Notes to Unaudited Condensed Consolidated Financial Statements
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1. Description of Business and Basis of Presentation
Organization and Description of Business
10x Genomics, Inc. (the “Company”) is a life sciences technology company focused on building innovative products and solutions to interrogate, understand and master biological systems at resolution and scale that matches the complexity of biology. The Company’s integrated solutions include the Company’s Chromium X Series and Chromium Connect instruments, which the Company refers to as “Chromium instruments,” the Company’s Visium CytAssist and Xenium Analyzer instruments, which the Company refers to as “Spatial instruments,” and the Company’s proprietary microfluidic chips, slides, reagents and other consumables for the Company’s Chromium, Visium and Xenium solutions, which the Company refers to as “consumables.” The Company bundles its software with these products to guide customers through the workflow, from sample preparation through analysis and visualization. The Company was incorporated in the state of Delaware in July 2012 and began commercial and manufacturing operations and selling its instruments and consumables in 2015. The Company is headquartered in Pleasanton, California and has wholly-owned subsidiaries in Asia, Europe, Oceania and North America.
Basis of Presentation
The accompanying condensed consolidated financial statements, which include the Company’s accounts and the accounts of its wholly-owned subsidiaries, are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The condensed consolidated balance sheet at December 31, 2023 has been derived from the audited consolidated financial statements of the Company at that date. Certain information and footnote disclosures typically included in the Company’s audited consolidated financial statements have been condensed or omitted. The accompanying unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly the Company’s financial position, results of operations, comprehensive loss and cash flows for the periods presented, but are not necessarily indicative of the results of operations to be anticipated for any future annual or interim period. All intercompany transactions and balances have been eliminated. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
The accompanying unaudited condensed consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2023 included in the Company's Annual Report on Form 10-K filed with the SEC on February 15, 2024 (our “Annual Report”).
2. Summary of Significant Accounting Policies
There were no material changes in the Company’s significant accounting policies during the nine months ended September 30, 2024. See Note 2 – Summary of Significant Accounting Policies to the consolidated financial statements included in the Company’s Annual Report for information regarding the Company’s significant accounting policies.
Revenue Recognition
The Company generates revenue from sales of products and services, and its products consist of instruments and consumables. Revenue from product sales is recognized when control of the product is transferred, which is generally upon shipment to the customer. Instrument service agreements, which relate to extended warranties, are typically entered into for one-year terms, following the expiration of the standard one-year warranty period. Revenue for extended warranties is recognized ratably over the term of the extended warranty period as a stand ready performance obligation. Revenue is recorded net of discounts, distributor commissions and sales taxes collected on behalf of governmental authorities. Customers are invoiced generally upon shipment, or upon order for services, and payment is typically due within 30 days. Cash received from customers in advance of product shipment or providing services is recorded as a contract liability. The Company’s contracts with its customers generally do not include rights of return or a significant financing component.
The Company regularly enters into contracts that include various combinations of products and services which are generally distinct and accounted for as separate performance obligations. The transaction price is allocated to each performance obligation in proportion to its standalone selling price. The Company determines standalone selling price using average selling
Notes to Unaudited Condensed Consolidated Financial Statements
prices with consideration of current market conditions. If the product or service has no history of sales or if the sales volume is not sufficient, the Company relies upon prices set by management, adjusted for applicable discounts.
Net Loss Per Share
Net loss per share is computed using the two-class method required for multiple classes of common stock and participating securities. The rights, including the liquidation and dividend rights and sharing of losses, of the Class A common stock and Class B common stock are identical, other than voting rights. As the liquidation and dividend rights and sharing of losses are identical, the undistributed earnings are allocated on a proportionate basis and the resulting net loss per share will, therefore, be the same for both Class A and Class B common stock on an individual or combined basis.
Basic net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period, adjusted for outstanding shares that are subject to repurchase.
For the calculation of diluted net loss per share, basic net loss per share is adjusted by the effect of dilutive securities including awards under the Company’s equity compensation plans. Diluted net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding. For periods in which the Company reports net losses, diluted net loss per share is the same as basic net loss per share because potentially dilutive shares of common stock are not assumed to have been issued if their effect is anti-dilutive.
Recently Issued Accounting Pronouncement and Disclosure Rules
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires all public entities, including public entities with a single reportable segment, to provide in interim and annual periods one or more measures of segment profit or loss used by the chief operating decision maker to allocate resources and assess performance. Additionally, the standard requires disclosures of significant segment expenses and other segment items as well as incremental qualitative disclosures. The guidance in this update is effective for the Company’s fiscal year 2024 annual reporting period. The Company is currently in the process of evaluating the effects of this pronouncement on its related disclosures.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes, which prescribes standardized categories and disaggregation of information in the reconciliation of provision for income taxes, requires disclosure of disaggregated income taxes paid, and modifies other income tax-related disclosure requirements. The updated standard is effective beginning with the Company’s fiscal year 2025 annual reporting period. Early adoption is permitted. The Company is currently evaluating the impact that the updated standard will have on its related disclosures.
In March 2024, the Securities and Exchange Commission (SEC) issued Final Rule No. 33-11275, The Enhancement and Standardization of Climate-Related Disclosures for Investors. If effected as issued, the rule would require registrants to provide certain climate related disclosures in their annual reports. While in April 2024 the SEC stayed Final Rule No. 33-11275 in connection with legal challenges to the rule, the Company is in the process of analyzing the impact of the rule on its related disclosures.
3. Other Financial Statement Information
Available-for-sale Securities
Available-for-sale securitiesconsisted of the following (in thousands):
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2024
December 31, 2023
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
Fair Value Measurement
Cash equivalents:
Money market funds
$
379,640
$
—
$
—
$
379,640
$
348,539
$
—
$
—
$
348,539
Level 1
Marketable securities:
Corporate debt securities
—
—
—
—
10,022
—
(51)
9,971
Level 2
Government debt securities
—
—
—
—
18,152
—
(125)
18,027
Level 2
Asset-backed securities
—
—
—
—
1,425
—
(12)
1,413
Level 2
Total available-for-sale securities
$
379,640
$
—
$
—
$
379,640
$
378,138
$
—
$
(188)
$
377,950
The Company incurred no material gross realized gains or losses from available-for-sales debt securities during the three and nine months ended September 30, 2024. The Company incurred gross realized losses of $1.7 million and no gross realized gains from the sale of available-for-sales debt securities during the three and nine months ended September 30, 2023. Realized gains (losses) on the sale of marketable securities are recorded in “Other income (expense), net” in the condensed consolidated statements of operations.
The available-for-sale debt securities are subject to a periodic impairment review. For investments in an unrealized loss position, the Company determines whether a credit loss exists by considering information about the collectability of the instrument, current market conditions and reasonable and supportable forecasts of economic conditions. The Company recognizes an allowance for credit losses, up to the amount of the unrealized loss when appropriate, and writes down the amortized cost basis of the investment if it is more likely than not that the Company will be required or will intend to sell the investment before recovery of its amortized cost basis. Allowances for credit losses and write-downs are recognized in “Other income (expense), net,” and unrealized losses not related to credit losses are recognized in “Accumulated other comprehensive loss.” There are no allowances for credit losses for the periods presented.
Inventory
Inventory was comprised of the following (in thousands):
September 30, 2024
December 31, 2023
Purchased materials
$
38,031
$
34,484
Work in progress
27,067
21,975
Finished goods
28,952
17,247
Inventory
$
94,050
$
73,706
Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2024
December 31, 2023
Land
$
36,765
$
36,765
Building
146,944
146,044
Laboratory equipment and machinery
71,852
69,238
Computer equipment and software
15,774
16,379
Furniture and fixtures
10,511
10,979
Leasehold improvements
97,097
96,405
Construction in progress
4,443
7,252
Total property and equipment
383,386
383,062
Less: accumulated depreciation and amortization
(124,627)
(103,491)
Property and equipment, net
$
258,759
$
279,571
During the nine months ended September 30, 2024, the Company recorded impairment charges of $2.1 million related to computer equipment and software of which $0.3 million, $0.7 million and $1.1 million was classified in cost of revenue, research and development, and selling, general and administrative expenses, respectively, in the condensed consolidated statement of operations. The impairment charge was triggered by a decision to discontinue a productivity engineering project.
Accrued Compensation and Related Benefits
Accrued compensation and related benefits were comprised of the following as of the dates indicated (in thousands):
September 30, 2024
December 31, 2023
Accrued payroll and related costs
$
5,762
$
2,262
Accrued bonus
15,408
18,254
Accrued commissions
4,099
6,410
Other
4,811
3,179
Accrued compensation and related benefits
$
30,080
$
30,105
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities were comprised of the following as of the dates indicated (in thousands):
September 30, 2024
December 31, 2023
Accrued purchase consideration
$
—
$
20,000
Accrued legal and related costs
5,871
3,839
Accrued royalties for licensed technologies
8,581
5,455
Accrued property and equipment
523
3,199
Accrued professional services
4,340
6,577
Product warranties
8,445
8,116
Taxes payable
4,291
5,049
Other
5,719
4,413
Accrued expenses and other current liabilities
$
37,770
$
56,648
Product Warranties
Changes in the reserve for product warranties were as follows for the periods indicated (in thousands):
Notes to Unaudited Condensed Consolidated Financial Statements
Nine Months Ended September 30,
2024
2023
Beginning of period
$
8,116
$
3,023
Amounts charged to cost of revenue
4,033
7,780
Repairs and replacements
(3,704)
(4,368)
End of period
$
8,445
$
6,435
Revenue and Deferred Revenue
As of September 30, 2024, the aggregate amount of remaining performance obligations related to separately sold extended warranty service agreements or allocated amounts for extended warranty service agreements bundled with sales of instruments was $30.1 million, of which approximately $17.8 million is expected to be recognized to revenue in the next 12 months, with the remainder thereafter. The contract liabilities of $30.1 million and $22.0 million as of September 30, 2024 and December 31, 2023, respectively, consisted of deferred revenue primarily related to extended warranty service agreements.
The following revenue recognized for the periods were included in contract liabilities as of December 31, 2023 and December 31, 2022, respectively (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Deferred revenue recognized
$
2,713
$
1,534
$
9,454
$
5,497
The following table represents revenue by source for the periods indicated (in thousands). Spatial products include the Company’s Visium and Xenium products:
Notes to Unaudited Condensed Consolidated Financial Statements
The following table presents revenue by geography based on the location of the customer for the periods indicated (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Americas
United States
$
84,723
$
96,094
$
250,032
$
260,769
Americas (excluding United States)
3,099
2,917
10,511
8,581
Total Americas
87,822
99,011
260,543
269,350
Europe, Middle East and Africa
37,851
32,019
109,934
91,687
Asia-Pacific
China
15,030
12,431
42,692
39,217
Asia-Pacific (excluding China)
10,951
10,183
32,595
34,494
Total Asia-Pacific
25,981
22,614
75,287
73,711
Total revenue
$
151,654
$
153,644
$
445,764
$
434,748
4. Commitments and Contingencies
Lease Agreements
The Company leases office, laboratory, manufacturing, distribution and server space in various locations worldwide.
Future net lease payments related to the Company’s operating lease liabilities as of September 30, 2024 is as follows (in thousands):
Operating Leases
2024 (excluding the nine months ended September 30, 2024)
$
3,005
2025
14,924
2026
15,487
2027
15,693
2028
15,853
Thereafter
40,804
Total lease payments
$
105,766
Less: imputed interest
(19,890)
Present value of operating lease liabilities
$
85,876
Operating lease liabilities, current
$
9,415
Operating lease liabilities, noncurrent
76,461
Total operating lease liabilities
$
85,876
The following table summarizes additional information related to operating leases as of September 30, 2024:
September 30, 2024
December 31, 2023
Weighted-average remaining lease term
7.0 years
7.5 years
Weighted-average discount rate
5.8
%
5.9
%
Litigation
The Company is regularly subject to lawsuits, claims, arbitration proceedings, administrative actions and other legal and regulatory proceedings involving intellectual property disputes, commercial disputes, competition and other matters, and the
Notes to Unaudited Condensed Consolidated Financial Statements
Company may become subject to additional types of lawsuits, claims, arbitration proceedings, administrative actions, government investigations and legal and regulatory proceedings in the future.
NanoString
On May 6, 2021, the Company filed suit against NanoString Technologies, Inc. (“NanoString”) in the U.S. District Court for the District of Delaware alleging that NanoString’s GeoMx Digital Spatial Profiler and associated instruments and reagents infringe U.S. Patent Nos. 10,472,669, 10,662,467, 10,961,566, 10,983,113 and 10,996,219 (the “GeoMx Action”). On May 19, 2021, the Company filed an amended complaint additionally alleging that the GeoMx products infringe U.S. Patent Nos. 11,001,878 and 11,008,607. On May 4, 2022, the Company filed an amended complaint in the GeoMx Action additionally alleging that the GeoMx products infringe U.S. Patent No. 11,293,917 and withdrawing the Company’s claims of infringement of U.S. Patent No. 10,662,467. The Company is seeking, among other relief, injunctive relief and unspecified damages (including attorneys’ fees) in relation to NanoString’s making, using, selling, offering to sell, exporting and/or importing in the United States the GeoMx Digital Spatial Profiler and associated instruments and reagents. NanoString filed its answer to the GeoMx Action on May 18, 2022. A Markman hearing was held on February 17, 2023 and the Court issued its claim construction order on February 28, 2023. On September 7, 2023, the Court issued an order granting the Company’s motion for summary judgment that the asserted patents are not invalid for indefiniteness and denying NanoString’s motion for summary judgment that the asserted patents are invalid for indefiniteness and lack of written description. On November 17, 2023, a jury found that NanoString willfully infringed the asserted patents and that the asserted patents are valid. The jury awarded the Company more than $31 million in damages, consisting of approximately $25 million in lost profits and approximately $6 million in royalties. Post-trial motions, including the Company’s motions for a permanent injunction, ongoing royalties, enhanced damages, attorneys’ fees and pre- and post-judgment interest, are pending. NanoString filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code in the U.S. bankruptcy court in Delaware on February 4, 2024, and the Court’s consideration of these post-trial motions was stayed due to the bankruptcy filing. In May 2024, Bruker Corporation (“Bruker”) acquired certain assets and assumed certain liabilities of NanoString, including the litigation between the Company and NanoString, and the NanoString product lines at issue. Bruker, Bruker Spatial Biology, Inc. and Bruker Nano, Inc. were substituted as defendants in the GeoMx Action. Post-trial briefing is complete following supplementation by the parties. Due to the uncertainties in collecting the jury award, the Company has not recorded a receivable from NanoString as of September 30, 2024.
On February 28, 2022, the Company filed a second suit against NanoString in the U.S. District Court for the District of Delaware alleging that NanoString’s CosMx Spatial Molecular Imager and associated instruments, reagents and services infringe U.S. Patent Nos. 10,227,639 and 11,021,737 (the “CosMx Action”). On May 12, 2022, the Company filed an amended complaint in the CosMx Action additionally alleging that the CosMx products additionally infringe U.S. Patent Nos. 11,293,051, 11,293,052 and 11,293,054. NanoString filed its answer to the CosMx Action on May 26, 2022. On March 1, 2023, the Company filed a second amended complaint additionally alleging that the CosMx products infringe U.S. Patent No. 11,542,554. The Company is seeking, among other relief, injunctive relief and unspecified damages (including attorneys’ fees) in relation to NanoString’s making, using, selling, offering to sell, exporting and/or importing in the United States the CosMx Spatial Molecular Imager and associated instruments, reagents and services. NanoString filed its answer to the second amended complaint on March 22, 2023.Discovery is in progress. A Markman hearing was held on January 10, 2024, and the Court issued its claim construction order on February 1, 2024.
On August 16, 2022, NanoString filed a counterclaim in the CosMx Action alleging that the Company’s Visium products infringe U.S. Patent No. 11,377,689 (the “689 patent”). The Company filed its answer to NanoString’s counterclaim in the CosMx Action on August 30, 2022. On November 23, 2022, the Company moved to sever claims relating to NanoString’s assertion of the 689 patent and consolidate those claims with the patent case NanoString filed against the Company on October 20, 2022 (discussed below). On January 24, 2023, the Court granted the Company’s motion.
On May 1, 2023, NanoString filed a motion in the CosMx Action to add antitrust, unfair competition, tort and contract counterclaims. NanoString seeks, among other relief, injunction relief (including that the Company grant NanoString a license to the patents that the Company asserted against NanoString in the CosMx Action) and unspecified damages (including attorneys’ fees). On July 10, 2023, the Court denied NanoString’s motion for leave to add a contract counterclaim but otherwise granted the motion for leave to amend. On May 24, 2023, NanoString filed a motion to bifurcate its amended counterclaims and a motion for expedited discovery. On June 6, 2023, the Court denied NanoString’s motion to bifurcate and granted its motion for expedited discovery. Bruker, Bruker Spatial Biology, Inc. and Bruker Nano, Inc. were substituted as defendants in the CosMx Action. Trial is scheduled for May 2025. The Company believes Bruker’s claims are meritless and intends to vigorously defend itself.
Notes to Unaudited Condensed Consolidated Financial Statements
On October 20, 2022, NanoString filed suit against the Company in the U.S. District Court for the District of Delaware alleging that the Company’s Visium products infringe U.S. Patent No. 11,473,142 (the “142 patent”), a continuation of the 689 patent (the “NanoString Action”). NanoString seeks, among other relief, injunctive relief and unspecified damages (including attorneys’ fees) in relation to the Company’s making, using, selling, offering to sell, exporting and/or importing in the United States Visium products and associated instruments, reagents and services. On January 24, 2023, the Court severed NanoString’s claims with respect to the 689 patent from the CosMx Action and consolidated those claims with this action. NanoString filed an amended complaint on January 27, 2023. The Company filed an answer to the NanoString Action on February 10, 2023. Discovery is in progress. A Markman hearing was held on January 10, 2024, and the Court issued its claim construction order on February 1, 2024. Bruker Spatial Biology, Inc. and Bruker Nano, Inc. were substituted as plaintiffs in the NanoString Action in June 2024. A trial date in the NanoString Action has not yet been set. The Company believes these claims in the NanoString Action are meritless and intends to vigorously defend itself.
On August 16 and September 25, 2023, the Company filed petitions for inter partes review (“IPR”) of the 689 patent and the 142 patent, respectively. On February 1, 2024, IPR was instituted for the 689 patent. On September 5, 2024, IPR was instituted for the 142 patent. On September 19, 2024, the Company filed a motion to stay the NanoString Action pending these IPRs.
On January 30, 2024, NanoString filed a petition for IPR of U.S. Patent No. 11,542,554 (the “554 patent”), which is asserted by the Company against NanoString in the CosMx Action. On August 23, 2024, IPR was instituted for the 554 patent. On October 4, 2024, Bruker filed a montion to stay the CosMx Action pending the 554 IPR.
On March 9, 2022, the Company filed suit in the Munich Regional Court in Germany alleging that NanoString’s CosMx Spatial Molecular Imager and associated instruments, reagents and services infringe EP Patent No. 2794928B1 (the “EP928 patent”) (the “Germany CosMx Action”). A hearing on infringement was held on March 23, 2023. On May 17, 2023, the Munich Regional Court found that the CosMx products infringe the EP928 patent and issued a permanent injunction requiring NanoString to stop selling and supplying CosMx instruments and reagents for RNA detection in Germany. The injunction took effect on June 1, 2023. On May 25, 2023, NanoString filed an appeal of the Germany CosMx Action in the Munich Higher Regional Court.A hearing date has not yet been set for this appeal. On October 30, 2023, NanoString requested that the Higher Regional Court temporarily stay enforcement of the injunction pending the appeal. On December 20, 2023, the Higher Regional Court granted NanoString’s request conditioned upon NanoString posting a 2.3 million Euro security deposit.
On July 29, 2022, NanoString filed a nullity action with the German Federal Patent Court challenging the validity of the EP928 patent.On February 10, 2023, the German Federal Patent Court issued a preliminary opinion upholding the validity of certain claims of the EP928 patent directed to in situ analysis. On May 7, 2024, the German Federal Patent Court reversed its preliminary opinion and revoked the German part of the EP928 patent. The Company strongly disagrees with this decision and plans to appeal the decision.
On June 1, 2023, the Company filed requests for preliminary injunctions in the Munich Local Division of the Unified Patent Court (“UPC”) alleging that NanoString’s CosMx Spatial Molecular Imager and associated instruments, reagents and services for RNA detection infringe the EP928 patent and EP Patent No. 4108782 (the “EP782 patent”). Hearings were held for the EP782 and EP928 patents on September 5 and September 19, respectively.On September 19, 2023, the UPC granted the Company’s request with respect to the EP782 patent and issued a preliminary injunction requiring NanoString to stop selling and supplying CosMx instruments and reagents for RNA detection in all 17 UPC member states. On October 10, 2023, the UPC denied the Company’s preliminary injunction request for the EP928 patent.On October 2, 2023, NanoString filed an appeal of the preliminary injunction for the EP782 patent in the UPC Court of Appeals.A hearing was held before the UPC Court of Appeals on December 18, 2023. The UPC Court of Appeals overturned the preliminary injunction on February 26, 2024.
On August 31 and September 18, 2023 the Company filed main requests in the Munich Local Division of the UPC alleging that NanoString's CosMx Spatial Molecular Imager and associated instruments, reagents and services for RNA detection infringe the EP782 and EP928 patents, respectively.No hearings have yet been set for these main requests.
On July 18, 2023, NanoString filed an opposition in the European Patent Office challenging the validity of the EP782 patent. An oral hearing for this opposition is scheduled on March 18, 2025. On July 27, 2023, NanoString filed a revocation action in the Munich Central Division of the UPC challenging the validity of the EP928 patent. An oral hearing for this revocation
Notes to Unaudited Condensed Consolidated Financial Statements
action was held on September 18, 2024. On October 17, 2024, the UPC revoked EP928 in its entirely. The Company strongly disagrees with this decision and plans to appeal the decision.
Vizgen
On May 3, 2022, the Company filed suit against Vizgen, Inc. (“Vizgen”) in the U.S. District Court for the District of Delaware alleging that Vizgen’s MERSCOPE Platform and workflow and/or Vizgen’s Lab Services program, including associated instruments and reagents, infringe U.S. Patent Nos. 11,021,737, 11,293,051, 11,293,052, 11,293,054 and 11,299,767. The Company seeks, among other relief, injunction relief and unspecified damages (including attorneys’ fees) in relation to Vizgen’s making, using, selling, offering to sell, exporting and/or importing in the United States the MERSCOPE Platform and workflow and/or Vizgen’s Lab Services program, including associated instruments and reagents. On July 25, 2022, Vizgen filed a motion to dismiss the Company’s claims for willful and indirect infringement, which the Court denied on September 19, 2022. Discovery is in progress. A Markman hearing was held on January 10, 2024, and the Court issued its claim construction order on February 1, 2024.
On August 30, 2022, Vizgen filed its answer and counterclaims alleging that the Company’s Xenium product infringes U.S. Patent No. 11,098,303 (the “303 patent”). Vizgen seeks, among other relief, injunction relief and unspecified damages (including attorneys’ fees) in relation to the Company’s making, using, selling, offering to sell, exporting and/or importing in the United States Xenium products, including associated instruments and reagents. Vizgen also filed counterclaims alleging that the Company tortiously interfered with Vizgen’s contractual and business relationship with Harvard and that the Company engaged in unfair practices under Massachusetts state law. On October 27, 2022, the Company filed a partial answer and motion to dismiss the infringement counterclaim and the tort counterclaims. On February 2, 2023, the Company’s motion to dismiss was denied. The Company believes Vizgen’s claims are meritless and intends to vigorously defend itself.
On March 15, 2023, the Company filed an amended complaint additionally alleging that the MERSCOPE Platform and workflow and Vizgen’s Lab Services program infringe U.S. Patent No. 11,549,136 and withdrawing its claim of infringement of U.S. Patent No. 11,293,054. On April 17, 2023, Vizgen filed its answer adding amended counterclaims including antitrust, unfair competition, tort and contract counterclaims. Vizgen seeks, among other relief, injunctive relief (including that the Company grant Vizgen a license to the patents that the Company asserted against Vizgen) and unspecified damages (including attorneys’ fees). On May 18, 2023, the Company filed a motion to dismiss Vizgen’s amended counterclaims. On July 10, 2023, the Court granted the Company’s motion to dismiss Vizgen’s contract counterclaim but otherwise denied the Company’s motion to dismiss. On April 29, 2024, Vizgen amended its counterclaims to add additional antitrust counterclaims based on alleged bundling and predatory pricing. The Company believes Vizgen’s claims are meritless and intends to vigorously defend itself.
Trial on the Company’s claims and on Vizgen’s non-patent counterclaims is scheduled for February 2025. A trial date on Vizgen’s counterclaim regarding the 303 patent is expected to be set for the second half of 2024.
On August 30, 2023, the Company filed a petition for IPR of the 303 patent. Institution was denied on March 7, 2024.
On June 1, 2023, the Company filed suit in the Hamburg Local Division of the UPC alleging that Vizgen’s MERSCOPE products infringe the EP782 patent. The Company seeks, among other relief, injunction relief and unspecified damages (including attorneys’ fees) in relation to Vizgen’s MERSCOPE products in all 17 UPC member states.A hearing for this UPC action is scheduled for March 2025.
Parse
On August 24, 2022, the Company filed suit against Parse Biosciences, Inc. (“Parse”) in the U.S. District Court for the District of Delaware alleging that Parse’s Evercode Whole Transcriptomics products and ATAC-seq products infringe U.S. Patent Nos. 10,155,981 (the “981 patent”), 10,697,013 (the “013 patent”), 10,240,197 (the “197 patent”), 10,150,995 (the “995 patent”), 10,619,207 (the “207 patent”) and 10,738,357 (the “357 patent”). The Company seeks, among other relief, injunction relief and unspecified damages (including attorneys’ fees) in relation to Parse’s making, using, selling, offering to sell, exporting and/or importing in the United States Parse’s Evercode Whole Transcriptomics products and ATAC-seq products. On October 17, 2022, Parse filed a motion to dismiss alleging that the asserted claims are directed to patent ineligible subject matter. The Court held a hearing on the motion to dismiss on November 22, 2022, and supplemental briefing was submitted on December 15, 2022. On September 14, 2023, the Court denied the motion. Parse filed its answer on October 6, 2023. A Markman hearing was held on February 21, 2024, and the Court issued its claim construction order on May 3, 2024.
Notes to Unaudited Condensed Consolidated Financial Statements
Between April 20 and June 21, 2023, Parse filed petitions for IPR of all of the patents asserted. The PTAB denied institution on the 995, 207, and 357 patents, and instituted IPR on the 981, 013, and 197 patents. On September 17, 2024, the PTAB issued a Final Written Decision finding all challenged claims of the 981 patent unpatentable. The Company strongly disagrees with this decision and plans to appeal this decision. Oral argument for the 197 and 013 patents is scheduled on November 6, 2024.
On November 6, 2023, Parse filed a motion to stay the Delaware action pending the IPRs. On December 21, 2023, the court denied Parse’s motion to stay. On February 8, 2024, Parse filed a renewed motion to stay. On February 20, 2024, the court denied Parse’s renewed motion to stay. Trial is scheduled for March 2025.
Curio
On December 1, 2023, the Company filed suit against Curio Bioscience, Inc. (“Curio”) in the U.S. District Court for the District of Delaware alleging that the Curio Seeker Spatial Mapping Kit and associated products and services infringe U.S. Patent Nos. 10,480,022, (the “022 patent”), 10,662,468, 11,001,879, 11,549,138, and 11,761,030.On February 1, 2024, Curio filed a motion to dismiss alleging that the asserted claims are directed to patent ineligible subject matter. The Court denied that motion on May 9, 2024. On May 31 and June 20, 2024, Curio answered the Complaint and filed antitrust and unfair competition counterclaims. The Company filed a motion to dismiss Curio’s unfair competition and antitrust counterclaims on July 5, 2024. The Company believes Curio’s counterclaims are meritless and intends to vigorously defend itself. Trial is scheduled for May 2026.
On September 11, 2024, Curio filed a petition for IPR of the 022 patent. An institution decision is pending.
On December 4, 2023, the Company filed a request for a preliminary injunction in the Dusseldorf Local Division of the UPC alleging that the Curio Seeker Spatial Mapping Kit and associated products and services infringe EP Patent No. 2697391 (the “EP391 patent”).A hearing was held on March 26, 2024. On April 30, 2024, the UPC granted the Company’s request and issued a preliminary injunction requiring Curio to stop offering, marketing, using or possessing these Curio Seeker products and services in Germany, France and Sweden. Curio did not appeal the preliminary injunction. On March 25, 2024, the Company filed a main request in the Dusseldorf Local Division of the UPC alleging that the Curio Seeker Spatial Mapping Kit and associated products and services infringe the EP391 patent.
5. Capital Stock
As of September 30, 2024, the number of shares of Class A common stock and Class B common stock issued and outstanding were 106,983,035 and 14,056,833, respectively.
The following table represents the number of shares of Class B common stock converted to shares of Class A common stock upon the election of the holders of such shares during the periods:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Class B common stock converted to Class A common stock
Notes to Unaudited Condensed Consolidated Financial Statements
6. Equity Incentive Plans
Stock-based Compensation
The Company recorded stock-based compensation expense in the condensed consolidated statement of operations for the periods presented as follows (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Cost of revenue
$
2,169
$
1,844
$
6,127
$
5,140
Research and development
15,978
17,856
50,728
55,196
Selling, general and administrative
15,763
20,535
51,354
67,696
Total stock-based compensation expense
$
33,910
$
40,235
$
108,209
$
128,032
Restricted Stock Units
Restricted stock unit activity for the nine months ended September 30, 2024 is as follows:
Restricted Stock Units
Weighted-Average Grant Date Fair Value (per share)
Outstanding as of December 31, 2023
5,334,134
$
48.26
Granted
3,484,006
33.04
Vested
(1,510,280)
54.46
Cancelled
(903,755)
42.01
Outstanding as of September 30, 2024
6,404,105
$
39.40
Stock Options
Stock option activity for the nine months ended September 30, 2024 is as follows:
Stock Options
Weighted-Average Exercise Price
Outstanding as of December 31, 2023
5,946,786
$
42.17
Exercised
(241,357)
8.47
Cancelled and forfeited
(420,999)
50.42
Outstanding as of September 30, 2024
5,284,430
$
43.05
Performance Stock Awards
In March 2024, the Company granted 219,168 performance stock units (PSUs) under the 2019 Plan to certain members of management which are subject to the achievement of certain performance conditions established by the Company’s Compensation Committee of the Board of Directors as described below:
i.50% of target PSUs earned will be based on the Company’s compound annual growth rate (CAGR) of the Company’s Revenue over a two-year performance period from January 1, 2024 to December 31, 2025. Holders may earn from 0% to 175% of the target amount of shares and earned PSUs will then be subject to service-based vesting; and
ii.50% of target PSUs earned will be based on the relative Total Shareholder Return (TSR) of the Company’s common stock as compared to the TSR of the members of the Russell 3000 Medical Equipment and Services Sector Index over a three-year performance period from January 1, 2024 to December 31, 2026. Depending on the results relative to the TSR market condition, the holders may earn from 0% to 200% of the target amount of shares which will vest at the end of the performance period.
Notes to Unaudited Condensed Consolidated Financial Statements
The PSUs will be forfeited if the performance conditions are not achieved at the end of the relative performance periods as described above. The vesting of the PSUs can also be triggered upon certain change in control events or in the event of death or disability.
The weighted-average grant date fair values of the PSUs relating to CAGR and TSR components were $37.43 and $44.80 per share respectively. Stock-based compensation expense recognized for these awards was approximately $0.5 million and $1.4 million for the three and nine months ended September 30, 2024, respectively.
The Company estimated the fair values of shares granted under the market-based TSR PSUs using a Monte Carlo simulation model with the following assumptions:
Expected volatility
66%
Risk-free interest rate
4.5%
Expected dividend yield
—%
In March 2023, the Company granted 172,842 PSUs under the 2019 Plan to certain members of management, which are subject to the achievement of certain stock price thresholds established by the Company’s Compensation Committee of the Board of Directors.
As of September 30, 2024, the performance periods for the 2024 PSUs were not completed and none of the stock price thresholds for the 2023 PSUs had been met resulting in no shares vesting or becoming exercisable.
2019 Employee Stock Purchase Plan
A total of 3,686,671 shares of Class A common stock were reserved for issuance under the 2019 Employee Stock Purchase Plan (“ESPP”). The price at which Class A common stock is purchased under the ESPP is equal to 85% of the fair market value of the common stock on the first day of the offering period or purchase date, whichever is lower.
During the nine months ended September 30, 2024 and 2023, 192,869 and 117,280 shares of Class A common stock, respectively, were issued under the ESPP. There were no shares of Class A common stock issued under the ESPP during the three months ended September 30, 2024 and 2023. As of September 30, 2024, there were 2,898,194 shares available for issuance under the ESPP.
7. Net Loss Per Share
The following outstanding shares of common stock equivalents were excluded from the computation of diluted net loss per share for the periods presented because including them would have had an anti-dilutive effect:
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report and our audited consolidated financial statements and notes thereto and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC on February 15, 2024 (our "Annual Report"). As discussed in the section titled “Special Note Regarding Forward-Looking Statements,” the following discussion and analysis, in addition to historical financial information, contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled “Risk Factors” in this Quarterly Report and Part I, Item 1A of our Annual Report.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
Overview
We are a life sciences technology company focused on building innovative products and solutions to interrogate, understand and master biology. Our integrated solutions include instruments, consumables and software for analyzing biological systems at resolution and scale that matches the complexity of biology. We have launched multiple products that enable researchers to understand and interrogate biological analytes in their full biological context. Our commercial product portfolio leverages our Chromium X Series and Chromium Connect instruments, which we refer to as “Chromium instruments,” our Visium CytAssist, an instrument designed to simplify the Visium solution workflow by facilitating the transfer of transcriptomic probes from standard glass slides to Visium slides, and our Xenium Analyzer, an instrument designed for fully automated high-throughput analysis of cells in their tissue environment, which we refer to as “Spatial instruments,” and our proprietary microfluidic chips, slides, reagents and other consumables for our Chromium, Visium and Xenium solutions, which we refer to as “consumables.” We bundle our software with these products to guide customers through the workflow, from sample preparation through analysis and visualization.
Our products cover a wide variety of applications and allow researchers to analyze biological systems at fundamental resolutions and on massive scale, such as at the single cell level for millions of cells. Customers purchase instruments and consumables from us for use in their experiments. In addition to instrument and consumable sales, we derive revenue from post-warranty service contracts for our instruments.
Since our inception in 2012, we have incurred net losses in each year. Our net losses were $35.8 million and $133.6 million for the three and nine months ended September 30, 2024 and $93.0 million and $206.1 million for the three and nine months ended September 30, 2023, respectively. As of September 30, 2024, we had an accumulated deficit of $1.4 billion and cash and cash equivalents totaling $398.2 million. We expect to continue to incur significant expenses for the foreseeable future and to incur operating losses in the near term. We expect our expenses will increase in connection with our ongoing activities, as we:
•attract, hire and retain qualified personnel;
•scale our technology platforms and introduce new products and services;
•protect and defend our intellectual property;
•acquire businesses or technologies; and
•invest in processes, tools and infrastructure to support the growth of our business.
Comparison of the Three and Nine Months Ended September 30, 2024 and 2023
Revenue
Three Months Ended September 30,
Change
Nine Months Ended September 30,
Change
(dollars in thousands)
2024
2023
$
%
2024
2023
$
%
Instruments
Chromium
$
7,641
$
12,231
$
(4,590)
(38)
%
$
24,283
$
36,716
$
(12,433)
(34)
%
Spatial
11,415
22,711
(11,296)
(50)
44,078
48,357
(4,279)
(9)
Total instruments revenue
19,056
34,942
(15,886)
(45)
68,361
85,073
(16,712)
(20)
Consumables
Chromium
96,536
100,282
(3,746)
(4)
274,571
302,172
(27,601)
(9)
Spatial
29,668
14,091
15,577
111
85,330
37,067
48,263
130
Total consumables revenue
126,204
114,373
11,831
10
359,901
339,239
20,662
6
Services
6,394
4,329
2,065
48
17,502
10,436
7,066
68
Total revenue
$
151,654
$
153,644
$
(1,990)
(1)
%
$
445,764
$
434,748
$
11,016
3
%
Revenue decreased $2.0 million, or 1%, to $151.7 million for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. Instruments revenue decreased $15.9 million, or 45%, to $19.1 million for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023, primarily due to lower volume of Chromium and Spatial instruments sold. Consumables revenue increased $11.8 million, or 10%, to $126.2 million for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023, primarily driven by higher Spatial consumables sales.
Revenue increased $11.0 million, or 3%, to $445.8 million for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. Instruments revenue decreased $16.7 million, or 20%, to $68.4 million for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, primarily due to lower volume of Chromium and Spatial instruments sold. Consumables revenue increased $20.7 million, or 6%, to $359.9 million for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, primarily driven by growth in Spatial consumables sales partially offset by lower Chromium consumables sales.
Cost of revenue, gross profit and gross margin
Three Months Ended September 30,
Change
Nine Months Ended September 30,
Change
(dollars in thousands)
2024
2023
$
%
2024
2023
$
%
Cost of revenue
$
45,261
$
58,115
$
(12,854)
(22)
%
$
142,237
$
141,217
$
1,020
1
%
Gross profit
$
106,393
$
95,529
$
10,864
11
%
$
303,527
$
293,531
$
9,996
3
%
Gross margin
70
%
62
%
68
%
68
%
Cost of revenue decreased $12.9 million, or 22%, to $45.3 million for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. The decrease was primarily driven by lower manufacturing costs of $13.7 million due to decreased sales, $1.9 million of lower warranty charges, and lower inventory write-downs of $0.5 million, partially offset by higher royalties of $3.2 million. Gross margin increased to 70% primarily due to change in product mix.
Cost of revenue increased $1.0 million, or 1%, to $142.2 million for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. The increase was primarily driven by higher royalties of $7.8 million and $1.0 million of higher warranty charges, partially offset by lower manufacturing costs of $5.6 million due to decrease in sales and lower inventory write-downs of $2.2 million. Gross margin remained flat at 68%.
We expect our gross margin to continue to fluctuate due to product mix and the impact of royalty obligations which vary by product.
Three Months Ended September 30,
Change
Nine Months Ended September 30,
Change
(dollars in thousands)
2024
2023
$
%
2024
2023
$
%
Research and development
$
66,174
$
66,507
$
(333)
(1)
%
$
197,730
$
205,065
$
(7,335)
(4)
%
In-process research and development
—
41,402
(41,402)
100
—
41,402
(41,402)
100
Selling, general and administrative
81,704
82,415
(711)
(1)
250,517
257,205
(6,688)
(3)
Total operating expenses
$
147,878
$
190,324
$
(42,446)
(22)
%
$
448,247
$
503,672
$
(55,425)
(11)
%
Research and development expenses decreased $0.3 million, or 1%, to $66.2 million for the three months ended September 30, 2024, as compared to the three months ended September 30, 2023. The decrease was primarily driven by a decrease in personnel expenses of $1.9 million, including a $1.9 million reduction in stock-based compensation expense, and a decrease in allocated costs for facilities and information technology of $0.6 million, partially offset by an increase in laboratory materials and supplies of $2.3 million.
Research and development expenses decreased $7.3 million, or 4%, to $197.7 million for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023. The decrease was primarily driven by a decrease in personnel expenses of $3.7 million, including a $4.5 million reduction in stock-based compensation expense, a decrease in laboratory materials and supplies of $2.2 million, a decrease in depreciation and amortization of $0.6 million, and a decrease in consulting and professional services of $0.5 million.
Selling, general and administrative expenses decreased $0.7 million, or 1%, to $81.7 million for the three months ended September 30, 2024, as compared to the three months ended September 30, 2023. The decrease was primarily driven by a decrease in personnel expenses of $4.5 million, including a $4.8 million reduction in stock-based compensation expense, partially offset by an increase in outside legal expenses of $2.7 million, an increase in marketing expenses related to conferences and seminars of $0.7 million, and an increase in allocated costs for facilities and information technology to support operational expansion of $0.6 million in the three months ended September 30, 2023.
Selling, general and administrative expenses decreased $6.7 million, or 3%, to $250.5 million for the nine months ended September 30, 2024, as compared to the nine months ended September 30, 2023. The decrease was primarily driven by lower personnel expenses of $16.9 million, including a $16.3 million reduction in stock-based compensation expense, a decrease in marketing expenses related to conferences and seminars of $1.4 million, and a decrease in allocated costs for facilities and information technology of $0.9 million, partially offset by an increase in outside legal expenses of $12.1 million. Facilities and information technology costs includes a one-time lease impairment charge of $2.8 million in the nine months ended September 30, 2023. During the nine months ended September 30, 2024, the Company recorded impairment charges of $2.1 million related to computer equipment and software of which $1.1 million was classified as selling, general and administrative expenses in the condensed consolidated statement of operations. The impairment charge was triggered by a decision to discontinue a software project.
Other income (expense), net
Three Months Ended September 30,
Change
Nine Months Ended September 30,
Change
(dollars in thousands)
2024
2023
$
%
2024
2023
$
%
Interest income
$
4,971
$
4,300
$
671
16
%
$
14,422
$
12,269
$
2,153
18
%
Interest expense
(2)
(1)
(1)
100
(4)
(25)
21
(84)
Other income (expense), net
2,078
(1,248)
3,326
(267)
982
(4,268)
5,250
(123)
Total other income, net
$
7,047
$
3,051
$
3,996
131
%
$
15,400
$
7,976
$
7,424
93
%
Interest income increased by $0.7 million or 16% to $5.0 million for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. Interest income increased by $2.2 million, or 18%, to $14.4 million for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. The increase was
primarily due to interest income generated from our cash equivalents and marketable securities during the three and nine months ended September 30, 2024 reflecting an increase in interest rates.
Other expense, net decreased by $3.3 million, or 267% to $2.1 million for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. Other expense, net decreased by $5.3 million, or 123% to $1.0 million for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. These decreases were driven by realized and unrealized losses from foreign currency rate measurement fluctuations.
Provision for Income Taxes
The Company’s provision for income taxes was $1.3 million and $4.3 million, respectively, for the three and nine months ended September 30, 2024, and $1.2 million and $4.0 million, respectively, for the three and nine months ended September 30, 2023. Deferred tax assets related to our domestic operations are fully offset by a valuation allowance.
Liquidity and Capital Resources
As of September 30, 2024, we had $398.2 million in cash and cash equivalents. We have generated negative cumulative cash flows from operations since inception through September 30, 2024, and we have generated losses from operations since inception as reflected in our accumulated deficit of $1.4 billion.
We currently anticipate making aggregate capital expenditures of between approximately $15 million and $20 million during the next 12 months, which we expect to include, among other expenditures, equipment to be used for manufacturing and research and development.
Our future capital requirements will depend on many factors including our revenue growth rate, research and development efforts, investments in or acquisitions of complementary or enhancing technologies or businesses, the timing and extent of additional capital expenditures to invest in existing and new facilities, the expansion of sales and marketing and international activities, legal costs associated with defending and enforcing intellectual property rights and the introduction of new products.
We take a long-term view in growing and scaling our business and we regularly review acquisition and investment opportunities, and we may in the future enter into arrangements to acquire or invest in businesses, real estate, services and technologies, including intellectual property rights, and any such acquisitions or investments could significantly increase our capital needs. We regularly review opportunities that meet our long-term growth objectives.
We expect to continue to incur operating losses for the foreseeable future. We believe that our existing cash and cash equivalents and cash generated from sales of our products will be sufficient to meet our anticipated cash needs for at least the next 12 months. However, our liquidity assumptions may prove to be incorrect, and we could exhaust our available financial resources sooner than we currently expect. We maintain the majority of our cash and cash equivalents in accounts with major U.S. and multi-national financial institutions, and our deposits at these institutions exceed insured limits. Market conditions can impact the viability of these institutions. In the event of failure of any of the financial institutions where we maintain our cash and cash equivalents, there can be no assurance that we would be able to access uninsured funds in a timely manner or at all. Any inability to access or delay in accessing these funds could adversely affect our business and financial position.
We intend to continue to evaluate market conditions and may in the future pursue additional sources of funding, such as mortgage or other financing, to further enhance our financial position and to execute our business strategy. In addition, should prevailing economic, financial, business or other factors adversely affect our ability to meet our operating cash requirements, we could be required to obtain funding though traditional or alternative sources of financing. We cannot be certain that additional funds would be available to us on favorable terms when required, or at all.
Sources of liquidity
Since our inception, we have financed our operations and capital expenditures primarily through sales of convertible preferred stock and common stock, revenue from sales of our products and the incurrence of indebtedness.
The following table summarizes our cash flows for the periods indicated:
Nine Months Ended September 30,
(in thousands)
2024
2023
Net cash provided by (used in):
Operating activities
$
13,412
$
(40,955)
Investing activities
18,961
120,394
Financing activities
6,397
8,056
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
105
(110)
Net increase in cash and cash equivalents
$
38,875
$
87,385
Operating activities
The net cash provided by operating activities of $13.4 million for the nine months ended September 30, 2024 was primarily due to a net loss of $133.6 million, net cash inflow from changes in operating assets and liabilities of $2.6 million, primarily offset by stock-based compensation expense of $108.2 million, depreciation and amortization of $27.1 million, lease and asset impairment charges of $2.5 million, amortization of leased right-of-use assets of $6.0 million, and other non-cash expenses of $0.6 million. The net cash inflow from operating assets and liabilities was primarily due to an decrease in accounts receivable of $31.3 million due to timing of collections, increase in accounts payable of $10.0 million and an increase in deferred revenue of $8.1 million. The net cash inflow from operating assets and liabilities was partially offset by a decrease in accrued expenses and other current liabilities of $17.1 million primarily driven by payments related to purchase consideration and royalty payments, an increase in inventory of $19.4 million, and a decrease in operating lease liability of $9.8 million.
The net cash used in operating activities of $41.0 million for the nine months ended September 30, 2023 was primarily due to a net loss of $206.1 million, of which $41.4 million related to in-process research and development expense, partially offset by stock-based compensation expense of $128.0 million, depreciation and amortization of $25.8 million, amortization of leased right-of-use assets of $6.1 million, lease impairment charges of $2.8 million, realized losses on sale of marketable securities of $1.7 million, other non-cash expenses of $0.5 million and net cash inflow from changes in operating assets and liabilities of $0.3 million. The net cash inflow from operating assets and liabilities was primarily due to an increase in accrued expenses and other current liabilities of $9.2 million, an increase in deferred revenue of $6.6 million, an increase in other noncurrent liabilities of $0.6 million and a decrease in accounts receivable of $0.4 million. The net cash inflow from operating assets and liabilities was primarily offset by a decrease in operating lease liability of $5.9 million, a decrease in accrued compensation and other related benefits of $4.2 million primarily related to the prior year annual bonus payments, an increase in prepaid expenses and other current assets of $3.6 million and a decrease in accounts payable of $2.8 million due to timing of vendor payments.
Investing activities
The net cash provided by investing activities of $19.0 million in the nine months ended September 30, 2024 was due to proceeds from sales and maturities of marketable securities of $3.9 million and $25.8 million, respectively, partially offset by purchases of property and equipment and intangible assets of $9.7 million and $1.0 million, respectively.
The net cash provided by investing activities of $120.4 million in the nine months ended September 30, 2023 was due to proceeds from sales and maturities of marketable securities of $96.1 million and $70.3 million, respectively, partially offset by purchases of property and equipment and intangible assets of $45.2 million and $0.9 million, respectively.
Financing activities
The net cash provided by financing activities of $6.4 million in the nine months ended September 30, 2024 was primarily from proceeds related to the issuance of common stock from the exercise of stock options and employee stock purchase plan.
The net cash provided by financing activities of $8.1 million in the nine months ended September 30, 2023 was primarily from proceeds of $13.9 million from the issuance of common stock from the exercise of stock options and employee stock purchase plan, partially offset by payments on financing arrangements of $5.8 million.
Our condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and the applicable rules and regulations of the SEC. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
There have been no significant changes in our critical accounting policies and estimates during the nine months ended September 30, 2024 as compared to the critical accounting policies and estimates disclosed in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our most recent Annual Report on Form 10-K filed with the SEC on February 15, 2024.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
For financial market risks related to changes in interest rates and foreign currency exchange rates, reference is made to Item 7A “Quantitative and Qualitative Disclosures about Market Risk” contained in Part II of our Annual Report. Our exposure to market risk has not changed materially since December 31, 2023.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this Quarterly Report. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2024.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) under the Exchange Act) during the quarter ended September 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
We are regularly subject to lawsuits, claims, arbitration proceedings, administrative actions and other legal and regulatory proceedings involving intellectual property disputes, commercial disputes, competition and other matters, and we may become subject to additional types of lawsuits, claims, arbitration proceedings, administrative actions, government investigations and legal and regulatory proceedings in the future and as our business grows, including proceedings related to product liability or our acquisitions, securities issuances or our business practices, including public disclosures about our business. Our success depends in part on our non-infringement of the patents or proprietary rights of third parties. In the past, third parties have asserted and may in the future assert that we are employing their proprietary technology without authorization. We have been involved in multiple patent litigation matters and other proceedings in the past and we expect that given the litigious history of our industry and the high profile of operating as a public company, third parties may claim that our products infringe their intellectual property rights. We have also initiated litigation to defend our technology including technology developed through our significant investments in research and development. It is our general policy not to out-license our patents but to protect our sole right to own and practice them. There are inherent uncertainties in these legal matters, some of which are beyond management’s control, making the ultimate outcomes difficult to predict.
Refer to Note 4 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report.
Item 1A. Risk Factors.
There have been no material changes to our risk factors that we believe are material to our business, results of operations and financial condition from the risk factors previously disclosed in our Annual Report, and any documents incorporated by reference therein, which is accessible on the SEC’s website at www.sec.gov.
Item 5. Other Information
None of our directors or officers adopted, modified or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the quarter ended September 30, 2024, as such terms are defined under Item 408(a) of Regulation S-K, except as follows:
On September 12, 2024, Serge Saxonov, Chief Executive Officer, adopted a Rule 10b5-1 trading arrangement that is intended to satisfy the affirmative defense of Rule 10b5-1(c) for the sale of up to 35,600 shares of the Company’s common stock plus up to 136,000 carryover shares from a prior 10b5-1 plan that will expire on December 31, 2024, subject to certain conditions. The expiration date of the trading arrangement is December 31, 2025.
Cover Page Interactive Data File (the Cover Page Interactive Data File does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
* This certification is deemed not filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.
+ Management contract or compensatory plan or arrangement.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
10x Genomics, Inc.
Date: October 29, 2024
By:
/s/ Serge Saxonov
Serge Saxonov
Chief Executive Officer and Director
(Principal Executive Officer)
Date: October 29, 2024
By:
/s/ Adam S. Taich
Adam S. Taich Chief Financial Officer (Principal Financial and Accounting Officer)
