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. 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 Controller, Chromium Connect and Chromium X Series, 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 long-term 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 June 30, Six Months Ended June 30, 2021 2020 2021 2020 Instruments $ 16,877 15 % $ 7,291 17 % $ 28,002 13 % $ 16,432 14 % Consumables 97,146 84 34,164 80 190,225 86 95,592 83 Services 1,819 1 1,450 3 3,436 1 2,786 3 Total revenue $ 115,842 100 % $ 42,905 100 % $ 221,663 100 % $ 114,810 100 % Since our inception in 2012, we have incurred net losses in each year. Our net losses were $11.1 million and $22.6 million for the three and six months ended June 30, 2021 and $40.2 million and $61.3 million for the three and six months ended June 30, 2020, respectively. As of June 30, 2021, we had an accumulated deficit of $827.7 million and cash and cash equivalents totaling $622.0 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; • protect and defend our intellectual property; 18 Table of Contents • 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 Since the World Health Organization ("WHO") declared the global outbreak of COVID-19 to be a pandemic in March 2020, we have operated in an uncertain and disruptive pandemic environment but to date we have successfully maintained our operational effectiveness and COVID-19 has 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 and procedures. We continue to closely monitor the recent developments surrounding this pandemic and resurgences including, among other developments, local, state, national and global vaccination efforts and the potential impacts of variants, including the Delta variant. In response to the pandemic, we have 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. 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. While many of our customers' laboratory operations returned to near-normal levels during the second quarter, we have observed subsequent to quarter-end the reinstatement of COVID-19 related protocols and restrictions which could affect some of our customers' operations. The situation is increasingly uncertain and to the extent that reinstated protocols or increased restrictions impact our customers' ability to progress through their experiments, our business could be negatively impacted in the third quarter of 2021 and beyond. 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 initiated and continue to adhere to protocols and safety measures at our facilities which have facilitated the safe return to work of many of our personnel. While in person commercial and support activities have begun to resume and the majority of our customers' sites were open to in-person meetings with our sales and support teams by the end of the second quarter, some of our customers subsequent to quarter-end have reinstated pandemic-related protocols due to rising COVID-19 case counts and in some cases have begun closing access to outside visitors, which may negatively affect the operations of our sales and support teams in the third quarter of 2021 and beyond. In light of such developments, our sales and marketing teams continue to leverage digital marketing and sales activities in response to the broad emergence of social distancing measures globally. Additionally, our customer service teams around the world continue to operate remotely and remain available to assist our customers and partners as needed. 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 continue to carry higher levels of inventory and are monitoring closely whether there will be a material negative impact due to potential future shortages or price increases from suppliers. 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. 19 Table of Contents Results of Operations Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2021 2020 2021 2020 Revenue $ 115,842 $ 42,905 $ 221,663 $ 114,810 Cost of revenue 4,915 10,052 21,975 25,160 Gross profit 110,927 32,853 199,688 89,650 Operating expenses: Research and development 53,402 27,535 95,285 53,527 Selling, general and administrative 68,703 44,416 125,607 94,803 Accrued contingent liabilities (850) 322 (660) 624 Total operating expenses 121,255 72,273 220,232 148,954 Loss from operations (10,328) (39,420) (20,544) (59,304) Other income (expense): Interest income 58 125 108 1,443 Interest expense (209) (306) (430) (968) Other income (expense), net 521 (144) (208) (240) Loss on extinguishment of debt — — — (1,521) Total other income (expense) 370 (325) (530) (1,286) Loss before provision for income taxes (9,958) (39,745) (21,074) (60,590) Provision for income taxes 1,094 422 1,529 720 Net loss $ (11,052) $ (40,167) $ (22,603) $ (61,310) The following table sets forth our condensed consolidated results of operations data as a percentage of revenue for the periods presented. Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Revenue 100.0% 100.0% 100.0 % 100.0 % Cost of revenue 4.2 23.4 9.9 21.9 Gross profit 95.8 76.6 90.1 78.1 Operating expenses: Research and development 46.1 64.2 43.0 46.6 Selling, general and administrative 59.3 103.5 56.7 82.6 Accrued contingent liabilities (0.7) 0.8 (0.3) 0.5 Total operating expenses 104.7 168.4 99.4 129.7 Loss from operations (8.9) (91.9) (9.3) (51.7) Other income (expense): Interest income 0.1 0.3 — 1.3 Interest expense (0.2) (0.7) (0.2) (0.8) Other income (expense), net 0.4 (0.3) (0.1) (0.2) Loss on extinguishment of debt — — — (1.3) Total other income (expense) 0.3 (0.8) (0.2) (1.1) Loss before provision for income taxes (8.6) (92.6) (9.5) (52.8) Provision for income taxes 0.9 1.0 0.7 0.6 Net loss (9.5)% (93.6)% (10.2) % (53.4) % 20 Table of Contents Comparison of the Three and Six Months Ended June 30, 2021 and 2020 Revenue Three Months Ended June 30, Change Six Months Ended June 30, Change (dollars in thousands) 2021 2020 $ % 2021 2020 $ % Revenue $ 115,842 $ 42,905 $ 72,937 170 % $ 221,663 $ 114,810 $ 106,853 93.1 % Revenue increased $72.9 million, or 170%, to $115.8 million for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020, driven primarily by an increase in instrument and consumables revenue. Consumables revenue increased $63.0 million, or 184%, to $97.1 million for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. The increase in consumables revenue was primarily driven by growth in the instrument installed base and higher demand for our products. Instrument revenue increased $9.6 million, or 131%, to $16.9 million for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020 due to an increase in number of units sold. Consumables and instrument revenues for the three months ended June 30, 2020 were adversely impacted by customer lab closures due to the impact of the COVID-19 pandemic. Revenue increased $106.9 million, or 93%, to $221.7 million for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, driven primarily by an increase in instrument and consumables revenue. Consumables revenue increased $94.6 million, or 99%, to $190.2 million for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. The increase in consumables revenue was primarily driven by growth in the instrument installed base and higher demand for our products. Instrument revenue increased $11.6 million, or 70%, to $28.0 million for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020 due to an increase in number of units sold. Consumables and instrument revenues for the six months ended June 30, 2020 were adversely impacted by customer lab closures due to the impact of the COVID-19 pandemic. 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 and throughout a majority of the second 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 half of 2021 resulting in an uptick in our sales activity for the three and six months ended June 30, 2021 as compared to the three and six months ended June 30, 2020. While we have observed that many of our customers' labs are now open for general research, some labs in certain geographic locations have paused plans to reopen, closed again after periods of reopening, or are unable to operate at full capacity due to the impact of COVID-19 including resurgences in some localities. We may experience continued delays before all labs are able to fully resume their research on a continuous basis, if at all, and because of this we cannot reliably estimate the extent to which the COVID-19 pandemic will impact our overall demand in the third quarter of 2021 and beyond. Once all labs fully re-open and are able to resume normal levels of research activities on a continuous basis, we expect to see increased demand for our products. Cost of revenue, gross profit and gross margin Three Months Ended June 30, Change Six Months Ended June 30, Change (dollars in thousands) 2021 2020 $ % 2021 2020 $ % Cost of revenue $ 4,915 $ 10,052 $ (5,137) (51) % $ 21,975 $ 25,160 $ (3,185) (12.7) % Gross profit $ 110,927 $ 32,853 $ 78,074 238 % $ 199,688 $ 89,650 $ 110,038 122.7 % Gross margin 96 % 77 % 90 % 78 % Cost of revenue decreased $5.1 million, or 51%, to $4.9 million for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. The decrease was primarily due to lower accrued royalties of $16.2 million related to the Bio-Rad Actions including a one-time reversal of $14.7 million of accrued royalties arising from the settlement of this litigation (see Note 6 to condensed consolidated financial statements, Commitments and Contingencies, The 2021 Bio-Rad Settlement And Patent Cross License Agreement, for further details) and $0.8 million of idle manufacturing capacity charges, partially offset by an increase of $10.0 million from higher sales including newly introduced products, $1.1 million of inventory scrap and excess and obsolete inventory charges and $0.5 million of warranty costs. 21 Table of Contents Cost of revenue decreased $3.2 million, or 13%, to $22.0 million for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. The decrease was primarily due to lower accrued royalties of $20.0 million related to the Bio-Rad Actions including a one-time reversal of $14.7 million of accrued royalties arising from the settlement of this litigation (see Note 6 to condensed consolidated financial statements, Commitments and Contingencies, The 2021 Bio-Rad Settlement And Patent Cross License Agreement, for further details) and $0.8 million of idle manufacturing capacity charges, partially offset by an increase of $13.8 million from higher sales including newly introduced products, $1.7 million of inventory scrap and excess and obsolete inventory charges, $1.0 million of warranty costs, $0.3 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) and $0.2 million of costs related to our development of a second manufacturing facility. Gross profit increased $78.1 million, or 238%, to $110.9 million for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020, primarily due to higher revenue, lower accrued royalties related to the Bio-Rad Actions including a one-time reversal of $14.7 million of accrued royalties and no idle manufacturing capacity charges incurred during the three months ended June 30, 2021 as compared to $0.8 million incurred during the three months ended June 30, 2020. Gross margin increased by 19 percentage points, to 96% for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020, primarily due to lower accrued royalties related to the Bio-Rad Actions and no idle manufacturing capacity charges incurred during the three months ended June 30, 2021 as compared to $0.8 million incurred during the three months ended June 30, 2020, partially offset by less favorable product mix with newly introduced products. Gross profit increased $110.0 million, or 123%, to $199.7 million for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, primarily due to higher revenue and lower accrued royalties related to the Bio-Rad Actions including a one-time reversal of $14.7 million of accrued royalties. Gross margin increased by 12 percentage points, to 90% for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, primarily due to lower accrued royalties related to the Bio-Rad Actions. Towards the latter part of the first quarter of 2020 and throughout a majority of second 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 in the second quarter of 2020. During the second half of 2020 and into the first half of 2021, we experienced increasing demand for our products due to partial reopening of our customer's businesses. While we cannot reliably estimate the extent to which the COVID-19 pandemic, including impacts from any resurgences, will impact our overall gross profit and gross margins in the third 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 June 30, Change Six Months Ended June 30, Change (dollars in thousands) 2021 2020 $ % 2021 2020 $ % Research and development $ 53,402 $ 27,535 $ 25,867 94 % $ 95,285 $ 53,527 $ 41,758 78 % Selling, general and administrative 68,703 44,416 24,287 55 125,607 94,803 30,804 32 Accrued contingent liabilities (850) 322 (1,172) (364) (660) 624 (1,284) (206) Total operating expenses $ 121,255 $ 72,273 $ 48,982 68 % $ 220,232 $ 148,954 $ 71,278 48 % Research and development expenses increased $25.9 million, or 94%, to $53.4 million for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. The increase was primarily driven by increased personnel expenses of $14.0 million including $6.1 million in stock-based compensation expense, laboratory materials, supplies and expensed equipment of $8.0 million used to support our research and development efforts, $2.2 million of higher allocated costs for facilities and information technology to support operational expansion, $0.8 million of higher depreciation and $0.7 million of higher consulting and professional services for product development. Research and development expenses increased $41.8 million, or 78%, to $95.3 million for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. The increase was primarily driven by increased personnel expenses of $24.8 million including $10.0 million in stock-based compensation expense, laboratory materials, supplies and expensed equipment of $9.8 million used to support our research and development efforts, $4.4 million of higher allocated costs for 22 Table of Contents facilities and information technology to support operational expansion, $1.4 million of higher consulting and professional services for product development and $1.1 million of higher depreciation. During the first half of 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 half of 2021, we cannot reliably estimate the extent to which the COVID-19 pandemic, including any resurgences, will impact our overall research activities or expenditures in the third quarter of 2021 and beyond. Selling, general and administrative expenses increased $24.3 million, or 55%, to $68.7 million for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. The increase was primarily driven by increased personnel expenses of $15.9 million, including $6.6 million in stock-based compensation expense, $3.3 million of outside legal expenses,$2.7 million of higher allocated costs for facilities and information technology to support the general expansion of our operations, $1.7 million of marketing expenses related to conferences and seminars and $0.2 million of costs related to COVID-19 screening, safety equipment purchases and cleaning. Selling, general and administrative expenses increased $30.8 million, or 32%, to $125.6 million for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. The increase was primarily driven by increased personnel expenses of $25.8 million, including $11.9 million in stock-based compensation expense, $4.8 million of higher allocated costs for facilities and information technology to support the general expansion of our operations, $1.2 million of costs related to COVID-19 screening, safety equipment purchases and cleaning and $0.8 million of marketing expenses related to conferences and seminars, partially offset by the decrease in outside legal expenses of $2.7 million. Accrued contingent liabilities decreased $1.2 million or 364% for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020 and decreased $1.3 million or 206% for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020 primarily due to a one-time reversal of accrued interest arising from the settlement of the Bio-Rad Actions (see Note 6 to condensed consolidated financial statements, Commitments and Contingencies, The 2021 Bio-Rad Settlement And Patent Cross License Agreement, for further details). Other income (expense), net Three Months Ended June 30, Change Six Months Ended June 30, Change (dollars in thousands) 2021 2020 $ % 2021 2020 $ % Interest income $ 58 $ 125 $ (67) (54) % $ 108 $ 1,443 $ (1,335) (93) % Interest expense (209) (306) 97 (32) (430) (968) 538 (56) Other expense 521 (144) 665 (462) (208) (240) 32 (13) Loss on extinguishment of debt — — — — — (1,521) 1,521 N/M Total other expense, net $ 370 $ (325) $ 695 (214) % $ (530) $ (1,286) $ 756 (59) % N/M: result not meaningful. Interest income decreased by $67 thousand to $58 thousand for the three months ended June 30, 2021 from $0.1 million for the three months ended June 30, 2020. Interest income decreased by $1.3 million to $0.1 million for the six months ended June 30, 2021 from $1.4 million for the six months ended June 30, 2020. The decreases for the three and six months ended June 30, 2021 as compared to the corresponding prior year periods were primarily due to lower interest rates in the first half 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 and six months ended June 30, 2021 from the three and six months ended June 30, 2020. The decrease was driven primarily by the voluntary prepayment of our term loan on February 20, 2020 and lower interest rates partially offset by additional interest expense recognized on accrued license fees. The change in other expense for the three and six months ended June 30, 2021 as compared to the three and six months ended June 30, 2020 was driven by gains or losses from foreign currency rate measurement fluctuations. Loss on extinguishment of debt was $1.5 million for the six months ended June 30, 2020. In February 2020, we prepaid the remaining balance on our term loan, an end-of-term payment and prepayment fees. 23 Table of Contents Provision for Income Taxes The Company’s provision for income taxes was $1.1 million and $1.5 million, respectively, for the three and six months ended June 30, 2021 and $0.4 million and $0.7 million, respectively, for the three and six months ended June 30, 2020. The provision for income taxes for the three and six months ended June 30, 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 June 30, 2021, we had $622.0 million in cash and cash equivalents which were primarily held in U.S. bank deposit accounts and money market funds, $59.7 million in accounts receivable and an accumulated deficit of $827.7 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 Actions. 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 six months ended June 30, 2021, and we have generated losses from operations since inception as reflected in our accumulated deficit of $827.7 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. On July 26, 2021, the Company entered into the Agreement with Bio-Rad resolving all outstanding litigation and other proceedings between the two companies across all jurisdictions around the world and dismissing all infringement claims with prejudice. Under the Agreement, each company shall pay to the other royalties from licensed products and licensed services through 2030. The Company previously accrued $44.8 million in royalties and interest between November 14, 2018 and March 31, 2021 related to sales of the Company’s GEM products as a result of the litigation with Bio-Rad. Pursuant to the Agreement, the Company shall pay Bio-Rad $29.4 million in royalties and interest related to the sales of such GEM products between November 14, 2018 and March 31, 2021. As a result, in connection with the Agreement the Company reversed $15.4 million in accrued royalties and interest to the Company's financial statements in the second quarter of 2021. Restricted cash of $17.6 million related to the Bio-Rad litigation, classified within current assets in our condensed consolidated balance sheets as of June 30, 2021, will be used to pay the settlement payment of $29.4 million. We currently anticipate making aggregate capital expenditures of between approximately $150 million and $170 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 including any resurgences, 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. 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 half of 2021, some of those labs are still not yet fully operational and some labs in certain geographic locations have paused plans to reopen, closed again after periods of reopening, or are unable to operate at full capacity due to the COVID-19 pandemic including resurgences in some localities, and an extended period of economic disruption and closure, on-going limitations on operations at 24 Table of Contents customer facilities or closures of our customers’ labs could materially affect our business, results of operations, financial condition and access to sources of liquidity. While many of our customers' laboratory operations returned to near-normal levels during the second quarter, we have observed subsequent to quarter-end the reinstatement of COVID-19 related protocols and restrictions which could affect some of our customers' operations. The situation is increasingly uncertain and to the extent that reinstated protocols or increased restrictions impact our customers' ability to progress through their experiments, our business could be negatively impacted in the third quarter of 2021 and beyond. We will continue to monitor the development and control of the COVID-19 pandemic and while the situation remains uncertain, we intend to continue 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 of our products and the incurrence of indebtedness. 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. The following table summarizes our cash flows for the periods indicated: Six Months Ended June 30, (in thousands) 2021 2020 Net cash (used in) provided by: Operating activities $ (962) $ (32,094) Investing activities (58,884) (14,818) Financing activities 19,711 (25,768) Effect of exchange rates on changes in cash, cash equivalents, and restricted cash 199 (123) Net decrease in cash, cash equivalents, and restricted cash $ (39,936) $ (72,803) Operating activities The net cash used in operating activities of $1.0 million for the six months ended June 30, 2021 was due primarily to a net loss of $22.6 million, net cash outflow from changes in operating assets and liabilities of $35.2 million, partially offset by adjustments for stock-based compensation expense of $43.1 million, depreciation and amortization of $9.6 million and amortization of leased right-of-use assets of $4.0 million. The net cash outflow from operating assets and liabilities was primarily due to a decrease in accrued contingent liabilities of $14.7 million arising from the settlement of the Bio-Rad Actions litigation (see Note 6 to condensed consolidated financial statements, Commitments and Contingencies, The 2021 Bio-Rad Settlement And Patent Cross License Agreement, for further details), an increase in inventory of $14.2 million due to the timing of inventory purchases including advance purchases of inventory due to anticipated demand, an increase in accounts receivable of $7.8 million due to timing of collections, a decrease in accrued expenses and other current liabilities of $6.5 million due to the timing of payments including license fees, a decrease in other noncurrent liabilities of $4.3 million, an increase in prepaid expenses and other current assets of $1.1 million and a decrease of $3.2 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 $9.7 million due to timing of vendor payments and an increase in accrued compensation and other related benefits of $5.7 million. The net cash used in operating activities of $32.1 million for the six months ended June 30, 2020 was due primarily to a net loss of $61.3 million, net cash outflow from changes in operating assets and liabilities of $1.6 million, partially offset by adjustments for stock-based compensation expense of $20.6 million, depreciation and amortization of $6.5 million, loss on extinguishment of debt of $1.5 million and amortization of leased right-of-use assets of $2.2 million. The net cash outflow from operating assets and liabilities was primarily due to an increase in inventory of $6.5 million due to the timing of inventory purchases including advance purchases of inventory due to anticipated demand, a decrease in other noncurrent liabilities of $4.3 million, a decrease in other assets of $3.0 million, a decrease in accounts payable of $2.8 million due to timing of vendor payments, a decrease of $2.0 million in payment of operating lease expenses, a decrease in accrued compensation and other related benefits of $2.1 million and a decrease in prepaid expenses and other current assets of $1.7 million. The net cash outflow from operating assets and liabilities was partially offset by an decrease in accounts receivable of $10.6 million due to timing of 25 Table of Contents collections, an increase in accrued contingent liabilities of $6.5 million and an increase in accrued expenses and other current liabilities of $3.1 million consistent with the growth of our business. Investing activities The net cash used in investing activities of $58.9 million in the six months ended June 30, 2021 was due to purchases of property and equipment of $53.4 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 $14.8 million in the six months ended June 30, 2020 was due to purchases of property and equipment. Financing activities The net cash provided by financing activities of $19.7 million in the six months ended June 30, 2021 was primarily from proceeds of $24.7 million from the issuance of common stock from the exercise of stock options and employee stock purchase plan purchases partially offset by payments on financing arrangements of $5.0 million. The net cash used in financing activities of $25.8 million in the six months ended June 30, 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) and payments on financing arrangements of $5.8 million, partially offset by proceeds of $11.3 million from the issuance of common stock from the exercise of stock options and employee stock purchase plan purchases. 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.