10x Genomics(TXG) - 2023 Q1 - Quarterly Report

Filing Information This section provides essential details about the Quarterly Report on Form 10-Q, including the filing entity, period, filer status, and outstanding common stock shares - This document is a Quarterly Report on Form 10-Q for the period ended March 31, 2023, filed by 10x Genomics, Inc.[2] - The registrant, 10x Genomics, Inc., is classified as a Large accelerated filer[5] - As of April 28, 2023, there were 98,124,868 shares of Class A common stock and 18,067,255 shares of Class B common stock outstanding[5] Special Note Regarding Forward-Looking Statements This section cautions readers that the report contains forward-looking statements subject to risks and uncertainties, which may differ from actual outcomes - This Quarterly Report contains forward-looking statements subject to risks, uncertainties, and other factors, and actual outcomes could differ materially from these statements[10][11] - The company undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the report date, except as required by law[12] Channels for Disclosure of Information This section outlines the various official channels through which the company discloses material information, including SEC filings, its website, and press releases - Material information is disclosed through SEC filings, the company's website (https://www.10xGenomics.com), press releases, public conference calls, webcasts, and social media accounts[15] - Information on these channels, including the website and social media, is not incorporated by reference into this Quarterly Report unless expressly set forth by specific reference[15] PART I. FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for the three months ended March 31, 2023, along with detailed notes Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity as of March 31, 2023, and December 31, 2022 Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2023 | December 31, 2022 | | :------------------------- | :------------- | :---------------- | | Total assets | $1,014,030 | $1,028,980 | | Total liabilities | $211,645 | $223,237 | | Total stockholders' equity | $802,385 | $805,743 | | Cash and cash equivalents | $332,320 | $219,746 | | Marketable securities | $85,970 | $210,238 | Condensed Consolidated Statements of Operations This section details the company's financial performance over specific periods, including revenue, gross profit, operating loss, and net loss Condensed Consolidated Statements of Operations Highlights (Three Months Ended March 31, in thousands) | Metric | 2023 | 2022 | | :------------------------------------ | :----- | :----- | | Revenue | $134,285 | $114,496 | | Gross profit | $98,390 | $89,018 | | Loss from operations | $(51,988) | $(41,735) | | Net loss | $(50,747) | $(42,413) | | Net loss per share, basic and diluted | $(0.44) | $(0.38) | Condensed Consolidated Statements of Comprehensive Loss This section presents the company's net loss and other comprehensive income or loss, reflecting all changes in equity during the period Condensed Consolidated Statements of Comprehensive Loss Highlights (Three Months Ended March 31, in thousands) | Metric | 2023 | 2022 | | :------------------------------------------ | :--------- | :--------- | | Net loss | $(50,747) | $(42,413) | | Other comprehensive income (loss), net of tax | $2,856 | $(2,465) | | Comprehensive loss | $(47,891) | $(44,878) | Condensed Consolidated Statements of Stockholders' Equity This section outlines changes in the company's equity accounts, including total stockholders' equity, accumulated deficit, and additional paid-in capital Condensed Consolidated Statements of Stockholders' Equity Highlights (in thousands) | Metric | March 31, 2023 | December 31, 2022 | | :------------------------- | :------------- | :---------------- | | Total Stockholders' Equity | $802,385 | $805,743 | | Accumulated Deficit | $(1,080,068) | $(1,029,321) | | Additional Paid-in Capital | $1,883,930 | $1,839,397 | Condensed Consolidated Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities for the specified periods Condensed Consolidated Statements of Cash Flows Highlights (Three Months Ended March 31, in thousands) | Cash Flow Activity | 2023 | 2022 | | :---------------------------------------------------- | :--------- | :---------- | | Net cash used in operating activities | $(4,125) | $(20,802) | | Net cash provided by (used in) investing activities | $119,956 | $(257,558) | | Net cash (used in) provided by financing activities | $(3,414) | $2,417 | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $112,441 | $(275,961) | | Cash, cash equivalents, and restricted cash at end of period | $339,794 | $320,112 | Note 1. Description of Business and Basis of Presentation This note describes 10x Genomics, Inc.'s core business, integrated solutions, incorporation details, and global operational presence - 10x Genomics, Inc. is a life sciences technology company providing integrated solutions including Chromium X Series, Chromium Connect, Visium CytAssist, and Xenium Analyzer instruments, along with proprietary microfluidic chips, slides, reagents, and software[32] - The company was incorporated in Delaware in July 2012, began commercial operations in 2015, and is headquartered in Pleasanton, California, with subsidiaries in Asia, Europe, and North America[32] Note 2. Summary of Significant Accounting Policies This note outlines the key accounting principles and methods applied in preparing the financial statements, including revenue recognition and net loss per share calculation - There were no material changes in the company's significant accounting policies during the three months ended March 31, 2023[35] - Revenue from product sales is recognized when control is transferred (generally upon shipment), while extended warranty revenue is recognized ratably over the service period[36] - Net loss per share is computed using the two-class method, with identical liquidation, dividend, and loss-sharing rights for Class A and Class B common stock, resulting in the same net loss per share for both classes[40] Note 3. Other Financial Statement Information This note provides additional details on various financial statement components, including available-for-sale securities, inventory composition, and revenue breakdowns by source and geography Available-for-sale Securities (in thousands) | Category | March 31, 2023 Fair Value | December 31, 2022 Fair Value | | :----------------------- | :------------------------ | :------------------------- | | Money market funds | $302,826 | $163,184 | | Corporate debt securities | $32,241 | $151,030 | | Government debt securities | $48,804 | $52,889 | | Asset-backed securities | $4,925 | $6,319 | | Total available-for-sale securities | $388,796 | $373,422 | - The company incurred gross realized losses of $1.7 million from the sale of available-for-sale debt securities for the three months ended March 31, 2023, with no material gains or losses in the prior year period[43][45] Inventory Composition (in thousands) | Category | March 31, 2023 | December 31, 2022 | | :----------------- | :------------- | :---------------- | | Purchased materials | $37,100 | $34,497 | | Work in progress | $20,530 | $24,650 | | Finished goods | $24,677 | $22,482 | | Total Inventory | $82,307 | $81,629 | Revenue by Source (Three Months Ended March 31, in thousands) | Revenue Source | 2023 | 2022 | Change (%) | | :----------------------- | :----- | :----- | :--------- | | Instruments - Chromium | $11,626 | $14,326 | -19% | | Instruments - Spatial | $7,550 | $103 | N/M | | Total instruments revenue | $19,176 | $14,429 | 33% | | Consumables - Chromium | $101,096 | $91,279 | 11% | | Consumables - Spatial | $11,282 | $6,671 | 69% | | Total consumables revenue | $112,378 | $97,950 | 15% | | Services | $2,731 | $2,117 | 29% | | Total revenue | $134,285 | $114,496 | 17% | Revenue by Geography (Three Months Ended March 31, in thousands) | Geography | 2023 | 2022 | | :--------------------------------- | :----- | :----- | | Americas - United States | $76,281 | $57,441 | | Americas (excluding United States) | $2,515 | $2,246 | | Total Americas | $78,796 | $59,687 | | Europe, Middle East and Africa | $28,422 | $20,532 | | Asia-Pacific - China | $14,031 | $21,782 | | Asia-Pacific (excluding China) | $13,036 | $12,495 | | Total Asia-Pacific | $27,067 | $34,277 | | Total Revenue | $134,285 | $114,496 | Note 4. Commitments and Contingencies This note details the company's lease obligations and ongoing intellectual property litigation, including patent infringement claims and counterclaims - The company leases office, laboratory, manufacturing, and distribution space globally, with a Master Lease Agreement for its Pleasanton, California headquarters expected to terminate on June 30, 2033[56] Operating Lease Liabilities as of March 31, 2023 (in thousands) | Period | Operating Leases | | :---------------------------------------- | :--------------- | | 2023 (excluding the three months ended March 31, 2023) | $10,208 | | 2024 | $16,435 | | 2025 | $15,330 | | 2026 | $16,101 | | 2027 | $15,476 | | Thereafter | $56,475 | | Total lease payments | $130,025 | | Less: imputed interest | $(27,983) | | Present value of operating lease liabilities | $102,042 | - The company is actively involved in multiple intellectual property litigation cases, including suits against Nanostring Technologies, Inc. (GeoMx Action, CosMx Action, Germany CosMx Action), Vizgen, Inc., and Parse Biosciences, Inc., alleging patent infringement and facing counterclaims[59][60][61][68][71] Note 5. Capital Stock This note provides information on the company's Class A and Class B common stock outstanding and conversions between the two classes Common Stock Outstanding as of March 31, 2023 | Class | Shares Outstanding | | :----------------- | :----------------- | | Class A common stock | 98,106,087 | | Class B common stock | 18,067,255 | Class B Common Stock Converted to Class A Common Stock (Three Months Ended March 31) | Year | Shares Converted | | :--- | :--------------- | | 2023 | 600,000 | | 2022 | 200,000 | Note 6. Equity Incentive Plans This note details stock-based compensation expenses and the terms of market-based performance restricted stock unit awards granted to employees Stock-based Compensation Expense (Three Months Ended March 31, in thousands) | Category | 2023 | 2022 | | :--------------------------------- | :----- | :----- | | Cost of revenue | $1,461 | $1,014 | | Research and development | $17,780 | $11,291 | | Selling, general and administrative | $22,860 | $13,742 | | Total stock-based compensation expense | $42,101 | $26,047 | - In March 2023, the company granted 172,842 market-based performance restricted stock unit awards (PSAs) subject to escalating stock price thresholds ($72.14, $96.19, $120.24) to be met within five years[79][80] - As of March 31, 2023, none of the escalating stock price thresholds for PSAs had been met, resulting in no shares vesting or becoming exercisable[84] Note 7. Net Loss Per Share This note explains the calculation of net loss per share and lists common stock equivalents excluded from diluted net loss per share due to their anti-dilutive effect Common Stock Equivalents Excluded from Diluted Net Loss Per Share (Three Months Ended March 31) | Category | 2023 | 2022 | | :--------------------------------- | :--------- | :--------- | | Stock options to purchase common stock | 7,556,361 | 8,419,444 | | Restricted stock units | 5,871,150 | 1,610,391 | | Shares committed under ESPP | 100,253 | 60,181 | | Shares subject to repurchase | — | 12,500 | | Total | 13,527,764 | 10,102,516 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance and condition for the three months ended March 31, 2023, discussing revenue, cost of revenue, operating expenses, other income/expense, and liquidity, while also addressing the ongoing impact of the COVID-19 pandemic Overview This section provides an overview of 10x Genomics' business, its integrated platform solutions, and its financial performance, including net losses and accumulated deficit - 10x Genomics is a life science technology company offering integrated platform solutions (instruments, consumables, software) for analyzing biological systems, including Chromium X Series, Chromium Connect, Visium CytAssist, and Xenium Analyzer instruments[90] - The company incurred net losses of $50.7 million and $42.4 million for the three months ended March 31, 2023 and 2022, respectively, with an accumulated deficit of $1.1 billion as of March 31, 2023[92] - The company expects to continue incurring significant expenses and operating losses in the near term due to investments in personnel, technology platforms, new products, intellectual property defense, potential acquisitions, and infrastructure[92] Operational Effectiveness in the COVID-19 Environment This section discusses the ongoing impact of COVID-19 on the company's operations, customer productivity, and supply chain, noting continued revenue challenges and procurement difficulties - COVID-19 related challenges, including lockdowns in China, continue to negatively impact customer productivity and the company's revenues for the quarter ended March 31, 2023[93] - While the company and its suppliers have faced procurement difficulties, no material impacts have been experienced to date, but the extent and duration of future financial impacts remain uncertain[95][96] Results of Operations This section analyzes the company's financial results for the three months ended March 31, 2023, detailing revenue, cost of revenue, gross profit, operating expenses, and other income/expense Revenue Performance (Three Months Ended March 31, in thousands) | Category | 2023 | 2022 | Change ($) | Change (%) | | :----------------------- | :----- | :----- | :--------- | :--------- | | Total revenue | $134,285 | $114,496 | $19,789 | 17% | | Total instruments revenue | $19,176 | $14,429 | $4,747 | 33% | | Total consumables revenue | $112,378 | $97,950 | $14,428 | 15% | | Services revenue | $2,731 | $2,117 | $614 | 29% | - Instruments revenue increased 33% primarily due to sales of Visium CytAssist and Xenium instruments in Q1 2023, which had no sales in Q1 2022. Chromium instruments revenue decreased 19% due to lower volume[100] Cost of Revenue, Gross Profit, and Gross Margin (Three Months Ended March 31, in thousands) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :----------------- | :----- | :----- | :--------- | :--------- | | Cost of revenue | $35,895 | $25,478 | $10,417 | 41% | | Gross profit | $98,390 | $89,018 | $9,372 | 11% | | Gross margin | 73% | 78% | -5% | -6.4% | - Gross margin is expected to trend lower due to changes in product mix (new products like Xenium having lower margins), inflation, increased supply chain costs, and expansion of operational infrastructure[102] Operating Expenses (Three Months Ended March 31, in thousands) | Expense Category | 2023 | 2022 | Change ($) | Change (%) | | :--------------------------------- | :----- | :----- | :--------- | :--------- | | Research and development | $67,098 | $64,078 | $3,020 | 5% | | Selling, general and administrative | $83,280 | $66,675 | $16,605 | 25% | | Total operating expenses | $150,378 | $130,753 | $19,625 | 15% | Other Income (Expense) (Three Months Ended March 31, in thousands) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :----------------- | :----- | :----- | :--------- | :--------- | | Interest income | $3,869 | $569 | $3,300 | 580% | | Interest expense | $(19) | $(128) | $109 | -85% | | Other expense, net | $(1,516) | $(400) | $(1,116) | 279% | | Total other income | $2,334 | $41 | $2,293 | 5,593% | - Interest income increased significantly by $3.3 million due to higher interest rates on cash equivalents and marketable securities[106] Provision for Income Taxes (Three Months Ended March 31, in thousands) | Year | Provision for Income Taxes | | :--- | :------------------------- | | 2023 | $1,093 | | 2022 | $719 | Liquidity and Capital Resources This section discusses the company's financial position, including cash, marketable securities, capital expenditures, and cash flow activities, and its ability to meet future cash needs - As of March 31, 2023, the company had $418.3 million in cash, cash equivalents, and marketable securities, and an accumulated deficit of $1.1 billion[110] - Anticipates $60 million to $70 million in capital expenditures over the next 12 months, primarily for facility construction in Pleasanton, California, and other global facilities/equipment for manufacturing and R&D[111] - The company expects existing cash and cash equivalents, along with sales revenue, to be sufficient to meet anticipated cash needs for at least the next 12 months, despite projected ongoing operating losses[115] - In January 2023, the company signed an agreement to acquire intangible assets for an upfront payment of $10.0 million, with potential additional cash consideration up to $36.3 million for technology development and future sales milestones[114] Cash Flows Summary (Three Months Ended March 31, in thousands) | Cash Flow Activity | 2023 | 2022 | | :---------------------------------------------------- | :--------- | :---------- | | Net cash provided by (used in) operating activities | $(4,125) | $(20,802) | | Net cash provided by (used in) investing activities | $119,956 | $(257,558) | | Net cash (used in) provided by financing activities | $(3,414) | $2,417 | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $112,441 | $(275,961) | - Net cash used in operating activities decreased from $20.8 million in Q1 2022 to $4.1 million in Q1 2023, primarily due to a net loss of $50.7 million, offset by non-cash expenses like stock-based compensation ($42.1 million) and a decrease in accounts receivable ($26.3 million)[121] - Net cash provided by investing activities was $120.0 million in Q1 2023, a significant shift from $257.6 million used in Q1 2022, driven by proceeds from sales and maturities of marketable securities ($93.3 million and $31.9 million, respectively)[124][125] - Net cash used in financing activities was $3.4 million in Q1 2023, primarily from payments on financing arrangements ($5.8 million), partially offset by proceeds from stock option exercises ($2.4 million)[126] Critical Accounting Estimates This section confirms that there have been no significant changes to the company's critical accounting policies and estimates during the three months ended March 31, 2023 - There have been no significant changes in the company's critical accounting policies and estimates during the three months ended March 31, 2023, compared to those disclosed in its most recent Annual Report on Form 10-K[129] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section states that the company's exposure to financial market risks, particularly related to changes in interest rates and foreign currency exchange rates, has not materially changed since December 31, 2022 - The company's exposure to market risk, including interest rates and foreign currency exchange rates, has not materially changed since December 31, 2022[130] Item 4. Controls and Procedures This section details the evaluation of the company's disclosure controls and procedures, concluding their effectiveness as of March 31, 2023, and reports no material changes in internal control over financial reporting during the quarter Evaluation of Disclosure Controls and Procedures This section describes the evaluation of the effectiveness of the company's disclosure controls and procedures by management, including the CEO and CFO - Management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of disclosure controls and procedures as of March 31, 2023[131] - Based on the evaluation, disclosure controls and procedures were concluded to be effective at a reasonable assurance level as of March 31, 2023[132] Changes in Internal Control over Financial Reporting This section reports that there have been no material changes in the company's internal control over financial reporting during the quarter ended March 31, 2023 - There have been no material changes in internal control over financial reporting during the quarter ended March 31, 2023[133] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, other information, and exhibits, providing additional context beyond the financial statements Item 1. Legal Proceedings This section refers to Note 4 of the unaudited condensed consolidated financial statements for detailed information regarding the company's legal proceedings, which include various intellectual property disputes - Information regarding legal proceedings is detailed in Note 4 to the unaudited condensed consolidated financial statements[136] Item 1A. Risk Factors This section states that there have been no material changes to the company's risk factors since those disclosed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2022 - No material changes to the company's risk factors have occurred since the Annual Report on Form 10-K for the fiscal year ended December 31, 2022[137] Item 5. Other Information This section indicates that there is no other information to report under this item - No other information is reported under this item[138] Item 6. Exhibits This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including organizational documents, certifications (302 and 906), and Inline XBRL documents - Exhibits include certifications (31.1, 31.2, 32.1, 32.2) and Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[140] Signatures This section contains the signatures of the Chief Executive Officer and Chief Financial Officer, certifying the report on behalf of 10x Genomics, Inc - The report is signed by Serge Saxonov (Chief Executive Officer and Director) and Justin J. McAnear (Chief Financial Officer) on May 4, 2023[144]