Twist Bioscience Corporation — Q3 FY2022 Form 10-Q
Reporting period: Three and nine months ended June 30, 2022; fiscal year ends September 30. Financial statements are unaudited. Unless stated otherwise, amounts are in U.S. dollars.
Business context and performance
Twist sells synthetic DNA products and related services using its silicon-chip DNA synthesis platform. Products include synthetic genes, oligo pools, DNA libraries, next-generation sequencing (NGS) tools and antibody discovery services. The quarter’s results include Abveris, acquired December 1, 2021. Twist reported approximately 1,900 customers in the quarter, versus 1,800 a year earlier.
Key financial metrics
| Metric | Q3 FY2022 | Q3 FY2021 | Nine months FY2022 | Nine months FY2021 |
|---|---|---|---|---|
| Revenue | $56.1 million | $35.0 million | $146.3 million | $94.4 million |
| Gross margin | 45% (company-reported) | 40% | Approximately 40% | Approximately 38% |
| Operating loss | $61.2 million | $42.1 million | $177.9 million | $112.9 million |
| Net loss | $60.5 million | $40.0 million | $166.7 million | $110.9 million |
| Net loss per share, diluted | $1.08 | $0.82 | $3.15 | $2.32 |
| Cash used in operations | Not separately stated for quarter | Not separately stated for quarter | $123.1 million | $77.4 million |
At June 30, 2022, cash and cash equivalents were $376.2 million and short-term investments were $151.3 million, totaling $527.6 million. Current assets were $624.1 million and current liabilities were $92.7 million. Total liabilities were $159.0 million and stockholders’ equity was $820.7 million. The balance sheet reported no current long-term debt; the company repaid $1.6 million of long-term debt during the nine-month period. Operating lease liabilities totaled $78.6 million, including current and non-current portions.
For the nine months, investing activities used $235.7 million, including $85.4 million of property and equipment purchases and $8.2 million for acquisitions; financing activities provided $269.3 million, principally from a $269.8 million net public offering. Capital expenditure commitments were $18.8 million at quarter-end. Management said existing funds were expected to fund operations for at least one year.
Changes versus comparable periods
- Quarterly revenue rose 60% year over year; nine-month revenue rose 55%. Quarterly growth was driven mainly by NGS tools, synthetic genes and antibody discovery. Genes shipped increased 52% in the quarter and 47% for the nine-month period.
- NGS tools contributed $27.8 million, or 49% of quarterly revenue; synthetic genes contributed $17.4 million, and antibody discovery $6.2 million. Healthcare generated 52% of quarterly revenue.
- Quarterly gross margin improved to 45% from 40%, while cost of revenue rose 48% year over year. Operating expenses increased substantially: R&D rose 86% and SG&A 56%, reflecting increased headcount, stock-based compensation, production and research costs, and acquired operations.
- Quarterly net loss widened to $60.5 million from $40.0 million. Nine-month operating cash use increased to $123.1 million from $77.4 million.
- Cash and cash equivalents declined from $465.8 million at September 30, 2021, while short-term investments increased from $12.0 million. Total cash, cash equivalents and short-term investments increased to $527.6 million from $477.9 million, primarily reflecting the February 2022 equity offering.
Outlook, commentary and notable risks
- The filing gives no specific revenue or earnings guidance. Management expects losses and negative operating cash flow to continue as it invests in product development, manufacturing capacity, sales and marketing. Management stated existing funds were expected to cover operations for at least the next 12 months; additional financing may be needed beyond that period.
- Twist recognized a $12.3 million nine-month gain from reduced fair values of acquisition-related contingent consideration and holdbacks, including a $4.2 million gain in the quarter. The Abveris acquisition also generated a $10.5 million income-tax benefit in the nine-month period. These items benefited reported results and are not equivalent to recurring operating earnings.
- Abveris consideration was approximately $102.6 million, including cash, stock, contingent consideration and holdbacks. The acquisition added preliminary goodwill of $61.8 million and intangible assets of $46.5 million.
- Twist consolidated Revelar, a variable interest entity, and absorbed its losses: approximately $6.0 million in the quarter and $13.1 million for nine months. The licensed antibody does not neutralize BA.4 and BA.5 variants; Revelar is seeking a partner. Twist said it does not intend to provide further funding in the foreseeable future.
- Disclosure controls were deemed ineffective at June 30, 2022 because previously identified material weaknesses in financial reporting controls remained unremediated. Management reported additional review procedures and said the statements fairly present results, but remediation was ongoing.
- Key risks include persistent losses and cash burn, customer funding and demand variability, manufacturing scale-up and reliance on a single-source critical component, competition and pricing pressure, inflation and supply costs, acquisition integration, and the effectiveness of internal controls. The company also disclosed that two customers canceled orders in Q3 due to funding concerns.
Investor verification priorities
- Track whether revenue growth—particularly in NGS tools, synthetic genes and antibody discovery—translates into durable margin improvement and reduced losses.
- Assess cash burn, capital spending and funding runway against management’s stated at-least-one-year liquidity expectation.
- Separate recurring operating performance from acquisition-related fair-value gains and tax benefits; review the final Abveris purchase-price allocation and contingent obligations.
- Monitor Wilsonville manufacturing expansion, capacity utilization, capital commitments and the single-source supply exposure.
- Confirm remediation and independent testing of the disclosed material weaknesses in financial reporting controls.