10x Genomics, Inc. 10-Q

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 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, 2020 filed with the SEC on February 26, 2021. 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” under Part II, Item 1A below. 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. We operate on a fiscal year that ends on December 31. Overview We are 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. Our expanding suite of offerings leverages our cross-functional expertise across biology, chemistry, software and hardware to provide a comprehensive, dynamic and high-resolution view of complex biological systems. 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 and Chromium Connect instruments, which we refer to as “Chromium instruments” or “instruments,” and our proprietary microfluidic chips, slides, reagents and other consumables for both our Visium and Chromium 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 scales, such as at the single cell level for millions of cells. Our Chromium instruments and Chromium consumables are designed to work together exclusively. After buying a Chromium instrument, customers purchase consumables from us for use in their experiments. Accordingly, as the installed base of our instruments grows, we expect recurring revenue from consumable sales to become an increasingly important driver of our operating results. As such, our revenue growth is expected to outpace growth in our instrument placements as our business develops. In addition to instrument and consumable sales, we derive revenue from post-warranty service contracts for our Chromium instruments. The following table represents revenue by source for the periods indicated (in thousands): Three Months Ended March 31, 2021 Three Months Ended March 31, 2020 Instruments $ 11,125 11 % $ 9,141 13 % Consumables 93,079 88 61,428 85 Services 1,617 1 1,336 2 Total revenue $ 105,821 100 % $ 71,905 100 % Since our inception in 2012, we have incurred net losses in each year. Our net losses were $11.6 million and $21.1 million for the three months ended March 31, 2021 and March 31, 2020, respectively. As of March 31, 2021, we had an accumulated deficit of $816.6 million and cash and cash equivalents totaling $617.2 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 substantially in connection with our ongoing activities, as we: • attract, hire and retain qualified personnel; • scale our technology platforms and introduce new products and services; 22 Table of Contents • protect and defend our intellectual property; • acquire businesses or technologies; and • invest in processes, tools and infrastructure to support the growth of our business. Operational Effectiveness in the COVID-19 Environment In March 2020, the World Health Organization declared the global outbreak of COVID-19 to be a pandemic and we have now operated in this uncertain and disruptive pandemic environment for more than a year. We continue to closely monitor the recent developments surrounding this pandemic and potential resurgence. At the same time, we have successfully maintained our operational effectiveness and continue to provide researchers with our solutions as described below: • Since the commencement of the pandemic, we have quickly placed and continue to place instruments and provide reagents to clinicians and researchers around the world working to understand COVID-19 and develop treatments for the disease. We were designated an essential business because our products are a critical tool for infectious disease research as they allow for a detailed understanding of how the virus causing COVID-19 impacts infected people, how the immune system is mobilized, which immune cells react to pathogens and many other aspects of the disease and potential therapies. Many of our customers have moved our Chromium Controller instruments into Biosafety Level 2 Plus (BSL2+) and 3 (BSL3) facilities, where they can be as close as possible to the front lines of this battle against COVID-19; • We continue to closely monitor the recent developments and progress surrounding the implementation of COVID-19 vaccination programs by various government agencies in the United States and in other countries. Though we currently require the majority of our personnel to work remotely using our designated measures which we implemented in 2020 subsequent to the commencement of the pandemic in order to maintain a safe workplace, we are expecting our employees to return to our offices over the next several months. Given the importance of maintaining continuity of our business and continued access to instruments and consumables by our customers, including researchers engaged in the fight against COVID-19, we continue to adhere to protocols and safety measures at our facilities including social distancing, symptom screening and 10x-provided personal protective equipment to support and safeguard the health and safety of our workforce who remain onsite to support essential operations. Among other efforts, we have also continued with our testing site for SARS-CoV-2 (the virus which causes COVID-19) at our Pleasanton headquarters as we work to regain our pre-COVID-19 levels of manufacturing and research and development activities by bringing additional personnel back onsite. On a weekly basis, we test all employees who access our facilities, and no employee is allowed to access our facilities without a negative test. After having completed thousands of tests to date, our testing program has uncovered only a few, isolated test results indicating the presence of SARS-CoV-2. We believe we were able to successfully isolate these individuals and prevent the spread of the virus within our workforce, but we will continue to monitor and track these developments. As an additional safeguard against SARS-CoV-2 transmission among our onsite employee base, we also use Controlled Air Purifying Respiratory Systems (“CAPRS”) for certain of our onsite employees who need to work in close proximity to each other. CAPRS work to protect 10x personnel by filtering out potentially harmful or infectious materials including SARS-CoV-2 particles. These and other safety measures have facilitated the safe return to work of most of our research and development, manufacturing and other operations personnel; • Our sales and marketing teams have leveraged increased digital marketing and sales activities since the broad emergence of social distancing measures globally, including virtual sales seminars, virtual market development activities, online product training utilizing our library of on-demand tools and literature and an increase in one-on-one communications via emails, phone and video conferencing; • With the implementation of our protocols and safety measures, our production, shipping and customer service functions have been operational and we have been able to maintain a continuous supply of products to our customers. We are communicating regularly with our suppliers, our supply chain remains intact and we have not yet experienced significant supply issues. With respect to equipment and raw material supply, we continue to work to secure sufficient critical equipment and raw materials to meet anticipated future demand and we are carrying higher levels of inventory and monitoring closely whether there will be a material negative impact due to potential future shortages or price increases from suppliers. Our customer service teams around the world are operating remotely and remain available to assist our customers and partners as needed; and • Despite the impacts of the COVID-19 pandemic, including that the majority of 10x personnel worldwide continue to work remotely, these arrangements have not materially affected our ability to maintain our business operations, including the operation of financial reporting systems, internal control over financial reporting and disclosure controls 23 Table of Contents and procedures. In addition, we completed the acquisition of Tetramer Shop in January 2021. See Note 3 to the condensed consolidated financial statements for further details. While the disruption is currently expected to be temporary, there is considerable uncertainty around its duration. We expect these disruptions to continue to impact our operating results, however, the extent of the financial impact and duration cannot be reasonably estimated at this time. For further discussion of the risks relating to the impacts of the COVID-19 pandemic, see the section titled “ Risk Factors, ” generally, and “ Risk Factors—The impacts and potential impacts of the COVID-19 pandemic continues to create significant uncertainty for our business, financial condition and results of operations ,” specifically, under Part II, Item 1A. Results of Operations Three Months Ended March 31, (in thousands) 2021 2020 Revenue $ 105,821 $ 71,905 Cost of revenue 17,060 15,108 Gross profit 88,761 56,797 Operating expenses: Research and development 41,883 25,992 Selling, general and administrative 56,904 50,387 Accrued contingent liabilities 190 302 Total operating expenses 98,977 76,681 Loss from operations (10,216) (19,884) Other income (expense): Interest income 50 1,318 Interest expense (221) (662) Other expense, net (729) (96) Loss on extinguishment of debt — (1,521) Total other expense (900) (961) Loss before provision for income taxes (11,116) (20,845) Provision for income taxes 435 298 Net loss $ (11,551) $ (21,143) 24 Table of Contents The following table sets forth our condensed consolidated results of operations data as a percentage of revenue for the periods presented. Three Months Ended March 31, 2021 2020 Revenue 100.0% 100.0% Cost of revenue 16.1 21.0 Gross profit 83.9 79.0 Operating expenses: Research and development 39.6 36.1 Selling, general and administrative 53.8 70.1 Accrued contingent liabilities 0.2 0.4 Total operating expenses 93.5 106.6 Loss from operations (9.6) (27.6) Other income (expense): Interest income — 1.7 Interest expense (0.2) (0.9) Other expense, net (0.7) (0.1) Loss on extinguishment of debt — (2.1) Total other expense (0.9) (1.4) Loss before provision for income taxes (10.5) (29.0) Provision for income taxes 0.4 0.4 Net loss (10.9)% (29.4)% Comparison of the Three Months Ended March 31, 2021 and 2020 Revenue Three Months Ended March 31, Change (dollars in thousands) 2021 2020 $ % Revenue $ 105,821 $ 71,905 $ 33,916 47 % Revenue increased $33.9 million, or 47%, to $105.8 million for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, driven primarily by an increase in consumables revenue. Consumables revenue increased $31.7 million, or 52%, to $93.1 million for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. The increase in consumables revenue was primarily driven by growth in the instrument installed base. Instrument revenue increased $2.0 million, or 22%, to $11.1 million for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 due to an increase in number of units sold. We largely rely on research activities in both academic institutions and government laboratories for our revenue. In March 2020, as the impact of the global COVID-19 pandemic intensified, we saw a significant reduction in customer activity other than research related to the virus. By the end of the first quarter of 2020, the vast majority of academic and government labs around the world had suspended or severely reduced operations in compliance with stay-at-home, shelter-in-place and similar orders. These closures and reduced operations significantly impacted our business towards the latter part of the first quarter of 2020. However, beginning in June 2020, we observed a modest re-opening of labs for general research which continued throughout the remainder of 2020 and into the first quarter of 2021 resulting in an uptick in our sales activity for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. Not all labs are able to operate at full capacity and we may encounter delays before labs are able to fully resume their research and we cannot reliably estimate the extent to which the COVID-19 pandemic will impact our overall demand in the second quarter of 2021 and beyond. Once labs fully re-open and are able to resume normal levels of research activities, we expect to continue to see increased demand for our products. 25 Table of Contents Cost of revenue, gross profit and gross margin Three Months Ended March 31, Change (dollars in thousands) 2021 2020 $ % Cost of revenue $ 17,060 $ 15,108 $ 1,952 13 % Gross profit $ 88,761 $ 56,797 $ 31,964 56 % Gross margin 84 % 79 % Cost of revenue increased $2.0 million, or 13%, to $17.1 million for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. The increase was primarily due to an increase of $3.4 million from higher sales including newly introduced products, $0.6 million of costs related to our development of a second manufacturing facility, $0.5 million of inventory scrap and excess and obsolete inventory charges, $0.5 million of warranty costs and $0.1 million of amortization of developed technology resulting from the acquisition of Tetramer Shop (see Note 3 to condensed consolidated financial statements for details of the acquisition), partially offset by lower accrued royalties of $3.5 million primarily related to the 2015 Delaware Action. Gross profit increased $32.0 million, or 56%, to $88.8 million for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, primarily due to higher revenue and lower accrued royalties related to the 2015 Delaware Action. Gross margin increased by 5%, to 84% for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, primarily due to lower accrued royalties related to the 2015 Delaware Action. Towards the end of the first quarter of 2020, the vast majority of academic and government labs around the world suspended or severely reduced operations in compliance with stay-at-home, shelter-in-place and similar orders which resulted in a decrease in overall demand during this period. The decrease in demand resulted in our production facilities running at less than normal capacity which negatively impacted our gross margins. While we experienced higher demand for our products during the second half of 2020 and into the first quarter of 2021 due to partial reopening of our customer's businesses, until and unless demand for our solutions normalizes, our gross profits and gross margins will be negatively impacted. While we cannot reliably estimate the extent to which the COVID-19 pandemic will impact our overall gross profit and gross margins in the second quarter of 2021 and beyond, we plan to continue to invest in our manufacturing facilities and production efforts and manage our supply chain to ensure the delivery of products to our customers. Operating expenses Three Months Ended March 31, Change (dollars in thousands) 2021 2020 $ % Research and development $ 41,883 $ 25,992 $ 15,891 61 % Selling, general and administrative 56,904 50,387 6,517 13 % Accrued contingent liabilities 190 302 (112) (37.1) % Total operating expenses $ 98,977 $ 76,681 $ 22,296 29 % Research and development expenses increased $15.9 million, or 61%, to $41.9 million for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. The increase was primarily driven by increased personnel expenses of $10.3 million including $3.9 million in stock-based compensation expense, $2.2 million of higher allocated costs for facilities and information technology to support operational expansion, laboratory materials, supplies and expensed equipment of $1.8 million used to support our research and development efforts, $0.7 million of higher consulting and professional services for product development and $0.4 million of higher depreciation. During March 2020, the COVID-19 pandemic resulted in a decrease in certain research laboratory activities, and as a result we incurred lower materials spending. While our research and development activities have increased in the second half of 2020 and into the first quarter of 2021, we cannot reliably estimate the extent to which the COVID-19 pandemic will impact our overall research activities or expenditures in the second quarter of 2021 and beyond. Selling, general and administrative expenses increased $6.5 million, or 13%, to $56.9 million for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020. The increase was primarily driven by increased personnel expenses of $9.9 million, including $5.3 million in stock-based compensation expense, $2.1 million of higher allocated costs for facilities and information technology to support the general expansion of our operations and $1.2 million of costs related 26 Table of Contents to COVID-19 screening, safety equipment purchases and cleaning, partially offset by the decrease in legal expenses of $6.0 million and marketing expenses related to conferences and seminars of $0.9 million. While certain costs will decline as the underlying activities are restricted by the COVID-19 pandemic, including travel and related expenses, conferences and events, we are taking certain measures to manage our spending while continuing to incur expenses that we believe will further our strategic initiatives. Other income (expense), net Three Months Ended March 31, Change (dollars in thousands) 2021 2020 $ % Interest income $ 50 $ 1,318 $ (1,268) (96) % Interest expense (221) (662) 441 (67) % Other expense (729) (96) (633) 659 % Loss on extinguishment of debt — (1,521) 1,521 N/M Total other expense, net $ (900) $ (961) $ 61 (6) % N/M: result not meaningful. Interest income decreased by $1.3 million to $50 thousand for the three months ended March 31, 2021 from $1.3 million for the three months ended March 31, 2020 primarily due to lower interest rates in the first quarter of 2021. While we earned interest on the net proceeds from the IPO completed in September 2019 and the follow-on public offering completed in September 2020, interest income was lower primarily due to lower interest rates. Interest expense decreased for the three months ended March 31, 2021 from the three months ended March 31, 2020. The decrease was driven primarily by the voluntary prepayment of our term loan on February 20, 2020. The change in other expense for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020 was driven by realized and unrealized losses from foreign currency rate measurement fluctuations. Loss on extinguishment of debt was $1.5 million for the three months ended March 31, 2020. In February 2020, we prepaid the remaining balance on our term loan, an end-of-term payment and prepayment fees. Provision for Income Taxes The Company’s provision for income taxes was $0.4 million and $0.3 million for the three months ended March 31, 2021 and March 31, 2020, respectively. The provision for income taxes for the three months ended March 31, 2021 consists primarily of foreign taxes. Deferred tax assets generated from the Company’s domestic net operating losses are fully offset by a valuation allowance as the Company believes it is more likely than not that the benefit will not be realized. Liquidity and Capital Resources As of March 31, 2021, we had $617.2 million in cash and cash equivalents which were primarily held in U.S. bank deposit accounts and money market funds, $57.4 million in accounts receivable and an accumulated deficit of $816.6 million. Restricted cash of $17.6 million, classified within current assets in our condensed consolidated balance sheets serves as collateral for a bond and royalties in connection with the Bio-Rad litigation. Restricted cash of $8.6 million, classified within noncurrent assets in our condensed consolidated balance sheets serves as collateral for outstanding letters of credit for facilities. We have generated negative cumulative cash flows from operations since inception through the three months ended March 31, 2021, and we have generated losses from operations since inception as reflected in our accumulated deficit of $816.6 million. We expect to continue to incur operating losses for the foreseeable future due to investments we intend to make and as a result we may require additional capital resources to execute strategic initiatives to grow our business. On January 8, 2021, we completed our acquisition of Tetramer Shop for a total cash consideration of $8.5 million, net of cash acquired of $0.2 million. See Note 3 to the condensed consolidated financial statements for further details. In August 2020, the Federal Circuit issued its opinion in our appeal of the 2015 Delaware Action. The Federal Circuit (1) affirmed the judgment of the lower Court with respect to infringement of the '083 patent by our legacy GEM products and (2) vacated the judgment with respect to infringement of the '193 and '407 patents, which are remanded to the lower Court for a new trial on infringement. The Federal Circuit affirmed the damage award including the 15% royalty with respect to our legacy GEM 27 Table of Contents products. The Federal Circuit vacated the injunction with respect to our Single Cell CNV and Linked-Read products but affirmed the injunction with respect to our other legacy GEM products. In October 2020, we filed a petition for en banc rehearing with the Federal Circuit. The Federal Circuit denied our petition for en banc rehearing on November 4, 2020. We paid the $34.5 million judgment, plus approximately $0.8 million in post-judgment interest, to Bio-Rad in December 2020. The case was remanded to the Delaware Court for a determination of post-judgment royalties or other amounts, which we expect in the second half of 2021. We have accrued $44.8 million as of March 31, 2021 related to this matter which is classified within current liabilities in our condensed consolidated balance sheets as of this date. The restricted cash of $17.6 million would be used to partially satisfy this payment. We currently anticipate making aggregate capital expenditures of between approximately $120 million and $130 million during the next 12 months, which includes the construction costs of facilities on our recently purchased land located in Pleasanton, California as well as other global facilities and 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, the impacts of the COVID-19 pandemic, the timing and extent of additional capital expenditures to invest in existing and new facilities, the expansion of sales and marketing and international activities, 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 are continuing to review opportunities that meet our long-term growth objectives. 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, and this assessment of our liquidity position is informed by our evaluation of a wide range of COVID-19 pandemic recovery scenarios. However, our liquidity assumptions may prove to be incorrect, and we could exhaust our available financial resources sooner than we currently expect. We intend to continue to evaluate market conditions and may in the future pursue various funding alternatives to further enhance our financial position and to help fund our strategic initiatives. 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. The COVID-19 pandemic has negatively impacted the global economy, resulted in the closure of many of our customers’ facilities, disrupted global supply chains and created significant volatility and disruption of financial markets. While certain of our customers' labs began to re-open in June 2020 and continued to re-open during the second half of 2020 and into the first quarter of 2021, many of those labs are not yet fully operational and an extended period of economic disruption and closure, on-going limitations on operations at customer facilities or re-closure of our customers’ labs could materially affect our business, results of operations, financial condition and access to sources of liquidity. We will continue to monitor the development and control of the COVID-19 pandemic and we believe there will be an increase in business activity upon the loosening of pandemic-related restrictions arising from the success of the vaccination programs by various government agencies in the United States and in other countries, including a resurgence in activity levels at laboratories which were temporarily closed, barring a renewed increase in COVID-19 cases which may lead to further business closures. Although we are currently uncertain as to when this resurgence will occur, we intend to invest in research and development activities and other initiatives while the COVID-19 pandemic is brought under control including accelerated investments in product development and intellectual property to launch new products and continue improving existing 10x solutions. Additionally, we plan to continue to build our commercial organization across key geographies around the world and invest in capabilities to address the interest we are seeing from the pharmaceutical and translational markets. 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 and issuances of debt. In September 2019, we completed our IPO for aggregate proceeds of $410.8 million, net of offering costs, underwriter discounts and commissions of $37.7 million. In September 2020, we completed our follow-on public offering for aggregate proceeds of $482.3 million, after deducting offering costs, underwriting discounts and commissions of $23.8 million. 28 Table of Contents The following table summarizes our cash flows for the periods indicated: Three Months Ended March 31, (in thousands) 2021 2020 Net cash (used in) provided by: Operating activities $ (4,082) $ (2,576) Investing activities (44,316) (8,079) Financing activities 3,518 (33,819) Effect of exchange rates on changes in cash, cash equivalents, and restricted cash 193 (116) Net decrease in cash, cash equivalents, and restricted cash $ (44,687) $ (44,590) Operating activities The net cash used in operating activities of $4.1 million for the three months ended March 31, 2021 was due primarily to a net loss of $11.6 million, net cash outflow from changes in operating assets and liabilities of $15.2 million, partially offset by adjustments for stock-based compensation expense of $16.2 million, depreciation and amortization of $4.8 million and amortization of leased right-of-use assets of $1.7 million. The net cash outflow from operating assets and liabilities was primarily due to an increase in inventory of $8.6 million due to the timing of inventory purchases including advance purchases of inventory due to anticipated demand, a decrease in accrued expenses and other current liabilities of $7.2 million, due to the timing of payments including license fees, an increase in accounts receivable of $6.2 million due to timing of collections, a decrease in other noncurrent liabilities of $3.5 million, an increase in prepaid expenses and other current assets of $1.6 million and a decrease of $1.4 million due to payment of operating lease liabilities. The net cash outflow from operating assets and liabilities was partially offset by an increase in accounts payable of $10.9 million due to timing of vendor payments, an increase in accrued compensation and other related benefits of $1.3 million and an increase in accrued contingent liabilities of $0.7 million. The net cash used in operating activities of $2.6 million for the three months ended March 31, 2020 was due primarily to a net loss of $21.1 million, partially offset by net cash inflow from changes in operating assets and liabilities of $6.1 million, and adjustments for stock-based compensation expense of $6.7 million, depreciation and amortization of $3.2 million, loss on extinguishment of debt of $1.5 million and amortization of leased right-of-use assets of $1.1 million. The net cash inflow from operating assets and liabilities was primarily due to an increase in accrued compensation and other related benefits of $6.2 million as we increased our headcount to support our expanding operations, an increase in accrued expenses and other current liabilities of $4.6 million consistent with the growth of our business, an increase in accrued contingent liabilities of $4.7 million, and a decrease in accounts receivable of $2.5 million due to timing of collections, partially offset by a decrease in other noncurrent liabilities of $5.7 million, an increase in inventory of $4.1 million due to the timing of inventory purchases including advance purchases of inventory in anticipation of supply chain disruptions associated with the COVID-19 pandemic and a decrease of $1.3 million in payment of operating lease expenses. Investing activities The net cash used in investing activities of $44.3 million in the three months ended March 31, 2021 was due to purchases of property and equipment of $38.9 million including the purchase of land for $28.1 million and cash paid for the acquisition of Tetramer Shop of $5.5 million. The net cash used in investing activities of $8.1 million in the three months ended March 31, 2020 was due to purchases of property and equipment. Financing activities The net cash provided by financing activities of $3.5 million in the three months ended March 31, 2021 was primarily from proceeds of $8.5 million from the issuance of common stock from the exercise of stock options partially offset by payments on financing arrangements of $5.0 million. The net cash used in financing activities of $33.8 million in the three months ended March 31, 2020 was primarily due to the use of $31.3 million in connection with loan principal payments including the early repayment of the term loan under the Loan and Security Agreement (including fees in connection with the early repayment of the term loan), payments on financing arrangements of $5.9 million and proceeds of $3.3 million from the issuance of common stock from the exercise of stock options. 29 Table of Contents Critical Accounting Policies Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles (“GAAP”). 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 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 26, 2021. For additional information, please refer to Note 2 to our unaudited condensed consolidated financial statements in this Quarterly Report.