10X Genomics, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. 10x Genomics develops instruments, consumables and software for biological research, including its Chromium and Visium platforms. Comparisons below are year over year unless noted.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $114.5 million | $105.8 million | Up 8% |
| Gross profit / margin | $89.0 million / 78% | $88.8 million / 84% | Margin down 6 percentage points |
| Operating expenses | $130.8 million | $99.0 million | Up 32% |
| Operating loss | $41.7 million | $10.2 million | Loss widened |
| Net loss | $42.4 million | $11.6 million | Loss widened |
| Net loss per share, diluted | $0.38 | $0.11 | Loss per share increased |
| Cash used in operating activities | $20.8 million | $4.1 million | Use increased |
Revenue comprised $98.0 million of consumables (up 5%), $14.4 million of instruments (up 30%) and $2.1 million of services (up 31%). U.S. revenue was $57.4 million; China revenue was $20.8 million, down from $23.6 million.
Cost of revenue rose 49% to $25.5 million, reflecting higher manufacturing costs, newly introduced products and royalties. Operating expenses increased $31.8 million: research and development rose 53% to $64.1 million, and selling, general and administrative expenses rose 17% to $66.7 million. Stock-based compensation was $26.0 million, versus $16.2 million a year earlier.
At March 31, cash and cash equivalents were $312.5 million and marketable securities were $226.8 million, totaling $539.3 million. Total assets were $1.00 billion, total liabilities $196.6 million, and accumulated deficit $905.7 million. Current assets were $697.3 million against current liabilities of $94.4 million. Operating lease liabilities totaled $101.2 million. The filing reports payments on financing arrangements but does not provide a clear total debt balance.
Investing activities used $257.6 million, mainly reflecting $242.3 million of marketable-security purchases and $28.1 million of property and equipment purchases. Cash, cash equivalents and restricted cash decreased by $276.0 million; ending cash and restricted cash were $320.1 million. The quarter also included $2.4 million of unrealized losses on available-for-sale securities in other comprehensive loss.
Material changes and management outlook
- Revenue growth was led by Chromium X Series instrument sales and growth in the installed base supporting consumables. Consumables growth was partly offset by lost customer purchases following a cold-chain logistics breakdown that spoiled products.
- Gross margin declined primarily because of product mix, higher manufacturing and logistics costs, and royalties. Management expects gross margin to trend slightly lower during 2022, partly due to product mix, inflation and supply-chain costs.
- Management expects research and development spending to increase in Q2 2022 and beyond. It expects continued operating losses and significant expenses as it invests in personnel, product development, intellectual property and infrastructure.
- Planned capital expenditures are approximately $190–$200 million over the next 12 months, about two-thirds for construction and facilities. Management says funding could include mortgage financing or a capital partner and believes current cash, cash equivalents and product-sales cash generation will meet anticipated needs for at least 12 months; it cautions that assumptions may prove incorrect.
- Management believes COVID-19-related customer staffing and laboratory constraints, logistics disruptions and uncertainty affected orders, particularly in academic customers, and expects disruptions to continue to affect results. Supply-chain shortages and higher costs could also constrain operations; the financial impact and duration cannot be reasonably estimated.
Risks, contingencies and unusual items
- 10x reported patent-infringement suits against NanoString in the United States and Germany, including a GeoMx case with a Markman hearing scheduled for October 2022 and trial for June 2023. Additional NanoString cases had no schedule or response as of the filing. In May 2022, 10x also sued Vizgen; Vizgen had not responded.
- The filing describes continuing risks from COVID-19, customer research activity, supply availability, logistics, inflation and labor constraints. Management said it had not experienced a material supply-chain impact on its ability to manufacture and ship products to date.
- Available-for-sale securities had $2.4 million in gross unrealized losses, attributed to interest-rate changes rather than credit; the company reported no credit-loss allowance. A hypothetical 100-basis-point interest-rate move would affect portfolio fair value by approximately $2.5 million.
- Management reported effective disclosure controls as of March 31, 2022 and no material change in internal control over financial reporting during the quarter. The company reported no material changes to its previously disclosed risk factors.
Investor verification priorities
- Track whether revenue growth improves and whether cold-chain spoilage or other fulfillment issues recur.
- Monitor gross margin against management’s expectation of a slight decline, including product mix, royalties, inflation and supply costs.
- Assess the pace of operating losses, R&D and hiring-related spending, and stock-based compensation.
- Compare planned $190–$200 million of capital expenditures with cash generation, liquidity and any financing arrangements or external funding.
- Follow COVID-19 and supply-chain effects on customer orders and product delivery, as well as developments and potential costs in the patent litigation.