And I'm excited to host 10x Genomics for our next fireside chat. I'm excited to be joined by Serge Saxonov, Co-Founder and CEO, and Adam Taich, Chief Financial Officer. Gentlemen, thanks for being here.
Thank you, thank you.
Maybe just to kick things off, you reported one key result five days ago, a few weeks ago, recently, relatively recently. Just give us a quick summary of how the quarter played out, relative to expectations, sort of what you saw that developed over the quarter that surprised you. Obviously, there's been a lot of policy nuances, so just give us a recap to your start of the year.
Yeah, maybe. I mean, on the policy side, I think it was more of the nuances that transpired over the course of the past two and a half months. I will say, first of all, there are sort of two elements to the quarter, and I think it is important to keep them distinct and appreciate sort of in turn. First of all, in terms of the, obviously, the macroeconomic situation just changed pretty dramatically as we proceeded through the quarter.
I would emphasize that it is both in terms of the pressure on the funding that our customers have had and have felt, and just the procedures of them getting the money and being able to spend the money, but also the uncertainty of what is going to be happening going forward because the policy landscape is rapidly changing and also not articulated in terms of what to expect. That has been kind of a big story this quarter. I would say it started roughly in February, starting in February, with the news of the indirect caps coming out and then subsequent series of events.
Now, setting aside the sort of the macro environment, and especially the U.S. academic and government markets, the fundamentals of the business for us have actually performed quite well, and there's some really solid, encouraging signs for us. In particular, we've been talking for a long time about the single-cell market and the inherent elasticity that we expect to see there. Over the course of the past year, we've made actions through introductions of new products to drive lower price per reaction down. As a consequence of that, in the first quarter, we saw robust growth in reactions and volumes on the Chromium consumable side. That is a very encouraging, great sign for us.
On the spatial side, again, while the instruments were pressured to a large extent because of the macroeconomic issues, we had really, really nice signs on the consumable side, really great utilization. There, like we're seeing both in terms of the numbers on the revenue side, but also with our Xenium platform, we're able to have great insights tracking our customers' actual usage of consumables. That was also really encouraging. Those, I would say, kind of the volume growth on the Chromium side and the consumable usage utilization on the spatial side are the two, arguably, the most important KPIs for us going forward. Those were very encouraging.
Good. Maybe just sticking on that initial topic in terms of the pressure on funding. We spoke mid-February on your 40 call, connected again at AGBT late February. There are pretty regular updates throughout the quarter. You notice any change in some of those utilization trends and sort of how your customers thought about funding as the quarter played out? Because a lot of it is tied to sentiment, right, and the uncertainty and the indirect cuts, the initial budget proposal, the back and forth. Are you seeing any sort of stabilization or sort of return to normal, or sort of how are those A&G customers in the U.S. responding more recently?
As sort of these events started rolling out, again, in February, kind of getting into March, people, we definitely saw kind of an attenuation of spend among those customers. Again, I would say the instruments tend to get affected the most in the higher CapEx items like Xenium, but others as well. People buy, kind of initiation of new projects becomes more challenging for people. Yeah, we definitely saw caution, and people do not stock up necessarily as much as they would have in the past, things of that nature. I would just emphasize that the environment is not just, like I said, it is not just like these specific things that maybe at the beginning, kind of Q4 call, we are talking about specific questions around the budget and questions around the indirect versus direct kind of allocation of the funds.
The whole sort of ecosystem, the set of questions have become more systemic. These research centers, universities are just not sure what is the shape of the funding situation going to be going forward. There is a lot of procedural issues, procedural changes that are happening on a continuous basis. It is kind of putting people in a kind of in a limbo kind of situation. I hesitate to say that there has been sort of a stabilization. I mean, we certainly, the business continues, it is continuing, albeit at a lower rate. I do not think anyone really knows in terms of what is sort of where the new normal is going to be and how is it going to shake up.
Maybe just expanding from that, one of the updates from the quarter is you pulled the fiscal year guide. Now you're focusing on a quarterly guidance. Just, Adam, maybe for you, sort of what's the thought process that drove you to that? I would say even on a quarterly guide, what gives you the visibility and the confidence to predict 60, 90 days out, given just how volatile uncertainty markets are?
Yeah. I mean, I think for the second half, as we spend a lot of time with our customers, and almost half of our business is U.S. academic and governments, we've got large exposure to that customer segment. I think, as Serge just mentioned, our customers just don't have the visibility. There's uncertainty, certainly, around the budget, but then it's these other procedural tools which are impacting their ability to actually get funds from U.S. Treasury into their accounts to be spent. We felt it was the most intellectually honest thing to do, just to suspend guidance for the second half. We did, as you noted, put guidance in for the second quarter, which gives us confidence around that. We had a month in the bag by the time we provided guidance last Thursday. And saw pretty good trends there.
Right now, we've got good visibility from a bookings perspective, good visibility in the instrumentation pipeline. The guide that we provided is 1% up sequentially from Q1 to Q2. $138-$142 is the range. We've got sufficient visibility to provide that at this time.
Yeah. I was going to ask on that quarter-over-quarter growth. I know there's usually some seasonality as you go through the year, sales ramp, but just given some of the uncertainty, as Serge was saying, it really developed in February, in March, later through the quarter, you still think there's enough of a buffer that you'll still be able to grow quarter-over-quarter, given that now you're going to have a full quarter of U.S. A&G weakness?
Yeah. A couple of things that I would note. We're off to a really strong start in Q1 in China. I mean, it's of note, mainly 22% in China. The quarter, we're off to another strong start in our business there. Team's doing a fantastic job, even navigating some of the varieties of uncertainties. Most of the product that we're shipping into China and selling into China is actually manufactured in Singapore. We've got good capabilities there that help us, at least in these sort of uncertain times as it relates to tariffs. Our business in Europe is impacted really just from timing in Q1, which is Q2. We feel pretty good about where that team is. It was an adequate quarter in Q1, but off to a stronger start. We've got a fully staffed Xenium selling team now.
While it is a compressed and muted CapEx environment more broadly, having that dedicated effort, teams doing a tremendous job getting leads, progressing those leads through the funnel. Obviously, it's tougher to close in this environment. We've got enough visibility to give us some confidence in that sort of 1% sequential step up quarter-over-quarter.
Okay. You just touched on Xenium instruments, so maybe I'll go there. If you talk about placements in the first quarter, obviously, there's the macro impact. Do you feel like, I don't know if you have this visibility, do you feel like excluding the macro impact, you'd still be seeing really nice ramp in Xenium placements? Because obviously, as dollars of revenue, it's not the most important thing in the world, but for the install base, the consumables pool, we kind of need to sustain that placement engine to generate revenue second half next year. Talk about what you see there, how that plays out for the rest of the year.
Yeah. I would say if you set aside the macro kind of issues and think about the underlying demand, all indicators are there. Like Adam kind of mentioned, we have a healthy funnel that's been developing. We do have a team in place now to fully prosecute on opportunity. It is a new team, especially in, for example, India. It just sort of fell in place this past quarter, AMR more a little bit early, but still kind of very fresh. It's executing well, and we feel quite optimistic about what it can deliver. I do feel, going back to the point I made about consumables, that is a good indicator as well. We have customers that keep, well, all customers are ramping up their usage.
We have quite a few customers that are kind of heavy earlier users that keep bumping up against sort of the constraints of their existing fleet and kind of looking to expand. That is a great sign as well. We are seeing a lot of new kind of opportunities emerging as well kind of across the ecosystem. Yeah, we do feel absolutely sort of the macro environment and giving a bit of time to the team to kind of really gel in place, I think we should have a really good shot of driving more placements.
Okay. Thinking about Xenium versus Visium, what you saw in the quarter and sort of something you talked about in the second half of last year as well is just can you talk about how those various platforms are ramping from a customer use case perspective? I know where I'm going with this is sort of the cannibalization question. We've talked about this in the past where they're not directly cannibalizing each other, but from an application perspective and also from a dollar perspective, there is some overlap there. Just give us an update on how you're thinking about that.
Yeah. Going back, if you remind sort of a guy a few years back when we started making these constructive investments in all three of our platforms, Chromium, Visium, and Xenium, there are overarching premises here of single-cell and spatial fundamentally are the future. This is how you need to measure biology. There is a fundamental kind of fundamental uncertainty around which applications and which technology approaches are going to be best for particular use cases, but the sum total of those three should cover kind of the range for us. We kind of approach it with this epistemic humility. We know that it's going to be uncertain for some amount of time. We want to provide the full complement of solutions. There were big questions. No one really knew, customers themselves. It's new science. It's new technology.
I think it was a big point of discussion when I think about a year ago with all the new product introductions that we're making, how it was all kind of shaking out. I think we have substantially more clarity now as the year is progressing. We need to give it more time. There's a little bit, it's hard to do totally fair year-over-year comparisons because a year ago, Q1 of last year was the launch quarter for Visium HD, which was huge. There was lots of huge pent-up demand. It was a big, big product right out of the gate. We have to get past those year-over-year compares. When I talk to customers recently, what I hear is sort of two dynamics. First of all, they're like, "You know what?
We were thinking maybe spatial would just completely overtake single-cell, but now clearly complementarity is kind of the driving thinking. There is a place for both. In fact, you kind of want to use both. It is more and more clear to us that sort of human-based spatial is resonating. Xenium is resonating in a particularly promising way with customers. We see that that platform is, as opposed to kind of over sequencing-based approaches, which for sure have their place and a lot of really interesting applications. We are seeing kind of a lot of momentum behind Xenium and that approach. Especially kind of as complemented with single-cell, that is definitely emerging as kind of the way that people are looking to do science.
Okay. You mentioned Visium HD, and you've had other, you sort of had a very healthy spate of new product introductions over the last couple of quarters. Can you call out just sort of where are you seeing the most incremental uptake and sort of what's resonated with your customers? You just talked about Xenium and the interface benefits. Maybe you can expand on that.
Yeah. The Xenium platform itself was very powerful. You get to see biology the way that you could just not even imagine seeing. It is like single molecule resolution with individual cells and tissues, very high plex. What we are finding is that people are, with the launch of the 5K multiplexing panel last year, the capability of being able to measure 5,000 genes plus also being able to customize some part of that has resonated really well. In fact, a lot of people have been using the platform for discovery, kind of broadly discovery, as well as kind of targeted analysis. There is sort of a broad spectrum of applications that Xenium is now enabling. That is definitely resonating. It is also kind of enabling a lot more interest from a translational side as well.
I touched on this on the earnings call when people are looking at kind of effects of therapies of drugs and kind of thinking about what are the mechanisms of action for particular drugs and figuring out why, especially in context of oncology, why they work, why they do not, for kind of thinking towards potential for therapy selection. Definitely a lot of kind of areas like that opening up. There is visible excitement around the Xenium platform. We also had a number of launches on Chromium last year, and those have come back with really great feedback. GemX, the new kind of microfluidic approach technology that we launched, that has been resonating, great feedback in terms of quality of data, robustness, cost, everything is kind of doing well.
Flex, this is our chemistry on Chromium as well that allows you to do things that you could not imagine doing with single-cell before, being able to work with fixed tissues, in particular with FFPE, and being able to scale to really, really massive numbers of cells, enabling all kinds of new applications. Great feedback and kind of opening up these big AI models for biology, being able to work with translational samples for translational studies, things like that. I would definitely point to those. Of course, there is a lot more, but we have launched in the course of last year.
You talked about GemX and some of the improvements on Chromium. Earlier, you commented on lower price per reaction as being sort of a major catalyst and something you've seen play on the quarter. That's something we've debated for a long time, sort of the benefits of that and how the price elasticity in this market and how there's certainly been feedback from a lot of customers over time that the expense of single-cell experiments is what's holding them back. How do you feel you're making progress in addressing that concern with your customers? It's a fine needle to thread, right? Because if you take it down too much, you're going to essentially cannibalize your own market and just reduce the TAM opportunity. Are you finding that sweet spot where you're able to deliver more value while still keeping some of the economics to yourself?
Yeah. That is one of the reasons why Q1 results were encouraging to us in a pretty fundamental way because you are right, there has been a kind of debate out there in terms of how much elasticity and opportunity is there with single-cell. We have heard from the beginning always price as being a critical bottleneck to greater adoption. I also believe from first principles that cell is the fundamental unit of biology. This is how we should be measuring samples. This is how we should be measuring the running experiments. The opportunity has got to be much, much greater than what has been uncovered so far. Price is a critical unlock here. From first principles, also our industry has lots and lots of examples of elasticity fundamentally driving greater and greater demand.
You're right, it is the kind of thing that you need to be deliberate in terms of how you deliver that sort of elasticity. We like to do it through the introduction of new products. That is what we did last year, sort of the GemX introduction across the board, which kind of delivered much lower cost per cell and somewhat lower cost per sample. Towards the end of the year, we launched a new version of the FLEX product that kind of lowered both cost per cell and per sample significantly. Also, on-chip multiplexing is a product that delivered a substantially lower cost per sample. We are seeing kind of precisely what you would expect, like these new products unlocking larger scale studies that were previously not really doable and clearly opening up new applications.
We're seeing kind of on the lower side new customers kind of coming in and adopting these new products that are lower price per sample that were previously sitting on the sidelines or having experiments that would not run on single-cell before. Still early times, but the sort of dials that are definitely showing up, everything is going in the right direction. At this stage, so far, we talked about robust growth and reactions. It's being matched by the sort of decline in average price per reaction. We're staying roughly flat in terms of the overall consumable top line. Underneath that is a very robust growth in volume, which we expect to continue.
Do you think you're getting close to a point where that growth in volume will be sustainable even without further reductions in price per reaction? Is there a sweet spot where you don't need to dial that back further?
I think for a while, I mean, there's multiple dynamics going on here. I think there's definitely reasons for optimism going forward that we can keep driving volume at these prices with these configurations of products. Not to say that there is not a great opportunity going forward to keep expanding the market as well.
Okay. Maybe tying together what you just said about single-cell price per reaction and sort of underlying customer demand and then on the Xenium feedback, I want to talk about competition, increasing competition either in the market now or talking about product launches later in 2025 and 2026 from a myriad of players, both in single-cell and spatial. Increasing competitive marketplace, how do you feel about the positioning of your portfolio as it stands today? Where do you see your best position? Where are you sort of paying the most attention to potential competitive threats? How do you stay ahead of that?
Yeah. First, I would point out that actually our spaces have always been quite competitive. At different years, different times, it kind of waxes and wanes a little bit. Overall, when we first entered single-cell, there were lots and lots of players there as well. We won ultimately by virtue of having great products and our kind of obsession with improving those products over the years. I feel like at this stage, when we look at the single-cell landscape, there have been a number of players over the past several years that have been coming in. There has been a similar kind of dynamic where customers, they try to, other companies try to go and use kind of price as a wedge.
Customers try them for that reason, but just about invariably, they come back to us for reasons of just much higher performance, better data quality, better workflow, much broader set of applications, and much better customer service support and experience. In fact, I would say given the launches that we had last year and all the sort of both improvements in terms of the product capabilities and us resolving a lot of the price issues that people have had, if anything, the tide has been turning much more in our favor based on the feedback that I've been hearing over the last couple of quarters from customers. I feel really good about our position in single-cell for sure. Certainly not resting in our laurels and keep investing in customer success and very excited about the latest state of products.
We have more coming later in this year to drive more scale, more experimental kind of flexibility and capabilities. On the spatial side, it is also like when we entered, especially kind of with the Xenium platform, it was a very crowded landscape. I think at this point, we feel really good about the resonance of the platform with customers, the feedback we have been getting. It is being recognized more and more pretty much universally now, just the superiority of the Xenium platform out there. When we go out there, we do not really, I think our, well, competition is there. We do not really lose deals to them.
We feel, and if anything, the tide continues to go strongly in our direction in terms of, and on North Star are delivering great value, great product performance, workflow, and customer experience, I think is what keeps us ahead, is going to keep us ahead. We fully intend to win going forward.
Yeah. Interesting comment there on your sentiment that the tide is turning in your favor. I was going to ask, do you comment on, especially in single-cell competition, often going from a price angle in the current macro environment with budgets under pressure with a lot of uncertainty, is price becoming more of a factor or has that not really happened?
Certainly the budgets are tighter, right? You have to be cognizant of that. What has been helping us, the new products that we have are allowing us to deliver the price that the customers need and as good as any of the pricing that our competition is trying to get in there. I do not think we are any longer disadvantaged when it comes to that. We also have a great sales force, especially after the changes we made last year. We have given them sort of the imperative and the philosophy is to be partners to our customers and accommodate them in this time, which allows us to keep driving, keep winning in the marketplace for sure.
I mean, there is also the fact when you are sort of in these kinds of times when your budget is uncertain, people also, they like to go with a brand that they know, that they trust. No one knows single-cell and spatial better than us.
Yeah. Maybe on the, Adam, I'll pivot to you on the topic of Salesforce and some of the reorganizations there. Could you just talk about how that's evolved, what stage of that you're in, when you just start seeing the benefit of that? I also want to tie that into the 8% RIF that was announced in the quarter. Just how do you balance those two factors? How do you make sure that you're not cutting too much in the current environment?
Yeah. I think the first part of the question is good job. I'll put you on the second. We made significant changes about midway through last year to the commercial organization. Most importantly, we added a dedicated team selling the biopharma accounts. We also had a dedicated team that now has a team selling Xenium instruments. Prior to that, essentially, everyone was selling everything, right? Having this kind of segmentation, particularly given the complexities of selling into biopharma accounts, is critical. Obviously, bringing in some new AGs and CapEx specialists has been very helpful. Obviously, the market's not doing Ben or Russ any favors right now as it relates to CapEx and pressures, particularly kind of at the Xenium type price points. It has been fantastic having them on board. The teams are effectively fully staffed at this point.
We're actually full, confident. Some of them filled a little bit slower than others, right? The Xenium team and the NIA, for instance, really just got sort of full here in Q1. There's a fair bit of training, ramp time, those types of things. Yeah, really confident and more confident than ever that it was the right decision that we made midway through last year. Serge maybe on the.
Yeah. On the reductions that we had, we did. Obviously, in this kind of environment and given that predictability becomes particularly important to be really careful with the spend. We took a really, really tight look at all aspects of P&L. We worked really hard about prioritizing the capabilities and where we could make adjustments. Mathematically, in terms of where the cuts came from, R&D got sort of was affected the most. We made sure to minimize the impact on our direct sales force. We do feel really good about where it is and where it has gotten and the investments we're making and that it's serving a great foundation for us to both get through this kind of time and also grow for a long time going forward.
Fundamentally, again, outside of being particularly careful not to kind of undermine the efforts we just went through on the sales side, it was kind of across the company.
Okay.
We've got a couple of minutes left. I want to kind of bring these things together. Serge, what you talked about earlier in terms of pivoting to pharma and biotech and some of the translational and the opportunity there. I know it's a topic that you and I have talked about for many, many years in terms of the long term of where single-cell and spatial could go, where some of these technologies could be and should be implemented. I remember IPO and pre-IPO days, you talked about the PCR market and thermal cycles and sort of the ubiquity of some of that in research and how do you get single-cell and spatial there.
If you look back at the progress you've made the last five, seven years, and you look at the opportunity ahead, what needs to happen to take some of these technologies to the next level? Sort of bridges from where we are now, obviously with a lot of the macro noise, and talk about the long-term opportunity and what needs to happen to get these technologies to the next level.
Yeah. I think one of the critical issues has been for us is that the technologies were fundamentally not, were challenged in terms of working with the samples that you needed to work with. Like when we talk about translational pharma, like you, single-cell in its initial conception and the initial technologies worked on fresh tissue, fresh samples. While you can collect those samples in the clinical context or translational context, it's a lot more challenging. It sounds like kind of a simple, almost trivial kind of issue, but the fact is a whole bunch of our customers have tried to implement various workflows in a translational setting, and it just becomes really not really feasible. Now over the last couple of years, we've released all of our spatial products are FFPE optimized.
Even on the single-cell side, I mentioned with the FLEX technology, we can analyze FFPE samples. That is resonating really well with a lot of customers. There is a certain amount of kind of baseline product capabilities that was critical that is now in place. If you think about sort of the notion of routine use, pricing has to get there as well. The way that the single-cell was for us, it was priced in the most sort of conventional workflows. It was more like an authoritative technology that you use once in a while as opposed to routine use. Now it definitely is at a point where you can use it routinely. We are really encouraged in terms of where it can go.
You also need to think in terms of opening up of applications, like now that we have those capabilities. We are seeing across the whole biopharma continuum, the drug development continuum, there are applications from target identification to drug discovery to clinical to now into clinical trials. That gives us a lot of optimism that there is a huge application space to kind of pull in these tools. You need to have the right kind of commercial infrastructure, the channel to go after that. That was something that we had made attempts at over the course of the previous five or so years, but never really leaned into sufficiently to kind of, in some sense, rip the Band-Aid and actually reorganize the whole organization to create the appropriate incentive, appropriate structure, and appropriate singular focus to go after. We have that in place now.
All of those kind of elements now kind of make me feel they're converging and make me feel optimistic that we can now go forward, have an outside growth. Now, it's not the kind of thing where you flip on a dime and the next quarter we have tons more business in biopharma. It will take quarter after quarter of sustained progress to get there. I am optimistic that in not too distant future, we can get to where this is at least an equal to our academic business in size, the biopharma.
Okay. Great. We are out of time. So thanks so much. Thanks, everyone, for joining us. That's a great place to end it. Thank you, Serge.
Thanks, Mike.
It's great having you.