle.

So definitely, it's a mix.

Definitely, it will be people who have money, especially with our pricing, but there's definitely also a larger cohort that will be more of a grant cycle kind of deal for them.

Okay.

And then just lastly for Justin.

I appreciate the thought process of not raising guidance given the pandemic.

I'm just curious I mean, is this a real issue now that you're seeing that labs are not allowing access?

Or is this just being a little bit prudent knowing cases are going up?

And then can you also comment just on how we should be thinking about margins?

I know you said less than 1% impact from the settlement.

What was the Chromium price adjustment, I'm wondering if there's any impact on margins in the back half of the year?

Tycho, for the first part of your question, we have seen instances of customers -- larger customers that have shut down access to our sales and support staff.

And we're getting new information every day on this.

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

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

Gross margin.

Just gives and takes on margins in the back half of the year?

I know you said it was less than a 1% impact from the Bio-Rad settlement, but also with the Chromium pricing adjustment, I'm just -- yes, can you just talk on how you're thinking about gross margins in the back half of the year?

Sure.

So the price adjustments have been part of our plan for some time.

So that's been incorporated into the guidance that we've given before.

And in the past, we've guided a slightly decreasing gross margin each quarter.

Also partially due to newer products with lower gross margin profiles to come at a larger percent of our overall revenue.

And then if you look at this quarter, without the impact of the onetime reversal of Bio-Rad -- of the accrued contingent liabilities related to the Bio-Rad settlement, you could see that we would have followed that profile that we laid out previously.

Moving on, we also have Tejas Savant from Morgan Stanley.

Just one on Visium FFPE for you, Serge.

I mean, can you just talk about traction following the launch?

And how you're going about sort of differentiating the product among translational researchers who perhaps may have a GeoMx already up and running?

And by when do you expect to see the early customers be done with their pilot studies and scaling up to larger work?

Is that a '22 dynamic at this stage?

So let's see -- so the launch is going in terms of -- as I said, the launch is going well.

We are encouraged by both the interest and how people are adopting the product.

As far as kind of how they're looking at relative to Genomics, so we certainly have customers, quite a few who are looking at both platforms.

The big difference here is that you don't have to pick your regions of interest.

You see the full slide, you see the full expression across the entire (inaudible) slide.

And I think this is really important, especially people who are doing research, right, where you don't necessarily (inaudible) know the answer ahead of time.

So that is really the crucial point of differentiation, I would say.

In terms of the timing, it is going to be a range.

Some people who look like they're going to be getting through this fairly quickly, but I want to say that, especially, I would say, in the -- like in a COVID environment where there's -- whenever you're adopting a new technology, there's all kinds of restrictions around it, some the people don't even anticipate until they kind of get through the product.

So I'd be cautious in terms of assuming that people can just sort of sprint towards these, especially to the new customers.

We've been seeing that there's, again, all these constraints put pressure on how fast people can get through the initial experiment.

I would say that, that is more of a '22 kind of thing.

Got it.

Very helpful.

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

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

Yes.

That's a good question.

I mean, obviously, this is very early.

I mean we just started talking to our customers with the concrete specs and pricing.

So very early days.

Initially, our goal with this platform has been (inaudible) get to the high end of our users, and this is where like our focus has been, and this is where a lot of the demand has been coming from.

At the same time -- but it's still very early, but there is quite a few new customers as well that are coming with the interest in the platform, especially kind of maybe more on the biotech side of the world.

Got it.

And then just a couple of housekeeping ones for you, Justin.

I mean I know you mentioned Bio-Rad and you guys will be paying royalties to each other.

So how should we think about an offset to that 1%?

Because if I heard right, that sounds like it was a gross number that could be partially offset by inbound payments from Bio-Rad?

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

As far as the Bio-Rad payments, Tejas, we don't know what kind of payments we'll get from them in the future.

So the comments that we made around having less than a 1% impact, any payments that we (inaudible) Bio-Rad would be incremental.

And so right now, with that statement we're assuming 0.

Very helpful.

And then on the OpEx, please?

Yes.

So our OpEx continues to increase each quarter as we execute on our hiring ramp.

Headcount is one of the biggest drivers there.

In the last call, we talked about how we plan to hire 400 heads this year.

And if you look at where we ended Q2, we've hired just over 200.

So we're well on track there.

And we'll continue to execute on that hiring ramp.

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

Your next question comes from the line of Derik De Bruin from Bank of America.

This is Mike Ryskin on for Derik.

I want to go back to the point on the instrument placement growth in the quarter.

I have gotten a lot of questions from clients.

I just want to make sure I flesh this out thoroughly.

The color you provided, I believe, was an incremental 100 placements versus expectations.

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

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

Yes.

So Mike, keep in mind, there is a good -- there is Connect in there as well.

And Q2 was a really strong quarter for Connect.

The increase from Q1 to Q2, It was a pretty good increase, and part of that was driven by some instruments that we had shipped out, but not been able to fully install and get up and running due to COVID restrictions, and we were able to get on site and get those installed this past quarter.

But Connect is still a very low percentage of the overall instruments that we're shipping each quarter.

So if you look at the range that we had talked about in the past, the 50,000 to 55,000, you can divide the bookends of that into our total revenue.

And that would get you basically a number that does not include Connect, and then I would take it down from there a little bit just assuming a smaller percent of Connects in there as well.

Connect is roughly 5 or 6 Chromiums at this point as far as -- in terms of revenue.

Okay.

All right.

No, I appreciate that.

And then on that big jump in Chromium this quarter, does that -- it was a little bit more than we would have expected given your commentary on the price cut.

Does that give you any thoughts on sort of what the elasticity of demand is for the instrument?

I mean does that lend to potential further cuts down the road given what we know about the model, just how much of this is about driving the installed base?

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

Yes.

So it's definitely something that we're keeping a close eye on.

We learned a lot when we dropped the price down to $35,000.

It was a promotion, which we then made permanent as we started Q3.

And so I think some of that could be driven by the urgency of having a promotion that's expiring at the end of the quarter.

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

And next one, we also have David Westenberg from Guggenheim Securities.

So I'm going to keep going with kind of that theme on that higher placement thing and maybe walk-up models, and you guys can have a chance to kind of pull me down here because with that higher instrument number, you've had really good pull-through and you've kind of converted those customers in the past to be going up and driving that consumable towards that $150,000 price.

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

Yes, that's a great question, Dave.

We've talked about $150,000 in a good pull-through number to base a model on for near-term purposes.

But obviously, as you add more instruments to that and you increase the denominator, that's going to bring the pull-through down.

And that's sort of the dynamics that we've highlighted quite a bit over time.

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

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

So there's information that we'll learn over time.

I probably wouldn't make any drastic changes to what we said before, but we think that generally, what we're seeing is still going to be in line with what we put out before.

Perfect.

And I'm going to kind of stick with this similar theme of consumable pull-through.

Kind of when you think about Chromium X, I believe you've mentioned in the past that it's really kind of for those top 10% customers.

And it goes back to kind of Doug's question about elasticity demand as you decrease prices.

Would there be any kind of way to quantify the way you were maybe thinking about that decrease in pricing?

I mean, say, were you thinking about the customer doing a 30% reduction in pricing and doing 50% increase in pull-through.

I mean, any way to quantify, it would be great.

If you can't, maybe there's a tiny bit of conceptualization you can do.

And then just as a reminder on -- because you have such a wide group of ranges in terms of your customer pull-throughs, can you remind us maybe what that top decile might do in terms of your revenue, if you're comfortable giving that?

And I'll take my rest of the questions off-line.

So your first question on Chromium X and sort of the dynamics there, it's way too early to say certainly not like any kind of a number, grounded way in terms of how much the reduction on price per cell will drive total spend.

I think it's the kind of thing that probably also manifests of not over a single quarter, as said before, but kind of more on the time scale of multiple quarters, if not years, where people actually have to conceptualize new kinds of experiments, and often times actually put in grants to kind of get more money to run those kind of experiments.

So I wouldn't say -- I think it is a way to challenge even sort of in the conceptual level to think about what the trade-off would be on sort of any kind of a near-term basis.

I think we do believe that ultimately kind of as you think really big picture and really long term as everything kind of trends towards single cell resolution, there's no escaping the fact that they should drive more demand.

The exact trajectory though looks like it (inaudible) It's hard to estimate.

I think your second question was around sort of dispersion to different types of customers.

But then -- so yes, I mean, there's definitely dispersion.

I mean one of the things that's been interesting for us almost from the beginning, we do have a pretty wide diversity of customers.

So it's not like super concentrated with just a few usual suspects.

We do have our early customers, some of those most sophisticated ones are heavy spenders, but not -- they do not dominate our revenue by any stretch.

It is also the case that just as Justin was alluding to as we have been placing more instruments, especially kind of getting into new labs over the course of the last 1.5 years since the start of the pandemic, we brought in tons of new customers and their ramp has been slower, potentially kind of exacerbated by the effects of COVID.

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

Your next question comes from the line of Patrick Donnelly from Citi.

I know in prior quarters, I think it was Brad kind of talked about labs coming back a bit conservative, ordering smaller amounts of kits given the shelf life, not wanting to get stuck with them in case things shut down again.

Have you guys seen that ease, I guess, Justin, when you talked about a month ago, things start to look maybe a little more normal, now they're kind of back to a bit of a pause.

Is that what's happening?

Maybe can you just talk through, I guess, what you're seeing in terms of order patterns from customers and comfort on the go forward?

Patrick, this is Brad.

Yes, I think that's waning quite a bit, but that things change daily now.

So at this point, we'll wait and see what happens.

But generally, I think, for the most part, people are confident, they're back in the lab.

And I think a lot of the data shows that there hasn't been a transmission in the lab.

I mean these are scientists.

So we hope they know what they're doing.

So ultimately, I think that that's probably not a factor anymore.

If it is, it's a second or a third order of factor.

Okay.

That's good to hear.

And then, Serge, maybe just on the Chromium Controller, obviously, nice to see the 100 place -- incremental placements there.

Can you just talk about the customers where you're seeing adoption?

Any surprises in terms of applications where that's seeing more adoption than you expected on kind of the lower end?

Well, [this haven't] surprised us so much, but we have talked about so for some amount of time and have made concerted efforts on the marketing organization to start reaching new customers new to 10x.

So especially within neuroscience, infectious disease, and that was obviously kind of spurred by -- also accelerated by COVID.

So those are kind of these new customer segments, and that has been bearing some fruit getting into these areas.

Yes, that's what I would go into.

Yes.

And maybe just last one on the Chromium X. I know Serge, you talked about talking specs and pricing with customers just recently.

It doesn't seem like it, but should we be expecting a bolus of demand where customers were kind of holding off to order this and now they're going to come in waves or anything.

It doesn't -- again, it doesn't seem that way, but I just wanted to make sure?

Yes, I don't think there has -- there would have been sort of a huge sort of pent up kind of dynamic.

I think this is definitely exciting to our customers and our early -- especially some of our earliest most forward-looking customers have been kind of asking for this kind of capability for a while.

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

Your next question comes from the line of Matt Sykes from Goldman Sachs.

Just maybe first, just following up on Tejas' question on OpEx, just specifically as it relates to sort of inflationary pressures.

And then more specifically on the labor side.

Obviously, you guys have made great headway in terms of increasing your headcount.

I'm just wondering, are there any inflationary pressures on that in terms of wages and what you have to pay to bring new people on board?

Or has it been fairly consistent throughout the year?

Well, market is hot right now, Matt.

So we just updated our ranges recently, and we look at how much the market has moved from last time that we did that kind of analysis, which wasn't that long ago.

And yes, there's definitely been movement higher in the market.

And so we -- it's in our plans right now.

But yes, we are seeing that a little bit.

Okay.

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

Yes, it is.

And then just a quick question.

Just on the overall comments on sort of the resurgence in COVID and the things that are going on with the labs most recently.

Is there any regional aspect to that?

Obviously, it's surrounding where there's resurgences.

But I'm just wondering if it's -- if there's any regional differentiation into how labs are reacting most recently to the resurgence?

Yes.

This is Brad.

Yes, it's pretty much -- it's fairly dynamic across all of our regions.

One thing that we're following closely is the U.K., where we saw being hit fairly hard by the delta variant, and there was some -- somewhat acute limitations, but those kind of went away fairly quickly.

And now we're seeing things starting to emerge there, which I think is hopefully something we can all look forward to.

But overall, generally, right now, the world is going backwards when it comes to adding more of these protocols and sort of restrictions.

But again, to be clear, this is not closing labs or going home kind of thing.

This is just normal things.

And the most important thing is our ability to get on site.

There's a lot of -- we have a lot of support people out there.

They've done amazing things virtually, but there's nothing -- no substitute for being on site, shoulder-to-shoulder with our customers and helping them in some cases, just giving them confidence because these are big experiments and there's an element of risk.

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

Your next question comes from the line of Matt Larew from William Blair.

You talked in the past about the potential for, I think, consumable pull-through on Chromium Connect to be about 2x Chromium Controller.

And we're about 18 months since launch.

So just curious what you're seeing from early adopters of Connect in terms of pull-through?

And then perhaps it's too early to comment on potential pull-through for Chromium X, but if it isn't, I'd be curious for your comments there too?

Matt, our plan for Chromium Connect and our longer-term assumptions is that it would be between 2 and 3x that of the Chromium Controller.

But keep in mind with many of these instruments placed during the pandemic, and many of them just coming online recently in the last 2 quarters, we obviously aren't seeing that now.

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

Okay.

And then last quarter, you mentioned that some customers who onboarded during the pandemic were having more trouble getting comps.

And I think you alluded to trying to provide additional competition support.

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

This is Brad.

I think in general, yes, we -- helping people onboard a new technology is best done in person, and I'd just be clear about that.

But -- and so I think over time, we've actually increased our -- certainly deliberately increased our resources around support because ultimately, we are expecting to be back in front of our customers.

And that's an area where we think we can add a lot to help customers faster through the workflow.

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

Okay.

Sorry -- just one more on the EMEA number, obviously, was very strong and maybe that was just a onetime order with some pent-up demand, but just kind of curious if there was anything driving that number in the quarter?

For EMEA, specifically?

Yes.

Yes, so when you look at the quarter-over-quarter increases by region, there was a pretty big increase for EMEA, decent increase for AMER as well.

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

(Operator Instructions) Ladies and gentlemen, this concludes today's conference call.

Thank you all for joining.

You may now all disconnect.