10x Genomics, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Unaudited results; filed November 2, 2023. 10x Genomics sells instruments, consumables and software for single-cell and spatial biology research, as well as instrument service agreements.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $153.6 million | $131.1 million | $434.7 million | $360.2 million |
| Gross profit | $95.5 million | $100.7 million | $293.5 million | $276.6 million |
| Gross margin | 62% | 77% | 68% | 77% |
| Operating loss | $94.8 million | $40.0 million | $210.1 million | $144.8 million |
| Net loss | $93.0 million | $41.9 million | $206.1 million | $148.8 million |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(41.0) million | $(47.3) million |
Q3 diluted and basic net loss per share was $0.79, versus $0.37 a year earlier; nine-month loss per share was $1.77 versus $1.31. Q3 interest income was $4.3 million; nine-month interest income was $12.3 million. Stock-based compensation was $40.2 million in Q3 and $128.0 million for the nine-month period.
Revenue and changes versus prior period
- Q3 revenue increased 17%; nine-month revenue increased 21% year over year.
- Spatial instrument revenue rose to $22.7 million in Q3 from $6.0 million, reflecting higher sales of Spatial instruments, including Xenium. Chromium instrument revenue declined 18% to $12.2 million.
- Consumables revenue grew 6% in Q3 to $114.4 million, led by Spatial consumables; nine-month consumables revenue rose 12% to $339.2 million, primarily driven by Chromium consumables.
- Cost of revenue rose 91% in Q3, outpacing revenue growth. Management cited higher manufacturing costs, newly introduced products, warranty charges and inventory write-downs. Gross margin fell to 62% from 77%.
- Operating expenses increased 35% in Q3 and 20% for the nine-month period. Q3 includes a $41.4 million in-process R&D charge for acquired intellectual property assets with no alternative future use. SG&A also increased, including higher outside legal and personnel costs.
Financial position, liquidity and outlook
- At September 30, 2023, cash and cash equivalents were $311.3 million and marketable securities were $45.6 million, totaling $356.9 million. Current assets were $562.3 million and current liabilities $104.7 million.
- Total liabilities were $203.3 million, including $98.5 million of operating lease liabilities. The filing reports no material change in market-risk exposure; it does not present a conventional debt balance in the balance sheet. The company made $5.8 million of payments on financing arrangements during the first nine months.
- Cash, cash equivalents and restricted cash increased $87.4 million during the first nine months, primarily reflecting $166.5 million of proceeds from marketable-security sales and maturities, partly offset by operating cash use and capital expenditures. Purchases of property and equipment were $45.2 million.
- Management expects capital expenditures of approximately $20 million to $25 million over the next 12 months and believes existing cash, cash equivalents and cash generated from product sales will cover anticipated needs for at least 12 months. It cautions that liquidity assumptions could prove incorrect and that uninsured bank deposits may not be accessible promptly if a financial institution fails.
- No specific revenue or earnings guidance is provided in this filing. Management expects operating losses and significant expenses to continue in the near term, and operating expenditures to increase as it invests in research and development, products, personnel and infrastructure. It expects gross margin to trend lower in part because of product mix, inflation and supply-chain and infrastructure costs; Xenium currently has significantly lower margins than other instruments. Management sees potential for longer-term instrument-margin improvement through manufacturing scale and possible average-selling-price increases.
Contingencies and notable items
- The company paid $21.3 million through September 30 for an intellectual-property asset acquisition and development milestones. Up to an additional $15.0 million may be payable upon another development milestone, with further sales-based payments possible.
- 10x reported a German permanent injunction and a preliminary injunction in 17 Unified Patent Court member states against NanoString’s CosMx RNA products. Appeals and patent-validity challenges were pending at the filing date. Other U.S. and European patent disputes involving NanoString, Vizgen and Parse remained ongoing, including claims and counterclaims seeking unspecified damages and injunctive relief. Outcomes and potential financial effects are uncertain; the filing does not provide a clear estimate of exposure or recovery.
- The company recorded a $2.8 million lease impairment charge in the first nine months after deciding to vacate certain office space and sublease portions of it.
- Management reported disclosure controls were effective at a reasonable-assurance level and no material changes in internal control over financial reporting during the quarter. It reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether Spatial instrument and consumables growth can offset declines in Chromium instrument revenue, and how product mix affects gross margin.
- Progress toward cost reductions and margin improvement for newer products, particularly Xenium.
- Operating cash use, planned capital spending, and the sufficiency and accessibility of liquidity, including uninsured bank deposits.
- Further milestone or sales-based payments tied to the intellectual-property asset acquisition.
- Developments, appeals and potential business or financial impacts of patent litigation and injunctions involving NanoString, Vizgen and Parse.