10x Genomics, Inc. 10-K

Item 8. Financial Statements and Supplementary Data. 10x Genomics, Inc. Index to Consolidated Financial Statements Page Reports of Independent Registered Public Accounting Firm (PCAOB ID No. 42 ) 92 Consolidated Balance Sheets 94 Consolidated Statements of Operations 95 Consolidated Statements of Comprehensive Loss 96 Consolidated Statements of Stockholders’ Equity 97 Consolidated Statements of Cash Flows 98 Notes to Consolidated Financial Statements 99 91 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of 10x Genomics, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of 10x Genomics, Inc. (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) and our report dated February 15, 2024 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 92 Table of Contents Revenue Recognition Description of the Matter For the year ended December 31, 2023, the Company recognized revenues of $618.7 million. As discussed in Note 2 to the consolidated financial statements, the Company recognizes revenue when control of the products and services is transferred to its customers in an amount that reflects the consideration it expects to receive from its customers in exchange for those products and services. Auditing the Company’s revenue recognition can be complex due to the volume of sales transactions including multiple performance obligations. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of the controls over the allocation of the transaction price to performance obligations in revenue transactions. For example, we tested management’s controls over establishing stand-alone selling price, and tested the automated system controls for the application of the stand-alone selling price to the revenue transactions. Our audit procedures included, among others, evaluating the allocation of consideration using stand-alone selling price for a sample of individual sales transactions. For the sample, we inspected the customer contract, identified the distinct performance obligation(s) in the contract, and recalculated the allocation of the transaction price. For the sample, we further tested the timing of revenue recognition based on evidence of transfer of control of the goods to the customer or the recognition of revenue over time for extended warranty service performance obligations. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2015. San Jose, California February 15, 2024 93 Table of Contents 10x Genomics, Inc. Consolidated Balance Sheets (In thousands, except share and per share data) December 31, 2023 2022 Assets Current assets: Cash and cash equivalents $ 359,284 $ 219,746 Marketable securities 29,411 210,238 Restricted cash — 2,633 Accounts receivable, net 114,832 104,211 Inventory 73,706 81,629 Prepaid expenses and other current assets 18,789 16,578 Total current assets 596,022 635,035 Property and equipment, net 279,571 289,328 Restricted cash — 4,974 Operating lease right-of-use assets 65,361 69,882 Goodwill 4,511 4,511 Intangible assets, net 16,616 22,858 Other noncurrent assets 3,062 2,392 Total assets $ 965,143 $ 1,028,980 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 15,738 $ 21,599 Accrued compensation and related benefits 30,105 32,675 Accrued expenses and other current liabilities 56,648 59,779 Deferred revenue 13,150 7,867 Operating lease liabilities 11,521 9,037 Total current liabilities 127,162 130,957 Operating lease liabilities, noncurrent 83,849 86,139 Deferred revenue, noncurrent 8,814 3,165 Other noncurrent liabilities 4,275 2,976 Total liabilities 224,100 223,237 Commitments and contingencies (Note 7) Stockholders' equity: Preferred stock, $ 0.00001 par value; 100,000,000 shares authorized, no shares issued or outstanding as of December 31, 2023 and 2022 — — Common stock, $ 0.00001 par value; 1,100,000,000 shares authorized (Class A 1,000,000,000 , Class B 100,000,000 ); 119,095,362 (Class A 105,038,529 , Class B 14,056,833 ) and 115,195,009 (Class A 96,527,754 , Class B 18,667,255 ) shares issued and outstanding as of December 31, 2023 and 2022, respectively 2 2 Additional paid-in capital 2,025,890 1,839,397 Accumulated deficit ( 1,284,420 ) ( 1,029,321 ) Accumulated other comprehensive loss ( 429 ) ( 4,335 ) Total stockholders’ equity 741,043 805,743 Total liabilities and stockholders’ equity $ 965,143 $ 1,028,980 The accompanying notes are an integral part of these consolidated financial statements. 94 Table of Contents 10x Genomics, Inc. Consolidated Statements of Operations (In thousands, except share and per share data) Year Ended December 31, 2023 2022 2021 Revenue $ 618,727 $ 516,409 $ 490,490 Cost of revenue 209,414 120,386 74,091 Gross profit 409,313 396,023 416,399 Operating expenses: Research and development 270,332 265,667 211,752 In-process research and development 60,980 — — Selling, general and administrative 343,330 298,300 257,560 Accrued contingent liabilities — — ( 660 ) Total operating expenses 674,642 563,967 468,652 Loss from operations ( 265,329 ) ( 167,944 ) ( 52,253 ) Other income (expense): Interest income 16,906 6,647 206 Interest expense ( 33 ) ( 476 ) ( 866 ) Other expense, net ( 307 ) ( 198 ) ( 802 ) Total other income (expense) 16,566 5,973 ( 1,462 ) Loss before provision for income taxes ( 248,763 ) ( 161,971 ) ( 53,715 ) Provision for income taxes 6,336 4,029 4,508 Net loss $ ( 255,099 ) $ ( 166,000 ) $ ( 58,223 ) Net loss per share, basic and diluted $ ( 2.18 ) $ ( 1.46 ) $ ( 0.53 ) Weighted-average shares used to compute net loss per share, basic and diluted 117,165,036 113,858,684 110,347,937 The accompanying notes are an integral part of these consolidated financial statements. 95 Table of Contents 10x Genomics, Inc. Consolidated Statements of Comprehensive Loss (In thousands) December 31, 2023 2022 2021 Net loss $ ( 255,099 ) $ ( 166,000 ) $ ( 58,223 ) Other comprehensive income (loss), net of tax: Unrealized gains (losses) on available-for-sale marketable securities 2,210 ( 4,116 ) — Realized loss on available-for-sale marketable securities reclassified into net loss 1,718 — — Foreign currency translation adjustment ( 22 ) ( 241 ) 72 Other comprehensive income (loss), net of tax 3,906 ( 4,357 ) 72 Comprehensive loss $ ( 251,193 ) $ ( 170,357 ) $ ( 58,151 ) The accompanying notes are an integral part of these consolidated financial statements. 96 Table of Contents 10x Genomics, Inc. Consolidated Statements of Stockholders’ Equity (In thousands, except share data) Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Shares Amount Balance as of December 31, 2020 108,485,909 $ 2 $ 1,544,218 $ ( 805,098 ) $ ( 50 ) $ 739,072 Issuance of Class A common stock related to equity awards 4,029,068 — 40,325 — — 40,325 Vesting of shares subject to repurchase, including early exercised options — — 154 — — 154 Stock-based compensation — — 96,168 — — 96,168 Net loss — — — ( 58,223 ) — ( 58,223 ) Other comprehensive income — — — — 72 72 Balance as of December 31, 2021 112,514,977 2 1,680,865 ( 863,321 ) 22 817,568 Issuance of Class A common stock related to equity awards 2,680,032 — 21,226 — — 21,226 Vesting of shares subject to repurchase, including early exercised options — — 96 — — 96 Stock-based compensation — — 137,210 — — 137,210 Net loss — — — ( 166,000 ) — ( 166,000 ) Other comprehensive loss — — — — ( 4,357 ) ( 4,357 ) Balance as of December 31, 2022 115,195,009 2 1,839,397 ( 1,029,321 ) ( 4,335 ) 805,743 Issuance of Class A common stock related to equity awards 3,900,353 — 19,483 — — 19,483 Stock-based compensation — — 167,010 — — 167,010 Net loss — — — ( 255,099 ) — ( 255,099 ) Other comprehensive income — — — — 3,906 3,906 Balance as of December 31, 2023 119,095,362 $ 2 $ 2,025,890 $ ( 1,284,420 ) $ ( 429 ) $ 741,043 The accompanying notes are an integral part of these consolidated financial statements 97 Table of Contents 10x Genomics, Inc. Consolidated Statements of Cash Flows (In thousands) Year Ended December 31, 2023 2022 2021 Operating activities: Net loss $ ( 255,099 ) $ ( 166,000 ) $ ( 58,223 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation expense 166,950 136,848 95,962 Depreciation and amortization 35,512 25,368 21,118 Asset impairment charges 9,845 — — Amortization of right-of-use assets 8,107 7,638 7,136 Realized loss on marketable securities 1,718 — — Other 427 1,957 79 Changes in operating assets and liabilities: Accounts receivable ( 10,613 ) ( 18,948 ) ( 34,041 ) Inventory 7,871 ( 21,192 ) ( 30,132 ) Prepaid expenses and other current assets ( 2,429 ) ( 4,495 ) ( 1,053 ) Other noncurrent assets ( 678 ) 925 1,045 Accounts payable ( 6,017 ) 5,858 11,084 Accrued compensation and other related benefits ( 2,637 ) 1,114 16,337 Deferred revenue 10,932 3,350 1,535 Accrued contingent liabilities — — ( 44,173 ) Accrued expenses and other current liabilities 28,301 3,336 ( 873 ) Operating lease liability ( 8,671 ) ( 6,423 ) ( 2,469 ) Other noncurrent liabilities 1,284 ( 2,942 ) ( 4,705 ) Net cash used in operating activities ( 15,197 ) ( 33,606 ) ( 21,373 ) Investing activities: Proceeds from sales of marketable securities 100,191 49,117 — Proceeds from maturities of marketable securities 82,825 18,528 — Purchases of property and equipment ( 48,601 ) ( 131,661 ) ( 101,278 ) Purchase of intangible assets ( 923 ) — — Acquisition of business, net of cash acquired — ( 4,000 ) ( 5,451 ) Purchase of marketable securities — ( 282,871 ) — Net cash provided by (used in) investing activities 133,492 ( 350,887 ) ( 106,729 ) Financing activities: Payments on technology license financing arrangement ( 5,814 ) ( 5,409 ) ( 5,028 ) Issuance of common stock from exercise of stock options and employee stock purchase plan purchases 19,483 21,226 40,325 Net cash provided by financing activities 13,669 15,817 35,297 Effect of exchange rate changes on cash, cash equivalents, and restricted cash ( 33 ) ( 44 ) 234 Net increase (decrease) in cash, cash equivalents, and restricted cash 131,931 ( 368,720 ) ( 92,571 ) Cash, cash equivalents, and restricted cash at beginning of year 227,353 596,073 688,644 Cash, cash equivalents, and restricted cash at end of year $ 359,284 $ 227,353 $ 596,073 Supplemental disclosures of cash flow information: Cash paid for interest $ 436 $ 841 $ 1,222 Cash paid for taxes $ 4,927 $ 3,925 $ 8,660 Noncash investing and financing activities Purchases of property and equipment included in accounts payable, accrued expenses and other current liabilities $ 3,324 $ 26,750 $ 16,972 Right-of-use assets obtained in exchange for new operating lease liabilities $ 6,518 $ 16,562 $ 21,284 Contingent consideration payable related to business acquisition $ — $ — $ 1,500 The accompanying notes are an integral part of these consolidated financial statements. 98 Table of Contents 10x Genomics, Inc. Notes to Consolidated Financial Statements 1. Description of Business and Basis of Presentation Organization and Description of Business 10x Genomics, Inc. (the “Company”) is a life sciences technology company focused on building innovative products and solutions to interrogate, understand and master biological systems at resolution and scale that matches the complexity of biology. The Company’s integrated solutions include the Company’s Chromium X Series and Chromium Connect instruments, which the Company refers to as “Chromium instruments,” the Company's Visium CytAssist and Xenium Analyzer instruments, which the Company refers to as “Spatial instruments,” and the Company’s proprietary microfluidic chips, slides, reagents and other consumables for the Company’s Chromium, Visium and Xenium solutions, which the Company refers to as “consumables.” The Company bundles its software with these products to guide customers through the workflow, from sample preparation through analysis and visualization. The Company was incorporated in the state of Delaware in July 2012 and began commercial and manufacturing operations and selling its instruments and consumables in 2015. The Company is headquartered in Pleasanton, California and has wholly-owned subsidiaries in Asia, Europe, Oceania and North America. Basis of Presentation The consolidated financial statements, which include the Company’s accounts and the accounts of its wholly-owned subsidiaries, are prepared in accordance with U.S. generally accepted accounting principles (or “GAAP”). All intercompany transactions and balances have been eliminated. 2. Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, disclosure of contingent liabilities, and the reported amounts of revenue and expense. These judgments, estimates and assumptions are used for, but not limited to, revenue recognition, inventory valuation and write-downs, accounting for asset and business acquisitions and the valuation of stock-based compensation awards. The Company bases its estimates on various factors and information, which may include, but are not limited to, history and prior experience, the Company’s forecasts and future plans, current economic conditions and information from third-party professionals that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities and recorded amounts of expenses that are not readily apparent from other sources. To the extent there are material differences between the Company’s estimates and the actual results, the Company’s future consolidated results of operation may be affected. Segment Information The Company operates as a single operating segment. The Company’s chief operating decision maker, its Chief Executive Officer, manages the Company’s operations on a consolidated basis for the purposes of allocating resources, making operating decisions and evaluating financial performance. Cash Equivalents and Restricted Cash The Company considers all highly liquid investments with an original maturity of three months or less from the date of purchase to be cash equivalents. Cash equivalents consist of amounts invested in money market funds and are stated at fair value. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported on the consolidated balance sheets that sum to the total of the same amounts shown in the consolidated statements of cash flows (in thousands): Year Ended December 31, 2023 2022 2021 Cash and cash equivalents $ 359,284 $ 219,746 $ 587,447 Restricted cash — 7,607 8,626 Total cash, cash equivalents and restricted cash $ 359,284 $ 227,353 $ 596,073 99 Table of Contents Marketable Securities The Company designates investments in debt securities as available-for-sale. Available-for-sale debt securities with original maturities of three months or less from the date of purchase are classified within cash and cash equivalents. Available-for-sale debt securities with original maturities longer than three months are available to fund current operations and are classified as marketable securities, within current assets on the balance sheet. Available-for-sale debt securities are reported at fair value with the related unrealized gains and losses included in "Accumulated other comprehensive loss," a component of stockholders’ equity, net of tax. Realized gains (losses) on the sale of marketable securities are determined using the specific-identification method and recorded in “Other expense, net,” in the Consolidated Statements of Operations. The available-for-sale debt securities are subject to a periodic impairment review. For investments in an unrealized loss position, the Company determines whether a credit loss exists by considering information about the collectability of the instrument, current market conditions and reasonable and supportable forecasts of economic conditions. The Company recognizes an allowance for credit losses, up to the amount of the unrealized loss when appropriate, and writes down the amortized cost basis of the investment if it is more likely than not that the Company will be required or will intend to sell the investment before recovery of its amortized cost basis. Allowances for credit losses and write-downs are recognized in “Other expense, net,” and unrealized losses not related to credit losses are recognized in “Accumulated other comprehensive loss.” There are no allowances for credit losses for the periods presented. As of December 31, 2023, the gross unrealized losses on available-for-sale securities are related to market interest rate changes and not attributable to credit. Fair Value of Financial Instruments Cash equivalents are comprised of money market funds which are classified as Level 1 in the fair value hierarchy. Assets recorded at fair value on a recurring basis in the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows: Level 1 - Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date; Level 2 - Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and Level 3 - Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data. The Company’s financial instruments consist of Level 1 and Level 2 assets. Where quoted prices are available in an active market, securities are classified as Level 1. Money market funds are classified as Level 1. Level 2 assets consist primarily of corporate bonds, asset-backed securities, commercial paper, U.S. Government Treasury and agency securities, and debt securities in government-sponsored entities based upon quoted market prices for similar movements in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs obtained from various third party-data providers, including but not limited to, benchmark yields, interest rate curves, reported trades, broker/dealer quotes and reference data. Accounts Receivable, Net Accounts receivable consist of amounts due from customers for the sales of products and services. The Company reviews its accounts receivable and provides allowances of specific amounts if collectability is no longer reasonably assured based on historical experience and specific customer collection issues. The allowance for doubtful accounts was $ 0.1 million as of December 31, 2023 and 2022, respectively. Business Concentrations The Company’s instruments are mostly assembled and tested by third party contract manufacturers in Asia and the United States. The Company’s agreement with the contract manufacturers contains purchase commitments. In addition, the Company is reliant on several suppliers for key components for its reagent kits. A significant disruption in the operations of the contract 100 Table of Contents manufacturers or suppliers may impact the production of the Company’s products for a substantial period of time, which could have a material adverse effect on its business, financial condition and results of operations. Concentrations Financial instruments that potentially subject the Company to credit risk consist of cash equivalents, marketable securities (as described in this footnote under the header “Marketable Securities” above) and accounts receivable. The Company’s cash and cash equivalents held with large financial institutions in the United States and deposits exceed the Federal Deposit Insurance Corporation’s insurance limit. The Company performs periodic evaluations of the risks associated with its investments and the relative credit standing of these financial institutions. The Company performs ongoing credit evaluations of its customers’ financial condition. The Company does not require collateral from its customers but may require upfront payments from certain customers. The Company has not experienced material credit losses to date. For the years ended December 31, 2023, 2022, and 2021, no single customer represented more than 10% of revenue. As of December 31, 2022, one of the Company's distributors accounted for 11 % of the Company’s outstanding accounts receivable. No customer or distributor represented more than 10% of the Company’s outstanding accounts receivable as of December 31, 2023 or 2021. Substantially all the Company’s long-lived assets are located in the United States. Inventory Inventory is recorded at the lower of cost, determined on a first-in, first-out basis, or net realizable value. The Company uses judgment to analyze and determine if the composition of its inventory is obsolete, slow-moving, unsalable or otherwise carried above the net realizable value and frequently reviews such determinations. The Company writes down specifically identified unusable, obsolete, slow-moving or known unsalable inventory and inventory otherwise carried above the net realizable value in the period that it is first recognized by using a number of factors including product expiration dates, open and unfulfilled orders and sales forecasts. Net realizable value is determined using the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. Any write-down of its inventory to net realizable value establishes a new cost basis and will be maintained even if certain circumstances suggest that the inventory is recoverable in subsequent periods. Costs associated with the write-down of inventory are recorded to cost of revenue on the Company’s consolidated statements of operations. Leases The Company determines if an arrangement is or contains a lease at inception by assessing whether the arrangement contains an identified asset and whether it has the right to control the identified asset. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Lease liabilities are recognized at the lease commencement date based on the present value of future lease payments over the lease term. ROU assets are based on the measurement of the lease liability and also include any lease payments made prior to or on lease commencement and exclude lease incentives and initial direct costs incurred, as applicable. The Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future lease payments. The Company gives consideration to its credit risk, term of the lease and total lease payments and adjusts for the impacts of collateral, as necessary, when calculating its incremental borrowing rates. The lease terms may include options to extend or terminate the lease when the Company is reasonably certain it will exercise such options. Lease costs for the Company’s operating leases are recognized on a straight-line basis within operating expenses and costs of goods sold over the reasonably assured lease term. The Company evaluates ROU assets related to leases for indicators of impairment whenever events or changes in circumstances indicate that the carrying amount of an ROU asset may not be recoverable. When a decision has been made to sublease that space, the Company evaluates the asset for impairment and recognize the associated impact to the ROU asset and related expense, if applicable. The evaluation is performed at the lowest level of identifiable cash flows for an asset group. Undiscounted cash flows expected to be generated by the related ROU assets are estimated over the ROU assets’ useful lives. If the evaluation indicates that the carrying amount of the ROU assets may not be recoverable, any potential impairment is measured based upon the fair value of the related ROU asset or asset group as determined by appropriate valuation techniques. Refer to 101 Table of Contents Note 7, Commitments and Contingencies - Lease Agreements, to the Notes to Consolidated Financial Statements for further details. The Company has elected to not separate lease and non-lease components for any leases within its existing classes of assets and, as a result, accounts for any lease and non-lease components as a single lease component. The Company has also elected to not apply the recognition requirement to any leases within its existing classes of assets with a term of 12 months or less. Internal-Use Software The Company capitalizes costs incurred to develop internal-use software within property and equipment, net and capitalizes costs to develop hosting arrangements within other noncurrent assets in the consolidated balance sheets. Costs incurred during the preliminary planning and evaluation and post implementation stages of the project are expensed as incurred. Costs incurred during the application development stage of the project are capitalized. These costs are amortized on a straight-line basis over the estimated useful life of the asset. Property and Equipment, Net Property and equipment is stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method based on the estimated useful lives of the following assets: Useful Life (Years) Building 10 - 40 Laboratory equipment and machinery 3 - 5 Computer equipment 2 - 5 Furniture and fixtures 3 Leasehold improvements 1 - 10 Impairment of Long-Lived Assets The Company evaluates long-lived assets, such as property and equipment and intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If indicators of impairment exist and the undiscounted future cash flows that the assets are expected to generate are less than the carrying value of the assets, the Company reduces the carrying amount of the assets to their estimated fair values based on a discounted cash flow approach or, when available and appropriate, to comparable market values. The Company recorded impairment charges of $ 4.6 million primarily relating to intangible assets during the year ended December 31, 2023. There were no impairment losses recorded for the years ended December 31, 2022 and 2021. Refer to Note 5, Other Financial Statement Information - Intangible Assets, Net, to the Notes to Consolidated Financial Statements for further details. Product Warranties The Company generally provides a one-year warranty on its instruments. The Company reviews its exposure to estimated warranty obligations associated with instrument sales and establishes an accrual based on historical product failure rates and actual warranty costs incurred. This expense is recorded as a component of cost of revenue in the consolidated statements of operations. Deferred Revenue Deferred revenue consists of payments received in advance of revenue recognition primarily related to instrument service agreements, also referred to as extended warranties. Revenue under these agreements is recognized over the related service period. Deferred revenue expected to be recognized during the 12 months following the balance sheet date is recorded as current portion of deferred revenue and the remaining portion is recorded as long-term. 102 Table of Contents Revenue Recognition The Company generates revenue from sales of products and services, and its products consist of instruments and consumables. Revenue from product sales is recognized when control of the product is transferred, which is generally upon shipment to the customer. Instrument service agreements, which relate to extended warranties, are typically entered into for one-year terms, following the expiration of the standard one-year warranty period. Revenue for extended warranties is recognized ratably over the term of the extended warranty period as a stand ready performance obligation. Revenue is recorded net of discounts, distributor commissions and sales taxes collected on behalf of governmental authorities. Customers are invoiced generally upon shipment, or upon order for services, and payment is typically due within 30 days. Cash received from customers in advance of product shipment or providing services is recorded as a contract liability. The Company’s contracts with its customers generally do not include rights of return or a significant financing component. The Company regularly enters into contracts that include various combinations of products and services which are generally distinct and accounted for as separate performance obligations. The transaction price is allocated to each performance obligation in proportion to its standalone selling price. The Company determines standalone selling price using average selling prices with consideration of current market conditions. If the product or service has no history of sales or if the sales volume is not sufficient, the Company relies upon prices set by management, adjusted for applicable discounts. Cost of Revenue Cost of revenue primarily consists of manufacturing costs incurred in the production process, including personnel and related costs, component materials, labor and overhead, packaging and delivery costs and allocated costs including facilities and information technology. In addition, cost of product revenue includes royalty costs for licensed technologies included in the Company’s products, warranty costs and provisions for slow-moving and obsolete inventory. Shipping and Handling Costs Shipping and handling charged to customers are recorded as revenue. Shipping and handling costs are included in the Company’s cost of revenue. Research and Development Research and development costs are expensed in the period incurred. Research and development expense consists of personnel and related costs, independent contractor costs, laboratory supplies, equipment maintenance, prototype and materials expenses, amortization of developed technology and intangibles and allocated costs including facilities and information technology. See Note 4 for discussion of in-process research and development included in the consolidated statements of operations. Advertising Costs Advertising costs are expensed as incurred. The Company incurred advertising costs of $ 3.3 million, $ 3.7 million and $ 4.7 million for the years ended December 31, 2023, 2022 and 2021, respectively. Stock-Based Compensation The Company’s stock-based compensation expense relates to stock options, restricted stock units (“RSUs”), market-based performance stock awards ("PSAs") including performance stock options and performance RSUs granted pursuant to equity incentive plans and stock purchase rights under an Employee Stock Purchase Plan (“ESPP”). Stock-based compensation expense for its stock-based awards is based on their grant date fair value. The Company determines the fair value of RSUs based on the closing price of its stock, which is listed on the Nasdaq Global Select Market, at the date of the grant (or on the most recent trading day prior to grant, if the date of grant is not a trading day). The Company estimates the fair value of stock option awards under an equity incentive plan and stock purchase rights under an ESPP on the grant date using the Black-Scholes option-pricing model. The fair values of stock-based awards excluding PSAs are recognized as compensation expense on a straight-line basis over the requisite service period in which the awards are expected to vest and forfeitures are recognized as they occur. The Black-Scholes model considers several variables and assumptions in estimating the fair value of stock-based awards. These variables include the per share fair value of the underlying common stock, exercise price, expected term, risk-free interest rate, expected annual dividend yield and the expected stock price volatility over the expected term. The Company calculated the 103 Table of Contents expected term using the simplified method, which is the mid-point between the vesting and contractual term. Due to the short trading period of the Company's stock, the Company has estimated volatility by reference to the historical volatilities of the Company and that of similar publicly traded peer companies. The risk-free interest rate is based on the yield available on U.S. Treasury zero-coupon issues similar in duration to the expected term of the equity-settled award. For PSAs, the Company derives the valuation of the award and the requisite service period for each separately vesting portion of the award using a Monte Carlo simulation model and the related compensation expense is recognized over the derived service period using the accelerated attribution method commencing on the grant date. The derived service period is the median duration of the successful stock price paths to meet the respective escalating stock price thresholds as simulated in the Monte Carlo valuation model which uses assumptions such as volatility, risk-free interest rate, cost of equity and dividend estimated for the performance period of the PSAs. If the related market condition is achieved earlier than its estimated derived service period, the stock-based compensation expense will be accelerated, and a cumulative catch-up expense will be recorded during the period in which the market condition is met. Foreign Currency For foreign subsidiaries where the functional currency is the local currency, assets and liabilities are translated to the U.S. dollar using month-end exchange rates, and revenue and expenses using average exchange rates. The adjustments resulting from these foreign currency translations are recorded in “Accumulated other comprehensive loss.” For entities where the functional currency is the U.S. dollar, monetary assets and liabilities are remeasured using exchange rates in effect at the balance sheet dates and non-monetary assets and liabilities are remeasured at historical exchange rates. Revenue and expenses are remeasured at the average exchange rates for the period. Gains or losses from foreign currency remeasurement are included in “Other expense, net” in the consolidated statements of operations. The Company recognized foreign currency transaction gains of $ 1.2 million and $ 0.2 million for the years ended December 31, 2023 and December 31, 2022, and foreign currency transaction losses of $ 0.9 million for the year ended December 31, 2021, respectively. Income Taxes The Company uses the asset and liability method of accounting for income taxes, in which deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply in the years in which those tax assets and liabilities are expected to be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. A valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized. The Company’s tax positions are subject to income tax audits. The Company recognizes the tax benefit of an uncertain tax position only if it is more likely than not that the position is sustainable upon examination by the taxing authority, based on the technical merits. The tax benefit recognized is measured as the largest amount of benefit which is more likely than not (greater than 50% likely) to be realized upon settlement with the taxing authority. The Company recognizes interest accrued and penalties related to unrecognized tax benefits in its tax provision. The Company calculates the current and deferred income tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed in subsequent years. Adjustments based on filed income tax returns are recorded when identified. The amount of income tax paid is subject to examination by U.S. and foreign tax authorities. The estimate of the potential outcome of any uncertain tax issue is subject to management’s assessment of the relevant risks, facts and circumstances existing at that time. To the extent the assessment of such tax position changes, the change in estimate is recorded in the period in which the determination is made. Net Loss Per Share Net loss per share is computed using the two-class method required for multiple classes of common stock and participating securities. The rights, including the liquidation and dividend rights and sharing of losses, of the Class A common stock and Class B common stock are identical, other than voting rights. As the liquidation and dividend rights and sharing of losses are identical, the undistributed earnings are allocated on a proportionate basis and the resulting net loss per share will, therefore, be the same for both Class A and Class B common stock on an individual or combined basis. 104 Table of Contents Basic net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period, adjusted for outstanding shares that are subject to repurchase. For the calculation of diluted net loss per share, basic net loss per share is adjusted by the effect of dilutive securities including awards under the Company’s equity compensation plans. Diluted net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding. For periods in which the Company reports net losses, diluted net loss per share is the same as basic net loss per share because potentially dilutive shares of common stock are not assumed to have been issued if their effect is anti-dilutive. Acquisitions The Company evaluates acquisitions of assets and other similar transactions to assess whether or not the transaction should be accounted for as a business combination or asset acquisition by first applying a screen to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If the screen is met, the transaction is accounted for as an asset acquisition. If the screen is not met, further determination is required as to whether or not the Company has acquired inputs and processes that have the ability to create outputs which would meet the requirements of a business in which case the transaction is accounted for using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date, and that the fair value of acquired intangibles be recorded on the balance sheet. Transaction costs are expensed as incurred. Any excess of the purchase price over the assigned fair values of the net assets acquired is recorded as goodwill. Goodwill is not amortized, rather assessed, at least annually, for impairment at a reporting unit level. During the goodwill impairment review, the Company assesses qualitative factors to determine whether it is more likely than not that the fair value of its reporting unit is less than the carrying amount, including goodwill. The qualitative factors include, but are not limited to, macroeconomic conditions, industry and market considerations and overall financial performance. If, after assessing the totality of these qualitative factors, the Company determines that it is not more likely than not that the fair values of our reporting unit is less than the carrying amount, then no additional assessment is deemed necessary. Otherwise, the Company proceeds to compare the estimated fair values of the reporting unit with the carrying value, including goodwill. If the carrying amounts of the reporting unit exceed the fair value, the Company records an impairment loss based on the difference. The Company accounts for asset acquisitions under ASC, Business Combinations Topic 805, Subtopic 50 , which requires the acquiring entity in an asset acquisition to recognize net assets based on the cost to the acquiring entity on a relative fair value basis, which includes transaction costs in addition to consideration given. In-process research and development expense is expensed as incurred provided there is no alternative future use. Contingent consideration payments in asset acquisitions are recognized when the contingency is resolved and the consideration is paid or becomes payable. Upon recognition of the contingent consideration payment, the amount is included in the cost of the acquired asset or group of assets. 3. Restructuring On December 7, 2023, the Company committed to a restructuring plan related to the closure of one of its research and development facilities resulting in restructuring charges of $ 2.5 million associated with this plan, comprised primarily of long-lived assets impairment costs and one-time employee termination benefits which were recorded during the year ended December 31, 2023. Restructuring costs of $ 2.5 million were recorded in research and development and general and administrative expenses during the year ended December 31, 2023 in the Company's consolidated statements of operations. The restructuring activities are expected to be substantially complete by the end of the first half of 2024. On August 3, 2022, the Company implemented a reduction in force plan in order to decrease costs and maintain a streamlined organization to support the business. Restructuring charges of $ 4.2 million associated with this plan, comprised primarily of severance-related costs, were recorded during the year ended December 31, 2022. Restructuring costs of $ 0.3 million, $ 1.4 million and $ 2.5 million were recorded in cost of revenue, research and development expense, and selling, general and administrative expense, respectively, during the year ended December 31, 2022 in the Company's consolidated statements of operations. The restructuring activities were substantially completed as of December 31, 2022. 105 Table of Contents The following table is a summary of restructuring costs related to the Company’s restructuring activities as of December 31, 2023 (in thousands): Termination Benefits Costs Long-lived Assets Impairment Expenses Total Balance at January 1, 2022 $ — $ — $ — Restructuring charge 4,216 — 4,216 Cash payments made ( 3,385 ) — ( 3,385 ) Non-cash charge ( 616 ) ( 616 ) Balance at December 31, 2022 215 — 215 Restructuring charge 310 2,171 2,481 Cash payments made ( 215 ) — ( 215 ) Non-cash charge — ( 2,171 ) ( 2,171 ) Balance at December 31, 2023 $ 310 $ — $ 310 4. Acquisitions 2023 Acquisition On January 28, 2023, the Company signed an agreement to acquire certain intangible and other assets from Centrillion Technologies, Inc. and Centrillion Technology Holdings Corp. for an upfront cash payment of $ 10.0 million relating to an intellectual property license. Upon the close of the transaction on July 14, 2023, the Company paid additional cash consideration of $ 10.0 million upon acquiring the assets. Under the agreement, the Company is obligated to provide additional cash consideration if certain technology development milestones are met. As of December 31, 2023, the Company had paid $ 21.3 million relating to the completion of development milestones. The Company paid an additional $ 20.0 million in January 2024 in relation to a development milestone which was accrued in the Company's consolidated financial statements as of December 31, 2023. Up to $ 15.0 million of cash consideration is due if an additional technology development milestone is met. Furthermore, the Company expects to pay cash consideration tied to future sales milestones if such milestones are met. The transaction was accounted for as an asset acquisition. In connection with this acquisition and milestone payments, the Company acquired an in-process research and development intangible asset of $ 61.0 million during the year ended December 31, 2023 which did not have alternative future use and therefore was recognized as an expense and included as a component of “In-process research and development” in the condensed consolidated statements of operations. The Company also acquired an intangible asset of $ 0.2 million related to assembled workforce which is included in “Intangible assets, net” in the consolidated balance sheets. The following table summarizes the value of assets acquired and liabilities assumed (in thousands): Assets Acquired and Liabilities Assumed In-process research and development $ 60,980 Intangible assets - acquired workforce 200 Property and equipment 671 Operating lease liabilities ( 1,496 ) Other assets and liabilities, net 758 Total net assets acquired $ 61,113 2021 Acquisition Tetramer Shop Acquisition On January 8, 2021 (the "acquisition date"), the Company purchased 100 % of the outstanding shares of Tetramer Shop ApS (“Tetramer Shop”), a privately held company based in Copenhagen, Denmark, for a total cash consideration of $ 8.5 million, net of cash acquired of $ 0.2 million and including $ 1.5 million of fair value of contingent consideration. The contingent 106 Table of Contents consideration was recorded as a liability on the acquisition date and was paid in 2022 upon the successful completion of the transfer of Tetramer Shop's technology. Tetramer Shop was a life sciences technology company which developed and provided reagents for precise monitoring of antigen-specific T-cells in research and development. The Company acquired Tetramer Shop for its expertise in building empty, loadable major histocompatibility complex (MHC) molecules. The acquisition was accounted for using the acquisition method of accounting, with Tetramer Shop treated as the acquiree. The acquired assets, including identified intangible assets, and liabilities were recorded at their respective fair values with an amount recorded to goodwill representing the difference between the acquisition consideration and the fair value of the identifiable net assets. The fair values assigned to the assets acquired and liabilities assumed were based on management’s assumptions as of the reporting date. Our consolidated statements of operations include the financial results of Tetramer Shop subsequent to the acquisition date. Revenue related to Tetramer Shop since the acquisition date was included in our consolidated statements of operations. The fair value of assets acquired, including goodwill and intangibles, and liabilities assumed as of the acquisition date were as follows (in thousands): Amount Cash and cash equivalents $ 224 Other assets acquired 83 Tangible assets acquired 307 Other liabilities assumed ( 652 ) Deferred tax liability - non-current ( 1,131 ) Total net tangible assets acquired and liabilities assumed ( 1,476 ) Intangible assets 5,640 Goodwill 4,511 Net assets acquired $ 8,675 The intangible assets as of the acquisition date included (in thousands): Amount Weighted Average Useful Life (in years) Developed technology $ 5,500 10 Customer relationships 140 3 $ 5,640 The fair value of the intangible assets acquired in connection with the acquisition was determined using either the income or replacement cost methodologies. The developed technology and customer relationships were amortized over ten years and three years , respectively. During the year ended December 31, 2023, the Company recorded impairment charges of $ 4.5 million, in general and administrative expenses, related to this acquired developed technology. The impairment charge was triggered by a decision to discontinue a product. Identifiable Intangible Assets Developed technology acquired primarily consists of existing technology related to developing reagents for precise monitoring of antigen-specific T-cells in research and development, enabling the Company to strengthen its efforts in immunology. The Company valued the developed technology using the multi-period excess earnings method under the income approach. Using this approach, the final fair values were calculated using expected future cash flows discounted to their net present values at an appropriate risk-adjusted rate of return. 107 Table of Contents Goodwill The excess of purchase price over the fair value assigned to the assets acquired and liabilities assumed represents the amount of goodwill resulting from the acquisition. The Company does not expect any portion of this goodwill to be deductible for tax purposes. The goodwill attributable to the acquisition was recorded as a noncurrent asset and is not amortized but is subject to an annual review for impairment. 5. Other Financial Statement Information Available-for-sale Securities Available-for-sale securities at December 31, 2023 consisted of the following (in thousands): December 31, 2023 December 31, 2022 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Fair Value Measurement Cash equivalents: Money market funds $ 348,539 $ — $ — $ 348,539 $ 163,184 $ — $ — $ 163,184 Level 1 Marketable securities: Corporate debt securities 10,022 — ( 51 ) 9,971 153,794 4 ( 2,768 ) 151,030 Level 2 Government debt securities 18,152 — ( 125 ) 18,027 54,136 — ( 1,247 ) 52,889 Level 2 Asset-backed securities 1,425 — ( 12 ) 1,413 6,424 — ( 105 ) 6,319 Level 2 Total available-for-sale securities $ 378,138 $ — $ ( 188 ) $ 377,950 $ 377,538 $ 4 $ ( 4,120 ) $ 373,422 The contractual maturities of marketable securities as of December 31, 2023 were as follows (in thousands): Fair Value Due in one year or less $ 28,045 Due after one year to five years 1,366 $ 29,411 The company incurred gross realized losses of $ 1.7 million and no gross realized gains from the sale of available-for-sales debt securities during the year ended December 31, 2023. The Company incurred no material gross realized gains or losses from available-for-sales debt securities for the years ended December 31, 2022 and 2021. Realized gains (losses) on the sale of marketable securities are recorded in “Other expense, net” in the condensed consolidated statements of operations. The available-for-sale debt securities are subject to a periodic impairment review. For investments in an unrealized loss position, the Company determines whether a credit loss exists by considering information about the collectability of the instrument, current market conditions and reasonable and supportable forecasts of economic conditions. The Company recognizes an allowance for credit losses, up to the amount of the unrealized loss when appropriate, and writes down the amortized cost basis of the investment if it is more likely than not that the Company will be required or will intend to sell the investment before recovery of its amortized cost basis. Allowances for credit losses and write-downs are recognized in “Other expense, net,” and unrealized losses not related to credit losses are recognized in “Accumulated other comprehensive loss.” There are no allowances for credit losses for the periods presented. As of December 31, 2023, the gross unrealized losses on available-for-sale securities are related to market interest rate changes and not attributable to credit. 108 Table of Contents Inventory Inventory was comprised of the following (in thousands): December 31, 2023 2022 Purchased materials $ 34,484 $ 34,497 Work in progress 21,975 24,650 Finished goods 17,247 22,482 Inventory $ 73,706 $ 81,629 Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): December 31, 2023 2022 Land $ 36,765 $ 36,780 Building 146,044 — Laboratory equipment and machinery 69,238 54,658 Computer equipment and software 16,379 12,565 Furniture and fixtures 10,979 9,642 Leasehold improvements 96,405 91,518 Construction in progress 7,252 152,995 Total property and equipment 383,062 358,158 Less: accumulated depreciation and amortization ( 103,491 ) ( 68,830 ) Property and equipment, net $ 279,571 $ 289,328 Depreciation expense was $ 32.9 million, $ 22.8 million and $ 18.5 million for the years ended December 31, 2023, 2022, and 2021, respectively. Intangible Assets, Net Intangible assets, net consisted of the following (dollars in thousands): December 31, 2023 December 31, 2022 Remaining Useful Life in Years Gross Carrying Amount Accumulated Amortization Intangibles, Net Gross Carrying Amount Accumulated Amortization Intangibles, Net Technology licenses 10.7 $ 22,504 $ ( 6,546 ) $ 15,958 $ 22,504 $ ( 5,043 ) $ 17,461 Developed technology N/A — — — 5,500 ( 1,100 ) 4,400 Customer relationships 1.1 945 ( 789 ) 156 945 ( 563 ) 382 Assembled workforce 2.0 1,328 ( 826 ) 502 1,128 ( 513 ) 615 Intangible assets, net $ 24,777 $ ( 8,161 ) $ 16,616 $ 30,077 $ ( 7,219 ) $ 22,858 During the year ended December 31, 2023, the Company recorded impairment charges of $ 4.6 million related to its developed technology and assembled workforce. No impairment losses were recognized for intangible assets during the years ended December 31, 2022 and 2021. The estimated annual amortization of intangible assets for the next five years is shown below (in thousands): 109 Table of Contents Estimated Annual Amortization 2024 $ 1,865 2025 1,704 2026 1,509 2027 1,473 2028 1,473 Thereafter 8,592 Total $ 16,616 Actual amortization expense to be reported in future periods could differ from these estimates as a result of acquisitions, divestitures and asset impairments, among other factors. Accrued Compensation and Related Benefits Accrued compensation and related benefits were comprised of the following (in thousands): December 31, 2023 2022 Accrued payroll and related costs $ 2,262 $ 2,052 Accrued bonus 18,254 17,081 Accrued commissions 6,410 5,143 Accrued acquisition-related compensation — 5,470 Other 3,179 2,929 Accrued compensation and related benefits $ 30,105 $ 32,675 Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities were comprised of the following (in thousands): December 31, 2023 2022 Accrued purchase consideration $ 20,000 $ — Accrued legal and related costs 3,839 3,102 Accrued license fee — 6,231 Accrued royalties for licensed technologies 5,455 4,707 Accrued property and equipment 3,199 26,750 Accrued professional services 6,577 5,180 Product warranties 8,116 3,023 Taxes payable 5,049 4,079 Other 4,413 6,707 Accrued expenses and other current liabilities $ 56,648 $ 59,779 110 Table of Contents Product Warranties Changes in the reserve for product warranties were as follows (in thousands): Year Ended December 31, 2023 2022 Beginning of period $ 3,023 $ 994 Amounts charged to cost of revenue 10,701 5,708 Repairs and replacements ( 5,608 ) ( 3,679 ) End of period $ 8,116 $ 3,023 Revenue and Deferred Revenue As of December 31, 2023, the aggregate amount of remaining performance obligations related to separately sold extended warranty service agreements, or allocated amounts for extended warranty service agreements bundled with sales of instruments, was $ 22.0 million, of which approximately $ 13.1 million is expected to be recognized to revenue in the next 12 months, with the remainder thereafter. The contract liabilities of $ 22.0 million and $ 11.0 million as of December 31, 2023 and 2022, respectively, consisted of deferred revenue related to extended warranty service agreements. A summary of the change in contract liabilities is as follows (in thousands): Year Ended December 31, 2023 2022 Beginning of period $ 11,032 $ 7,688 Revenue recognized that was included in the contract liability at the beginning of the year ( 6,588 ) ( 4,793 ) Revenue deferred excluding amounts recognized as revenue during the period 17,520 8,137 End of period $ 21,964 $ 11,032 The following table represents revenue by source for the periods indicated (in thousands). Spatial products include the Company’s Visium and Xenium products: Year Ended December 31, 2023 2022 2021 Instruments Chromium $ 47,866 $ 58,552 $ 64,171 Spatial 75,605 13,844 303 Total instruments revenue 123,471 72,396 64,474 Consumables Chromium 420,316 400,433 390,883 Spatial 59,237 35,155 27,857 Total consumables revenue 479,553 435,588 418,740 Services 15,703 8,425 7,276 Total revenue $ 618,727 $ 516,409 $ 490,490 111 Table of Contents The following table presents revenue by geography based on the location of the customer for the periods indicated (in thousands): Year Ended December 31, 2023 2022 2021 Americas United States $ 360,091 $ 284,987 $ 258,274 Americas (excluding United States) 13,101 8,791 6,714 Total Americas 373,192 293,778 264,988 Europe, Middle East and Africa 142,276 117,068 108,491 Asia-Pacific China¹ 50,965 64,356 77,899 Asia-Pacific (excluding China) 52,294 41,207 39,112 Total Asia-Pacific 103,259 105,563 117,011 Total Revenue $ 618,727 $ 516,409 $ 490,490 1 Includes Hong Kong effective from the fiscal year of 2023. Comparative periods have been adjusted for this inclusion. 6. Income Tax Income (loss) before provision for income taxes were as follows (in thousands): Year Ended December 31, 2023 2022 2021 United States $ ( 263,292 ) $ ( 172,038 ) $ ( 73,070 ) International 14,529 10,067 19,355 Total $ ( 248,763 ) $ ( 161,971 ) $ ( 53,715 ) The provision for income taxes consisted of the following (in thousands): Year Ended December 31, 2023 2022 2021 Current provision: Federal $ 351 $ — $ — State 180 533 50 Foreign 6,252 3,360 5,148 Total current provision for income taxes 6,783 3,893 5,198 Deferred provision: Federal — — — State — — — Foreign ( 447 ) 136 ( 690 ) Total deferred provision for income taxes ( 447 ) 136 ( 690 ) Provision for income taxes $ 6,336 $ 4,029 $ 4,508 112 Table of Contents A reconciliation of the federal statutory income tax provision to the effective income tax provision is as follows (in thousands): Year Ended December 31, 2023 2022 2021 Income tax provision at federal statutory rate $ ( 52,240 ) $ ( 34,014 ) $ ( 11,280 ) State taxes, net of federal benefit ( 14,831 ) ( 11,782 ) ( 20,136 ) Tax credits ( 14,551 ) ( 9,028 ) ( 11,836 ) Foreign taxes 3,888 1,522 142 Stock-based compensation 2,422 5,812 ( 78,852 ) Change in valuation allowance 79,551 50,077 126,386 Acquisition related expenses 2,296 — ( 793 ) Other ( 199 ) 1,442 877 Total provision for income taxes $ 6,336 $ 4,029 $ 4,508 Deferred income taxes reflect the net tax effect of temporary differences between amounts recorded for financial reporting purposes and amounts used for tax purposes. The major components of deferred tax assets and liabilities are as follows (in thousands): Year Ended December 31, 2023 2022 Deferred tax assets Net operating loss carryforwards $ 166,607 $ 175,018 Research and development tax credits 89,521 69,271 Accruals and reserves 10,610 7,116 Operating lease liability 22,000 21,873 Intangibles 39,117 39,061 Stock-based compensation 24,342 20,910 Capitalized research and development 1 108,255 49,462 Total deferred tax assets 460,452 382,711 Valuation allowance ( 443,074 ) ( 364,263 ) Net deferred tax assets $ 17,378 $ 18,448 Deferred tax liabilities Property and equipment ( 2,609 ) ( 4,046 ) Operating right-of-use assets $ ( 14,975 ) $ ( 15,054 ) Total deferred tax liabilities $ ( 17,584 ) $ ( 19,100 ) Net deferred tax liabilities $ ( 206 ) $ ( 652 ) 1 Effective beginning January 1, 2022, under the 2017 Tax Cuts and Jobs Act, our research and development expenditures were capitalized and amortized. As of December 31, 2023 and 2022, the Company maintained a full valuation allowance on its U.S. net deferred tax assets. The U.S. deferred tax assets predominantly relate to operating losses, tax credits and capitalized R&D intangibles. The U.S. valuation allowance was estimated based on an assessment of both positive and negative evidence to determine whether it is more likely than not that deferred tax assets are recoverable. Such assessment is required on a jurisdiction-by-jurisdiction basis. The Company’s history of cumulative losses, along with expected future U.S. losses, required that a full valuation allowance be recorded against all U.S. net deferred tax assets. The Company intends to maintain a full valuation allowance on U.S. net deferred tax assets until sufficient positive evidence exists to support a reversal of the valuation allowance. The valuation allowance increased by $ 78.8 million and by $ 51.1 million for the years ended December 31, 2023 and 2022, respectively. 113 Table of Contents As of December 31, 2023, the Company had federal net operating loss (NOL) carryforwards of $ 672.3 million and federal tax credit carryforwards of $ 77.3 million. The federal NOL carryforwards generated after December 31, 2017 totaling $ 665.9 million are carried forward indefinitely, while all others, along with the federal tax credit carryforwards, expire in years beginning in 2033. As of December 31, 2023, the Company had state NOL carryforwards of $ 412.2 million, which begin to expire in 2033. In addition, the Company had state tax credit carryforwards of $ 58.5 million, which do not expire. The federal and state NOL and tax credit carryforwards are subject to change of ownership limitations provided by the Internal Revenue Code and similar state provisions. In general, if the Company experiences a greater than 50 percentage point aggregate change in ownership over a 3-year period (a “Section 382 ownership change”), utilization of its pre-change NOL and credit carryforwards are subject to an annual limitation. The Company completed a study through September 30, 2023 and determined that a Section 382 ownership change occurred in 2013. As a result, the Company’s NOLs generated through November 1, 2013 may be subject to limitation under Section 382 of the Code. The amount of pre-change NOL carryforwards which may be subject to this limitation is $ 4.8 million. In addition, certain attributes are subject to annual limitations as a result of the Company’s acquisition of ReadCoor, Inc. in 2020, which constituted a change in ownership as defined under Section 382. Such limitations may result in expiration of a portion of the carryforwards before utilization. The Company’s ability to use NOL or tax credit carryforwards to reduce future taxable income and liabilities may be further limited as a result of future changes in stock ownership. As a result, if the Company generates taxable income, its ability to use pre-change NOL or tax credit carryforwards to offset U. S. federal and state taxable income may still be subject to limitations, which could potentially result in increased future tax liability. The total balance of unrecognized gross tax benefits resulting primarily from research and development tax credits claimed on the Company’s annual tax returns were as follows (in thousands): 2023 2022 Unrecognized tax benefits at beginning of year $ 31,755 $ 23,759 Reductions based on prior year tax provisions — ( 380 ) Additions based on prior year tax provisions 3,511 2,474 Additions based on current year tax provisions 10,447 5,902 Unrecognized tax benefits at end of year $ 45,713 $ 31,755 The total amount of unrecognized gross tax benefits was $ 45.7 million and $ 31.8 million as of December 31, 2023 and 2022, respectively, of which $ 2.7 million and $ 2.4 million, if recognized, would affect our effective tax rate, respectively. The Company is subject to the examination of its income tax returns by the U.S. Internal Revenue Service and other domestic and foreign tax authorities. The United States, California, and Sweden are considered as major jurisdictions. The Company has not been audited in such jurisdictions. Tax examinations are expected to focus primarily on research and development tax credits and intercompany transfer pricing practices. Due to NOLs and tax credit carryforwards, as of December 31, 2023, federal and California income tax returns for the years ended 2012 through the current period are open to examination. Significant foreign income tax returns for the years 2019 through the current period are open to examination. Due to the number of years remaining that are subject to examination, the Company is unable to estimate the full range of possible adjustments to the balance of gross unrecognized tax benefits. It is reasonably possible that the Company's unrecognized tax benefits will change significantly over the next 12 months, likely due to increases related to research and development tax credits. For U.S. uncertain tax positions, due to a full valuation allowance, such liabilities have been netted against deferred tax attribute carryovers. As a result, if recognized, the unrecognized tax benefits would not materially impact income tax expense. The Company includes interest and penalties related to income tax matters within the provision for income taxes. As of December 31, 2023, the total amount of gross interest and penalties accrued was $ 0.9 million. The Company recognized interest and penalty expenses of $ 0.5 million in 2023. The Company maintained undistributed earnings overseas as of December 31, 2023 and the Company believed the funds held by all non-U.S. subsidiaries will be permanently reinvested outside of the U.S. However, if these funds were repatriated to the U.S. or used for U.S. operations, the Company may be subject to withholding taxes in the foreign countries. As a result of tax reform, the Company’s unrepatriated earnings are no longer subject to federal income tax in the U.S. when distributed. 114 Table of Contents 7. Commitments and Contingencies Indemnification From time to time, the Company has entered into indemnification provisions under certain agreements in the ordinary course of business, typically with business partners, customers and suppliers. Pursuant to these agreements, the Company may indemnify, hold harmless and agree to reimburse the indemnified parties on a case-by-case basis for losses suffered or incurred by the indemnified parties in connection with any patent or other intellectual property infringement claim by any third party with respect to the Company’s products. The Company maintains product liability insurance coverage that would generally enable it to recover a portion of the amounts paid. The Company has also agreed to indemnify its directors and executive officers for costs associated with any fees, expenses, judgments, fines and settlement amounts incurred by them in any action or proceeding to which any of them are, or are threatened to be, made a party by reason of their service as a director or officer (see “—Litigation” below). The Company also may be subject to indemnification obligations by law with respect to the actions of its employees under certain circumstances and in certain jurisdictions. Non-cancelable Purchase Commitments The Company’s contract manufacturers make advance purchases of components based on the instrument unit forecasts and purchase orders placed by the Company. To the extent these components are purchased by a contract manufacturer on the Company’s behalf and cannot be used by their other customers, the Company is obligated to purchase these components. In addition, certain supplier agreements require that the Company to make minimum annual purchases under the agreements. As of December 31, 2023, the Company has commitments to make a total of $ 13.0 million in purchases over the next two years . To date, the Company has met the minimum purchase commitments. As of December 31, 2023, the Company has entered into non-cancelable arrangements for subscription software services to make payments aggregating to $ 20.5 million over the next six years . Intellectual Property Licensing In July 2021, the Company entered into a global settlement and patent cross license agreement with Bio-Rad Laboratories, Inc. pursuant to which both parties granted each other a non-exclusive, worldwide, royalty-bearing license to develop products and services related to single cell analysis. Each company shall pay to the other royalties from licensed products and licensed services through 2030. The minimum commitments related to the Company's license arrangements aggregate to $ 14.6 million as of December 31, 2023 to be paid over the next 15 years. Lease Agreements The Company leases office, laboratory, manufacturing, distribution and server space with lease terms up to 10 years. These leases require monthly lease payments that may be subject to annual increases throughout the lease term. Certain of these leases also include renewal options at the election of the Company to renew or extend the lease. The Company evaluates renewal options at lease inception and on an ongoing basis and includes renewal options that it is reasonably certain to exercise in its expected lease terms when classifying leases and measuring lease liabilities. On November 6, 2020, the Company entered into a Master Lease Agreement ("MLA") to lease additional office building space near the Company's Pleasanton, California headquarters. All of the components of the MLA have commenced and are expected to terminate on June 30, 2033. For the years ended December 31, 2023, 2022 and 2021, the Company incurred $ 13.6 million, $ 13.1 million and $ 10.5 million, respectively, of operating lease costs and $ 0.2 million, $ 0.4 million and $ 0.6 million, respectively, of variable lease costs. The variable lease cost is comprised primarily of the Company’s proportionate share of operating expenses, property taxes and insurance and is classified as lease cost due to the Company’s election to not separate lease and non-lease components. Cash paid for amounts included in the measurement of operating lease liabilities for the years ended December 31, 2023, 2022 and 2021 were $ 15.2 million, $ 12.1 million and $ 6.2 million, respectively, and were included in net cash used in operating activities in the Company’s consolidated statements of cash flows. The payments due under of the Company’s operating lease liabilities as of December 31, 2023 are as follows (in thousands): 115 Table of Contents Operating Leases 2024 $ 16,719 2025 14,884 2026 15,438 2027 15,639 2028 15,793 Thereafter 40,720 Total lease payments $ 119,193 Less: imputed interest ( 23,823 ) Present value of operating lease liabilities $ 95,370 Operating lease liabilities, current $ 11,521 Operating lease liabilities, noncurrent 83,849 Total operating lease liabilities $ 95,370 The following table summarizes additional information related to operating leases as of December 31, 2023: December 31, 2023 December 31, 2022 Weighted-average remaining lease term: Operating leases 7.5 years 8.1 years Weighted-average discount rate: Operating leases 5.9 % 5.5 % During the year ended December 31, 2023, the Company made the decision to vacate some of its leased office space for the remaining lease term, sublease certain portions of the vacated office space and to terminate additional leased office space. In connection with these actions, the Company recognized an aggregate $ 4.9 million of impairment losses associated with these long-lived assets of which $ 2.1 million was classified in research and development, and $ 2.8 million was classified in selling, general and administrative expenses in the consolidated statement of operations. Litigation The Company is regularly subject to lawsuits, claims, arbitration proceedings, administrative actions and other legal and regulatory proceedings involving intellectual property disputes, commercial disputes, competition and other matters, and the Company may become subject to additional types of lawsuits, claims, arbitration proceedings, administrative actions, government investigations and legal and regulatory proceedings in the future. As of December 31, 2023, the Company has concluded that a loss is not probable and a contingent liability has not been recorded. NanoString On May 6, 2021, the Company filed suit against NanoString Technologies, Inc. (“NanoString”) in the U.S. District Court for the District of Delaware alleging that NanoString’s GeoMx Digital Spatial Profiler and associated instruments and reagents infringe U.S. Patent Nos. 10,472,669, 10,662,467, 10,961,566, 10,983,113 and 10,996,219 (the “GeoMx Action”). On May 19, 2021, the Company filed an amended complaint additionally alleging that the GeoMx products infringe U.S. Patent Nos. 11,001,878 and 11,008,607. On May 4, 2022, the Company filed an amended complaint in the GeoMx Action additionally alleging that the GeoMx products infringe U.S. Patent No. 11,293,917 and withdrawing the Company’s claims of infringement of U.S. Patent No. 10,662,467. The Company is seeking, among other relief, injunctive relief and unspecified damages (including attorneys’ fees) in relation to NanoString’s making, using, selling, offering to sell, exporting and/or importing in the United States the GeoMx Digital Spatial Profiler and associated instruments and reagents. NanoString filed its answer to the GeoMx Action on May 18, 2022. A Markman hearing was held on February 17, 2023 and the Court issued its claim construction order on February 28, 2023. On September 7, 2023, the Court issued an order granting the Company’s motion for summary judgment that the asserted patents are not invalid for indefiniteness and denying NanoString’s motion for summary judgment that the asserted patents are invalid for indefiniteness and lack of written description. On November 17, 2023, a jury found that NanoString 116 Table of Contents willfully infringed the asserted patents and that the asserted patents are valid. The jury awarded the Company more than $ 31 million in damages, consisting of approximately $ 25 million in lost profits and approximately $ 6 million in royalties. Post-trial motions, including the Company’s motions for a permanent injunction, ongoing royalties, enhanced damages, attorneys’ fees and pre- and post-judgment interest, are pending. NanoString filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code in the U.S. bankruptcy court in Delaware on February 4, 2024, and the Court’s consideration of these post-trial motions is currently stayed due to the bankruptcy filing. Due to the uncertainties in collecting the jury award, the Company has not recorded a receivable from NanoString as of December 31, 2023. On February 28, 2022, the Company filed a second suit against NanoString in the U.S. District Court for the District of Delaware alleging that NanoString’s CosMx Spatial Molecular Imager and associated instruments, reagents and services infringe U.S. Patent Nos. 10,227,639 and 11,021,737 (the “CosMx Action”). On May 12, 2022, the Company filed an amended complaint in the CosMx Action additionally alleging that the CosMx products additionally infringe U.S. Patent Nos. 11,293,051, 11,293,052 and 11,293,054. NanoString filed its answer to the CosMx Action on May 26, 2022. On March 1, 2023, the Company filed a second amended complaint additionally alleging that the CosMx products infringe U.S. Patent No. 11,542,554. The Company is seeking, among other relief, injunctive relief and unspecified damages (including attorneys’ fees) in relation to NanoString’s making, using, selling, offering to sell, exporting and/or importing in the United States the CosMx Spatial Molecular Imager and associated instruments, reagents and services. NanoString filed its answer to the second amended complaint on March 22, 2023. Discovery is in progress. A Markman hearing was held on January 10, 2024, and the Court issued its claim construction order on February 1, 2024. Trial is scheduled for September 2024. This litigation is currently stayed due to NanoString’s bankruptcy filing. On August 16, 2022, NanoString filed a counterclaim in the CosMx Action alleging that the Company’s Visium products infringe U.S. Patent No. 11,377,689 (the “689 patent”). The Company filed its answer to NanoString’s counterclaim in the CosMx Action on August 30, 2022. On November 23, 2022, the Company moved to sever claims relating to NanoString’s assertion of the 689 patent and consolidate those claims with the patent case NanoString filed against the Company on October 20, 2022 (discussed below). On January 24, 2023, the Court granted the Company’s motion. On May 1, 2023, NanoString filed a motion in the CosMx Action to add antitrust, unfair competition, tort, and contract counterclaims. NanoString seeks, among other relief, injunction relief (including that the Company grant NanoString a license to the patents that the Company asserted against NanoString in the CosMx Action) and unspecified damages (including attorneys’ fees). On July 10, 2023, the Court denied NanoString’s motion for leave to add a contract counterclaim but otherwise granted the motion for leave to amend. On May 24, 2023, NanoString filed a motion to bifurcate its amended counterclaims and a motion for expedited discovery. On June 6, 2023, the Court denied NanoString’s motion to bifurcate and granted its motion for expedited discovery. The Company believes NanoString’s claims are meritless and intends to vigorously defend itself. On October 20, 2022, NanoString filed suit against the Company in the U.S. District Court for the District of Delaware alleging that the Company’s Visium products infringe U.S. Patent No. 11,473,142 (the “142 patent”), a continuation of the 689 patent (the “NanoString Action”). NanoString seeks, among other relief, injunctive relief and unspecified damages (including attorneys’ fees) in relation to the Company’s making, using, selling, offering to sell, exporting and/or importing in the United States Visium products and associated instruments, reagents and services. On January 24, 2023, the Court severed NanoString’s claims with respect to the 689 patent from the CosMx Action and consolidated those claims with this action. NanoString filed an amended complaint on January 27, 2023. The Company filed an answer to the NanoString Action on February 10, 2023. Discovery is in progress. A Markman hearing was held on January 10, 2024, and the Court issued its claim construction order on February 1, 2024. Trial is scheduled for December 2024. The Company believes NanoString’s claims in the NanoString Action are meritless and intends to vigorously defend itself. On August 16 and September 25, 2023, the Company filed petitions for inter partes review (“IPR”) of the 689 patent and the 142 patent, respectively. On February 1, 2024, IPR was instituted for the 689 patent. An institution decision for the IPR against the 142 patent is expected in April 2024. On March 9, 2022, the Company filed suit in the Munich Regional Court in Germany alleging that NanoString’s CosMx Spatial Molecular Imager and associated instruments, reagents and services infringe EP Patent No. 2794928B1 (the “EP928 patent”) (the “Germany CosMx Action”). A hearing on infringement was held on March 23, 2023. On May 17, 2023, the Munich Regional Court found that the CosMx products infringe the EP928 patent and issued a permanent injunction requiring NanoString to stop selling and supplying CosMx instruments and reagents for RNA detection in Germany. The injunction took effect on June 1, 2023. On May 25, 2023, NanoString filed an appeal of the Germany CosMx Action in the Munich Higher Regional Court. A hearing date has not yet been set for this appeal. On October 30, 2023, NanoString requested that the Higher Regional Court temporarily stay enforcement of the injunction pending the appeal. On December 20, 2023, the Higher Regional Court granted 117 Table of Contents NanoString’s request conditioned upon NanoString posting a 2.3 million Euro security deposit. To date, NanoString has not posted this security deposit. On July 29, 2022, NanoString filed a nullity action with the German Federal Patent Court challenging the validity of the EP 928 patent. On February 10, 2023, the Federal Patent Court issued a preliminary opinion upholding the validity of certain claims of the EP 928 patent directed to in situ analysis. A hearing on validity is scheduled before the Federal Patent Court in May 2024. On June 1, 2023, the Company filed requests for preliminary injunctions in the Munich Local Division of the Unified Patent Court (“UPC”) alleging that NanoString’s CosMx Spatial Molecular Imager and associated instruments, reagents and services for RNA detection infringe the EP928 patent and EP Patent No. 4108782 (the “EP782 patent”). Hearings were held for the EP 782 and EP 928 patents on September 5 and September 19, respectively. On September 19, 2023, the UPC granted the Company’s request for the EP782 patent and issued a preliminary injunction requiring NanoString to stop selling and supplying CosMx instruments and reagents for RNA detection in all 17 UPC member states. On October 10, 2023, the UPC denied the Company’s preliminary injunction request for the EP928 patent. On October 2, 2023, NanoString filed an appeal of the preliminary injunction for the EP782 patent in the UPC Court of Appeals. A hearing was held before the UPC Court of Appeals on December 18, 2023, and a decision is pending. On August 31 and September 18, 2023 we filed main requests in the Munich Local Division of the UPC alleging that NanoString's CosMx Spatial Molecular Imager and associated instruments, reagents and services for RNA detection infringe the EP 782 and EP 928 patents, respectively. No hearings have yet been set for these main requests. On July 18, 2023, NanoString filed an opposition in the European Patent Office challenging the validity of the EP782 patent. No schedule has yet been set for this opposition. On July 27, 2023, NanoString filed a revocation action in the Munich Central Division of the UPC challenging the validity of the EP928 patent. A hearing in the revocation action is scheduled on April 17, 2024. On January 30, 2024, NanoString filed a petition for IPR of U.S. Patent No. 11,542,554, which is asserted by the Company against NanoString in the CosMx Action. The impact of NanoString’s bankruptcy filing on the Company’s actions against NanoString outside of the U.S. District Court for the District of Delaware is not yet fully resolved. Vizgen On May 3, 2022, the Company filed suit against Vizgen, Inc. (“Vizgen”) in the U.S. District Court for the District of Delaware alleging that Vizgen’s MERSCOPE Platform and workflow and/or Vizgen’s Lab Services program, including associated instruments and reagents, infringe U.S. Patent Nos. 11,021,737, 11,293,051, 11,293,052, 11,293,054 and 11,299,767. The Company seeks, among other relief, injunction relief and unspecified damages (including attorneys’ fees) in relation to Vizgen’s making, using, selling, offering to sell, exporting and/or importing in the United States the MERSCOPE Platform and workflow and/or Vizgen’s Lab Services program, including associated instruments and reagents. On July 25, 2022, Vizgen filed a motion to dismiss the Company’s claims for willful and indirect infringement, which the Court denied on September 19, 2022. Discovery is in progress. A Markman hearing was held on January 10, 2024, and the Court issued its claim construction order on February 1, 2024. Trial is scheduled for October 2024. On August 30, 2022, Vizgen filed its answer and counterclaims alleging that the Company’s Xenium product infringes U.S. Patent No. 11,098,303 (the “303 patent”). Vizgen seeks, among other relief, injunction relief and unspecified damages (including attorneys’ fees) in relation to the Company’s making, using, selling, offering to sell, exporting and/or importing in the United States Xenium products, including associated instruments and reagents. Vizgen also filed counterclaims alleging that the Company tortiously interfered with Vizgen’s contractual and business relationship with Harvard and that the Company engaged in unfair practices under Massachusetts state law. On October 27, 2022, the Company filed a partial answer and motion to dismiss the infringement counterclaim and the tort counterclaims. On February 2, 2023, the Company’s motion to dismiss was denied. The Company believes Vizgen’s claims are meritless and intends to vigorously defend itself. 118 Table of Contents On March 15, 2023, the Company filed an amended complaint additionally alleging that the MERSCOPE Platform and workflow and Vizgen’s Lab Services program infringe U.S. Patent No. 11,549,136 and withdrawing its claim of infringement of U.S. Patent No. 11,293,054. On April 17, 2023, Vizgen filed its answer adding amended counterclaims including antitrust, unfair competition, tort and contract counterclaims. Vizgen seeks, among other relief, injunctive relief (including that the Company grant Vizgen a license to the patents that the Company asserted against Vizgen) and unspecified damages (including attorneys’ fees). On May 18, 2023, the Company filed a motion to dismiss Vizgen’s amended counterclaims. On July 10, 2023, the Court granted the Company’s motion to dismiss Vizgen’s contract counterclaim but otherwise denied the Company’s motion to dismiss. The Company believes Vizgen’s claims are meritless and intends to vigorously defend itself. On June 1, 2023, the Company filed suit in the Hamburg Local Division of the Unified Patent Court alleging that Vizgen’s MERSCOPE products infringe the EP782 patent. The Company seeks, among other relief, injunction relief and unspecified damages (including attorneys’ fees) in relation to Vizgen’s MERSCOPE products in all 17 UPC member states. A hearing has not yet been set. On August 30, 2023, the Company filed a petition for IPR of the 303 patent. An institution decision is expected by March 2023. Parse On August 24, 2022, the Company filed suit against Parse Biosciences, Inc. (“Parse”) in the U.S. District Court for the District of Delaware alleging that Parse’s Evercode Whole Transcriptomics products and ATAC-seq products infringe U.S. Patent Nos. 10,155,981 (the “981 patent”), 10,697,013 (the “013 patent”), 10,240,197 (the “197 patent”), 10,150,995, 10,619,207 and 10,738,357. The Company seeks, among other relief, injunction relief and unspecified damages (including attorneys’ fees) in relation to Parse’s making, using, selling, offering to sell, exporting and/or importing in the United States Parse’s Evercode Whole Transcriptomics products and ATAC-seq products. On October 17, 2022, Parse filed a motion to dismiss alleging that the asserted claims are directed to patent ineligible subject matter. The Court held a hearing on the motion to dismiss on November 22, 2022, and supplemental briefing was submitted on December 15, 2022. On September 14, 2023, the Court denied the motion. Parse filed its answer on October 6, 2023. Discovery is in progress. A Markman hearing is scheduled for February 2024, and trial is scheduled for December 2024. Between April 20 and June 21, 2023, Parse filed petitions for IPR of all of the patents asserted. On October 13, 2023, IPR was instituted on the 981 patent. The PTAB denied institution of Parse’s petitions for IPR on the other five asserted patents. On January 2 and 5, 2024, Parse filed rehearing requests with the PTAB for the 197 and 013 patents, respectively. On November 6, 2023, Parse filed a motion to stay the Delaware action pending the IPRs. On December 21, 2023, the court denied Parse’s motion to stay. On February 5, 2024, the PTAB instituted IPRs for the 197 and 013 patents on Parse’s requests for rehearing. On February 8, 2024, Parse filed a renewed motion to stay. Curio On December 1, 2023, the Company filed suit against Curio Bioscience, Inc. (“Curio”) in the U.S. District Court for the District of Delaware alleging that the Curio Seeker Spatial Mapping Kit and associated products and services infringe U.S. Patent Nos. 10,480,022, 10,662,468, 11,001,879, 11,549,138, and 11,761,030. On February 1, 2024, Curio filed a motion to dismiss alleging that the asserted claims are directed to patent ineligible subject matter. A case schedule has not yet been set. On December 4, 2023, the Company filed a request for a preliminary injunction in the Dusseldorf Local Division of the UPC alleging that the Curio Seeker Spatial Mapping Kit and associated products and services infringe EP Patent No. 2697391 (the “EP 391 patent”). A hearing for the preliminary injunction request has been set for March 26, 2024. 8. Capital Stock The Company’s Amended and Restated Certificate of Incorporation authorizes it to issue 1,200,000,000 shares of capital stock consisting of 1,000,000,000 shares of Class A common stock, 100,000,000 shares of Class B common stock, and 100,000,000 shares of preferred stock. Common Stock 119 Table of Contents The following table represents the number of shares of Class B common stock converted to shares of Class A common stock upon the election of the holders of such shares during the years: Year Ended December 31, 2023 2022 2021 Class B common stock converted to Class A common stock 4,610,422 979,210 3,035,000 The Company’s Class A common stock and Class B common stock have a par value of $ 0.00001 per share. Each share of Class B common stock has the right to ten votes and each share of Class A common stock has the right to one vote per share. All other rights and privileges of Class A and Class B common stock are equivalent. Class B common shares are convertible to Class A common shares at any time upon written notification and all Class B common shares will convert upon the date specified by vote or written consent of the holders of a majority of the then outstanding Class B common stock, voting together as a single class. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the Board of Directors, subject to the prior rights of holders of all classes of stock outstanding having priority rights as to dividends. 9. Equity Incentive Plans Amended and Restated 2012 Stock Plan Following the adoption of the 2019 Omnibus Incentive Plan in September 2019, any awards outstanding under the Amended and Restated 2012 Stock Plan continue to be governed by their existing terms but no further awards may be granted under the Amended and Restated 2012 Stock Plan. As of December 31, 2023, the number of shares of Class A common stock issuable under the Amended and Restated 2012 Stock Plan which includes shares issuable upon the exercise of outstanding awards was 2,563,328 . 2019 Omnibus Incentive Plan The Omnibus Incentive Plan allows for the issuance of incentive stock options (“ISOs”), non-statutory stock options (“NSOs”) or restricted shares. ISOs may be granted only to the Company’s employees (including officers and directors who are also considered employees). NSOs and restricted shares may be granted to the Company’s employees and service providers. As of December 31, 2023, the number of shares of Class A common stock available for issuance under the 2019 Omnibus Incentive Plan was 5,334,134 shares issuable in connection with outstanding awards and 16,300,671 shares reserved for issuance in connection with grants of future awards. The number of shares of Class A common stock reserved for issuance under the 2019 Omnibus Incentive Plan at the time the 2019 Omnibus Incentive Plan was adopted in 2019 was 11,000,000 . The Omnibus Incentive Plan provides that the total number of shares of the Company’s Class A common stock that may be issued under the Omnibus Incentive Plan, including options authorized and options outstanding, is 11,000,000 (such share limit as increased from time to time, the “Absolute Share Limit”). However, the Absolute Share Limit shall be increased on the first day of each calendar year commencing on January 1, 2021 and ending on January 1, 2029 in an amount equal to the lesser of (i) 5 % of the total number of shares of common stock outstanding on the last day of the immediately preceding fiscal year and (ii) such number of shares of the Company’s Class A common stock as determined by the Company’s board of directors. However, if on January 1 of a calendar year, the Company’s board of directors has not either confirmed the 5 % increase described in clause (i) or approved a lesser number of shares of the Company’s Class A common stock for such calendar year, then the Company’s board of directors will be deemed to have waived the automatic increase, and no such increase will occur for such calendar year. Of the Absolute Share Limit, no more than 11,000,000 shares of Class A common stock may be issued in the aggregate pursuant to the exercise of incentive stock options granted under the Omnibus Incentive Plan. Options under the Omnibus Incentive Plan have a contractual term of 10 years. The exercise price of an ISO and NSO shall not be less than 100 % of the fair market value of the shares on the date of grant. 120 Table of Contents A summary of the Company’s stock option activity under the Plans is as follows: Outstanding Options Weighted- Average Exercise Price Weighted- Average Remaining Term (Years) Aggregate Intrinsic Value Balance as of December 31, 2022 7,964,557 $ 37.10 6.4 $ 128,069,003 Granted 387,757 51.31 Exercised ( 1,782,196 ) 6.76 Cancelled and forfeited ( 623,332 ) 84.31 Balance as of December 31, 2023 5,946,786 $ 42.17 6.3 $ 144,350,070 Vested and exercisable as of December 31, 2023 4,460,855 $ 36.82 5.5 $ 129,774,778 The weighted-average grant date fair value of options granted during the years ended December 31, 2023, 2022 and 2021 was $ 33.67 , $ 32.95 , and $ 108.05 per share, respectively. The total intrinsic value of stock options exercised was $ 78.0 million, $ 89.5 million and $ 572.2 million during the years ended December 31, 2023, 2022, and 2021, respectively. As of December 31, 2023, the total unrecognized stock-based compensation related to stock options was $ 48.5 million, which will be recognized over a weighted-average period of approximately two years . Stock Option Valuation Assumptions The fair value of each employee option grant was estimated on the date of grant using the Black-Scholes option pricing model and the following assumptions for the periods indicated: Year Ended December 31, 2023 2022 2021 Expected volatility 70 % – 71 % 65 % – 71 % 67 % – 69 % Risk-free interest rate 3.7 % – 4.6 % 1.6 % – 4.1 % 1.0 % – 1.1 % Expected term 5.3 – 6.1 years 5.3 – 6.1 years 6.0 – 6.1 years Expected dividend — % — % — % Restricted Stock Units Restricted stock units (“RSUs”) activity for the year ended December 31, 2023 is as follows: Restricted Stock Units Weighted-Average Grant Date Fair Value (per share) Balance as of December 31, 2022 5,836,192 $ 52.21 Granted 2,320,714 50.08 Vested ( 1,900,620 ) 59.60 Cancelled ( 922,152 ) 54.42 Outstanding as of December 31, 2023 5,334,134 $ 48.26 As of December 31, 2023, the total unrecognized stock-based compensation related to RSUs was $ 224.6 million, which will be recognized over a weighted-average period of approximately two years . Market-based Performance Stock Awards (PSAs) 121 Table of Contents In March 2023, the Company granted 172,842 performance restricted stock unit awards (PSAs) under the 2019 Plan to certain members of management, which are subject to the achievement of certain escalating stock price thresholds established by the Company's Compensation Committee of the Board of Directors. The PSAs each vest in equal installments upon the achievement of escalating stock price thresholds of $ 72.14 , $ 96.19 and $ 120.24 respectively, calculated based on the volume-weighted average price per share of the Company’s Class A common stock over the immediately trailing 20 trading day period for each respective threshold. The escalating stock price thresholds can be met any time prior to the fifth anniversary of the date of grant. The vesting of the PSAs can also be triggered upon certain change in control events and achievement of certain change in control price thresholds, or in the event of death or disability. The weighted-average grant date fair value of the PSAs was $ 43.13 . Stock-based compensation expense recognized for these market-based awards was approximately $ 5.1 million for the year ended December 31, 2023. The Company estimates the fair values of shares granted under the PSAs using a Monte Carlo simulation model with the following assumptions: Year Ended December 31, 2023 Expected volatility 71 % Risk-free interest rate 3.7 % Expected dividend — % In September 2022, the Company granted 709,025 PSAs including RSUs and a performance stock option under the 2019 Plan to certain members of management, which are subject to the achievement of certain stock price thresholds established by the Company’s Compensation Committee of the Board of Directors. The PSAs consist of three separate tranches and the vesting of each tranche is subject to the Class A common stock closing price being maintained at or above the predetermined share price goals of $ 60 , $ 80 and $ 105 for each tranche, respectively, for a period of 20 consecutive trading days. The share price goals can be met any time prior to the fourth anniversary of the date of grant. The vesting of the PSAs can also be triggered upon certain change in control events and achievement of certain change in control price goals, or in the event of death or disability. The weighted-average grant date fair value of the PSAs was $ 22.55 . Stock-based compensation expense recognized for these market-based awards was approximately $ 10.0 million and $ 3.3 million for the years ended December 31, 2023 and 2022, respectively. The Company estimates the fair values of shares under the Performance stock options using a Monte Carlo simulation model with the following assumptions: Year Ended December 31, 2022 Expected volatility 68 % Risk-free interest rate 3.4 % Expected dividend — % As of December 31, 2023, none of the escalating stock price thresholds had been met for any of the PSAs, resulting in no shares vesting or becoming exercisable. 2019 Employee Stock Purchase Plan In July 2019, the Company’s board of directors adopted the 10x Genomics, Inc. 2019 Employee Stock Purchase Plan (the “ESPP”), which was subsequently approved by the Company’s stockholders. The ESPP went into effect on September 11, 2019. Subject to any limitations contained therein, the ESPP allows eligible employees to contribute, through payroll deductions, up to 15 % of their eligible compensation to purchase the Company’s Class A common stock at a discounted price per share. The ESPP generally provides for consecutive 6-month offering periods. During the years ended December 31, 2023 and 2022, 217,537 and 151,028 shares of Class A common stock, respectively, were issued under the ESPP. The ESPP provides that the maximum number of shares of the Company’s Class A common stock made available for sale thereunder will be 3,486,671 , which number will be automatically increased on the first day of each 122 Table of Contents calendar year commencing on January 1, 2021 and ending on January 1, 2029 in an amount equal to the lesser of (i) 1 % of the total number of shares of common stock outstanding on the last day of the immediately preceding fiscal year and (ii) such number of shares of the Company’s Class A common stock as determined by the Company’s board of directors. However, if on January 1 of a calendar year the Company’s board of directors has not either confirmed the 1 % described in clause (i) or approved a lesser number of shares of the Company’s Class A common stock for such calendar year, the Company’s board of directors will be deemed to have waived the automatic increase and no such increase will occur for such calendar year. The maximum number of shares available under the ESPP (and any share limitations thereunder, as applicable) will automatically be adjusted upon certain changes to the Company’s capital structure. As of December 31, 2023, there were 2,891,063 shares available for issuance under the ESPP. For the years ended December 31, 2023 and 2022, the weighted average grant date fair values of the ESPP shares purchased, using the Black-Scholes option pricing model, were $ 16.91 and $ 33.74 , respectively. The following assumptions were used in estimating the fair values of shares under the ESPP: Year Ended December 31, 2023 2022 2021 Expected volatility 49 % – 58 % 81 % – 92 % 47 % – 69 % Risk-free interest rate 5.24 % – 5.41 % 1.54 % – 4.54 % 0.04 % – 0.06 % Expected term (in years) 0.5 0.5 0.50 – 1.0 Expected dividend — % — % 0 % As of December 31, 2023, the total unrecognized stock-based compensation related to the ESPP was $ 1.3 million, which will be recognized over a weighted-average period of approximately 0.4 years. Stock-based Compensation The Company recorded stock-based compensation expense in the consolidated statement of operations for the periods presented as follows (in thousands): Year Ended December 31, 2023 2022 2021 Cost of revenue $ 7,068 $ 5,259 $ 3,231 Research and development 72,804 59,211 41,970 Selling, general and administrative 87,078 72,378 50,761 Total stock-based compensation expense $ 166,950 $ 136,848 $ 95,962 10. Employee Benefit Plans The Company has made available to all full-time United States employees a 401(k) retirement savings plan. Under this plan, employee and employer contributions and accumulated plan earnings qualify for favorable tax treatment under Section 401(k) of the Internal Revenue Code. Commencing in 2022, the Company matched 100 % of the first 3 % of the employee's eligible compensation, up to a maximum of two thousand dollars annually per employee. The Company contributed $ 1.8 million and $ 2.0 million for the years ended December 31, 2023 and 2022, respectively. 11. Net Loss Per Share The following outstanding shares of common stock equivalents were excluded from the computation of diluted net loss per share for the periods presented because including them would have had an anti-dilutive effect: 123 Table of Contents Year Ended December 31, 2023 2022 2021 Stock options to purchase common stock 5,946,786 7,964,557 8,212,754 Restricted stock units 5,334,134 5,836,192 1,298,244 Shares committed under ESPP 48,302 46,548 13,368 Shares subject to repurchase — — 18,750 Total 11,329,222 13,847,297 9,543,116 124 Table of Contents Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None.