Good afternoon. My name is Jeannie, and I will be your conference operator today. I would like to welcome you to the 10x Genomics Fourth Quarter And Full-Year 2023 Earnings Conference Call. All lines have been placed in mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. I would now like to turn our call over to Cassie Corneau. You may begin your conference.

Thank you. And good afternoon, everyone. Earlier today, 10x Genomics released financial results for the fourth quarter and full year ended December 31, 2023. 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 [email protected]. An archived webcast of this call will be available on the investor tab of the company's website, 10xgenomics.com, for at least 45 days following this call. Before we begin, I'd like to remind you that management will make statements during this call that are forward-looking statements within the meaning of federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated and you should not place undue reliance on forward-looking statements. Additional information regarding these risks, uncertainties, and factors that could cause results to differ appears in the press release 10x Genomics issued today and in the documents and reports filed by 10x Genomics from time to time with the Securities and Exchange Commission. 10x Genomics disclaims any intention or obligation to update or revise any financial projections or forward-looking statements, whether because of new information, future events or otherwise. Joining the call today are Serge Saxonov, our CEO and Co-Founder, and Justin McAnear, our Chief Financial Officer. We will host a question-and-answer session after our prepared remarks. We ask analysts to please keep to one question so that we may accommodate everyone in the queue. Last week, we were a Silver Sponsor of the 2024 Advances in Genome Biology and Technology General Meeting, known as AGBT. During our workshop, our team presented exciting science and details of our upcoming product launches. While Serge will highlight some of these today, we encourage you to check out the presentation replay on our website if you didn't see the news or if you would like more information. With that, I will now turn the call over to Serge.

Thanks, Cassie. And good afternoon, everyone. During today's call, I'll start with a brief overview of our progress in 2023 and why we have a great setup as we kick off the year. Next, I will highlight the strength of our innovation engine and our key priorities and focus areas in 2024. Then, Justin will provide a more detailed look at our financial results, business trends, and revenue guidance for the year. 2023 was another strong year for 10x Genomics, with total revenue growing 20% to $619 million, as previously announced. We catalyzed the field of single-cell analysis. And in 2023, we came into our own in spatial biology as well, with spatial revenue exceeding $135 million for the year. The big driver of this – and the big story of 2023 – was the launch of Xenium. It was an extraordinary launch year for the Xenium platform. We've driven remarkable adoption, selling more than 250 instruments in the first year of launch. Even more importantly, customers have been incredibly enthusiastic about the platform, as they rapidly move from install to insight, from instrument delivery to powerful discoveries. To date, there have been more than 20 published papers or preprints using Xenium. Among them are multiple independent benchmarking studies that validate Xenium as the best-performing system for in situ analysis. These rigorous studies compare customer-generated data from their own instruments in their own labs. The results demonstrate Xenium delivers the best sensitivity, the best specificity, the best throughput and the best biological insights. Of course, none of it was accidental. We carefully engineered Xenium to be a premium instrument that delivers premium performance with an extremely easy-to-use workflow. We leveraged our operations and manufacturing scale to ramp capacity faster than anticipated. And we relied on the dedication and drive of our commercial team to ensure our customers' success every step of the way. Xenium's exceptional launch year reinforces our belief in the enormous long-term potential for the platform, which we believe will usher in a new era of genomic analysis. Xenium is just one of several accomplishments in 2023, validating our strategy to drive growth through innovation and reinforcing we are well positioned for long-term success. In 2023, we reached nearly 6,000 cumulative instruments sold around the world, a 29% increase year-over-year. We also opened our new R&D and manufacturing hub in Pleasanton to support new product development and production, including for Visium HD and Xenium. This cutting-edge facility adds operational scale and capacity to enable multiples of growth. In addition, we achieved our goal of positive free cash flow in Q4 and, excluding acquisitions, delivered positive operating cash flow for the year, reflecting our commitment to maintaining cash discipline as we scale. Lastly, it was especially rewarding to see a massive increase in customer publications, which were up 58% year-over-year. We have now surpassed 7,000 peer-reviewed papers citing 10x technologies. Seeing how our customers use our tools to push science forward is a huge source of inspiration, motivation and pride for our mission-driven team. This is what 10x is all about. Before I discuss the very exciting developments leading into 2024, I want to emphasize the key principles that anchor our approach: First, our fundamental thesis is unchanged. Biology needs to be understood and analyzed at single cell level with spatial context. Following this principle, we believe there are large opportunities ahead and our commitment to ongoing product innovation will allow us to capture those opportunities. Second, we have always built the company for scale and will continue to do so. We have made significant investments over the past several years, building out a world-class operations facility and scaling our research and development and commercial teams. At this point, we have additional capacities and as we grow our revenue, we expect to realize operating leverage as we drive towards profitability, while we continue to deliver breakthrough innovations. And third, we are committed to maintaining cash discipline and driving a strong financial profile. We have already made investments to operate at scale. We have also put in place rigorous operational and cultural frameworks to prioritize incremental spending on highly targeted areas necessary to drive growth. It's been a busy and exciting start to the year. We kicked off 2024 with the launches of two catalytic new products, which demonstrate the enduring strength and velocity of our innovation engine and its impact and value for customers around the world. This year, we're planning to introduce franchise-defining new products and capabilities that will extend our technology leadership, raise the bar for researchers, and continue to set the standard for high performance single cell and spatial tools. Let me highlight a few of the game-changers we're expecting to launch this year, starting with Visium HD. Visium HD is a prime example of how we listen to our customers and take on the hardest development challenges that will have the biggest impact on scientific research. It has been the most requested product in our history. Visium HD increases the resolution of the Visium platform by over three orders of magnitude. Its development has entailed monumental technological leaps. And what this means is that researchers will be able to extract large-scale molecular information from their tissues at single-cell scale resolution. Visium HD will run on existing CytAssist instruments, with the same robust and easy-to-use workflow as standard Visium. Ahead of launch, we have sold more than 500 CytAssist instruments to customer labs around the world. We expect more researchers will adopt CytAssist to gain access to HD and take advantage of Visium's expanding spatial discovery capabilities. Since we opened Visium HD preorders in January, we've been encouraged with the initial response and early demand from customers. This product has been a long time coming, but we're confident customers will soon see that Visium HD was well worth the wait. Our ambition is to establish Visium HD as the platform for translational discovery. If one has a cohort of samples with phenotype information that needs to be correlated with molecular information for biomarker discovery or for anything else, we believe there is no better tool in existence than Visium HD. At AGBT, we also unveiled GEM-X, a transformative new technology for our Chromium franchise. The first major overhaul to our Chromium architecture since 2019, GEM-X features a completely reengineered microfluidic chip design with optimized reagents to enable superior performance at larger scale and lower cost. Later this quarter, we plan to launch the first two products on GEM-X – our highest volume assays, Chromium Single Cell Gene Expression v4 and Chromium Single Cell Immune Profiling v3. These products, which are exclusively available on the Chromium X Series instruments, deliver higher performance across the board and give customers important performance advantages that will immediately benefit their single cell research. Let me highlight a few. First, we designed GEM-X to be even more robust than previous generations of Chromium products, delivering more consistent performance even with more challenging samples. GEM-X boasts substantially increased sensitivity, detecting up to two times more genes compared to on-market Chromium assays. The new architecture greatly improves capture efficiency, recovering up to 80% of cells. GEM-X is also built to scale, enabling a two-fold increase in cells captured per channel, with improved assay robustness for faster and more efficient cell partitioning. And finally, and this is quite important, even with all of these performance advantages, the GEM-X assays are also more cost-effective than ever before, reducing per-reaction cost and delivering a more than two-fold reduction in cost per cell. We believe that there is significant price elasticity in single cell research, particularly as more researchers are exposed to these methods and existing users move towards larger and larger experiments. In fact, we're seeing more customers use Flex multiplexing to scale their experiments, as Chromium reactions growth outpaced revenue growth in 2023. We want to lean into this elasticity and make single cell analysis even more routine and accessible. That's why our long-term goal is to deliver high-performance single cell research for $100 per sample. GEM-X is one of multiple planned steps in this direction – to drive prices lower to support researchers and expand the opportunity for single cell analysis. We have a robust GEM-X roadmap ahead, including a comprehensive menu of high-performance assays and applications designed to deliver superior economics and drive broad adoption at large scale. In addition to GEM-X, we announced a number of new capabilities on the Chromium platform in response to our customers' most frequent requests. We're adding more workflow flexibility, including protocols for both upstream fixation and whole blood processing. And we're opening up new applications on Chromium Flex, including CRISPR screening and intracellular protein profiling. The investments we're making in the Chromium franchise to raise the bar and set a new standard for single cell analysis underscore our confidence in the growth opportunity ahead. We believe the momentum of our new products along with a renewed commercial focus on Chromium will help invigorate the franchise and drive more robust performance in 2024 and beyond. While Visium HD and GEM-X have been the big news to start the year, we're also executing on an extensive, multi-year product roadmap for Xenium, including multimodal cell segmentation, a new add-on kit compatible with existing Xenium assays to improve the determination of cell boundaries, which is expected to launch this quarter. We're planning to launch our 5,000-plex gene panel mid-year, scaling up plex by an order of magnitude while delivering the really high quality, sensitivity, specificity and throughput customers have come to expect from Xenium. And later in the year, we expect to launch our integrated high-plex Xenium Protein Profiling capability, enabling researchers to get a large-scale RNA readout and up to 20 proteins on the exact same tissue section in a single run. These new products will continue to push the boundaries of science, yet this is only the beginning. What is really exciting about Xenium is the amount of technological headroom that this platform has ahead – with tremendous runway for more applications, higher throughput, and lower cost over the years. We can't wait to bring some of these capabilities to our customers. In each of our three platforms this year, we are introducing new, franchise-defining products that will take our portfolio to the next level. We're confident that these are the right offerings to solidify our core platforms and drive growth for the long term, but we also recognize there may be near-term headwinds while customers take time to trial – and later transition – to these new tools. This warrants some conservatism around the pace of new product adoption. Our commercial team is excited and engaged to help customers navigate these product launches and deliver on the full promise of single cell and spatial biology. And while we're transitioning commercial leadership, I couldn't be more proud of how our team has stepped up and leaned into the opportunity that comes with this change. We recently held our annual global commercial meeting and the team's energy and enthusiasm was palpable, probably the highest I've ever seen at 10x. It's clear our team is ready to deliver on our priorities and evolve the organization for greater scale and impact. They understand we have work to do to get there, and they're fully rallied around our vision of creating a premier commercial organization that delivers superior execution and superior results. With incredible new products in every franchise, the commercial team is primed to bring more balanced attention and focus across our portfolio as we continue to drive our mission and obsess over customer success. And part of our commitment to customer success is to ensure as many researchers as possible are aware of – and have access to – our leading portfolio of single cell and spatial tools. Our goal is to drive broader adoption by reducing prices and making our technologies more accessible. We strongly believe in the elasticity of demand for our products. And that means driving down cost along multiple vectors – lower cost per cell, per tissue area, per sample, per experiment, per project. GEM-X is one step in this direction, with more to come across all of our platforms as part of our long-term product roadmap. Let me wrap up by summarizing our priorities for 2024. First, we are laser-focused on ensuring the success of these new product launches. We believe we have set the bar high for their performance and capabilities, and we want to make sure all researchers are aware and understand the potential of these offerings. Second, we plan to drive Chromium to higher rates of growth. We believe single cell analysis is nowhere near fully penetrated and that there are significant opportunities ahead, which our new products will help us capture. And finally, as I mentioned, we intend to maintain our strong focus on cash discipline. And before I turn it over to Justin, I'd like to say that while we're excited about our new innovations and what's in front of us in 2024, there are considerations related to year-over-year comparisons and product introductions that will affect this year's financial growth, as Justin will address in his section. We're focused on delivering in 2024 and are steadfast in maintaining a long-term orientation that has served us well since the earliest days of the company. The scope of our ambitions requires us to take the long view. That's how we make decisions. That's how we innovate. That's how we think about value creation. And with that, let me turn it over to Justin.

Thank you, Serge. I'll start by reviewing our financial results for the three months ended December 31, 2023. Then I'll review our financial results for the full year 2023 and I'll finish by discussing our outlook for 2024. Total revenue for the quarter grew 18% year-over-year to $184 million, with no change from our previously announced preliminary results. Total consumables revenue was $140.3 million, an increase of 7% over the prior year period. Chromium consumables revenue was $118.1 million, down 2% year-over-year and Spatial consumables revenue was $22.2 million, up 95% year-over-year. Total instrument revenue was $38.4 million, an increase of 72% over the prior year period. Chromium instrument revenue was $11.1 million, down 27% year-over-year. Spatial instrument revenue was $27.2 million compared to $7.1 million in the fourth quarter of 2022. Services revenue was $5.3 million, which increased 129% over the prior-year period. Looking at our revenue by geography, Americas' revenue was $103.8 million, growing 21% over the prior year period. EMEA revenue was $50.6 million, growing 18% over the prior year period. And revenue in APAC was $29.5 million, a 7% increase year-over-year. Turning to the rest of the income statement. Gross profit for the fourth quarter of 2023 was $115.8 million compared to a gross profit of $119.4 million for the prior year period. Gross margin for the fourth quarter was 63% compared to 76% for the fourth quarter of 2022. The decrease in gross margin was primarily due to a higher mix of Xenium instruments sold. Total operating expenses for the fourth quarter of 2023 were $171 million compared to $142.5 million for the fourth quarter last year. The increase was primarily driven by $19.6 million of non-recurring in-process research and development expense related to a technology acquisition. R&D expenses were $65.3 million compared to $63.6 million for the fourth quarter of 2022. The increase was primarily driven by higher personnel expenses and higher costs to support operational expansion. SG&A expenses were $86.1 million compared to $78.9 million for the fourth quarter of 2022, primarily driven by increased outside legal expenses including success fees. Operating loss for the fourth quarter of 2023 was $55.2 million compared to a loss of $23.1 million for the fourth quarter of 2022. This includes $38.9 million of stock-based compensation compared to $41 million of stock-based compensation for the corresponding prior year period. Net loss for the period was $49 million compared to a net loss of $17.2 million for the fourth quarter of 2022. The increase in net loss includes, and is primarily driven by, $19.6 million in non-recurring expense related to a technology acquisition. I'll speak now to our full year results. Total revenue for the full year ended December 31, 2023 was $618.7 million, representing a 20% increase over full year 2022. Total consumables revenue for the year was $479.6 million, an increase of 10% over the prior year period. Chromium consumables revenue was $420.3 million, up 5% year-over-year and Spatial consumables revenue was $59.2 million, up 69% year-over-year. Total instrument revenue was $123.5 million, an increase of 71% over the prior year period. Chromium instrument revenue was $47.9 million, down 18% year-over-year. Spatial instrument revenue was $75.6 million compared to $13.8 million in 2022, which was driven by the incredibly strong traction we experienced with Xenium in its first full year. Services revenue was $15.7 million, an increase of 86% over the prior year. As of year-end, we have sold a cumulative total of 5,966 instruments across all three platforms, comprising 5,180 Chromium instruments, 531 Visium instruments and 255 Xenium instruments. In 2023, we sold 1,336 total instruments, increasing 29% from the prior year. During 2023, our customers bought over 347,000 reactions worth of consumables products, up 9% from approximately 319,300 reactions in 2022. Broken out across our product platforms, customers bought approximately 312,500 Chromium reactions, up 7% year-over-year; 29,300 Visium reactions, up 3% year-over-year; and 5,200 Xenium reactions. As a reminder, a consumable reaction is the reagent setup needed to perform an experiment using one of our solutions. We believe it is an important metric because it represents the unit volumes we sell to our customers. Looking at our regional results for full year 2023, Americas revenue was $373.2 million, growing 27% over the prior year period. EMEA revenue was $142.3 million, growing 22% over the prior year period. And revenue in APAC was $103.3 million, a 2% decrease year-over-year. Gross profit for 2023 was $409.3 million compared to a gross profit of $396 million for 2022. Gross margin for 2023 was 66% compared to 77% for 2022. The decrease in gross margin was primarily due to changes in product mix due to a higher number of Xenium instruments sold. Total operating expenses for 2023 were $674.6 million compared to $564 million for 2022. The increase was primarily driven by $61 million of in-process research and development expense related to an agreement to acquire certain intangible and other assets earlier this year, and higher personnel expenses including stock-based compensation expense. R&D expenses for 2023 were $270.3 million compared to $265.7 million for 2022. The increase was primarily attributable to increased personnel-related costs and higher costs for facilities and information technology. SG&A expenses for 2023 were $343.3 million compared to $298.3 million for the prior year. The increase was primarily driven by increased outside legal expenses, personnel-related costs, including stock-based compensation expenses, and increased facilities and information technology costs. Operating loss for 2023 was $265.3 million compared to a loss of $167.9 million for 2022. Net loss for 2023 was $255.1 million compared to a net loss of $166 million for 2022. For 2023, operating loss and net loss both include $61 million of non-recurring expense related to the technology acquisition. We ended 2023 with $388.7 million in cash and cash equivalents and marketable securities. I'm proud to share that, in Q4, we hit our goal of achieving free cash flow positive, meaning cash flows from operating activities exceeded capital expenditures. In Q4, we generated over $20 million of free cash flow. For full year 2023, excluding acquisitions and net of restricted cash, we were cash break-even. Net of restricted cash, our cash burn for 2023 was $41.3 million and that included $41.3 million of cash payments related to the aforementioned technology acquisition. Our teamwork and diligence in controlling spend is paying off, and we ended the year on strong financial footing. Turning to our outlook for 2024, we expect full-year revenue to be in the range of $670 million to $690 million, representing growth of 8% to 12% over full year 2023. With this outlook, there are a few key factors to consider. First is the impact of our new products, which we announced at the J.P. Morgan Conference earlier this year and at AGBT last week. Our new Chromium GEM-X technology and our Visium HD product are exciting innovations. That said, and generally expected for major product updates like these, we are anticipating some temporary headwinds while customers evaluate, test and train as part of the transition to these new products. Both of these transitions are expected to start this quarter, and we do not expect to see as large a customer stock-up on either the legacy or newly introduced products at quarter-end. Thus, the biggest impact should be in Q1. Second, with respect to Xenium, Q3 and Q4 of last year, we saw a large number of placements, with nearly 180 placements over those two quarters. As a reminder, we took a price increase at the start of Q4. We believe that, combined with the year-end CapEx budget dynamics, likely pulled forward about a quarter to a quarter-and-a-half of demand into 2023. And as a result, we expect to see a more pronounced step down in placements to start the year. Finally, and as I have explained before, our guidance philosophy is to anchor on the midpoint of the range with balanced upsides and downsides. The midpoint of our guidance range incorporates the above factors, and we'll need to see how these transitions play out over the next couple of quarters. For the rest of the year, we believe we have a number of potential upsides. First is the upside of balancing our commercial efforts across all three platforms with increased focus on driving Chromium growth. Second is the upside in Xenium instrument placements. While the sales cycle is longer than our other products, we have a large funnel of opportunities. Third is the upside related to Visium HD where there is potential for quicker adoption overall and the benefit of driving increased CytAssist placements. When looking out over the next 12 months, we are anticipating about $20 million to $25 million of total capital expenditures, down from almost $50 million in 2023 and $132 million in 2022. As Serge mentioned earlier, we have now made many of the significant capital expenditures for this stage of growth. As I mentioned earlier, we hit our goal of achieving free cash flow positive in Q4. Given the seasonality of our business and a milestone payment related to Visium HD that was accrued in December and paid in January, we do not expect to achieve the same in Q1, but we will maintain discipline in 2024. Overall, we believe we have a great setup to drive positive cash flow for the year while making targeted investments to continue driving growth. Our goal is to self-fund our innovation and scale by investing cash generated back into our business. At this point, I'll turn it back to Serge.

Thanks, Justin. You know we often talk about the enormous complexity of biology. This complexity is what makes it so challenging to understand biology and to advance human health. But the extent of the challenge also means that there are vast opportunities ahead of us. At our core, 10x is fundamentally about growth and impact. Our innovation engine has consistently delivered transformational technologies that have enabled our customers to expand the frontiers of science and have a profound impact on society. In fact, a customer recently told us that our technologies aren't just unraveling biology; they're unearthing opportunities to create hope. We see this as a powerful responsibility and a guiding force for our team, who work tirelessly every day to support science – and scientists – around the world. I'm so grateful for our team's drive and determination as we remain bold, ambitious and disciplined in pursuit of our mission. With that, we will now open it up for questions.

First question comes from the line of Dan Brennan with TD Cowen.

Congrats on the quarter. Maybe just to level set the guide, could you give some more color on the components, namely, single cell and spatial? If you want to give color on instruments and consumables, that'd be helpful as well. And then I have a follow up.

As far as the guide goes, we're guiding to total revenue and we're not planning on breaking that out by product line. But I can give you some color as far as how we're thinking about instruments for the various platforms. For Chromium, we're built into the midpoint of our guidance range with Chromium instruments being roughly flat year-over-year, but with higher weighting towards the iX. So a slight decline in revenue. For Visium, we're expecting instruments to be slightly down year-over-year. And that's due to what we've done over the past year about messaging that the future of Visium is on the CytAssist with all the customers getting ready for HD. And on Xenium, even though we have a healthy funnel, we talked about in the prepared remarks, the pull forward of orders that we saw in Q3 and Q4. And I do expect the biggest impact of that will be in Q1, with some impact in Q2, but then ramping gradually from there. In the prepared remarks, I did talk about how we expected maybe a quarter to a quarter and a half of demand was pulled forward into Q3 and Q4. And so, if you do the math on that, it would imply roughly an ongoing demand assumed at the midpoint of our guidance range of about 50 to 75 instruments per quarter. So we expect to start off the beginning of the year at the lower end of that range and then ramp to the high end in Q4.

You gave some of the color on the single-cell instruments, but just more broadly, given the way the year ended, there's a lot of excitement, obviously, on spatial, but getting some visibility on how you're thinking about single cell would be really helpful more broadly. So you guys grew 2% in 2023, even though instruments – I assume you should grow faster this year, could you just give any color about some of the initiatives to kind of accelerate growth in single cell?

I'll take the first part of that question and then we can turn it over to Serge for more color. But as far as the guide goes, for Chromium, keep in mind that we're assuming this transition to GEM-X that has a 10% price decrease and then also the impacts that I've talked about with the product transitions, particularly around the end of Q1 with how customers are transitioning from the legacy product to the new product. I gave you the color on instruments. But overall, even with a 10% price decrease on GEM-X, we're still assuming growth for Chromium at the midpoint of our range overall.

Dan, to emphasize what we talked about in the prepared remarks and the message we've been putting out there for a number of years now, we have strong conviction that ultimately every tissue sample will need to be analyzed with single-cell context. Obviously, we're very far from that right now. And so, we have strong conviction that there is a long-running opportunity in front of us of robust growth. And the big part of it is making our products easier to use, improving workflow, adding features, making analysis easier, but also lowering the price to drive into the elasticity of demand to reach broader and broader markets. And this year, in particular, with introductions of new products, what we've been doing previously with Flex, we expect to really lean into this elasticity and drive broader adoption, which will set us up well first year, but also importantly beyond as well.

Justin, on Xenium, the consumables contribution, look like it's stepped up nicely this quarter. What were the drivers there? I assume some of that was maybe related to stocking orders, but you also placed 80 systems last quarter and we didn't see the same type of move. So it seems like that's at least partly due to the way the usage is ramping, but would just love to hear your thoughts there.

Really, it's due to both. You've got the compounding effect quarter-over-quarter of instruments that have been placed earlier in the year that are now getting to doing the reorder. But when you have a quarter like Q3, followed by a quarter like Q4 between those two quarters was nearly 180 Xenium instruments sold in total. And so, the bulk of that is coming from the stocking orders of orders that are going out with an instrument placement. But then Q4, it's having some compounding effects from the previous quarters where they're getting to the reorder point.

Maybe just on Chromium consumables, when you look at the performance in the quarter and the sequential step down and growth, as you've dug into that a little bit, I'm just curious if you have a sense for – has that been due more to shorter term purchasing behavior around things like pricing changes and budgets versus something more structural? And then maybe relatedly, you threw this 7% growth number out for reactions? What should we do with that? How do we think about next year in the context of reactions because it is a little bit of an abstract idea, especially when we're thinking about these new products that you have?

Let me take on the question around Chromium consumables and the quarter. So there's sort of two main things that we saw happen on the Chromium side in Q4. One is sort of around seasonality, which incorporates budget pressures, sort of budget flux dynamics and differences in price increases from year to year. This year, our price increase on Chromium was actually the smallest it has been in a number of years and substantially smaller than was the year before. So there wasn't nearly as much of an incentive for people to kind of stock up on Chromium reagents in Q4. The other big thing is, like we talked about before, just generally commercial focus and execution. Our team, throughout last year, was very much focused on spatial, especially on Xenium. And in terms of building out the funnels and in terms of customers where they're spending their time, very much was there and somewhat they spend at the expense of Chromium. To a smaller extent, there also has been an increase in competitive offerings out there, more companies kind of going to our customers and offering sharply discounted products or products for free. And it was a similar dynamic to what we have talked about before, where certainly our customers are always looking to try new technologies. And that these trials do add some amount of friction to the sales process. But by and large, the customers have been coming back to us because our product – due to the superiority of the products, much better data quality, much better workflow, much greater breadth of applications, much greater support, customer support, commercial support, and that is really our goal, as I mentioned earlier, is to keep investing in innovation. Keep on driving forward to make sure that our customers are always seeing us as by far the most compelling choice for single cell analysis.

Your next question comes from the line of Doug Schenkel with Wolfe Research.

First a question on the early part of the year and then I want to follow up with the bigger picture question. So in terms of what you're seeing in terms of customer behavior, customer response since the launch of GEM-X and Visium HD, I know GEM-X – I think that may have been only last week, but I'm just wondering, are you seeing anything to suggest that these announcements are going to open up new accounts? Are they opening up different customer groups? Anything you could share on the early going would be I think of interest to all of us?

I think, Doug, it's too early just to comment on that. The year started with really exciting launches. We announced the pre-orders for Visium HD, and just last week, we announced to the world for the first time the coming of GEM-X. These products will first very naturally gain traction with our existing customer base. And we're certainly seeing that both in terms of the reaction because those are the people that are going to be more aware of them in terms of where our commercial team will naturally turn attention to, and the reaction has been great. As I've talked about, Visium HD is a huge advance over what came before. And GEM-X has a number of advances that are precisely along the lines of what customers have been looking for, greater sensitivity, greater cell recovery, efficiency, throughput costs, and greater robustness. I would say that by virtue of these advances as well, we do expect that ultimately more customers will enter the ecosystem because these products are more amenable to more sample types, to gaining more information content of customer samples, but it's way too early to talk to that now based on sort of empirical data and initial customer reactions.

The bigger picture question, and maybe I'm being unfair, because I may be asking you to do our job for us a little bit here, but the stock closed at, I think, eight to nine times the midpoint of revenue guidance. In the current environment, that's pretty robust. 10% growth year-over-year at the top line is solid. But arguably, it's not a slam dunk to support the valuation, or certainly upside from current levels. So if we kind of think back over the years and just normalize for boom and bust cycles, you've always garnered a premium multiple based on your growth profile. And related to that, your ability to keep opening up new markets, new opportunities based on your innovation. For those that might be wavering a bit, what can you share on guidance philosophy entering this year and also on a product pipeline, single cell/spatial, and I think importantly beyond that can help folks not waver and believe that 10x of the future is still very much like the 10x of the past?

Let me start here and maybe Justin can touch a little bit on guidance philosophy. So fundamentally, as I said, as we've been saying, we do believe that, ultimately, all samples, anything that starts with cells, anything that starts with tissues, needs to be analyzed with single cell context with spatial resolution. And we have built the products, the platforms, to enable that vision, to enable the future. Our product development innovation engine has demonstrated, at least shown the ability to launch new platforms and new products. In fact, I think sitting here right now, I can say with full confidence, it's as strong or stronger than it has ever been. And we have announced a number of products just this last month. There's way more in the pipeline, there's a lot more capabilities, a lot more products that are coming, and the idea is to drive towards that long-term vision. And we feel like the market, the runway for the markets is really, really long and really robust. And we have every opportunity to take full advantage of all these big opportunities in front of us. So I would say, to the same extent that we have created these markets before, through fundamental technology innovation, that story is still very much in play. In fact, we feel more strongly about it than ever.

And as far as our guidance philosophy, what I'll say is that we call out what we're seeing today and we don't want to get too aggressive around things that we're not seeing yet. So in this case, we're anchored at the midpoint of our range. We've got a balanced view of upsides and downsides. But then we've also called out upsides that I spoke to earlier in the prepared remarks. And so, those were – the first was the results of balancing our commercial efforts across all three platforms with increased focus on driving Chromium growth. So the result of doing that is not built in. I would consider that an upside. And then the second one was the upside on Xenium instrument placements as we get through the first couple of quarters. And the third is the upside on Visium HD and then quicker adoption with the potential for that driving more CytAssist placements in addition, but that's not built in yet. And so, as the year progresses and we see how we've progressed towards these upsides, we'll update as appropriate, if appropriate.

Your next question comes from the line of Kyle Mikson with Canaccord Genuity.

Just going back to the product transition dynamics to Visium HD into GEM-X, can you just walk through that in more detail? Like, is that just a tough switch or a customer is going to have to – could they be hesitant to kind of stick with you guys and kind of evaluate other options in single cell or spatial profiling? And is there any risk that could kind of impact the Xenium traction or momentum? Or are those businesses just totally not – just independent at this point?

Let me expand a little bit on this. For both Visium HD and GEM-X, I think these are very natural upgrades and transitions for our customers. With HD, I want to emphasize that the workflow is very similar to what we have now established with SD. And that workflow is a much improved version relative to what we started years ago and it's something that has resonated with our customers. It runs on the same CytAssist instrument that our customers have. So we see it as a very natural progression for our customers. That said, there's always some amount of friction for turning over and deciding when to finish your projects, your existing projects on standards on the current products and which ones to pick up on Visium HD. We also expect people to, before kind of jumping in at large scale with Visium HD, to order some reagents in smaller quantities to test it out, to benchmark it. So we fully expect the customers will stay fully within the GEM-X ecosystem, but it will take some amount of time to kind of turn it over and transition and decide when and where to transition onto HD. Similar dynamic on the GEM-X side. Again, it runs on existing Chromium iX series instruments. The workflow is similar to what they will be doing with the current assays, just better. The data similar, just better. Everything is just sort of better. So we do expect them to naturally transition to the GEM-X architecture. But again, there's going to be the same amount of friction where people will first order these reagents to test them, to benchmark them before deciding which studies to transition when on to the new architecture.

Just to add, the impact on revenue throughout the year, we do think the biggest impact with the transition is going to be in Q1. These transitions are going to be executed throughout the year. But as far as seasonality goes, when you look at what we would expect Q1 to be in relation to the midpoint of our guidance range, I would expect somewhere in between 20% to 22% of the annual revenue would be in Q1 as a result of these transitions.

Going back to single cell elasticity of demand, when next gen was introduced in 2019, I think that was with IP ligation. I'm not sure if there was a price reduction associated with that, but Chromium consumables have around 20% CAGR since then, possibly catalyzed by the next gen release. Do you think that the GEM-X introduction and the price decrease here could similarly kind of reaccelerate Chromium consumables because that's grown like single digits the past two years?

We didn't actually lower the price back when I launched it. As far as GEM-X price reductions are concerned, we do fully expect that, over time, it will lead to higher demand, more reactions, and ultimately more revenue. For sure. We have some evidence of that dynamic based on the progression of customer accounts with Flex assays where as customers transition to higher levels of flexing, which results in lower price per sample, their total number of reactions and total revenue in those accounts goes up as more incremental projects get added.

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

Justin, probably the first one for you. Just in terms of some of these moving pieces, both 1Q and the year, can you talk about the margin progression? Obviously, those have been pressured quite a bit from the Xenium and maybe some of the consumable piece, but the ramp coming soon and the consumables piece will obviously bring the margins up. If you just help us think about how that's going to progress this year on the gross margin piece and then any color on the expenses would be helpful as well.

First, let me talk about our philosophy for gross margin overall. We realized that that's a key strength of ours. We're committed to driving high gross margins long term. And we believe that we have the ability over the long term to get back to higher gross margins. But we have been investing in the Xenium platform. Since launch, we've talked about the mix of – basically the strength of the Xenium instrument placements, being by far the largest driver on the change in margin, as of late. We do think that as the Xenium consumable streams ramp up, that will help to offset the margin of the instrument. And over time, this platform will have a margin overall that's comparable to our other product lines, that consumables themselves have gross margins that are similar to the other consumables that we sell. For GEM-X, we do have a slightly higher cost for GEM-X. But that is more of a transitory thing that will more impact Q2 and Q3, and that's given how our licenses are structured. There's going to be a very minimal impact beyond Q3. So, the gross margin may fluctuate in the first three quarters of 2024 just based upon the mix of Xenium instruments and the mix of GEM-X. But like I said, beginning in Q4, the royalty payments will normalize and we would expect a very minimal impact after that. The other one to mention which is Visium HD, just coming up the manufacturing ramp of that. With any new product, you start off with yields probably a little bit less than where you expect them to be longer term. And so, we do expect some impact on Visium HD, just due to the yields. But over time, as we improve those, we expect to see the improvement as well.

Serge, there has obviously been a bunch of questions about single cell and kind of catalyzing it back to growth. Can you just talk about what you're doing internally? I know we chat a little bit about it at AGBT. But just in terms of incentivizing the sales force, I think you guys went all in on spatial and Xenium last year. How far do you swing the pendulum back to single cell this year? Maybe just talk about some of the strategy and how you think that could impact single cell.

As we talked about before, last year in 2023, much of the company's focus was on spatial and especially on Xenium. We've put extra incentives on the commercial team to put Xenium on the right trajectory and, obviously, it has borne fruit and has worked well. As we entered this year, we have been telling the team to bring a more balanced perspective and a balanced allocation of attention across the portfolio. As we go into this year, we now have – as part of our quotas, there is a number on – Chromium is part of their incentive structure. We are watching this very carefully. It's a good question to see to make sure that there is appropriate balance. We do have now some added specialization on the team to continue to drive spatial and to drive Xenium, which is giving more room for our overall commercial team to be able to drive Chromium, which as a franchise has a much wider footprint. And so, we feel like we're putting the right measures and the right incentives in place, but something that we're absolutely watching and we will be as we progress through the year.

Your next question comes from the line of Subbu Nambi with Guggenheim.

For single cell, which application is most frequently used by customers between, let's say, RNA expression, ataxia. The reason I ask is, I was wondering what percent customers will naturally upgrade to GEM-X until Flex is available in this architecture. And then I have one follow-up.

The largest applications that we have are the ones that we've been able to on GEM-X, which is three prime gene expression or five prime, which comprises – I think includes immune profiling. Those are the biggest applications. They also represent more than 50% of the volume for Chromium.

And what would flex be, roughly 20% to 30% or more than that?

So we haven't talked about the precise percentages around the different applications around Flex. Flex, at this point, is a material fraction of the overall Chromium portfolio, larger fraction in terms of reactions, somewhat smaller in terms of revenue.

Your next question comes from the line of Tejas Savant with Morgan Stanley.

Justin, just a couple of quick cleanups for you on the guide. First, I get your point around anchoring to the midpoint and the upside/downside sort of color you provided, very helpful. But can you just put a finer point on the degree to which you're anticipating a budget flush in 2024? And then what are you assuming in the guide for China? Is it essentially sort of 4Q trends continuing for 2024?

Maybe starting with the last part of your question, we did consider what we saw at the end of Q4, as we thought about the beginning of this year, and that was contemplated in our guide. As far as the guide overall, the biggest drivers are what I highlighted before, just around the product transitions and the Xenium pull forward. As far as the year-end, on the budget dynamics, really, it's taken more of an average view of the seasonality that we've seen in the past. And rather than trying to assume something binary, like budget flush or no budget flush.

Your next question comes from the line of Mike Ryskin with Bank of America.

Actually want to follow up on China real quick but I want to expand on that a little bit. It's been one of the major headwinds to growth over the last couple of years, obviously. And as a percent of revenues, it's dropped significantly. In the fourth quarter, you were down to like 6% of revenues coming from China and that used to be north of sort of 20%. So from that perspective, it's especially not a headwind anymore as you go into 2024, whereas if you strip it out, throughout the last couple years would have been much, much higher. So we talked about things from a GEM-X, Visium, Xenium perspective, can you talk about it from a geography perspective? Feels like for 2024 guide to be 10% of the midpoint, some of the other geographies have to be decelerate significantly. So could you just reconcile those two approaches to thinking about the guide? And I do have a follow-up.

For China, keep in mind that, in 2023, things started to take a downturn in China beginning in Q2. Q1 of 2023 was still roughly a solid quarter in China. So, for Q1, we do have a more difficult compare considering that. And then it also impacts the year-over-year 2024 over 2023 compare as well. Going forward, as far as what we assumed in 2024 for China, that's been more informed by what we've seen more recently around Q3 and Q4. And so, overall, we aren't forecasting anything in China to get better right now. And so, I would characterize it as roughly flat sequentially, but then year-over-year down when you consider the impact of Q1 2023.

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

Maybe just following up on some of the color you gave to Patrick's questions on margins, more of a philosophical question for you, Justin. As you think about – given that 10x has now transitioned to multi-product company, you've got different growth rates, different mixes, different margin profiles for each of these products. How do you think about the overall gross margin profile of that company? And is there sort of a line in the sand you're willing to draw at 60%, 61%, whatever the level is? And how do you manage that, given the commercial efforts, balance between the different products? How much are you thinking about your margins and where you want them to maintain them in the near term when you're doing that?

That's a great question. I think, first, it's important to understand that we have a very long-term view of the business. We are definitely not focused on the near term. And so, margin plays into that, especially when we think about – when you look at what we've done with the Xenium platform, where we know the instrument is lower margin, but that's really an investment in the future when you consider the consumable revenue streams. When we look at new product development, we have margin targets that we incorporate into the thinking and design there as far as the trade-offs around the cost and the features and the volume. And so, there is robust thinking that goes into that. We do have targets internally. I'd hesitate to put out a number publicly right now, but know that margin is very important to us, that we recognize the strength that that's driven for us to be able to reinvest back into the business. But also keep in mind too that we do have a very long-term orientation where we're focused on doing what's best for the business overall.

And your last question comes from the line of Mason Carrico with Stephens.

A lot has been asked here, but I just had one clean up real quick. So, Justin, I think that you guys had talked about HD and the potential for it to accelerate CytAssist placements. And I may have heard this wrong. But in response to a prior question, I think you said that you expected CytAssist instruments to be down year-over-year. So could you help me reconcile the two or maybe clarify what you said about CytAssist placements expectations this year?

I was talking to the assumptions that are in our guidance range right now. So at the midpoint, for Visium instruments, so CytAssist, that has an assumption of being slightly down year-over-year. And then there's an upside if the adoption curve of Visium HD will help drive more CytAssist instruments. And just think about what we've done over the last year and since launching the CytAssist roughly a year-and-a-half ago where our messaging has been focused on the CytAssist being the future of the Visium platform and that having a really strong adoption curve and a number of strong placement quarters, with a good number of customers who we believe have not just bought it to use Visium, but have also purchased it to be to be ready for Visium HD. And so, I don't want to get too far ahead of ourselves with an assumption in the guidance range because I think that there has been a lot of placements ahead of Visium HD to be ready for it.

Maybe just like a slight note to add, what I was referring to in my prepared remarks is that the sales of CytAssist this year will be – some of them at least, or a lot of them will be driven by Visium HD. That is not to say that there is necessarily going to be an increase over what was the placements before because we certainly drove a lot of placements of CytAssist last year in anticipation of the HD launch.

And this concludes today's call. Thank you for joining. You may now disconnect.