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. In addition to our Chromium products, we also sell Visium consumables which do not require a 10x instrument. 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 September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Instruments $ 17,121 13 % $ 9,676 14 % $ 45,123 13 % $ 26,108 14 % Consumables 106,117 85 60,557 84 296,342 85 156,149 84 Services 2,059 2 1,584 2 5,495 2 4,370 2 Total revenue $ 125,297 100 % $ 71,817 100 % $ 346,960 100 % $ 186,627 100 % Since our inception in 2012, we have incurred net losses in each year. Our net losses were $17.2 million and $39.8 million for the three and nine months ended September 30, 2021 and $65.8 million and $127.2 million for the three and nine months ended September 30, 2020, respectively. As of September 30, 2021, we had an accumulated deficit of $844.9 million and cash and cash equivalents totaling $600.4 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; 19 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 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. 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' laboratories were open during the third quarter of 2021, many of our customers have continued to navigate second-order COVID-19 related challenges that we believe have affected our customers’ productivity. Such challenges include the reinstatement of COVID-19 related protocols and restrictions, difficulties hiring, training and retaining laboratory and other personnel, constraints on logistics, shipping and other distribution operations and impediments to procuring materials, equipment and components required for their experiments. We believe these challenges have affected, and we expect will continue to affect, many of our customers' operations. We, our suppliers and our other partners have encountered similar challenges, including difficulties procuring equipment, materials and components necessary to develop, manufacture and distribute our products, but to date we have not experienced any material impacts as a result of such challenges. The situation remains uncertain, and there is an increased risk in our ability to source equipment, materials and components and deliver our products due to global logistics and supply chain challenges which may negatively impact our business in the fourth quarter of 2021 and into 2022. 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 and have implemented enhanced efforts to secure our supply chain and distribution network. By the end of the second quarter, in person commercial and support activities had largely resumed and the majority of our customers' sites were open to in-person meetings with our sales and support teams. During the third quarter, some of our customers reinstated pandemic-related protocols due to rising COVID-19 case counts and in some cases closed or limited access to outside visitors, which negatively affected the operations of our sales and support teams at times in the third quarter of 2021. Subsequent to quarter end, we have begun to see increased in person commercial and support activities. Our sales and marketing teams are supplementing in person sales activities by leveraging digital marketing and sales activities and our customer service teams around the world have been utilizing in person and remote interactions and remain available to assist our customers and partners as needed. To date, 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 communicate regularly with our suppliers, and while we have seen cases of limited availability of certain equipment, components and materials, any supply chain issues faced by the Company have not yet materially impacted our ability to manufacture and ship our products. With respect to equipment and material supply, we continue to work to secure sufficient equipment and materials to meet anticipated future demand. 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, price increases from suppliers, labor shortages or other supply chain disruptions as well as disruptions to our logistics, shipping and other distribution operations. 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 20 Table of Contents 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 September 30, Nine Months Ended September 30, (in thousands) 2021 2020 2021 2020 Revenue $ 125,297 $ 71,817 $ 346,960 $ 186,627 Cost of revenue 24,518 14,411 46,493 39,571 Gross profit 100,779 57,406 300,467 147,056 Operating expenses: Research and development 54,582 30,143 149,867 83,670 In-process research and development — 40,637 — 40,637 Selling, general and administrative 62,076 51,549 187,683 146,352 Accrued contingent liabilities — 332 (660) 956 Total operating expenses 116,658 122,661 336,890 271,615 Loss from operations (15,879) (65,255) (36,423) (124,559) Other income (expense): Interest income 49 28 157 1,471 Interest expense (219) (397) (649) (1,365) Other (expense) income, net (599) 361 (807) 121 Loss on extinguishment of debt — — — (1,521) Total other expense (769) (8) (1,299) (1,294) Loss before provision for income taxes (16,648) (65,263) (37,722) (125,853) Provision for income taxes 523 585 2,052 1,305 Net loss $ (17,171) $ (65,848) $ (39,774) $ (127,158) The following table sets forth our condensed consolidated results of operations data as a percentage of revenue for the periods presented. 21 Table of Contents Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Revenue 100.0% 100.0% 100.0 % 100.0 % Cost of revenue 19.6 20.1 13.4 21.2 Gross profit 80.4 79.9 86.6 78.8 Operating expenses: Research and development 43.6 42.0 43.2 44.8 In-process research and development — 56.6 — 21.8 Selling, general and administrative 49.5 71.7 54.1 78.4 Accrued contingent liabilities — 0.5 (0.2) 0.5 Total operating expenses 93.1 170.8 97.1 145.5 Loss from operations (12.7) (90.9) (10.5) (66.7) Other income (expense): Interest income — — — 0.8 Interest expense (0.2) (0.6) (0.2) (0.7) Other (expense) income, net (0.5) 0.5 (0.2) 0.1 Loss on extinguishment of debt — — — (0.8) Total other expense (0.7) (0.1) (0.4) (0.6) Loss before provision for income taxes (13.4) (91.0) (10.9) (67.3) Provision for income taxes 0.4 0.8 0.6 0.7 Net loss (13.8)% (91.8)% (11.5) % (68.0) % Comparison of the Three and Nine Months Ended September 30, 2021 and 2020 Revenue Three Months Ended September 30, Change Nine Months Ended September 30, Change (dollars in thousands) 2021 2020 $ % 2021 2020 $ % Revenue $ 125,297 $ 71,817 $ 53,480 74 % $ 346,960 $ 186,627 $ 160,333 86 % Revenue increased $53.5 million, or 74%, to $125.3 million for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020, driven primarily by an increase in instrument and consumables revenue. Consumables revenue increased $45.6 million, or 75%, to $106.1 million for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020. The increase in consumables revenue was primarily driven by growth in the instrument installed base and higher demand for our products, in part due to a lessening impact on our customers' operations related to the COVID-19 pandemic compared to the prior year period. Instrument revenue increased $7.4 million, or 77%, to $17.1 million for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020 due to an increase in number of units sold. We believe consumables and instrument revenues for the three months ended September 30, 2020 were adversely impacted by customer lab closures due to the impact of the COVID-19 pandemic. Revenue increased $160.3 million, or 86%, to $347.0 million for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020, driven primarily by an increase in instrument and consumables revenue. Consumables revenue increased $140.2 million, or 90%, to $296.3 million for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. The increase in consumables revenue was primarily driven by growth in the instrument installed base and higher demand for our products, in part due to a lessening impact on our customers' operations related to the COVID-19 pandemic compared to the prior year period. Instrument revenue increased $19.0 million, or 73%, to $45.1 million for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 due to an increase in number of units sold. We believe consumables and instrument revenues for the nine months ended September 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 22 Table of Contents 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 2021 resulting in an uptick in our sales activity for the three and nine months ended September 30, 2021 as compared to the three and nine months ended September 30, 2020. While many of our customers' laboratories were open during the third quarter of 2021, many of our customers have continued to navigate second-order COVID-19 related challenges that we believe have affected our customers’ productivity. Such challenges include the reinstatement of COVID-19 related protocols and restrictions, difficulties hiring, training and retaining laboratory and other personnel, constraints on logistics, shipping and other distribution operations and impediments to procuring materials, equipment and components required for their experiments. We believe these challenges have affected, and we expect will continue to affect, many of our customers' operations. We, our suppliers and our other partners have encountered similar challenges, including difficulties procuring equipment, materials and components necessary to develop, manufacture and distribute our products, but to date we have not experienced any material impacts as a result of such challenges. The situation remains uncertain, and there is an increased risk in our ability to source equipment, materials and components and deliver our products due to global logistics and supply chain challenges which may negatively impact our business in the fourth quarter of 2021 and into 2022. Once all labs are able to resume normal levels of research activities on a continual basis and supply chain disruptions, logistics, shipping and other distribution operations disruptions and labor shortages are resolved, we expect to see increased demand for our products. Cost of revenue, gross profit and gross margin Three Months Ended September 30, Change Nine Months Ended September 30, Change (dollars in thousands) 2021 2020 $ % 2021 2020 $ % Cost of revenue $ 24,518 $ 14,411 $ 10,107 70 % $ 46,493 $ 39,571 $ 6,922 17 % Gross profit $ 100,779 $ 57,406 $ 43,373 76 % $ 300,467 $ 147,056 $ 153,411 104 % Gross margin 80 % 80 % 87 % 79 % Cost of revenue increased $10.1 million, or 70%, to $24.5 million for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020. The increase was primarily due an increase of $9.3 million from higher sales including newly introduced products and $1.3 million of inventory scrap and excess and obsolete inventory charges. Cost of revenue increased $6.9 million, or 17%, to $46.5 million for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. The increase was primarily due to $23.4 million from higher sales, including newly introduced products, $3.1 million of inventory scrap and excess and obsolete inventory charges, $1.7 million of warranty costs, partially offset by lower accrued royalties of $20.0 million related to the Settlement and Patent Cross License Agreement (the "Bio-Rad Agreement") with Bio-Rad Laboratories, Inc., including a one-time reversal of $14.7 million of accrued royalties arising from the Bio-Rad Agreement, a decrease of $0.8 million of idle manufacturing capacity charges and a decrease of $0.6 million of costs related to ramping our second manufacturing facility. Gross profit increased $43.4 million, or 76%, to $100.8 million for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020, primarily due to higher revenue. Gross margin remained flat at 80% for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020, primarily due to less favorable product mix with newly introduced products, offset by lower accrued royalties related to the Bio-Rad Agreement. Gross profit increased $153.4 million, or 104%, to $300.5 million for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020, primarily due to higher revenue and lower accrued royalties related to the Bio-Rad Agreement including a one-time reversal of $14.7 million of accrued royalties. Gross margin increased by 8 percentage points, to 87% for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020, primarily due to lower accrued royalties related to the Bio-Rad Agreement and no idle manufacturing capacity charges incurred during the nine months ended September 30, 2021 as compared to $0.8 million incurred during the nine months ended September 30, 2020, and a decrease in costs related to our development of a second manufacturing facility, partially offset by less favorable product mix with newly introduced products. 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 three and nine months ended September 30, 2021, we experienced 23 Table of Contents increasing demand for our products due to increased customer activity as compared to the three and nine months ended September 30, 2020. Operating expenses Three Months Ended September 30, Change Nine Months Ended September 30, Change (dollars in thousands) 2021 2020 $ % 2021 2020 $ % Research and development $ 54,582 $ 30,143 $ 24,439 81 % $ 149,867 $ 83,670 $ 66,197 79 % In-process research and development — 40,637 (40,637) (100) % — 40,637 (40,637) (100) % Selling, general and administrative 62,076 51,549 10,527 20 187,683 146,352 41,331 28 Accrued contingent liabilities — 332 (332) (100) (660) 956 (1,616) (169) Total operating expenses $ 116,658 $ 122,661 $ (6,003) (5) % $ 336,890 $ 271,615 $ 65,275 24 % Research and development expenses increased $24.4 million, or 81%, to $54.6 million for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020. The increase was primarily driven by increased personnel expenses of $15.0 million, including $5.8 million in stock-based compensation expense, laboratory materials, supplies and expensed equipment of $5.0 million used to support our research and development efforts, $2.9 million of higher allocated costs for facilities and information technology to support operational expansion, $1.0 million of higher depreciation and $0.9 million of higher consulting and professional services for product development. Research and development expenses increased $66.2 million, or 79%, to $149.9 million for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. The increase was primarily driven by increased personnel expenses of $39.9 million, including $15.8 million in stock-based compensation expense, laboratory materials, supplies and expensed equipment of $14.8 million used to support our research and development efforts, $7.3 million of higher allocated costs for facilities and information technology to support operational expansion, $2.3 million of higher consulting and professional services for product development and $2.1 million of higher depreciation. In-process research and development expense for the three and nine months ended September 30, 2020 relates to intellectual property we purchased in connection with our acquisition of CartaNA. In connection with this acquisition, we recognized an in-process research and development intangible asset of $40.6 million which did not have alternative future use and therefore was recognized as an expense during this period. 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. Our research and development activities have increased in the second half of 2020 and three and nine months ended September 30, 2021, and we expect our research development activities and expenditures to continue to increase in the fourth quarter of 2021 and beyond as we increase our level of investment to support new and existing projects. Selling, general and administrative expenses increased $10.5 million, or 20%, to $62.1 million for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020. The increase was primarily driven by increased personnel expenses of $15.0 million, including $5.9 million in stock-based compensation expense, $2.5 million of marketing expenses related to conferences and seminars, $2.3 million of higher allocated costs for facilities and information technology to support the general expansion of our operations, partially offset by a decrease of $8.9 million of outside legal expenses. Selling, general and administrative expenses increased $41.3 million, or 28%, to $187.7 million for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. The increase was primarily driven by increased personnel expenses of $40.8 million, including $17.9 million in stock-based compensation expense, $7.1 million of higher allocated costs for facilities and information technology to support the general expansion of our operations, $3.3 million of marketing expenses related to conferences and seminars and $2.5 million of consulting and professional services, partially offset by a decrease in outside legal expenses of $11.6 million. Accrued contingent liabilities decreased $0.3 million or 100% for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020 and decreased $1.6 million or 169% for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 primarily due to a one-time reversal of accrued interest arising from the Bio-Rad Agreement. 24 Table of Contents Other income (expense), net Three Months Ended September 30, Change Nine Months Ended September 30, Change (dollars in thousands) 2021 2020 $ % 2021 2020 $ % Interest income $ 49 $ 28 $ 21 75 % $ 157 $ 1,471 $ (1,314) (89) % Interest expense (219) (397) 178 (45) (649) (1,365) 716 (52) Other (expense) income, net (599) 361 (960) (266) (807) 121 (928) (767) Loss on extinguishment of debt — — — — — (1,521) 1,521 N/M Total other expense $ (769) $ (8) $ (761) 9,513 % $ (1,299) $ (1,294) $ (5) — % N/M: result not meaningful. Interest income increased by $21 thousand to $49 thousand for the three months ended September 30, 2021 from $28 thousand for the three months ended September 30, 2020. Interest income decreased by $1.3 million to $0.2 million for the nine months ended September 30, 2021 from $1.5 million for the nine months ended September 30, 2020. The decreases for the three and nine months ended September 30, 2021 as compared to the corresponding prior year periods were primarily due to lower interest rates in 2021. Interest expense decreased for the three and nine months ended September 30, 2021 from the three and nine months ended September 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 nine months ended September 30, 2021 as compared to the three and nine months ended September 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 nine months ended September 30, 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 Our provision for income taxes was $0.5 million and $2.1 million, respectively, for the three and nine months ended September 30, 2021 and $0.6 million and $1.3 million, respectively, for the three and nine months ended September 30, 2020. The provision for income taxes for the three and nine months ended September 30, 2021 consists primarily of foreign taxes. Deferred tax assets related to our domestic operations are fully offset by a valuation allowance. Liquidity and Capital Resources As of September 30, 2021, we had $600.4 million in cash and cash equivalents which were primarily held in U.S. bank deposit accounts and money market funds, $78.4 million in accounts receivable and an accumulated deficit of $844.9 million. 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 nine months ended September 30, 2021, and we have generated losses from operations since inception as reflected in our accumulated deficit of $844.9 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. We currently anticipate making aggregate capital expenditures of between approximately $200 million and $225 million during the next 12 months, approximately half of which we expect to incur for construction costs of the facilities on the land we purchased 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, investments in or acquisitions of complementary or enhancing technologies or businesses, 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 25 Table of Contents 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 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 and our suppliers', customers' and other partners' operations, disrupted global labor supply, supply chains, logistics, shipping and other distribution operations and created significant volatility and disruption of financial markets. We will continue to monitor the development and control of the COVID-19 pandemic and its effects and while the situation remains uncertain, we intend to continue to invest in research and development activities and other initiatives 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. In September 2020, we completed a public offering of our Class A common stock for aggregate proceeds of $482.3 million, after deducting offering costs, underwriting discounts and commissions. The following table summarizes our cash flows for the periods indicated: Nine Months Ended September 30, (in thousands) 2021 2020 Net cash (used in) provided by: Operating activities $ (27,178) $ (87,723) Investing activities (79,111) (16,128) Financing activities 26,394 461,200 Effect of exchange rates on changes in cash, cash equivalents, and restricted cash 316 (144) Net (decrease) increase in cash, cash equivalents, and restricted cash $ (79,579) $ 357,205 Operating activities The net cash used in operating activities of $27.2 million for the nine months ended September 30, 2021 was due primarily to a net loss of $39.8 million, net cash outflow from changes in operating assets and liabilities of $77.5 million, partially offset by adjustments for stock-based compensation expense of $69.1 million, depreciation and amortization of $15.3 million and amortization of leased right-of-use assets of $5.6 million. The net cash outflow from operating assets and liabilities was primarily due to a decrease in accrued contingent liabilities of $44.2 million, of which $29.4 million was paid as cash settlement arising from the Bio-Rad Agreement, an increase in accounts receivable of $27.2 million due to increase in sales and timing of collections, an increase in inventory of $21.3 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 $2.5 million due to the timing of payments including license fees, a decrease in other noncurrent liabilities of $4.1 million, an increase in prepaid expenses and other current assets of $1.2 million and a decrease of $2.5 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 $12.2 million due to timing of vendor payments and an increase in accrued compensation and other related benefits of $11.9 million. The net cash used in operating activities of $87.7 million for the nine months ended September 30, 2020 was due primarily to a net loss of $127.2 million, net cash outflow from changes in operating assets and liabilities of $10.1 million, partially offset by adjustments for stock-based compensation expense of $34.4 million, depreciation and amortization of $10.1 million, loss on extinguishment of debt of $1.5 million and amortization of leased right-of-use assets of $3.5 million. The net cash outflow from 26 Table of Contents operating assets and liabilities was primarily due to an increase in inventory of $9.8 million due to the timing of inventory purchases including advance purchases of inventory due to anticipated demand, an increase in prepaid expenses and other current assets of $3.4 million, a decrease in accounts payable of $3.3 million due to timing of vendor payments, a decrease in other noncurrent liabilities of $3.2 million, a decrease of $3.1 million in payment of operating lease expenses, an increase in accounts receivable of $2.7 million due to timing of collections, an increase in other assets of $2.6 million and a decrease in accrued compensation and other related benefits of $1.3 million. The net cash outflow from operating assets and liabilities was partially offset by an increase in accrued expenses and other current liabilities of $9.5 million consistent with the growth of our business and an increase in accrued contingent liabilities of $8.9 million. Investing activities The net cash used in investing activities of $79.1 million in the nine months ended September 30, 2021 was due to purchases of property and equipment of $73.7 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 $16.1 million in the nine months ended September 30, 2020 was due to purchases of property and equipment of $15.3 million and purchases of intangible assets of $0.8 million. Financing activities The net cash provided by financing activities of $26.4 million in the nine months ended September 30, 2021 was primarily from proceeds of $31.4 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 provided by financing activities of $461.2 million in the nine months ended September 30, 2020 was primarily from proceeds of $483.0 million from the issuance of Class A common stock after deducting offering costs, underwriting discounts and commissions, and proceeds of $15.3 million from the issuance of common stock from the exercise of stock options, partially offset by 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. Critical Accounting Policies Our condensed consolidated financial statements 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 during the nine months ended September 30, 2021 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.