Twist Bioscience Corporation — Q2 FY2023 Form 10-Q
Reporting period: Quarter and six months ended March 31, 2023. Twist develops and sells synthetic DNA and related products, including NGS tools, DNA libraries, and antibody discovery services. The company’s fiscal year ends September 30.
Financial performance and position
| Metric | Three months ended March 31, 2023 | Prior-year quarter | Six months ended March 31, 2023 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $60.2m | $48.1m | $114.4m | $90.1m |
| Gross profit / gross margin | $18.5m / 30.8% | $18.4m / 38.3% | $43.3m / 37.8% | $33.4m / 37.0% |
| Operating loss | $61.6m | $60.8m | $106.3m | $116.7m |
| Net loss | $59.2m | $60.7m | $101.0m | $106.2m |
| Basic and diluted loss per share | $1.04 | $1.13 | $1.78 | $2.06 |
| Operating cash used | Not separately presented for the quarter | $98.4m | $89.0m |
- Quarterly revenue rose 25%; six-month revenue rose 27%. NGS tools generated $29.0m, or 48% of quarterly revenue. Healthcare was the largest industry category at $33.8m, or 56%.
- Quarterly gross margin fell to 30.8% from 38.3%, as cost of revenue grew 40%, faster than revenue growth of 25%. Management cited higher material costs, production and staffing costs at the Wilsonville “Factory of the Future,” and depreciation and amortization.
- At March 31, cash and cash equivalents were $315.2m and short-term investments were $72.5m, down from $378.7m and $126.3m, respectively, at September 30, 2022. Total assets were $853.9m; stockholders’ equity was $703.9m.
- Operating cash outflow was $98.4m for the six months. Investing activities provided $34.2m, primarily reflecting investment maturities net of purchases, while capital expenditures were $20.9m. Financing activities provided $1.1m. Cash, cash equivalents, and restricted cash ended the period at $317.6m.
- The balance sheet does not list borrowings as a liability at March 31; operating lease liabilities totaled $91.2m, including $13.4m current. Management said available proceeds and cash were expected to fund operations for at least one year from the financial statement issuance date.
Material changes and notable items
- Quarterly synthetic gene shipments increased 23% year over year to approximately 152,000; six-month shipments increased 15% to approximately 286,000.
- Quarterly R&D expense decreased 12% to $27.4m, while six-month R&D increased 9% to $58.6m. Six-month SG&A decreased 8% to $96.3m, in part due to lower stock-based compensation. The six-month comparison also includes a prior-year tax benefit of $10.6m related mainly to the Abveris acquisition; the current period recorded a $0.8m tax provision.
- Higher interest income helped reduce net loss: quarterly interest income was $3.5m versus $0.3m, and six-month interest income was $6.5m versus $0.4m.
- A $5.3m six-month gain from changes in acquisition consideration fair value reduced reported operating expenses. The Abveris 2022 revenue target was not achieved, eliminating its contingent consideration liability; holdback fair value also declined.
- On May 3, 2023, after quarter-end, the board approved a reduction in force of approximately 270 employees, about 25% of the workforce. The company expects $9m–$11m of pretax severance and benefit charges, with possible additional facility-consolidation and impairment charges not yet estimable. Implementation is expected to begin in fiscal Q3 and be substantially completed by fiscal year-end.
Outlook, risks, and contingencies
- No specific revenue, earnings, or margin guidance is provided in this filing. Management expects continued investment and losses; it states that existing resources are expected to fund operations for at least one year, while noting future financing may be needed and may not be available on acceptable terms.
- Key execution risks include scaling Wilsonville manufacturing, controlling production costs and turnaround times, retaining customers and growing revenue, competition and pricing pressure, dependence on a single-source supplier for a critical component, and customer funding or order variability.
- A securities class action filed in December 2022 names the company and certain officers and alleges securities-law violations relating to statements made during 2019–2022. The case is at a preliminary stage; the company cannot estimate the likelihood or amount of any loss and intends to defend itself.
- Disclosure controls and procedures were deemed ineffective as of March 31, 2023 because a previously identified material weakness in internal control over financial reporting remained unresolved. Management reported additional review procedures and ongoing remediation efforts.
- Management said COVID-19 had not significantly affected results for the quarter, but future effects remain uncertain. It also warned inflationary cost pressures may not be fully offset by price increases.
Important facts for investors to verify
- Whether revenue growth can be sustained and whether the lower quarterly gross margin reflects temporary ramp costs or a more persistent cost structure.
- Actual cash burn, capital spending, and progress toward management’s stated minimum one-year funding horizon.
- Realized savings, severance costs, and operational effects of the announced workforce reduction, including any additional facility or impairment charges.
- Progress at the Wilsonville facility, production capacity, shipment quality, and the company’s ability to manage reliance on its critical single-source supplier.
- Remediation and independent testing of the material weakness in internal controls, and any developments in the securities class action.