10x Genomics, Inc. (TXG) Earnings Call Transcript & Summary

Thanks, everyone, for joining us. My name is Mason Carrico. I'm the Diagnostics and Genomics analyst at Stephens. Today, we have Justin McAnear and Cassie Corneau of 10x Genomics with us. If at any point, anyone from the audience has questions, feel free to jump in and ask away.

But we'll start with the quarter, beat and raised in a challenging environment. What are some of the key takeaways for investors to keep top of mind from the call?

Great. Well, first off, thanks for inviting us today. Very happy to be here today. In thinking about Q3, you're right. It was a solid quarter. We're proud of what the team accomplished this past quarter. As far as key takeaways, here's 3 things that we'd like to convey. The first is that we saw an acceleration of Xenium this quarter. Our approach in prioritizing sensitivity, specificity and throughput with fixed and customizable panels is really resonating with customers. We're seeing the first head-to-head studies come out where customers are generating their own data on commercially available instruments in their own labs and they're comparing that across platforms and Xenium is doing extremely well in those studies. And as far as commercially, we've put the whole of company effort behind ramping Xenium this quarter, and it was our #1 priority and the team delivered. Operationally, we've been able to increase our manufacturing capability, both on the supply chain side and in contract and internal manufacturing and then, overall, definitely a shift in the competitive landscape in Xenium and a shift in our own capabilities to deliver against that command. Second key takeaway is we shed our philosophy on our 3 platform view, where it's not about any one particular platform, but it's the sum of the parts. And we are well on our way to becoming a multi-platform company, basically fueling the next revolution in biology. And then last, just talking about Chromium. Chromium still remains largely a regional story with the impacts that we saw in APAC, driven by China. But AMR and EMEA weren't where we wanted them to be this quarter. And that's not surprising, given the focus that we put on Xenium and making that the top priority. But we'd like to find more balance in the future and the team is going to do that. Yes. And so those are the 3 key takeaways that we'd like to leave with you.

Perfect. So yes, let's move to Xenium here. Demand has obviously been really strong. You're manufacturing constrained. You're working to scale that up. You've also talked about real-world use and word-of-mouth driving incremental demand. Both any -- new product, there's pent-up demand that drives strong initial placements after the launch. And at some point, placements do end up stepping down. So taking all of that into account, how should we be thinking about the Xenium ramp going forward? Do you anticipate placements moderating at some point next year?

Yes. I think going back to the beginning of the question. Yes, you're right. We've been able to scale really well this quarter. But just keep in mind, too, that don't take anything for granted. We certainly don't take anything for granted. There's always challenges that come up every day, every week, the team has been dealing with either on the supply chain side, getting parts that don't meet the quality that they were specced out to and having to wait for a new batch or something at the contract manufacturer or something internal. And so those risks have always been there, and those risks remain. Production is not yet stable. But the team has been performing well, and they've been doing a great job when these challenges come up. As far as looking forward, I think what you said is generally how launches go. There is some kind of bolus of demand. There's a spike at the beginning and then supply and demand come more into line with one another, and then you have a better idea of the growth rate going forward. Overall, like we've been operationally constrained. But it's not just what you can manufacture. It's what you can install, it's what you can support. We said from the very beginning that our approach here was a measured approach. We were prioritizing early customer success. And so it doesn't do us any good to just blow out a larger number of instruments, but then not be able to support them and have unhappy customers. And so we're looking to scale all those different parts of the Xenium support infrastructure in a way that enables the customers to be successful. As far as what we think about for next year, we'll talk more about 2024 on our earnings call, but we're very bullish on the opportunity here. We think that there's huge potential. We think that this could be one of the biggest products in life sciences ever. And we're super excited about what we've been able to accomplish today, and we're super excited about what lies ahead.

Perfect. And when it does come to competitive wins for Xenium, what are some of the more common call-outs or reasons why customers choose Xenium over a competing platform?

Yes. So I'll tell you what we've been hearing from the field is performance. Xenium is leading in performance because of the high-performance sensitivity, specificity, spatiality, just the robustness of the data the customers are getting from it, that's been key. It's got high throughput. Customers are actually able to get from running the experiment to getting to insights relatively quickly. They've talked about our support infrastructure. So the 10x support teams are top-notch, very responsive to customers. And just overall, just a very nicely integrated solution with a good amount of trust from customers on the field. But performance, data quality, reliability of the runs. Those are the key things that we're hearing that researchers are starting to share amongst each other, and we're seeing come through in these head-to-head studies as well.

And when we think about the mix of Xenium placements year-to-date since launch, what's the mix of new versus existing 10x customers?

I'll take that one. So we would expect most of the senior placements are going to existing 10x customers. It's pretty hard to imagine someone jumping into this technology that hasn't used Single Cell previously. But we also are seeing new customers adopting over or these placements being the first 10x instrument that they're adopting. So we see it as a really great opportunity to expand the applications within our customer base, but also to expand to new segments of customers.

And then going to that side-by-side comparison study of Xenium and CosMx for -- maybe for those who are unfamiliar, could you just provide some key highlights in what you view as the most important takeaway from that study?

Yes. So for those that are not familiar, this is a pretty recent study that came out. It's really the first head-to-head study as we were talking about the first bake-off. So that means as it was done on samples from the same lab on commercially available instruments and the data was generated by customers. So I think that's one of the first big highlights of it. The really the performance, as Justin was alluding to as well, the sensitivity, the specificity, Xenium was more sensitive, more specific and yes, really showed a greater dynamic range, and that really stood out in the study. Also operationally, showing just the ease of use in the workflow, there was a really large difference in terms of the workflow that the head to head study showed.

And within that study, the throughput was something that really stood out, but there were a difference in panel sizes. So I think it was a 1,000 gene panel for CosMx, 375 for Xenium. How do you think that -- do you think that Xenium's throughput would still be superior, if you would have compared the platform with similar panel sizes?

Yes, absolutely. We do believe it's still be superior. The gene panel size is one aspect of throughput, and it impacts throughput, but it's not a linear relationship. And there are other factors, really, the throughput on Xenium is the best in class throughput as an interplay between the innovative chemistry and our optimized instrument design. So yes, we expect that our best-in-class will continue as we scale and flex as well.

Okay. And then one more on the study here where if I'm a researcher, I'm debating buying Xenium or CosMx, which point do you think that analysis is the most material and swang their decision?

Again, the specificity, the sensitivity but on top of that, really, when someone's buying Xenium, they are backed by a best-in-class team that 10x brings.

Okay. So the pull-through opportunity of Xenium, it's something everyone tends to focus on. I know we're early. Some may not be familiar. So first, could you just walk through the economics of Xenium's pull through price per slide per run. Just kind of walk through this -- these points.

Yes, sure. I'll start looking at it theoretically. And so Xenium can do a run in right around 2 days, 2 slides per run. A slide is $3,000. And so if you extrapolate that out and you say 3 runs per week, 2 slides per run, $3,000 per slide. You can get to over $900,000 annually as a theoretical limit. But if you look at doing 1 run per month, and so that would be 2 slides. If you were to do 1 run per month, that would annualize to about just over $70,000 a year. If you were to do 1 run per week, that would annualize to around $290,000 per year. And so again, starting with the $900,000, that's a theoretical. Those are benchmarks. Right now, as far as the utilization goes, we're seeing a pretty wide range in utilization. For our first placements, we were prioritizing key KOLs who had studies ready to go, who had their samples identified because we wanted to get these instruments running and get data out there soon. And so future customers could see the results. We also offer fixed panels, customizable panels, there's a time delay in there when the customer designs that customizable part of the customized panel. And so again, a pretty wide range. And so I don't think talking about an average right now would be too useful. But it is good to have some of those benchmarks in mind as this continues to progress.

So is there a long-term potential you see for pull-through? I know talking about an average right now can be skewed by the customer base that you have. But over time, is there a benchmark, a rule of thumb, anything we can look to for pull-through potential long term?

Yes. I mean I think that there is the potential there for a very strong pull-through on these instruments. When we're going through the ramp, I do think that the average is probably going to lag depending how the placements are pacing. But when you get up towards the higher end, and I'm not talking near the theoretical, but when you're talking multiple hundreds of thousands of dollars like I think it's completely reasonable to think that some customers could be at that. And then I also think about this is a $450,000 instrument. This isn't a $35,000 Chromium where the strategy there was to make these more decentralized, to have them placed in many labs so you could go from the sample to the instrument really quickly. This is an instrument that could be leveraged more at central labs. I think that if somebody gets one of the neighboring lab, there's going to be people around there they're going to want to try it out and all those things are going to point to higher pull-throughs, I think, on the individual instrument.

Okay. And then on pricing at Xenium. You guys have been accommodating with pricing early on. I think that makes sense given the market opportunity, ability to lock these customers in, but at some point, I'd assume promotional pricing potentially starts to roll off. ASP could move higher than where it is today. So when do you anticipate we could see ASP start to trend higher? And how should we be thinking about Xenium pricing over the next year compared maybe to this year?

Yes. That's a great question. And you're right, pointing to the introductory pricing. We launched Xenium with an introductory price $350,000. We more recently raised the price to $450,000 list. But think about when this instrument launched at the end of last year. It's a very competitive space. There's been a lot of marketing in the space, but not a lot of data. And in that kind of environment, you want to make sure that your instrument can -- you can maximize the placements initially, get those experiments going, get the actual data out there in the customers' hands and future customers' hands so then drive more sales. You heard me talk about the throughput potential as well, those annual consumable streams, that's where the true value lies. And so we are really focused on making sure that we maximize placements at a reasonable price point. And then adding also, this is a lower margin instrument, is considerably lower than our existing products. But we see that as an investment that we're making for those future streams. And so all that being said, we do work with customers. It is a -- we have heard bits and pieces of CapEx constraints in different areas, different parts of the world. Some customers already bought another instrument. And so that's part of their CapEx. CapEx constraint from earlier in the year. But if the customer is pairing a large consumable order with the instrument purchase, we've been more willing to go deeper on the discounting. But again, at the end of the day, we're maximizing placements, and we want the instrument to be used.

Okay. So on the product road map of Xenium, you've got a handful of announcements, products coming out near term. a 5,000 plex RNA assay. You've talked about protein capabilities. Which of these incremental offerings or enhancements do you think excites customers the most, is brought up with customers the most and could potentially unlock the most material opportunity or drive those incremental placements of Xenium.

Well, certainly, they're all exciting to our customers. We've -- as we've done with Chromium and Visium or we have talked about it, a robust product road map on Xenium, and we have talked about this from the beginning. We built the instrument, not only for its capabilities at launch, but for the long term as well. So when a customer is purchasing a Xenium, they know that there's going to be continued innovation, continued capabilities that we bring to the platform. And so all those things you mentioned that we've talked about coming next year are really exciting.

Got it. So maybe last one on Xenium here is in Q3 orders outpaced placements during the quarter and maybe circling back to comments on manufacturing and the strategy there. But how long do you think demand can continue to outpace shipments? And it does seem like you're still taking a measured approach to manufacturing in making sure that you have all the right pieces in place going forward. So how should we think about that dynamic in terms of backlog building, for lack of a better term?

Yes. Great question. We've been very disciplined about not talking about backlog or orders rate and instead focusing on revenue. There's dangers in focusing on backlog and order isn't revenue. It can be canceled, all kinds of things can happen. And so really, like I said, we focused on revenue shipments, installations, sales. This quarter, though, we did choose to provide some commentary on the backlog because it was important, we felt to give context on the shift and momentum that we've seen over this quarter. There was definitely a shift out in the field as far as which platform was the leading one in the minds of customers, and that was reflected in the orders that we saw. It was a big quarter for manufacturing. It was a big quarter for shipments. We basically shipped over 80. We recognize revenue on -- over 80, and the orders were more than that. And so we felt it was important to call that out this quarter. As far as supply and demand, how that can go, you're right. I've talked about the measured approach. You have to grow those things in sync with one another if you're going to optimize the customer experience. And again, on the operations side, the team has done really well, scaling up to this point. But we've got to stay focused on operations. We've got to stay focused on driving the demand overall. But again, we just can't take anything for granted. There's been a lot of risk to get to this point. Those risks are still there on the operations side, and we're still working to stabilize production overall. And then after that then scale to the next level.

I'll pause here to see if there are any questions. All right. So we'll move to Chromium. Again, what you pointed to early, it's been a regional story. So to, I guess, going back to the third quarter year-to-date, could you talk about how growth has trended across geographies? And then as we look into the fourth quarter, what's implied maybe at the midpoint of the guide from a budget plus geographical perspective, any color there?

Yes. So when looking at Chromium overall, it has been a regional -- it has been a regional story. There has been a big impact in China, which is driving down APAC overall. And so you look at the year-to-date decrease in China, Chromium, roughly around 30-ish percent year-over-year decrease, which is driving APAC down year-over-year around 20-ish. But then you look at AMR and EMEA and so Chromium overall, AMR and EMEA year-to-date has grown in the low-teens. When you look at chromium consumables, that's grown in the mid- to high-teens in AMR and EMEA. And so really, there's been a disparity regionally in the chromium growth rates. When you look at our guidance and what our guidance implies at the midpoint, there's been a decent amount of talk just in Q4, if there's going to be a budget flush or not a budget flush or it's going to be as much or less than what we've seen historically. For us, when you look at our customer base, we're about 75%, 80% academic, and that's been relatively stable over the last few years. Biopharma roughly 20% to 25%. Not saying that academic market is completely immune to economic shifts that affect everyone. But we do think that, that customer segment is going to be less impacted by any kind of near-term budget flush dynamics differing from what we've seen seasonally. So at the midpoint of our guidance range, we're assuming that the budget the -- we're going to see the same seasonality in Q4, which translates to the budget flush like we've seen in past years. Expanding to the other products at the midpoint of our guidance range. We also assume that Xenium would be roughly the same than it was in Q3. And then regionally, when you look at China, we're expecting China to be worse in Q4 than it was in Q3. And so we sell through 2 different levels of customers in China. We sell the distributors who sell the service providers. We have been working more closely with the service providers to get better dialed into their inventory levels and that intelligence is also built into our guidance range. And so we're looking to take another reduction on those inventory levels. So I think actual demand is a little bit higher than we're expecting to see in the revenue because we're targeting that reduction, it's the right thing to do. Yes. And that goes into our range. And so lower end of the range, less budget flush, less Xenium, higher end of the range would be higher budget flush and more Xenium, but those are the biggest drivers.

Okay. And then going back to your comment and what you talked about on the call of commercially being really focused on Xenium, I think that makes a ton of sense. But now maybe shifting and taking a more balanced approach across Xenium and chromium going forward. So could you just unpack that a little bit what that means? What initiatives are being implemented from here to maybe focus back on Chromium, when could we see those potentially start to bear fruit?

Yes. So our commercial team, like we said, they were very focused on selling Xenium. It was the #1 priority, both at the rep level, and we also have a Xenium specialist overlay function that works with the reps and works with the customers to drive those orders. And so when you look at the sales rep compensation, it was aligned to placing Xenium. And so the first area of balance would be just to bring the different elements of the compensation more in line to drive a more balanced approach on the products. But commercially, that was all prioritized in Xenium. We also -- we have good reporting in place right now. that we're able to actually see where the reps are spending their time by platform. And so we can actually track that week by week when the reps log their selling activities, we can see how those shifts go. And I think that's a good leading indicator, starting with the effort and then linking that to the results. That's on the commercial side. On the R&D side, the team has been focused on all platforms. Xenium was the priority bringing that to market. But the team has also been hard at work on the Visium platform with Visium HD. And then there's also some really exciting things on the chromium side that the R&D team has been at work on. And you'll hear more about that next year about that. But those new products that the R&D team has been working on, that will also drive more sales force time and activity towards growing this one.

Got it. So maybe to touch on Flex here for a minute. It solved a lot of the hurdles, barriers, whatever we'd like to call them with Single Cell cost, maybe complicated workflow, sample logistics. You guys launched Flex a while back. Like I said, that addresses a lot of those. Could you kind of talk about where Flex's adoption is currently. It's only on the X series. So maybe starting with what percent of your Chromium installed base comes from those platforms. And for those customers that have them, what portion of consumables are Flex.

Yes. So maybe I'll start a little bit on the instruments and then we can talk a little bit about adoption. But so we've seen really good adoption of the X-Series instruments since we launched it in mid-2021. It's been a growing portion of our Chromium instruments out there. We've seen the vast majority, almost all the Chromium placements be the X Series for quite a while now and so that as part of what led to our decision to discontinue the sales of the controller at the end of last year. So there's a healthy number of instruments out there X-Series instruments. As you mentioned, our Gene Expression Flex assay is only available on the X Series. And for anyone, maybe a little less familiar, the X Series includes our Chromium X and IX instruments. It's been growing nicely. The flex assay has been growing nicely. Still a relatively small portion of our revenue, but a larger portion of the reactions. So they're built in multiplexing with the assay. So we're seeing it contribute to some [indiscernible].

Got it. For those who have adopted Flex, are you seeing that evidence of elasticity playing out? Are they scaling the larger studies. Has Flex resulted in these customers running more samples in general?

Yes. We are seeing evidence of this. It's taking some time. If you think about how this might be adopted. There's a really -- a lot of our customers have very embedded work flows with our 3' and 5' gene expression assays. But so it's taking some time, but we are seeing evidence of customers really -- we see this power when they start kind of plan experiment and then maybe move on to a little bit larger experiment and then from there, move to a larger study. So yes, we're definitely seeing some of that play out.

Got it. And then maybe circling back to the growth you guys have seen for Chromium in the Americas and EMEA, could you just kind of unpack or provide a little bit more detail in terms of what is driving growth across those regions, customer types, use cases, study types, things like that?

Yes. So I'll start with that. When you look at AMR and EMEA, I mean, just the chromium market broadly, I mean, the different drivers of the growth rates are, the continuing growth of existing customers, the new labs that we sign up and then the ramp of those new labs and those more recently acquired labs, just the trajectory like that initial trajectory. And then Cassie talked about Flex. Flex has been growing nicely. Flex has been driving some incremental growth for us. And so that's been great to see. When you look at where we wanted growth rates to be in Chromium versus where they came in this past quarter, and you look at where roughly the gap has been. It's been more on that trajectory, that kind of onboarding of the new customers that are being signed up. And that does take some handholding in some good amount of support at the beginning to get those customers to ramp up and to get them using that overall. And so I think that when you look at some of the time and attention that's been taken away from that with our prioritization of the Xenium. I do think that a refocus is going to help with those as well.

And then with the placements for Chromium over the past handful of quarters, are you seeing -- how do we think about the mix of new customers versus maybe an upgrade from the legacy controller? Where are you seeing demand for the platforms come from?

Yes. So we're launching -- when launching the Chromium X Series, we've seen about roughly half go to new customers and about roughly half go to Chromium controller upgrades. And so with that being said and the healthy amount of Chromium X series instruments are out there, there's still a great amount of upgrades from the legacy Chromium controller users and also just a ton of new labs out there to continue to place instruments on. Initially, when we launched the X Series, there was a heavy skew towards the X, between the X and the IX with customers wanting to be future-proof and also be able to run the high throughput product. Now we only made Chromium Flex available on the X Series, but it can run on the -- so it can run both the IX and the X. And so that adoption of chromium Flex is continuing to drive IX placements as well. And there is more of a skew right now towards the IX when there was previously more of a skew towards the X.

Got it. That's helpful. And ultimately, how do we think about growth in Chromium over the next few years. So I know that there are some headwinds this year with China. There were some headwinds last year. Chromium is up low teens to date in a couple of geographies. What's the right way to think about growth in this business going forward?

Yes. Well, so first off, our view of the long-term potential of this platform has not changed. We think about it the same way. But when you think overall with us having 3 platforms right now and different platforms having different rates of adoption and acceleration depending upon where you are on the overall curve. Right now, we have the approach that -- it's basically a sum of the parts across all the platforms where, in some ways, we're agnostic because we believe that we have the breadth of what scientists are going to want to do in this area covered, whichever platform they use in the near term is fine with us, and we're pushing the overall growth across all of those platforms. And I also think that there's -- these platforms are complementary. And there's been studies that have come out and shown how they can interact with one another and work with one another. So customers that adapt one could end up using another one or all 3 in the future. And ultimately, I think we are going to be seeing more and more of that as time progresses. So we can't be just laser-focused one platform for too long. We can switch around and do things like that when we need to see. But overall, we've got to continue to drive all 3.

Okay. Maybe last one here on Chromium. Has the competitive environment changed at all for Chromium with some of the names, parts that have entered the market as -- whether it's your win rates or customers, I think you guys have alluded to maybe trying them at some point and coming back to 10x, maybe just an update from a competitive standpoint.

Yes. So competitors are out there and it's something that we watch very closely. Anecdotally, we have heard of customers trying various offerings. I think scientists are naturally inquisitive. There's something new, they want to give it a look, they'd like to try it out. The feedback that we've gotten and what we hear is fall short on performance and just the quality of the data, but also the workflow and inevitably, we see those customers come back to 10x. But while a customer is sampling something at the customer level that can create somewhat of a drag or delay while they are trying something else out. But like I said, ultimately, we see them come back.

Got it. And maybe I'll pause here one more time. We've got 10 minutes left. All right. We'll move to Visium here. So could you talk a bit about the current customer base? How many customers for Visium do you say you have today that you would categorize as consistent users of the product? What portion of them do you ultimately expect to buy [scientist].

Yes. So we've got thousands of labs have tried Xenium -- sorry, Visium. Yes, no, thousands of -- thousands of labs have tried Visium. And if you look at the Visium platform, it's split between like the legacy Visium product, which didn't require an instrument and then CytAssist, which helps solve some of the workflow issues at those Visium customers have faced. We have seen a shift where Visium is the CytAssist-based consumables are now selling more than the legacy Visium consumables. We're also seeing that customers who own a CytAssist are typically using more Visium than customers who don't own a CytAssist. And then there's been just messaging out to the field and out to the customer base that CytAssist is the future of the Visium platform and that future products like Visium HD are going to be launched on a CytAssist. So those are the basic dynamics right now. And so there's -- and there's a ton of customers out there that have tried Visium but have not yet bought a CytAssist. So thousands of those.

Yes. So on that last point, there are a lot of advantages of using CytAssist, but when you're in discussions with customers who are considering purchasing the platform, do you get a sense that they're purchasing it in anticipation of HD? Or is that not brought up as much to mainly the workflow advantages in HD could maybe potentially end up driving an acceleration of placements once launched.

Yes. I think it's mainly the workflow advantages right now, but I think the messaging is also helping opportunistic purchases by customers. And so they're excited about what HD delivers. They've seen and heard the results from peers. But then also that the messaging has gone out that, hey, Visium HD is going to be on a CytAssist if the customers have an opportunity to buy one depending upon how their budget works out. Yes, it makes sense to get one now and be ready for HD when it comes.

And could you just talk a little bit about the current level of pent-up demand for HD? I mean, how often are customers asking about it? What are your expectations for initial adoption?

Yes. Customers are definitely asking about it. We've been talking about it, showing more and more data. So definitely, the feeling it's -- a lot of excitement. But yes, I haven't set time lines yet. But yes, we think people are getting excited to adopt it.

Yes. I think -- I mean I think there's a high level of anticipation like it's palpable. And it has been for some time. I think it's one of our most highly anticipated products and like the team is hard at work on it.

Do you feel like that anticipation is potentially impacting demand for your existing Visium consumables?

Yes. I think it is to a degree. I mean, you can't say that there's no impact there. I think there's a feeling out there that it's going to be soon, like we haven't talked specific dates, and we said that we'll share more about that early next year. But yes, I think to a degree there has to be some kind of impact there.

Okay. Let's finish up here with a few financial questions. Gross margin, Xenium ramp has obviously been weighing on that maybe lower, high-margin revenue from China. Can you just walk through the dynamics at play, how you see gross margin trending near term? And how you're thinking about the time line until when we could see margin headwinds moderate and potentially flip back to expanding?

Yes. So the biggest driver on gross margin in the near term is going to be just the percentage of revenue, it's driven by Xenium instruments. When you look at what the margin was in this past Q3 and then you look a year ago to Q3 last year, mostly all of that difference been driven by the Xenium instrument introduction. And so I would think while the percentage of revenue remains around the level that it's at right now, you're going to see a similar impact to margin in the near term is what we had in Q3. Now as the consumable usage ramps up, that's going to be a positive driver on gross margin. Over time, that consumable revenue, I would expect would become a much larger portion than it is now. And so when you look across the platform level, Xenium is a platform, that's a strong gross margin platform. But right now, while it's primarily instruments, it's going to be low and it's going to impact the overall company margin.

And then your new facilities built out, you've made the majority of payments towards it. I think you said you expect $20 million to $25 million in CapEx over the next 12 months. Is that range a good way to think about normalized CapEx annually from here?

Yes, I think in the near term, yes, $20 million to $25 million over the next 12 months. And you're right, we have completed the construction of our operations facility in Pleasanton. And just even going back to our Investor Day at the end of last year when we laid out the key drivers of sending ourselves up for cash flow -- free cash flow positive. We expected this facility to be done midyear and then to have a pretty steep CapEx requirement drop off once that's been done. We've seen that. That facility is now done. We're making -- Xenium instruments, and it's awesome to have that online right now. But also, we've built some capacity ahead of future needs, and so we've got room to grow into. We feel good about how we're sitting capacity wise over the next few years. We aren't even yet running double shifts, and we've got space to move into. And so we shouldn't require CapEx investments at the level that we've recently seen for quite some time for now. So feeling good about that overall.

And then lastly, on free cash flow. Initial target was Q4 of this year. You've been pretty clear about balancing, generating cash versus driving adoption of Xenium and some of the costs that are associated with that, maybe you'll hit it in Q4, maybe you won't. But is it fair -- is it fair to assume that next year generating positive free cash flow on an annualized basis, full year 2024 is realistic and maybe even going forward from there?

Yes. So that's a great question. Driving free cash flow positive has been a super important goal for us. And going back to mid last year when we laid that out and put it out there publicly that we were driving for the end of this year. Having that goal has been instrumental in basically getting the company focused on -- we basically held head count flat year-over-year from where we were roughly Q3 last year. And we've driven a lot of efficiencies throughout the org. And it's been tough. It's been tough on people. It's been tough on the company. It takes a lot of focus and discipline to do that but we've -- but we've shown that we can do it. And so there's still a path to hitting that in Q4. We're still pushing to hit that in Q4. But at the same time, we have loosened the constraints on some of the spending in order to support the Xenium ramp. And it's been important to do that like we can't be so dogmatic focused on one goal that we hurt ourselves more longer term. So there's investments that we need to make and we're going to go ahead and make those. But we're still going to carry that same discipline forward into next year. And as far as what you said, there's seasonality when you go from Q4 to Q1 on a revenue basis. And so I wouldn't -- I think that hitting it in Q1 is a little bit harder than hitting it in Q4 just due to that seasonality. But when you look at the full year, yes, I mean that's not completely unreasonable with the setup that we have. But the most important thing to focus on right now is that we have a great setup heading into 2024 with the reduced CapEx requirements, with the efficiencies that we found, with our focus on cost discipline, while still knowing where to make the targeted investments to continue to fuel this growth in the near term. And so like I said, cash flow, super important to us. And once we hit free cash flow positive, the next step is going to be full profitability, EBITDA positive. But I think we have a little bit more flexibility there as far as how we toggle between spend and growth but hitting the free cash flow positive in the near term, very important and excited to do it.

All right. We've covered a lot. Last chance for questions. All right. Justin and Cassie, thank you, guys.

Thank you.

Thanks, everyone. Thanks Mason.

Yes. Thank you.