10x Genomics(TXG) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for the period ended September 30, 2022, including balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows Condensed Consolidated Balance Sheets As of September 30, 2022, total assets slightly decreased to $996.2 million, while cash and equivalents significantly declined, and total liabilities increased Condensed Consolidated Balance Sheets (in thousands) | | September 30, 2022 (Unaudited) | December 31, 2021 | | :--- | :--- | :--- | | Total current assets | $629,422 | $747,591 | | Total assets | $996,207 | $1,018,826 | | Total current liabilities | $126,855 | $110,357 | | Total liabilities | $220,415 | $201,258 | | Total stockholders' equity | $775,792 | $817,568 | Condensed Consolidated Statements of Operations Revenue increased in Q3 2022, but a significant rise in operating expenses led to a wider net loss for both the quarter and the first nine months Statement of Operations Highlights - Q3 (in thousands) | Metric | Q3 2022 | Q3 2021 | | :--- | :--- | :--- | | Revenue | $131,072 | $125,297 | | Gross Profit | $100,695 | $100,779 | | Total Operating Expenses | $140,691 | $116,658 | | Loss from Operations | $(39,996) | $(15,879) | | Net Loss | $(41,914) | $(17,171) | | Net Loss Per Share | $(0.37) | $(0.15) | Statement of Operations Highlights - Nine Months (in thousands) | Metric | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | | Revenue | $360,177 | $346,960 | | Gross Profit | $276,618 | $300,467 | | Total Operating Expenses | $421,466 | $336,890 | | Loss from Operations | $(144,848) | $(36,423) | | Net Loss | $(148,785) | $(39,774) | | Net Loss Per Share | $(1.31) | $(0.36) | Condensed Consolidated Statements of Comprehensive Loss Comprehensive loss for Q3 2022 increased to $43.4 million, primarily due to a higher net loss and unrealized losses on marketable securities Comprehensive Loss Summary (in thousands) | | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net loss | $(41,914) | $(17,171) | | Other comprehensive income (loss) | $(1,527) | $136 | | Comprehensive loss | $(43,441) | $(17,035) | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity decreased to $775.8 million by September 30, 2022, mainly due to the cumulative net loss, partially offset by stock-based compensation - The accumulated deficit grew from $863.3 million at the end of 2021 to over $1.01 billion by September 30, 2022, reflecting ongoing net losses[27] Condensed Consolidated Statements of Cash Flows Net cash used in operating activities increased, and investing activities saw substantial cash usage, primarily for marketable securities and property purchases Cash Flow Summary - Nine Months Ended Sep 30 (in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(47,329) | $(27,178) | | Net cash used in investing activities | $(317,715) | $(79,111) | | Net cash provided by financing activities | $10,816 | $26,394 | | Net decrease in cash, cash equivalents, and restricted cash | $(354,523) | $(79,579) | Notes to Condensed Consolidated Financial Statements The notes detail business operations, accounting policies, a $4.2 million restructuring charge, revenue breakdowns by source and geography, and ongoing patent litigation - In August 2022, the company implemented a reduction in force, resulting in a restructuring charge of $4.2 million, primarily for severance costs[53][55] Revenue by Source - Nine Months Ended Sep 30 (in thousands) | Source | 2022 | 2021 | | :--- | :--- | :--- | | Instruments | $50,064 | $45,123 | | Consumables | $303,991 | $296,342 | | Services | $6,122 | $5,495 | | Total revenue | $360,177 | $346,960 | Revenue by Geography - Nine Months Ended Sep 30 (in thousands) | Geography | 2022 | 2021 | | :--- | :--- | :--- | | United States | $202,159 | $182,747 | | Europe, Middle East and Africa | $74,067 | $73,761 | | China | $45,620 | $55,577 | | Asia-Pacific (excluding China) | $32,334 | $29,822 | | Total revenue | $360,177 | $346,960 | - The company is engaged in multiple patent infringement lawsuits, both as a plaintiff against Nanostring, Vizgen, and Parse, and as a defendant in counterclaims from Nanostring and Vizgen[71][77][79] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 revenue growth driven by instrument sales, increased net loss due to higher operating expenses and lower gross margin, and sufficient liquidity for the next 12 months - The company incurred net losses of $41.9 million for Q3 2022 and $148.8 million for the first nine months of 2022, compared to losses of $17.2 million and $39.8 million in the respective prior-year periods[96] - COVID-19 related lockdowns in China continued to negatively impact revenues in Q3 2022, affecting customer productivity due to hiring, logistics, and procurement challenges[97][99] Results of Operations Q3 2022 revenue increased 5% year-over-year, driven by instrument sales, while gross margin declined and operating expenses significantly rose due to personnel and restructuring costs Revenue Change by Source - Q3 2022 vs Q3 2021 | Source | Q3 2022 Revenue (M) | YoY Change ($) | YoY Change (%) | | :--- | :--- | :--- | :--- | | Instruments | $20.9 | +$3.8M | +22% | | Consumables | $108.1 | +$2.0M | +2% | | Total | $131.1 | +$5.8M | +5% | - Gross margin for Q3 2022 was 77%, down from 80% in Q3 2021, attributed to higher manufacturing costs, newly introduced products, and increased warranty costs[104][105][106] - Q3 R&D expenses increased 23% year-over-year to $67.3 million, and SG&A expenses increased 18% year-over-year to $73.4 million, primarily driven by higher personnel expenses, including stock-based compensation and restructuring charges[108][111] Liquidity and Capital Resources The company holds $452.4 million in cash and marketable securities and anticipates $80-90 million in capital expenditures, believing its liquidity is sufficient for the next 12 months - The company has $452.4 million in total cash, cash equivalents, and marketable securities as of September 30, 2022[96][118] - Anticipated capital expenditures for the next 12 months are between $80 million and $90 million, primarily for construction costs of facilities in Pleasanton, California[119] - Net cash used in operating activities for the first nine months of 2022 was $47.3 million, primarily due to a net loss of $148.8 million, offset by non-cash charges like stock-based compensation ($95.9 million)[123][124] Critical Accounting Estimates A new critical accounting estimate was introduced for market-based performance stock awards granted in Q3 2022, with a fair value of $16.0 million determined by Monte Carlo simulation - In Q3 2022, the company began issuing market-based PSAs that vest upon achieving stock price thresholds of $60, $80, and $105, with an estimated value of $16.0 million using a Monte Carlo simulation[134] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk on its $218.4 million marketable securities portfolio, where a 100 basis-point rate change would impact fair value by approximately $1.9 million - The company's investment portfolio of $218.4 million is exposed to interest rate risk, where a hypothetical 100 basis-point increase or decrease would impact the portfolio's fair value by approximately $1.9 million[136][137] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2022[138] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control[139] PART II. OTHER INFORMATION Legal Proceedings The company is actively involved in multiple significant patent infringement lawsuits, both as a plaintiff and defending against counterclaims - The company has filed two separate lawsuits against Nanostring Technologies in the U.S. and one in Germany, alleging infringement of multiple patents by Nanostring's GeoMx and CosMx products[142][143][146] - Nanostring has filed counterclaims and a separate lawsuit against 10x Genomics, alleging that its Visium products infringe on Nanostring patents[144][145] - The company has sued Vizgen, Inc. for patent infringement related to its MERSCOPE Platform, while Vizgen has filed counterclaims alleging infringement by the company's forthcoming Xenium product[147][149] - The company filed a suit against Parse Biosciences, Inc. in August 2022, alleging its Evercode products infringe on six U.S. patents[150] Risk Factors The company states that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K - There have been no material changes to the company's risk factors from those previously disclosed in its Annual Report[152] Other Information On October 28, 2022, the company adopted Amended and Restated Bylaws to address new SEC universal proxy rules and align with Delaware corporate law updates - The company adopted Amended and Restated Bylaws on October 28, 2022, to address new SEC universal proxy rules and align with Delaware corporate law updates[153] Exhibits This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including Amended and Restated Bylaws, stock award agreements, and required certifications - Key exhibits filed include the Amended and Restated Bylaws (Exhibit 3.2), forms of stock option and RSU agreements, and Sarbanes-Oxley Section 302 and 906 certifications[155]