10X Genomics, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; unaudited. 10X Genomics sells instruments, consumables and related services for single-cell and spatial biology research.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $146.8 million | $114.6 million | $281.1 million | $229.1 million |
| Gross profit | $99.6 million | $86.9 million | $198.0 million | $175.9 million |
| Gross margin | 68% | 76% | 70% | 77% |
| Operating loss | $63.4 million | $63.1 million | $115.3 million | $104.9 million |
| Net loss | $62.4 million | $64.5 million | $113.2 million | $106.9 million |
| Net loss per share | $0.53 | $0.57 | $0.97 | $0.94 |
- Q2 revenue rose 28%; six-month revenue rose 23%. Growth reflected higher instrument and consumables sales, including Xenium instrument sales in 2023. Chromium instrument revenue declined 8% in Q2 and 14% for the first half.
- Q2 consumables revenue increased 15%, while instrument revenue increased 110%; Spatial instrument sales were a significant contributor. Services revenue rose 74% in Q2.
- Gross margin fell to 68% in Q2 from 76%, principally because of higher manufacturing costs and the product mix of newer products. Q2 cost of revenue also included higher warranty charges and inventory write-downs.
- Q2 operating expenses increased 9% to $163.0 million. R&D was nearly flat; SG&A rose 15%, including higher personnel and legal costs and a $2.8 million lease impairment charge. Stock-based compensation was $45.7 million for Q2 and $87.8 million for the first half.
Cash, liquidity and obligations
- At June 30, cash and cash equivalents were $325.9 million and marketable securities were $65.5 million, totaling $391.4 million. Restricted cash totaled $5.0 million.
- For the first half, operating cash use was $15.7 million, versus $37.8 million a year earlier. Investing activities provided $115.5 million, mainly from marketable-security sales and maturities; financing activities provided $3.7 million.
- Total liabilities were $196.3 million, including $99.6 million of operating lease liabilities. The balance sheet presents no separate conventional debt balance; the cash flow statement reports $5.8 million of payments on financing arrangements in the first half.
- Management expects capital expenditures of approximately $35–$40 million over the next 12 months and believes available cash and expected product-sale cash flows are sufficient for at least that period. It also expects operating losses and increasing expenses for the foreseeable future.
Material changes, outlook and notable items
- Management expects gross margin to trend lower in part because of product mix, inflation, supply-chain costs and infrastructure expansion. Xenium instruments currently have significantly lower margins than other instruments; management sees potential longer-term improvement from manufacturing scale and possible cost reductions or higher average selling prices.
- Management expects operating expenditures to continue increasing as it invests in research and development, new and existing products, and talent. No numerical revenue or earnings guidance is provided in the filing.
- In July 2023, the company closed an intellectual-property asset acquisition for $10.0 million and paid a further $10.0 million after a development milestone was met. Up to $26.3 million of additional development-milestone payments, as well as potential sales-milestone payments, may be due.
- 10X reported a German court injunction, effective June 1, 2023, barring NanoString sales and supply of certain CosMx products for RNA detection in Germany; NanoString appealed. Related U.S. and European patent disputes, as well as litigation involving Vizgen and Parse, remain pending. Outcomes, including potential injunctions or damages, are uncertain.
- The company warns that most cash deposits exceed insured limits. It also identifies macroeconomic, interest-rate, supply-chain and litigation risks. Management reported disclosure controls were effective and no material changes in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Whether growth in Spatial products and consumables can offset weaker Chromium instrument revenue, and how the product mix affects gross margin.
- Progress toward manufacturing cost reductions and the actual pace of spending, cash burn and capital expenditures.
- Amounts and timing of any further intellectual-property milestone or sales-related payments.
- Developments and potential business impact of the NanoString, Vizgen and Parse disputes, including the German injunction and pending proceedings.
- Liquidity assumptions, including access to uninsured bank deposits and the sufficiency of resources beyond management’s stated 12-month expectation.