10x Genomics, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone fourth-quarter report. 10x Genomics sells life-sciences research instruments, consumables and related software, primarily for single-cell and spatial biology research.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $298.8 million | $245.9 million |
| Gross profit / margin | $240.4 million / 80.4% | $184.9 million / 75.2% |
| Operating loss | $534.1 million | $30.6 million |
| Net loss | $542.7 million | $31.3 million |
| Cash flow from operations | $(217.9) million | $34.6 million |
| Cash and cash equivalents at year-end | $663.6 million | $424.2 million |
- Revenue grew 22%. Consumables generated $252.7 million, instruments $40.1 million and services $6.0 million. Consumables accounted for 85% of revenue.
- Gross margin increased by about 5 percentage points, primarily reflecting higher sales and lower Bio-Rad royalty accruals on legacy products.
- The net loss included $447.5 million of in-process research and development expense from the CartaNA and ReadCoor asset acquisitions, which had no alternative future use. R&D expense was $123.4 million, up from $83.1 million.
- Cash used in operations was $217.9 million, including the $34.5 million payment of the Bio-Rad judgment and higher inventory and receivables. Investing activities used $38.4 million; financing activities provided $468.9 million, principally from the September follow-on offering.
- Cash, cash equivalents and restricted cash totaled $688.6 million at year-end, including $25.0 million of restricted cash. The company reported no term-loan or revolver balance at year-end; it prepaid the term loan in February and terminated its $25 million revolving facility in June 2020.
- Current assets were $774.4 million and current liabilities $118.1 million. The company reported an accumulated deficit of $805.1 million.
Material changes versus FY2019
- The instrument installed base rose to 2,412 from 1,666; 746 instruments were sold during 2020. Annual Chromium consumable pull-through per instrument fell to $124,000 from $158,000, which management attributed in part to COVID-19 disruptions and product-transition and customer-spending factors.
- Revenue increased despite laboratory closures and reduced research activity, particularly in the first half. Management reported that approximately 93% of customer labs were open for general research in some capacity at year-end, though not all were operating at full capacity.
- Operating expenses rose sharply, chiefly from the $447.5 million acquired in-process R&D charge, higher personnel and stock-based compensation, and increased legal costs. Stock-based compensation totaled $48.6 million versus $13.3 million.
- The company raised $482.3 million net in a follow-on stock offering. ReadCoor was acquired for $407.4 million of consideration, including $101.4 million cash and $306.0 million in stock; CartaNA was acquired for $41.8 million. Both were accounted for as asset acquisitions.
Outlook, risks and unusual items
- No specific revenue, earnings or margin guidance is provided. Management expects continued operating losses in the near term and ongoing investment in R&D, commercialization, manufacturing capacity and international growth. It believes existing cash and expected product-sale cash generation should fund anticipated needs for at least 12 months, while cautioning that assumptions could prove wrong.
- Management expected 2021 capital expenditures of approximately $90–$100 million, including a $29.4 million Pleasanton property purchase completed in January 2021. It expected consumable pull-through to recover toward pre-COVID levels of about $150,000 per instrument, while noting uncertainty around pandemic effects.
- COVID-19: Lab closures, reduced customer activity, supply and shipping disruption, added health-safety costs and uncertainty about customer funding and demand could continue to affect results. The company carried higher inventory to mitigate supply risks.
- Bio-Rad litigation: The company paid a $34.5 million judgment plus approximately $0.8 million interest in December 2020. It had accrued $44.2 million at year-end for the matter, including estimated royalties and interest; further proceedings and other patent cases remained pending. Outcomes could result in additional payments, injunctions or restrictions on products.
- Other material risks: Dependence on research-institution funding and Chromium/Single Cell Gene Expression sales; reliance on some single-source suppliers; manufacturing and product-transition execution; competition and uncertain adoption of new products; foreign-exchange and international trade exposure; and privacy and cybersecurity risks. The company disclosed a March 2020 attempted ransomware attack, with reason to believe confidential information was stolen.
- In January 2021, the company acquired Tetramer Shop ApS for $10 million cash. The audited financial statements received an unqualified opinion, and the auditor reported effective internal control over financial reporting as of December 31, 2020.
Important facts for investors to verify
- Whether customer research activity and consumable pull-through recover, and whether the installed base continues to translate into recurring consumables revenue.
- How much of the reported loss, future spending and potential dilution relates to acquisitions, stock-based compensation and the company’s product-development plans.
- Developments in Bio-Rad proceedings, including the final amount of post-judgment royalties or other payments and any impact on Next GEM products.
- Whether supply constraints, COVID-related disruption, and planned manufacturing and facility investments affect product availability, cash use or margins.
- Liquidity and capital needs against the company’s expected losses, capital expenditures, acquisition activity and litigation exposure.
- Potential effects of the disclosed ransomware incident and any resulting investigations, claims or information exposure.