10x Genomics, Inc. Q2 FY2021 Earnings Call

Ladies and gentlemen, thank you for standing by, and welcome to the 10x Genomics Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentations, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today Mr. 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 would like to be added to the company's distribution list, please send an email to investors@10xgenomics.com. An archived webcast of this call will be available on the 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, 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 will now turn the call over to 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 it to 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 a 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. Revenue 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 continue 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. While some labs experienced lingering COVID-related impacts for much of the periods, 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 uncertainty in our operating environment, which Justin will discuss further. Now moving to our results, with strong demand for our Chromium instruments, during the quarter, we initiated the price change for the Chromium Controller to position us 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 continues to grow. With our ability to measure gene expression, proteins, epigenetic programming in new 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 shipping 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 ATAC and to single-cell approaches more broadly. Directly connecting regulatory signals with cellular function is essential to understanding biology at its most fundamental level. In our recent preprint featuring Multiome, researchers analyzed cells from human pituitary samples to uncover diverse regulatory mechanisms involved in stem cell development. Multiome allows 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 progress through their experiments and generate relevant insights. And today, there have been more than 120 publications and preprints featuring Visium technology. In one recent Visium preprint, researchers performed an in-depth spatial analysis of somatic mutations from benign and malignant prostate cancer tissues. These researchers were able to identify small renal cells, not evident from visual assessment, and which would have been overlooked by typical histological analysis. Additionally, the study showed the copy number variations in the regions that encode cancer drivers over the current tumors and benign tissue regions typically ignored by pathologists. This 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 the biggest shipping of Visium for FFPE, enabling for the first time true unbiased spatial gene expression analysis in FFPE samples. Early demand has been strong as pre-marketing activities prompt 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 onto 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 settings. 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 their experiments, and they're getting as many as a 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 current platform has come a long way since we introduced the Chromium Controller five years ago; we launched this platform with the vision of making single-cell analysis accessible to every biology lab in the world, and we have made tremendous progress toward that goal. There are now thousands of customer labs using our products, with more than 2800 papers across a wide diversity of journals and research areas. And internal to these publications are helping inspire a broad 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 two-thirds 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 in 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 workloads and high-content experiments, unlike our earlier adopters. In particular, samples breadth 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. This launch has driven robust demand for supplies, and we have seen strong interest in our 10x cloud solution, especially among our users who are not buying for medicines. 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 best opportunity we have. 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 a rapid velocity of product introductions, including 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 roadmap to deliver many future products. Developing and launching these products will be highly ambitious even under normal circumstances. Our ability to maintain our planned capabilities for 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. Technology that results from this heterogeneity, and enables single-cell resolution at scale, will be critically important for unlocking 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 the development and adoption phase. We plan to continue adding capabilities and improvements in the future to enable broad adoption and create additional value for existing customers. Visium and spatial biology more broadly 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, adding fundamental new capabilities and breakthrough features as part of our extensive product roadmap. 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 provide us with 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 broad adoption of our products. Finally, last week, we announced the worldwide settlement of all our litigation with bioRxiv. This settlement resolves more than 25 separate matters and over eight years of litigation between the companies. We were scheduled to go to trial on our claims against bioRxiv's sales of related products this week. In that litigation, we had asserted the sale of products that infringe six of our products. This settlement broadly licenses each company's intellectual property as it relates to single-cell analysis, with the exception that we did not license certain application areas and technologies under development. Importantly, this settlement also does not include intellectual property related to spatial or In Situ approaches. Each company will make growth payments through 2030 or as the license grants for the life of the patents. From a financial point of view, we expect that agreement to be a positive outcome 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 for bioRxiv on related 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 bioRxiv. 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 cells. We were able to achieve this outstanding result in part due to the strength of our intellectual property, which now includes over 1150 patents issued and pending. We believe that our deepened broadband portfolio is a key competitive differentiator, and we will continue to deliver technology breakthroughs that result from our significant investment in research and development. I will note that it is just our general policy not to license our patents, but to protect our sole rights 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 for a 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 our financials.

Thank you, Serge. Total revenue for the three 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 one-year warranty and underpaid service contracts. America's 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 one-time reversal of $14.7 million of accrued royalties to cost of sales as a result of the settlement with bioRxiv. 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 spending in support of the 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 the $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 in increased personnel-related expenses including stock-based compensation and $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 in 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 of facilities. 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 feel 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 with our customers' labs due to the COVID-19 pandemic, and the lingering impact was likely to persist through this 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, closing access to outside visitors. The situation is increasingly uncertain, and due to the extent that 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 at $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 represent the future of biology; the vast majority of biological tissue samples will need to be analyzed with single-cell resolution in a spatial context. While it's still very early, the investments we're making in our platforms have well positioned us to make that future a reality. With that we will now open it up for questions. Operator.

Hi, good afternoon, and thank you for taking my questions. If I could start with just a couple of questions on the quarter, and then kind of 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 that you could actually increase the installed base by 40% this year, because it does seem like you're tracking to something like that?

Hey 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 ensure 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 EX. 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 an additional 100 overall. And so yes, with that kind of growth that we've seen in Q2 and year-to-date, demand for instruments is strong, especially at this price point. And so that could drive a pretty large increase in the installed base this year.

Okay, that’s always good to know, I can still do that. So thank you for 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 reduce the cost per data point, allowing researchers to profile more features, in many instances for the same price per cell, and also increasing the throughput. 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 two for the elasticity to play out the way one expects it to. 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? Thank you.

So Doug, this is Serge. Let me pick up on that question. So we definitely think there is a fair amount of elasticity of demand, 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 significantly lower while people are running larger experiments. This is kind of an almost classic case of pushing on the elasticity on the per-cell level, but towards 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, customers can effectively get a lower price per sample. That has some potential to put pressure on our revenues because instead of paying an amount for every sample, now it compresses multiple samples into one lane in the near term. But, as elasticity comes, that will drive more usage. It’s still early, I would say for either to talk with great confidence about how these effects are going to shape out. Certainly right in our 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 adoption is coming from people who have previously run homebrew approaches for what's called cell hashing and converting now to CellPlex. There are also new use cases, new customers who are picking it up. We’re seeing both kinds of examples where, on the one hand, there’s an experiment that got canceled, but we’re also seeing examples where studies that were previously not possible, due to cost, are now becoming achievable. So we’re definitely feeling good about it. I don’t think it’s the kind of thing that will play out in a material way like in a quarter or two. It’s a longer-term dynamic.

Super helpful detail and sorry to interrupt. 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 two in terms of when the elasticity materializes, is that right?

Yes, that’s right, Doug. This is not going to have a major impact on how we’re thinking about the second half.

Hey, good afternoon, a couple of follow-ups on the pipeline, maybe similar to kind of Doug's thinking here. But as we think about – I'll start with FFPE capabilities, you mentioned it'll 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 and kind of really maybe opening up more of that market on the clinical side?

Yes, that’s a good question. We certainly are excited about CytAssist, and it's going to be, by the time it comes out, 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 that come back to the other side to know for sure. We do know that some people are gearing up for doing larger studies in the absence of CytAssist. The other thing to keep in mind is that 50% of the FFPE customers are new to 10x. So these are new customers. Overall, the launch is going well very much in line with our expectations, and it’s going to take some more time for us to learn how people are actually ramping, but there are definitely 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 the funding backdrop here? I mean, the good news is the NIH is getting better and better, but how important is it for labs to kind of line up funding here? Or do you think this is something that they've already kind of secured funding for? I am just trying to understand the grant dynamics here that could obviously drive the adoption.

Yes, I mean, I think there's definitely a mix. Some people have funding available. Part of the reason we started talking about it earlier this year is for that reason, so that they can start preparing for that. But we’ve also been helping our customers in their grant applications precisely in anticipation of this coming, and that’s a longer cycle. So it’s definitely a mix. There will be people who have money available, especially with our pricing, but there’s also a larger cohort that will be more affected by a cycle in funding.

For the first part of your question, we have seen instances of large customers shutting 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 are going to be made to the local guidelines. As far as the second part of your question, can you please repeat that?

Gross margin?

Yes, just on the gross margins in the back half of the year. I know you said less than a 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?

Sure. 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. In the past, we've guided a slightly decreasing gross margin each quarter, also partially due to newer products with lower gross margin profiles becoming a larger percent of our overall revenue. If you look at this quarter, without the impact of the one-time reversal of accrued contingent liabilities related to the bioRxiv settlement, you could see that we would have followed that profile that we've laid out previously.

Hey, guys, good afternoon. Just one on Visium FFPE for you, Serge. Can you just talk about traction following the launch and how you're going about 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 2022 dynamic at this stage?

So let’s say that the launch is going, in terms of - as I said, it’s going well. We’re encouraged by both the interest and how people are adopting the product. As far as how we’re looking at this relative to GeoMx, we certainly have customers. But if you 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, and you see the full expression across the entire tissue slide. I think this is really important for researchers, especially when they don’t know the answer ahead of time. This is really the crucial point of differentiation I would say. In terms of timing, it’s going to be a range. Some people look like they're going to be getting through this fairly quickly, but I wouldn’t say that. Especially in a COVID environment where when you're adapting a new technology, there are all sorts of restrictions around it that people don’t anticipate until they get through the product. So I’d be cautious in terms of assuming that people can sprint through these, especially as the new customers. We've been seeing that although there are all these constraints putting pressure on how fast people can get through their initial experiment. So I wouldn't say that this is more of a point to kind of there.

Got it, right. And then on a similar way, 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 using the Chromium Controller or perhaps familiar with you via Visium?

Yes, that's a good question. I mean, obviously, this is very early. We just started talking to our customers with concrete specs and pricing. So very early. Initially, our goal with this platform has been to get to the high end of our users. This is where our focus has been, and this is where a lot of the demand has been coming from. At the same time, we're still very early, but there's quite a few new customers as well that are coming in with interest in the platform, especially on the biotech side.

As far as the Bio-Rad, we don’t know what kind of payments we’ll get from them in the future. So the comments we made around having less than 1% impact, any payments we received from Bio-Rad would be incremental. So right now, with that statement we are assuming zero. 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. If you look at where we ended Q2, we've hired just over 200. So we're well on track there. 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.

Hey, Patrick, this is Brad. I think that concern is waning quite a bit, but things change daily now. At this point, we will wait and see what happens. Generally, I think for the most part, people are confident they’re back in the lab. A lot of the data shows that there hasn’t been transmission in the lab. I mean, these are scientists, so we hope they know what they’re doing. Ultimately, I think that’s probably not a factor anymore, if it’s a secondary or tertiary factor.

Well, most of it surprises so much. But we have talked about as well making concerted efforts in our marketing organization to start reaching new customers to 10x. So especially with neuroscience and infectious disease, that was accelerated by COVID. Those are customer segments we are tapping into, which has certainly been bearing some fruit. Yes, I don’t think there would have been a huge tsunami kind of deal. I think this is definitely more steady for our customers. Our early customers, especially the most forward-looking ones, have been asking for this kind of capability for a while, so there is some built-in demand coming. However, it won't be a tidal wave.

Hi. Thank you for taking the question. So I'm going to keep going with that kind of theme on that higher placement thing, and maybe walk up models, and you guys can 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 price point. 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, David. We've talked about $150,000 being a good pull-through number to base a model on for near-term purposes. However, as you add more instruments to that and increase the denominator, that’s going to bring the pull-through down. That’s one of the dynamics we’ve highlighted over time. In the near term, we still feel good about $150,000 being a good number to use. However, keep in mind that as we place additional instruments and bring on more customers, there’s no guarantee that new customers will ramp exactly the same as previous customers, especially those buying at a lower price point.

Hey, thanks guys. I know in prior quarters, I think 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 these as Justin, when you talked about a month ago, things starting to look maybe a little more normal, now they're kind of backed up 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' comfort on a go-forward?

Yes, that's a great question. We've seen quite a bit of interest in the orders now, and while some conservatism remains due to previous experiences during the pandemic, we see vendors gaining confidence to ramp up purchases drastically.