10x Genomics, Inc. Q1 FY2020 Earnings Call

Thank you for joining us for the 10x Genomics first-quarter 2020 earnings conference call. I will now hand it over to Carrie Mendivil from Investor Relations. Please go ahead.

Thank you. Earlier today, 10x Genomics released financial results for the first quarter ended March 31, 2020. 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 email to investors@10xgenomics.com. An archived webcast of this call will be available on the investors 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 and 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 financial projections or forward-looking statements, whether because of new information, future events, or otherwise. With that, I'd like to turn the call over to Serge Saxonov, the company's Co-Founder and Chief Executive Officer. Serge?

Thanks Carrie. Good afternoon and thank you for joining our call to review our first-quarter 2020 results. I hope you and your families are healthy and managing the COVID-19 pandemic as well as possible. Before we go into the details of the quarter, I want to start by thanking our employees for their amazing dedication, flexibility, and drive over the past several months. This has been a very intense period, but it just truly brought out the best in each of our team members. I also want to take a moment to acknowledge the work being done by our customers and the collective research community around the world, who are working relentlessly to understand COVID-19 and develop cures for the virus. While we have not seen a pandemic like this in our lifetime, we have also never seen the global scientific community focused with so much intensity on a single goal. As soon as the pandemic started spreading around the world, we moved quickly to place instruments and provide reagents to our customers working on COVID-19 research. Many of these customers require special accommodations to put instruments in biosafety level three labs. Our products are being used in multiple ways to accelerate the fight against the pandemic. Fundamentally, they enable researchers to see biology at very high resolution and scale. And because of that, they allow our customers to make discoveries to understand the virus and the underlying biology of the disease and to help develop therapies and vaccines. There have already been dozens of references from scientists and clinicians around the world using 10x for COVID-19 research. Large-scale single cell analysis have allowed our customers to establish which cells and tissues get infected by the virus, when and where. A number of our customers have been using the Immune Profiling solution to search for neutralizing antibodies in recovered patients, which could potentially be used for prophylaxis and treatment. There is now extensive ongoing research to understand the biology of the infection in lung tissues and other organs using our full suite of products. Many of our customers are intensely focused on understanding the immune system's response to the infection or vaccine. Here, our Immune Profiling solution has been particularly powerful because it provides a detailed and comprehensive view of what is happening with different immune cells, clones, and genes during different stages of the infection. Our customers have been teasing out the precise cells and receptors that neutralize the virus as well as those that are activated by the infection to produce dangerous inflammatory overreactions. The pace of discovery, both published and unpublished, has been breathtaking. This research is helping the biomedical community understand the effects the virus has on different patients, what kind of treatments would be effective when, and how an effective vaccine could be developed. Technology and scientific discovery is ultimately how this crisis will be solved. At 10x, we will keep doing everything we can to help scientists achieve this goal. Turning now to our business. I'll start today's call by reviewing our commercial execution during the first quarter including detail on the impact from COVID-19. Next, I will discuss how we're thinking about the recovery, both for 10x and the broader industry, and what the new normal will look like post COVID-19. And finally, I will walk through our key priorities in the near term as we navigate our business through the pandemic. Then I will turn the call over to Justin for a more detailed look at our financials and the impact from COVID-19. I will return for some concluding remarks, and then Brad will join us for Q&A. Our revenues for the first quarter grew 34% to $71.9 million as compared to the prior-year period. The year started off with strong demand for both Chromium and Visium products. We were especially pleased to see a notable increase in biopharma sales relative to the prior year. In late February, we hosted a workshop at the AGBT Conference, where we introduced a number of new capabilities for both our Chromium and Visium platforms. The roadmap we outlined has been strongly resonating with our customers. And we're excited to launch these new capabilities over the coming months and years. On the Chromium side, we made several announcements including a product for the combined measurement of epigenetics and gene expression, new solutions for targeted assays, and the introduction of the 10x Cloud to help democratize single cell analysis. We look forward to releasing these solutions throughout the year. Relative to Chromium, our Visium platform is still in its infancy. We saw great enthusiasm for the platform at AGBT, especially as we previewed its upcoming capabilities which have included IHC compatibility, protein measurements through our feature barcoding technology, and enablement of FFPE sample tests. And while we just launched the first Visium product a few months ago, we have already seen extensive adoption around the world. On our last earnings call in mid-February, we told you that Visium was being used by more than 200 labs. That number has more than doubled down to well over 400. Across these labs, we have been encouraged by the excitement from our customers after their initial experiments as they started seeing amazing new data spanning many different use cases. While our business was strong for the majority of the quarter, we did see a substantial impact from COVID-19, particularly during the month of March. The first sign started in January when we began to see a slowdown across China as the country was virtually shut down in response to the pandemic. In early March, as confirmed COVID-19 cases began to spread globally, we saw a significant reduction in activity across our customer base as institutions responded to the emerging pandemic. By the end of the quarter, we estimate that approximately 75% of our customers have suspended operations in compliance with stay-at-home orders. The only notable exception was labs attributed to COVID-19-related research. These labs have been making use of all of our products, but not surprisingly, the new profiling solution has seen particularly strong demand. These lab closures have impacted and will continue to impact our business until they are able to reopen and regain full capacity. As of today, most labs remain closed, but we have seen some reemergence of customer activity in recent weeks. And even once labs are open, it will take some time for them to get back up to full capacity. While the precise shape of the recovery is hard to predict, there's very little doubt about the need to understand the master biology in the post-COVID world. This pandemic is showing in a particularly striking way the limitations of our current knowledge of biology and the frightening consequences of those limitations. So as we look to the future, we have very strong confidence in our business. Going forward, we expect new, sustained investments in biomedicine across industries and governments. These investments will drive even greater needs for new technologies. The products we have built and plan to build at 10x will be crucial for accelerating our understanding of biology and advancing human health. Over the past several years, our customers have published over 850 papers using our products to make fundamental discoveries across many areas of human health and disease, including now with increasing urgency, infectious disease. It is truly amazing how many scientific breakthroughs have been powered by our products in the 60 months they have been available to researchers. And we have so much more to do. The number of researchers using our products is still very small relative to the eventual impact we expect. And so this is just the beginning. Our product platforms are in the early stages of development relative to their potential. We see that the product development opportunities in front of us are, if anything, more robust than they have ever been. Our innovation engine is a core pillar of our competitive advantage. It is now supported by over 740 patents and applications, including foundational patents in single cell analysis, epigenomics, spatial analysis, and multi-omics. Our priority is to continue to invest aggressively in R&D to develop new products and platforms to accelerate future discovery and advances in human health. In addition to the increased focus on biomedicine and life sciences, we expect that the post-COVID world will be different in other ways. Virtualization precipitated by social distancing is likely to be a permanent shift that will stay with us even after the pandemic subsides. Travel, in-person visits, and in-person conferences will likely be much rarer in the future. People are adapting to new work patterns now and discovering that the digital ways of interacting can be more efficient and effective. Many of them are likely not going back to older ways of doing things. We have been fortunate that in the past several years, we have invested substantially in digital capabilities to support our customers and help our field teams. These have proven especially invaluable under current conditions as they allowed us to maximize our interactions with customers and promote customer success in the absence of in-person visits. Webinars and other forms of digital outreach are also providing a platform where we can effectively launch new products into the marketplace. We expect that these digital investments and capabilities will serve as the foundation that will be particularly valuable in the future. A more general effect of the pandemic is that it's causing a lot of changes throughout the world. This suggests that moving fast and being adaptable matters more now than it ever has, and it will matter more in the future. At 10x, we have always prided ourselves on moving fast, being nimble, and reasoning from first principles. We expect that these qualities will be at a premium in the future and intend to keep investing in our culture and processes to promote them. And now turning to our near-term priorities as we navigate our business through the pandemic. We have organized them around three principles: first, to protect the health and safety of our employees; second, to ensure the continuity of all critical operations to serve our customers and importantly, to support their research efforts on COVID-19; and third, to prioritize investments to keep focused on development. As COVID-19 cases began to rise in the U.S., we took action and implemented early measures to ensure the protection and well-being of our employees. 10x was designated as an essential business to continue necessary operations during the pandemic. Initially, the vast majority of our employees transitioned to work from home. We retained a core group of employees on-site to keep critical operations going while operating under stringent social distancing and other protective measures. Several weeks ago, with additional protocols and protections to ensure our team's safety, we started bringing more of our R&D functions back into the labs in a deliberate and careful manner. We believe that one of the most effective ways to ensure a safe work environment is to test everyone for SARS-CoV-2 on a frequently recurring basis. With that in mind, we have set up a novel program to provide recurring SARS-CoV-2 testing on-site for all employees that need to be at our headquarters in person. We are also communicating regularly with our suppliers to ensure that our supply chain remains intact. We have not yet experienced any material supply issues and have taken steps to ensure we have adequate inventory on hand to meet customer demand across a range of recovery scenarios. Our customer service teams around the world are operating remotely and remain available to assist our customers and partners. As I mentioned earlier, our commercial teams quickly switched to digital approaches for customer interactions. We have made use of our extensive online content to educate, train, and help our customers from afar. Sales teams have organized virtual meetings. We've been running webinar series to educate potential customers and have been seeing consistently record attendance. In fact, the effectiveness of virtual conferences appears to be substantially higher than for in-person meetings. While the near-term macro environment is likely to remain uncertain, we have strong conviction about the long run and the tremendous wealth of opportunities ahead of us. Supported by a strong balance sheet, we are continuing to scale our business thoughtfully and deliberately. Most importantly, we are continuing to invest in R&D and our operational infrastructure. As we have always done at 10x, we're focusing investments around key projects, being very diligent with prioritization. This diligence is especially important in the current environment to ensure that we are executing effectively toward our long-term goals. At 10x, we set out to build technologies to measure every aspect of biology and make these technologies available to everyone, whether for academic research, for the development of new medicines, or for treating patients. Our vision is that in the end, given any biological sample, you should be able to measure every analyte of relevance at the right resolution with all the necessary comfort because that's how we will achieve understanding. That's how we will arrive at cures. With that, I will now turn the call over to Justin for more details on our financials.

Thank you, Serge. Total revenue for the three months ended March 31, 2020, was $71.9 million compared to $53.6 million for the prior-year period, representing a 34% increase. Consumables revenue was $61.4 million, which increased 34% over the prior-year period. Instrument revenue was $9.1 million, which increased 33% over the prior-year period. Service revenue was $1.3 million, which increased 52% over the prior-year period. COVID-19 impacted our business in different ways. Consumable revenue was unfavorably impacted due to many customer labs being closed. Instrument revenue was favorably impacted as we saw increased demand for our instruments. Service revenue was not materially impacted. North America revenue for the first quarter was $39.7 million, representing 39% growth over the prior-year period. EMEA revenue for the first quarter was $13.2 million, representing 7% growth over the prior-year period. APAC revenue for the first quarter was $19 million, representing 48% growth over the prior-year period. By the third week in January, we saw impact in China as customer labs began to close due to COVID-19. As the quarter progressed and the virus spread outside of China, we began to see an impact on customers in North America and EMEA. In the last two weeks of the quarter, labs in China began to reopen, and we saw a reasonable recovery with ending revenue close to our expectations. Thus, the net impact to our Q1 revenue was driven by customer lab closures in North America and EMEA. Gross profit for the first quarter of 2020 was $56.8 million compared to a gross profit of $39.6 million for the prior-year period. Gross margin for the first quarter was 79% compared to 74% for the first quarter of 2019. The gross margin increase was driven primarily by lower accrued royalties related to ongoing litigation. Total operating expenses for the first quarter of 2020 were $76.7 million, an increase of 80% from $42.6 million for the first quarter of 2019. This was primarily attributable to increased expenditures relating to ongoing litigation, personnel costs as we have continued to grow our headcount across the organization, and stock-based compensation expenses. R&D expenses for the first quarter of 2020 were $26 million compared to $15 million for the first quarter of 2019. This was driven primarily by $7.1 million of increased personnel-related expenses and a $2.5 million increase in laboratory supplies and expense equipment. SG&A expenses for the first quarter were $50.4 million compared to $26.9 million for the first quarter of 2019, with the increase driven primarily by $11.7 million of increased expenditures relating to ongoing litigation which included a $5 million success fee payment. Additionally, the increase was driven by $8.9 million of increased personnel-related expenses. Operating loss for the first quarter was $19.9 million compared to a loss of $3 million for the first quarter of 2019. This includes $6.7 million of stock-based compensation for the first quarter of 2020 compared to $1.4 million for the first quarter of 2019. Net loss for the period was $21.1 million compared to a net loss of $3.6 million for the first quarter of 2019. We ended Q1 2020 with $372 million in cash and cash equivalents, which includes the impact of the February repayment in full of our term loan borrowings and associated fees with Silicon Valley Bank totaling $31 million. We are well capitalized and believe that our existing cash position, along with the cash generated from sales of our products, will be sufficient to meet our anticipated needs for the foreseeable future. Given the ongoing uncertainty of the scope, duration, and impact of the pandemic, we withdrew our 2020 revenue outlook in mid-April and remain unable to reasonably estimate our financial performance for the year. Looking ahead to the next few months, we expect a meaningful portion of our revenue to be impacted while labs remain closed. We are actively reviewing and managing all costs to navigate the current environment but remain committed to investing in our business in order to drive growth over the long term. We have developed plans for a range of recovery scenarios and are well prepared to steer through this period and continue on the trajectory of realizing the tremendous opportunity in front of us. At this point, I'll turn it back to Serge.

Thanks, Justin. Before closing, I want to extend my sincerest thanks to everyone at 10x for all of your efforts and for all the amazing work you have done. I'm incredibly proud to be part of this team. Across every part of the company, we have faced all the recent challenges with resolve, creativity, and passion. Our mission to master biology and advance human health is more important now than it has ever been. I'm confident that the future holds an even greater appreciation and appetite for scientific discovery. And with that, we will now open it up for questions.

And your first question comes from Tycho Peterson with JPMorgan.

Serge, since you flagged some of the COVID-related research that's ongoing, can you just talk a little bit about how you're thinking about revenue tailwinds there? I know you mentioned it drove increased demand for instruments. So can you talk a little bit about how you're thinking about that opportunity? And how much will it be split between discovery and translational work?

In terms of the benefits from COVID, there were some in the first quarter, and they are definitely increasing in the second quarter. However, I want to be cautious about the scale, as it's still too early to determine if it will be a significant factor compared to the rest of our business. The effects have been more noticeable in terms of lab closures and the challenges we've faced so far.

And from a funding perspective, any views on what the catch-up in the back half of the year might look like and thoughts on whether we might get something more meaningful out of the NIH?

Yes. Tycho, this is Brad. We've already seen some incremental funding that's been released by the NIH, and some of that has already made its way into labs, and studies are underway. But there's a tremendous amount of work contemplated around the world, certainly, places like Sanger have applied for grants to do large studies. And we're also seeing local consortia regionally around North America that are coming together, sometimes even almost rival labs, but to work together. A lot of this is related to access to samples. And unfortunately, the truth of the pandemic is there's samples everywhere.

Two other quick ones, and then I'll hop off. Chromium Connect, just can you give us an update? I think when we talked back in the last quarter, you'd said maybe 50 systems in the first year would be great. Obviously, the dynamics have changed. But just curious how you're thinking about pharma traction for Chromium Connect.

Tycho, I'll take this as well. It's actually been very strong. I mean, obviously, we did begin shipping and installing in March. That was obviously kind of rough because a lot of institutions are limiting access even before they closed, limiting access from people on the outside. But overall, we continue to see really good demand. We've built a pretty good book of demand that's consistent with what we expected. I would feel that here in the next few weeks, when some of the labs start opening up, we'll be able to commence onboarding customers.

And then last one, I'm just wondering, Serge, as we kind of think about the current environment and more focus on surveillance going forward, has any of this changed your view on the clinical opportunity and steps you may need to take to open that up over time?

I don't believe there has been a significant change in our perspective on the clinical opportunity. As we mentioned in the previous earnings call and discussed throughout the quarter, we have noticed increased interest from translational researchers, medical centers, and biopharma customers. This trend is leading us toward a clinical translational focus. Our confidence remains strong, perhaps even stronger than before. With the emergence of COVID, there seems to be a heightened emphasis on infectious disease research and applications. While it's uncertain whether this directly correlates to clinical applications compared to baseline research, it does indicate a growing investment in biology and genomics, in particular.

Okay. Thank you.

And our next question comes from Derik De Bruin with Bank of America.

So if I missed it, my apologies, but what was your exit rate of revenue decline exiting the second quarter? And is that a good proxy for how to sort of think about Q2?

Derik, I think if we were to look at the revenue rate decline overall, there was a decline, but it really was broken out regionally with different impacts for each region. So we saw an acceleration in China as the labs in China opened back up again. And we saw a slowdown in AMR and EMEA as those labs began to close. We gave the metric that overall we estimate that about 75% of our customer labs are currently closed. And so that's probably as best a proxy as any as far as how to think about the weighting while they all are closed.

Great. Yeah, I mean that's actually where I was going to go next, if that was the best proxy in that one. But talking about the acceleration in China, was that instrument pull-throughs or was that just labs coming back and resuming normal purchases, consumable demand? Something about that characteristic of you basically ended up, you said flattish on your China quarter.

Derik, this is Brad. There were many orders related to COVID research. Towards the end of the quarter, several labs were considering larger studies in early March, leading to an influx of orders. While we managed to fulfill some, most of these orders carried over into the second quarter.

Got it. Going back to your gross margins, they will likely be affected by the lower volume in the second quarter. Can you provide any feedback on the gross margin impact for Q2?

Yes, this is Justin. I'll take that one. I think the biggest impact to gross margin over the rest of this year is going to be the continued transition into the Next GEM products. There are going to be some headwinds just due to perhaps a lower volume on the same fixed base cost. But we expect that the benefit from the Next GEM transition will continue to offset that.

And your next question comes from Doug Schenkel with Cowen.

Actually, maybe just a follow-up on that last one on gross margin. The Q1 gross margin was actually pretty impressive, given adverse mix and probably some drop in utilization rates at the end of the quarter. I'm curious where you think gross margin would have been if it hadn't been for the pandemic? And presumably, it looks like you could have got into the 80s. Is that right? And if so, is that kind of the new normal factoring in Next GEM and moving past some royalties once we get to the other side of the pandemic?

I think it's challenging to determine for Q1. Given the volume we manufactured and shipped, I wouldn't say the pandemic had a significant impact on Q1 margins. If we consider the new products we've launched, like Chromium Connect and Visium, along with the manufacturing setup in Singapore, these will be obstacles to our current gross margin. In fact, we're anticipating some period costs to begin affecting us this quarter as we ramp up in Singapore. As Visium and Connect contribute more to our revenue, that will also play a larger role. So, forecasting how all this will evolve and what the new normal will be is complicated. However, I don't foresee a drastic change from our performance this quarter and last.

In your prepared remarks, you mentioned that 75% of customers shut down at the bottom. While some customers are returning, others are not acting normally due to the current situation. COVID provides a slight advantage, but it's minimal, and China is returning to normal, accounting for only about 12% of sales. Is there any reason not to consider that total revenue for Q2 could be 50% to 75% below trend, based on your comments about the end of Q1 for both consumables and instruments? If labs are closed, they can't utilize the resources. Also, considering your remarks about instruments being brought forward into Q1, does anything I said seem illogical?

Look, I would say that the single biggest variable that we're seeing is again lab closures. That's essentially the one variable that determines, certainly, the consumable pull-through. The effects of instruments may be a slightly smaller effect, but those as well. So I'll let Brad answer that.

Yes, Doug, we have thought quite a bit about the number of lab openings. When labs do open, there is often a period where we see different teams working at various times, which can delay full capacity. Additionally, many support services for the labs need to be up and running, such as animal care facilities and shipping and receiving. Therefore, our focus is on how quickly the recovery happens and the expected time it will take. We anticipate a lag period for the labs to return to their original capacity. However, in our conversations with customers, we believe we are at the top of their list for collaboration.

Okay. That's super helpful. And last one on Visium. You noted that over 400 labs have now adopted the platform or really put themselves in a place to use the consumables with no upfront cost. This is double where you were at the last update only a few months ago. Any interesting observation on who's adopting and for what applications? Is it mostly existing versus new customers? And from a competitive standpoint, are you starting to run into situations where you are running into head-to-heads and winning those at this point?

So the pattern is fairly similar to what we communicated a few months ago, in that most of the customers are still our existing customers. However, there is a fraction, about 15% to 20%, that is new, and that has remained fairly consistent. The range of applications is quite wide, with a particular focus on oncology, immuno-oncology, and neuroscience. Those are some of the main areas of interest, but it also includes some very exciting applications, including COVID-19. Overall, there is greater interest from the translational and clinical sectors in Visium compared to what we previously observed with single cell in Chromium. Since the last call, we have established a clinical and translational network to assist those customers in getting onboarded, and that has been growing well. Regarding competition, I don't think the landscape has changed much. There is certainly greater awareness of both platforms in the marketplace. As far as we know, we haven't lost any sales in head-to-head situations, and there are many customers using both platforms.

Just to add a bit more to that, regarding the competitive landscape, we've announced several enhancements to the Visium line. There's another platform on the market that is also announcing many upgrades. We're reaching a point where we will be meeting more frequently. Currently, we have not lost a sale and do not expect to lose any. However, we are very aware that both platforms have begun to merge. Additionally, new platforms like Recore have emerged, which we view as complementary. The timeline for commercialization is unclear at the moment, but there is significant interest in spatial technologies. As for the clinical/translational network, it was massively oversubscribed, and we had a limited number of spots available. This aligns with our efforts to integrate spatial technology into clinical applications, which was quite surprising.

And our next question comes from Patrick Donnelly with Citi.

Maybe one for Brad. I know you talked about some potential lag on labs purchasing when they come back. What have your conversations been around the health of budgets overall? Do you feel that instrument purchases mostly are just being pushed out and are going to be realized in the relative near term once these labs reopen kind of find their footing? Or do you think there's this level of uncertainty, this cloud of uncertainty that's going to linger for a longer period, even once people are back in the lab?

Generally, the sentiment is positive. The NIH budget for 2021 has been largely announced and is robust. Customers seem to have budgets and saving research funding doesn't make much sense for them. Therefore, I believe there is a strong demand. However, the approach to resuming operations varies among institutions. As for instruments, while there may be some delays, I anticipate they will come back online relatively soon. Nonetheless, some business will be lost due to the time we were not active, and I do not expect a rapid influx of experiments immediately. It will likely be a gradual return to full capacity.

Okay. And then maybe one for Justin on the expenses side. You guys are obviously planning on ramping those quite a bit higher this year before the pandemic. How would it change your opex plans for the year? Have you paused any hiring you were planning on doing? Just wondering on the balance between controlling costs in the current environment and then being well-positioned to capture growth when things normalize obviously a big opportunity for you guys. So how do you balance those two?

Yeah. It's a good question, Patrick. The focus for us has been finding the right balance on navigating through this temporary situation while still ensuring that we're building the business for growth for the longer term. And so we have gone back and we've looked at all of the costs for what we have planned out for the rest of this year, most primarily due to additional headcount in R&D and the commercial side. And we've just tried to be smart about prioritizing those hires as best we can as to not impact the product timelines or put any of our revenue plans at risk. And so I think when we started this year, we had a pretty ambitious hiring plan overall. And it's still quite ambitious, but we have pushed out a small number of headcount in the future quarters where we can defer a decision that doesn't have an immediate impact today.

Okay. And then maybe I'll ask one more, framing it a different way. I know it has been asked a couple of times. But in terms of even the customer closures, I know you guys have talked about the 75% number. Any way to frame that, how that's trended, whether it's end of March through April into almost mid-May here? Has that number changed materially? I'm just trying to figure out, some companies have given a kind of week-to-week look. Anything you can help us with over the past month and a half as this has developed, that would be helpful. Thank you.

This is Brad. Beyond China, which we've already discussed, in the first week of March, we observed initial lab closures starting mainly in the Northwest, specifically in Seattle, Fred Hutch, Washington, and Allen Brain. Over the next week, this trend spread across the country. In some instances, labs were given six or seven days to close, while in others, it was less than three days. In the Bay Area, where we are located, closures occurred almost immediately within 24 hours. These shutdowns continued until about the first week of April, followed by a period of inactivity. It was quite unsettling. However, by the second week of April and into the third week, we began noticing increased activity. People started adjusting to the new normal. Now, as we enter the second week of May, we are seeing labs reopening, primarily in the Midwest, Texas, and Southeast, with much more activity as plans for further openings towards the end of May and early June are being considered.

And your next question comes from David Westenberg with Guggenheim Securities.

So we do have to try to model this the best we can. So I do want to continue with that point on the 75% that was just asked as well. Is there any kind of events that maybe we could track? I mean is schools reopening in the fall something that we maybe can look at as indicators that labs are opening and just trying to get a sense of the timing going forward? And I get you've already been asked this five times, but just events that might trigger re-openings?

Yes. If we had a clear idea of when things would reopen globally, we might be in different fields. Regarding your question about schools reopening, if schools were to fully reopen, it would likely lead to labs also opening completely. However, even if schools remain closed, research can still progress. Post-graduate and graduate students typically function independently from undergraduates. The research environment is quite competitive, so as some scientists return to work, others will feel increased pressure to start their experiments. It's difficult to determine exactly when different labs will open, but we anticipate that the uncertainty will last for one or two quarters as we look ahead.

Yes. This is Brad. I'll just add. I'm sorry. Just to add a little bit to that, the competitive nature of science is sometimes looked in. And we even have our customers calling and asking, who else is opening up, when are they going to open up? Not that we share that information. But yes, we're right on that precipice right now where labs are beginning to open. And I think it's going to drive a lot of the momentum of other labs to open. And again, some parts of the world are certainly less impacted than others. So we'll see. But I think over the next three or four weeks, it will be clearer.

I want to follow up on Tycho's question regarding the use in infectious disease. Early generation droplet-based TCR technologies can be utilized in situations with low viral loads. As we consider infectious disease, could these technologies potentially be employed in research and development to understand why certain technologies have difficulty with viral loads? I'm trying to grasp how they might be applied in an infectious disease context.

Yes, there are definitely a wide variety of applications. I would downplay the importance of testing, but understanding the biology is crucial. This includes figuring out why some patients experience mild symptoms while others have severe ones, understanding the biology of infection, and how vaccines trigger an immune response in patients. All of this requires our products, as there's no other way to gain the same insight into individual patients. In terms of our offerings, our new profiling solution is incredibly effective and is being utilized in many research projects. Additionally, gene expression, epigenetics, and spatial products play an important role as well. Ultimately, this leads to a comprehensive understanding of the biology of the disease and the biology of individual patients.

Great. Can you remind us again about the expiration of the juice? I'm considering that if labs are open for extended periods, they might run out of consumables, assuming that six months is the expiration date for your consumables. How should we think about that?

Yes, I think you're right on spot there. It's at three to six months. The nature, very few of our customers actually stock the products. So these are out in the labs. We've already contemplated this and already working to anticipate customers' need where there could be potential reagents that are out of date and how we'll deal with that. So we've thought about that quite a bit and actually trying to map out and certainly be there when the start-up happens if we got to get product to them.

Okay. And there are no further questions. I will now turn the conference over to the company's CEO for closing remarks.

Well, stay safe, and thank you for joining us, everyone.

Goodbye. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.