10X Genomics, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Unaudited consolidated financial statements prepared under U.S. GAAP. 10X Genomics sells life-sciences instruments, consumables and services; consumables generated most revenue.
Financial performance
| Metric | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 |
|---|---|---|---|---|
| Revenue | $115.8M | $42.9M | $221.7M | $114.8M |
| Gross profit | $110.9M | $32.9M | $199.7M | $89.7M |
| Gross margin | 95.8% | 76.6% | 90.1% | 78.1% |
| Operating loss | $(10.3)M | $(39.4)M | $(20.5)M | $(59.3)M |
| Net loss | $(11.1)M | $(40.2)M | $(22.6)M | $(61.3)M |
| Operating cash flow | Not separately provided for quarter | Not separately provided for quarter | $(1.0)M | $(32.1)M |
- Q2 revenue increased 170% year over year; H1 revenue increased 93%. Consumables revenue was $97.1M in Q2 and $190.2M in H1, primarily reflecting a larger installed instrument base and stronger demand. Instrument revenue was $16.9M in Q2 and $28.0M in H1.
- Operating expenses rose with business expansion: Q2 R&D was $53.4M and SG&A was $68.7M; H1 R&D was $95.3M and SG&A was $125.6M. H1 stock-based compensation was $43.1M, versus $20.6M in the prior year.
- At June 30, cash and cash equivalents were $622.0M; restricted cash totaled $26.8M. Current assets were $757.2M and current liabilities $113.1M. Total liabilities were $193.0M, including operating lease liabilities; the filing reports no outstanding term loan or revolving-credit balance.
- H1 investing cash outflow was $58.9M, including $53.4M of property and equipment purchases and $5.5M paid for the Tetramer Shop acquisition. Cash, cash equivalents and restricted cash declined $39.9M to $648.7M.
Material changes and unusual items
- The July 2020–June 2021 revenue recovery followed widespread customer lab closures in Q2 2020. The prior-year comparison is therefore affected by pandemic-related disruption and lab reopening.
- On July 26, 2021, after quarter-end, the company settled worldwide litigation with Bio-Rad and entered a royalty-bearing cross-license agreement for single-cell products through 2030. The settlement requires a $29.4M payment for specified historical GEM product sales. In Q2, the company reversed $15.4M of previously accrued royalties and interest; the filing attributes a $14.7M one-time reversal to lower cost of revenue, contributing materially to reported gross-margin improvement.
- The company acquired Tetramer Shop in January 2021 for $8.5M total consideration, net of acquired cash and including contingent consideration. The acquisition added $4.5M of goodwill; its post-acquisition revenue was not material.
- Property and equipment increased to $122.3M from $72.8M at year-end, including the purchase of Pleasanton land. Operating lease liabilities were $70.8M. Additional leases not yet commenced represented $56.1M of undiscounted payments.
Outlook, risks and contingencies
- No specific revenue or earnings guidance is provided. Management expects continued operating losses in the near term and significant ongoing investment. It anticipates approximately $150M–$170M of capital expenditures over the next 12 months, including facility construction and equipment, and believes existing cash and product-sale cash flows should cover anticipated needs for at least 12 months.
- COVID-19 remained uncertain: management reported post-quarter reinstatement of restrictions at some customer sites, which could impede research activity, sales and support. The company was carrying higher inventory to manage potential supply constraints and could not estimate the pandemic’s financial impact or duration.
- Key risks include dependence on research-institution funding and Chromium-related revenue, customer lab access, sole- or single-source suppliers, manufacturing and product-quality execution, competition, product adoption, and intellectual-property litigation. The company also identified cybersecurity and privacy risks, including a 2020 attempted ransomware attack in which it believes confidential information may have been stolen.
- The company’s lawsuit against NanoString over GeoMx products remained pending; NanoString had moved to dismiss, briefing was ongoing, and discovery had not begun. Litigation outcomes and related costs remain uncertain.
- Restricted cash includes $17.6M associated with the Bio-Rad litigation, expected to be used toward the settlement payment, and $8.6M supporting facility letters of credit.
Most important facts for investors to verify
- How much of the reported margin improvement reflects the one-time Bio-Rad accrual reversal, and what royalty expense will apply under the cross-license going forward.
- Whether revenue growth and consumables demand persist as customer labs normalize, including the effect of renewed COVID-19 restrictions and research-funding conditions.
- Execution and cash requirements for the planned $150M–$170M capital program, facility leases and manufacturing expansion.
- Progress and potential financial impact of the NanoString litigation, supply-chain risks and any customer or supplier disruption.
- Ongoing losses, cash use and equity compensation dilution; H1 stock-based compensation was $43.1M.