10x Genomics(TXG) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the company's unaudited financial statements, management's operational analysis, market risk disclosures, and internal control assessments Item 1. Financial Statements (Unaudited) The unaudited financial statements for the period ended June 30, 2022, show a slight decrease in revenue and a significant increase in net loss compared to the prior year, with a decline in cash and total assets Condensed Consolidated Balance Sheets As of June 30, 2022, the company's total assets decreased to $1.002 billion from $1.019 billion at year-end 2021, primarily due to a significant reduction in cash and cash equivalents, while total liabilities increased to $218.1 million, leading to a decrease in total stockholders' equity to $783.5 million Balance Sheet Items (in millions) | Balance Sheet Items | June 30, 2022 (Unaudited) | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $274.2 | $587.4 | | Marketable securities | $225.5 | $0 | | Total current assets | $666.2 | $747.6 | | Total assets | $1,001.6 | $1,018.8 | | Liabilities & Equity | | | | Total current liabilities | $117.9 | $110.4 | | Total liabilities | $218.1 | $201.3 | | Total stockholders' equity | $783.5 | $817.6 | Condensed Consolidated Statements of Operations For the second quarter of 2022, revenue was nearly flat at $114.6 million compared to $115.8 million in Q2 2021, but a sharp increase in cost of revenue and operating expenses led to a significantly wider net loss of $64.5 million, compared to a net loss of $11.1 million in the prior-year period Statements of Operations (in millions, except per share data) | Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $114.6 | $115.8 | $229.1 | $221.7 | | Gross Profit | $86.9 | $110.9 | $175.9 | $199.7 | | Loss from Operations | ($63.1) | ($10.3) | ($104.9) | ($20.5) | | Net Loss | ($64.5) | ($11.1) | ($106.9) | ($22.6) | | Net Loss Per Share | ($0.57) | ($0.10) | ($0.94) | ($0.21) | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2022, net cash used in operating activities was $37.8 million, a significant increase from $1.0 million in the same period of 2021, with net cash used in investing activities surging to $285.1 million Statements of Cash Flows (in millions) | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | ($37.8) | ($1.0) | | Net cash used in investing activities | ($285.1) | ($58.9) | | Net cash provided by financing activities | $8.8 | $19.7 | | Net decrease in cash | ($314.3) | ($39.9) | Notes to Condensed Consolidated Financial Statements The notes provide details on accounting policies, revenue breakdown, ongoing litigation, and a significant subsequent event, including a workforce reduction and patent infringement lawsuits Revenue by Source (in millions) | Revenue by Source | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Instruments | $14.7 | $16.9 | $29.2 | $28.0 | | Consumables | $97.9 | $97.1 | $195.9 | $190.2 | | Services | $1.9 | $1.8 | $4.1 | $3.4 | | Total revenue | $114.6 | $115.8 | $229.1 | $221.7 | Revenue by Geography (in millions) | Revenue by Geography | Q2 2022 | Q2 2021 | | :--- | :--- | :--- | | United States | $69.4 | $64.0 | | Europe, Middle East and Africa | $25.6 | $28.8 | | China | $9.1 | $12.9 | | Asia-Pacific (excluding China) | $9.0 | $8.4 | | North America (excluding United States) | $1.5 | $1.8 | - On August 3, 2022, the company committed to a reduction in force affecting approximately 8% of its global workforce, estimating severance costs between $5 million and $6 million to be recognized in Q3 2022[77] - The company is involved in ongoing patent infringement litigation, having filed suits against Nanostring Technologies, Inc. and Vizgen, Inc.[64][65][68] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 1% YoY revenue decrease in Q2 2022 to challenges including COVID-19 lockdowns in China, logistics issues, and execution challenges, while gross margin declined due to a one-time royalty reversal and operating expenses rose significantly - Q2 2022 revenue decreased 1% YoY, impacted by COVID-19 lockdowns in China, logistics issues, and unfavorable currency fluctuations[88][89] - Gross margin for Q2 2022 fell to 76% from 96% in Q2 2021, largely driven by a one-time reversal of $14.7 million in accrued royalties in the prior-year period[91] - Operating expenses increased 24% in Q2 2022 compared to Q2 2021, with R&D expenses rising 32% and SG&A expenses rising 15%, primarily due to higher personnel-related costs, including stock-based compensation[94][96][100] - As of June 30, 2022, the company had $274.2 million in cash and cash equivalents and $225.5 million in marketable securities, which management believes is sufficient to meet cash needs for at least the next 12 months[109][112] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk exposure relates to interest rate fluctuations impacting its $225.5 million portfolio of marketable securities, where a hypothetical 100 basis-point (1%) change would affect its fair value by approximately $2.3 million - The company's main market risk is interest rate risk associated with its $225.5 million in marketable securities[124][125] - A hypothetical 100 basis-point increase or decrease in interest rates would impact the fair value of the investment portfolio by approximately $2.3 million[125] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2022, with no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2022[126] - No changes occurred in the company's internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[127] PART II. OTHER INFORMATION This section covers legal proceedings, updates on risk factors, a list of exhibits, and the official executive signatures Item 1. Legal Proceedings The company is actively engaged in intellectual property litigation, having filed multiple patent infringement lawsuits against Nanostring Technologies, Inc. and Vizgen, Inc. concerning their respective products - The company has filed two separate lawsuits in the U.S. against Nanostring Technologies, Inc. alleging patent infringement by Nanostring's GeoMx and CosMx products, with trials scheduled for August 2023 and June 2024, respectively[131][132] - A lawsuit was filed in Germany against Nanostring in March 2022, alleging infringement by the CosMx product, with a hearing scheduled for March 2023[133] - In May 2022, the company sued Vizgen, Inc. in the U.S., alleging that its MERSCOPE Platform infringes on several of the company's patents[134] Item 1A. Risk Factors There have been no material changes to the company's risk factors from those previously disclosed in its Annual Report on Form 10-K - The company reports no material changes to its risk factors from those disclosed in its most recent Annual Report[136] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including the company's certificate of incorporation, bylaws, and certifications by the CEO and CFO as required by the Sarbanes-Oxley Act - The exhibits filed with this report include certifications from the Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[137] Signatures The report is duly signed by Serge Saxonov, Chief Executive Officer, and Justin J. McAnear, Chief Financial Officer, on August 8, 2022