10X Genomics, Inc. — Q3 2022 Form 10-Q
Business context and reporting period. 10x Genomics develops life-sciences instruments, consumables and software, including its Chromium and Visium platforms. This unaudited report covers the three and nine months ended September 30, 2022; comparisons are with the corresponding 2021 periods.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $131.1 million | $125.3 million | $360.2 million | $347.0 million |
| Gross profit | $100.7 million | $100.8 million | $276.6 million | $300.5 million |
| Gross margin | 77% | 80% | 77% | 87% |
| Operating loss | $40.0 million | $15.9 million | $144.8 million | $36.4 million |
| Net loss | $41.9 million | $17.2 million | $148.8 million | $39.8 million |
| Basic and diluted loss per share | $0.37 | $0.15 | $1.31 | $0.36 |
- Revenue mix: Q3 instrument revenue was $20.9 million, consumables $108.1 million and services $2.1 million. Revenue grew 5% in Q3 and 4% year to date.
- Cash and liquidity: At September 30, cash and cash equivalents were $234.0 million and marketable securities were $218.4 million. Current assets were $629.4 million and current liabilities $126.9 million. The company said available cash and expected product sales should fund anticipated needs for at least 12 months, while cautioning that its assumptions could prove incorrect.
- Cash flow: Nine-month operating cash use was $47.3 million, versus $27.2 million in 2021. Investing cash use was $317.7 million, including $91.9 million of property and equipment purchases and net purchases of marketable securities. Financing provided $10.8 million. Cash, cash equivalents and restricted cash declined $354.5 million.
- Debt and obligations: The balance sheet reports operating lease liabilities of $96.2 million in total. The filing reports $5.4 million of payments on financing arrangements in the first nine months, but does not provide a clear outstanding financing-arrangement balance in the supplied text.
Material changes versus prior period
- Q3 revenue increased 5%, led by 22% growth in instruments; consumables rose 2%. Year-to-date revenue increased 4%, with instruments up 11% and consumables up 3%.
- Q3 gross margin declined to 77% from 80%. Nine-month gross margin fell to 77% from 87%; the prior-year period benefited from a $14.7 million reversal of accrued royalties under the Bio-Rad settlement and patent cross-license agreement.
- Operating expenses increased 21% in Q3 and 25% year to date. Research and development and selling, general and administrative expenses both rose, with personnel and stock-based compensation among the cited drivers.
- China revenue was $15.8 million in Q3 versus $19.1 million a year earlier. Management cited COVID-related lockdowns in China as a continued revenue headwind.
Outlook, commentary and risks
- The company expects operating losses to continue in the near term and expenses to increase as it invests in research and development, products, personnel and infrastructure. It expects operating expenditures to increase in Q4 2022 and beyond. No specific revenue or earnings guidance is provided in the filing.
- Management expects gross margin to trend lower, partly due to product mix from new products, inflation and higher supply-chain costs.
- Capital expenditures are projected at approximately $80–$90 million over the next 12 months, about two-thirds for construction and facilities-related investment.
- An August 2022 workforce reduction resulted in $4.2 million of Q3 restructuring charges, primarily severance-related. The company expected the activities to be substantially complete by year-end 2022 and did not expect further restructuring charges.
- COVID-19-related customer productivity, logistics and supply constraints remain uncertain; management also cited delayed purchases, execution challenges and unfavorable foreign-exchange movements as factors affecting consumables demand.
- The company is involved in multiple patent disputes with NanoString, Vizgen and Parse, including claims and counterclaims involving its products and competitors’ products. Outcomes and financial effects are uncertain; the filing does not provide a clear quantified exposure.
- Available-for-sale securities had $5.2 million of unrealized losses attributed to interest-rate changes, not credit. Management estimated that a hypothetical 100-basis-point rate change would affect portfolio fair value by approximately $1.9 million.
Important facts for investors to verify
- Whether revenue growth improves, particularly consumables demand and China sales, and whether new instruments sustain growth.
- Whether margins continue to contract under the stated product-mix, inflation and supply-cost pressures.
- Operating cash burn, planned capital spending and the adequacy of liquidity relative to continuing losses.
- The scale of stock-based compensation, which was $95.9 million for the first nine months of 2022, and its effect on dilution and expenses.
- Developments and potential financial consequences of the patent litigation, plus any changes in restructuring costs or obligations.