10X Genomics, Inc. — Q2 2022 Form 10-Q
Business and period: 10X Genomics develops life-sciences instruments, consumables, and software for biological analysis. This unaudited filing covers the quarter and six months ended June 30, 2022; comparisons are with the corresponding 2021 periods. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Revenue | $114.6 million | $115.8 million | $229.1 million | $221.7 million |
| Gross profit / margin | $86.9 million / 76% | $110.9 million / 96% | $175.9 million / 77% | $199.7 million / 90% |
| Operating expenses | $150.0 million | $121.3 million | $280.8 million | $220.2 million |
| Operating loss | $63.1 million | $10.3 million | $104.9 million | $20.5 million |
| Net loss | $64.5 million | $11.1 million | $106.9 million | $22.6 million |
| Diluted net loss per share | $0.57 | $0.10 | $0.94 | $0.21 |
| Cash used in operating activities | Not separately stated for the quarter | $37.8 million | $1.0 million |
- Q2 revenue declined 1% year over year; first-half revenue increased 3%. Q2 instrument revenue fell 13% to $14.7 million, while consumables revenue rose 1% to $97.9 million. First-half consumables revenue increased 3% to $195.9 million.
- As of June 30, cash and cash equivalents were $274.2 million and marketable securities were $225.5 million, totaling $499.7 million. Current assets were $666.2 million and current liabilities $117.9 million. Total liabilities were $218.1 million; the filing does not report conventional borrowings as a material balance. Operating lease liabilities totaled $99.0 million.
- Capital expenditures were $55.4 million in the first half. Cash, cash equivalents, and restricted cash declined $314.3 million to $281.8 million, primarily reflecting purchases of marketable securities and property and equipment.
Changes, outlook, and notable items
- Profitability and margins: Gross margin fell to 76% in Q2 from 96% a year earlier. The company attributed the comparison largely to a one-time $14.7 million reversal of accrued royalties under its Bio-Rad agreement in Q2 2021, alongside higher manufacturing costs, royalties, inventory charges, and warranty costs in 2022. Management expects gross margin to trend slightly lower during 2022, partly due to product mix, inflation, and supply-chain costs.
- Expenses: First-half R&D expense increased 41% and SG&A increased 16%. Management expects R&D spending to continue increasing in Q3 and beyond. Stock-based compensation was $62.4 million in the first half, compared with $43.1 million in 2021.
- Demand and operating conditions: Management cited COVID-19-related lab productivity constraints, including China lockdowns, as a drag on Q2 revenue. It also cited a previously disclosed cold-chain logistics process breakdown, execution challenges, and unfavorable currency movements as factors limiting consumables demand. The duration and financial effects of COVID-19 remain uncertain.
- Workforce reduction: On August 3, 2022, the company committed to reduce its global workforce by approximately 8%. It estimates $5 million–$6 million in primarily cash severance costs, expected in Q3, and anticipates cost savings beginning in Q4. Actual costs may differ.
- Liquidity and investment: Management believes existing cash, cash equivalents, and cash generated from product sales will meet anticipated needs for at least 12 months, while noting this assessment could prove incorrect. It anticipates $140 million–$150 million of capital expenditures over the next 12 months, about two-thirds for facilities and related construction.
- Legal and other contingencies: The company is pursuing multiple patent infringement cases against NanoString and a case against Vizgen; outcomes are uncertain. It reported no material changes to previously disclosed risk factors. Available-for-sale securities had $3.7 million of unrealized losses, attributed to interest-rate movements rather than credit losses.
Important facts for investors to verify
- Whether consumables demand recovers from laboratory productivity constraints, China lockdowns, and the effects of the logistics issue.
- How gross margin develops as product mix, inflation, supply costs, and inventory charges change.
- Whether operating cash use and planned capital expenditures remain consistent with the company’s liquidity expectations.
- The realized cost and timing of savings from the workforce reduction.
- Developments and potential financial effects of the NanoString and Vizgen litigation.