10X Genomics, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Unaudited results are compared with the corresponding 2020 periods. 10X Genomics sells instruments, consumables and services for biological research; consumables accounted for 85% of revenue in both periods presented for 2021.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $125.3m | $71.8m | $347.0m | $186.6m |
| Gross profit | $100.8m | $57.4m | $300.5m | $147.1m |
| Gross margin | 80.4% | 79.9% | 86.6% | 78.8% |
| Operating expenses | $116.7m | $122.7m | $336.9m | $271.6m |
| Loss from operations | $(15.9)m | $(65.3)m | $(36.4)m | $(124.6)m |
| Net loss | $(17.2)m | $(65.8)m | $(39.8)m | $(127.2)m |
| Net loss per share, diluted | $(0.15) | $(0.65) | $(0.36) | $(1.28) |
- Revenue rose 74% year over year in Q3 and 86% over the first nine months. Q3 consumables revenue increased 75% to $106.1m; instrument revenue increased 77% to $17.1m. Nine-month consumables revenue was $296.3m and instrument revenue $45.1m.
- Q3 gross margin was broadly stable year over year. Nine-month margin improved by 7.8 percentage points, reflecting lower Bio-Rad-related royalties and manufacturing costs, including a one-time royalty accrual reversal, partly offset by product mix.
- R&D expense rose 81% to $54.6m in Q3 and 79% to $149.9m for nine months. SG&A rose 20% to $62.1m in Q3 and 28% to $187.7m for nine months. Stock-based compensation was $26.0m in Q3 and $69.1m for nine months.
Cash, liquidity and capital resources
- At September 30, 2021, cash and cash equivalents were $600.4m, down from $663.6m at December 31, 2020. Restricted cash totaled $8.6m, primarily collateral for facility letters of credit. Total current assets were $744.1m and current liabilities $100.4m.
- For the first nine months, operating cash outflow was $27.2m, investing cash outflow $79.1m and financing cash inflow $26.4m. Cash, cash equivalents and restricted cash decreased $79.6m to $609.1m.
- Investing outflows included $73.7m of property and equipment purchases, including $28.1m for land, and $5.5m for the Tetramer Shop acquisition. Management anticipated $200m–$225m of capital expenditures over the next 12 months, approximately half for Pleasanton facilities construction and the remainder for other facilities and equipment.
- The company reported no outstanding term loan or revolving credit balance; it prepaid the term loan in 2020 and terminated its revolving facility. It continued to make payments on financing arrangements. Management stated that existing cash and expected product-sale cash generation should cover anticipated needs for at least 12 months, while noting additional funding could be needed and might not be available on acceptable terms.
- Operating lease liabilities totaled $80.2m at September 30, 2021. The filing also disclosed $40.7m of undiscounted payments for leases not yet commenced.
Material changes, outlook and risks
- The company continued to report losses and expected operating losses and significant expenses to continue in the near term, with investment planned in R&D, product launches, personnel, facilities and commercial expansion. No specific revenue or earnings guidance was provided.
- Management attributed revenue growth partly to growth in the installed instrument base, higher product demand and recovery from prior-year laboratory closures. It said customer staffing, logistics and procurement challenges persisted; global supply-chain issues could affect results in Q4 2021 and into 2022. The company had increased inventory to mitigate shortages.
- On July 26, 2021, 10X and Bio-Rad settled worldwide litigation and cross-licensed certain single-cell analysis patents, with royalty obligations through 2030. 10X paid Bio-Rad $29.4m for past GEM-product sales and reversed previously accrued royalties and interest. The filing cites a $15.4m reversal in the settlement note and $14.7m in the MD&A discussion; investors should reconcile the presentation and related cost-of-revenue and operating-expense effects.
- 10X filed patent-infringement litigation against NanoString concerning GeoMx products. NanoString moved to dismiss; a hearing was scheduled for November 17, 2021, and discovery had commenced. Litigation outcomes and potential related costs remain uncertain.
- Other material risks include reliance on research institution funding and Chromium-related revenue, competition and product adoption, manufacturing and sole-source supplier dependencies, COVID-19-related supply and customer disruptions, international and trade exposure, and intellectual-property disputes. The company also disclosed a March 2020 attempted ransomware attack and potential exposure of confidential information.
Important facts for investors to verify
- Whether consumables demand, instrument placements and customer laboratory activity continued to support growth after Q3, and how supply constraints affected shipments and revenue.
- How the Bio-Rad settlement’s royalty reversal is reflected across cost of revenue and operating expenses, and the continuing royalty impact through 2030.
- Progress, timing and realized cost of the planned $200m–$225m capital program, including facility construction and lease commitments.
- Cash use, operating-loss trajectory and whether management’s stated liquidity runway remains adequate as R&D, hiring and infrastructure spending rise.
- Developments in the NanoString litigation, intellectual-property exposure and any material consequences of the disclosed ransomware incident.