10X Genomics, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. The unaudited consolidated statements compare the quarter with Q1 2022. 10x Genomics develops instruments, consumables and software for single-cell and spatial biology research.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Revenue | $134.3 million | $114.5 million | +17% |
| Gross profit / margin | $98.4 million / 73% | $89.0 million / 78% | Margin down 5 percentage points |
| Operating expenses | $150.4 million | $130.8 million | +15% |
| Operating loss | $52.0 million | $41.7 million | Loss widened |
| Net loss | $50.7 million | $42.4 million | Loss widened |
| Net loss per share, diluted | $0.44 | $0.38 | Loss per share increased |
| Operating cash flow | $(4.1) million | $(20.8) million | Lower cash use |
Consumables generated $112.4 million of revenue (+15%); instruments generated $19.2 million (+33%), and services $2.7 million (+29%). Chromium instrument revenue fell 19%, while Spatial consumables revenue rose 69%. Spatial instrument revenue included new Visium CytAssist and Xenium sales; neither was sold in Q1 2022.
At March 31, cash and cash equivalents were $332.3 million and marketable securities were $86.0 million, totaling $418.3 million. Current assets were $601.9 million and current liabilities $112.0 million. Total liabilities were $211.6 million, including $102.0 million of operating lease liabilities. The balance sheet does not list a separate conventional debt balance. Cash, cash equivalents and restricted cash totaled $339.8 million at quarter-end.
Investing activities provided $120.0 million, mainly from marketable-security sales and maturities; financing activities used $3.4 million, including $5.8 million of payments on financing arrangements. Stock-based compensation was $42.1 million, up from $26.0 million. The company reported an accumulated deficit of $1.1 billion.
Material changes and management commentary
- Revenue growth was driven primarily by higher consumables volume and sales of newly introduced Spatial instruments. Chromium instrument sales declined on lower volume.
- Gross margin fell as cost of revenue increased 41%, reflecting higher manufacturing costs, costs of new products, inventory write-downs and warranty charges. Management expects gross margin to trend lower, citing product mix, inflation, supply-chain costs and infrastructure expansion; it noted Xenium currently has a significantly lower margin than other instruments.
- Research and development expense rose 5%; selling, general and administrative expense rose 25%, including increased personnel and stock-based compensation, legal and marketing expenses. Management expects operating expenditures to continue increasing in 2023 and beyond.
- Management expects ongoing operating losses but believes existing cash, cash equivalents, marketable securities and product-sale cash generation can meet anticipated needs for at least 12 months. Planned capital expenditures are approximately $60–$70 million over the next 12 months, largely for facilities and equipment.
Risks, contingencies and unusual items
- The company said COVID-19-related lockdowns in China continued to negatively affect Q1 revenue. The duration and financial impact of pandemic-related effects remain uncertain.
- Most cash is held at financial institutions in amounts exceeding insured limits; the company warns that access to uninsured funds could be delayed or impaired if an institution fails.
- Multiple patent disputes with NanoString, Vizgen and Parse remain active, including claims and counterclaims seeking injunctions and unspecified damages. The filing does not provide a clear estimate of potential financial exposure. Trials and hearings are scheduled across 2023–2024.
- A January 2023 intellectual-property license agreement involves a $10.0 million upfront payment and up to $36.3 million in additional cash consideration if specified development milestones are met, plus sales-milestone consideration.
- The company recorded $1.7 million of realized losses on sales of available-for-sale debt securities. It reported no credit-loss allowances and attributed unrealized losses to market interest-rate changes.
Important facts for investors to verify
- Whether Spatial product adoption and consumables growth can offset declining Chromium instrument sales.
- Whether gross-margin pressure, especially from Xenium and new-product mix, develops as management expects.
- Cash use, the planned $60–$70 million of capital expenditures, and milestone or sales-based payments under the IP license.
- Developments and potential exposure in the ongoing intellectual-property litigation.
- Effects of China-related customer constraints and the company’s exposure to uninsured bank deposits.