Twist Bioscience Corporation (NASDAQ: TWST) — Q2 FY2021 Form 10-Q
Reporting period: Quarter and six months ended March 31, 2021. Fiscal year ends September 30. Amounts below are in U.S. dollars; financial statement figures are generally in millions unless noted.
Business context
Twist develops and sells synthetic DNA products using its silicon-chip DNA synthesis platform, including synthetic genes, oligo pools, next-generation sequencing (NGS) tools, and DNA and biopharma libraries. The company reported one operating segment and serves customers across industrial, academic, healthcare, and agricultural markets. It remains unprofitable and expects continued investment in product development, manufacturing, and sales.
Key financial metrics
| Metric | Q2 FY2021 | Q2 FY2020 | Six months FY2021 | Six months FY2020 |
|---|---|---|---|---|
| Revenue | $31.2 | $19.3 | $59.4 | $36.5 |
| Gross profit / gross margin | $12.2 / 39.0% | $5.7 / 29.7% | $22.2 / 37.4% | $9.1 / 25.0% |
| Operating loss | $(38.0) | $(32.1) | $(70.8) | $(87.9) |
| Net loss | $(37.9) | $(31.8) | $(70.8) | $(87.4) |
| Basic and diluted loss per share | $(0.78) | $(0.85) | $(1.50) | $(2.49) |
- Quarterly revenue increased 62% year over year; six-month revenue increased 63%.
- NGS tools revenue was $17.0 million for the quarter, up from $7.7 million, and represented 54% of quarterly revenue. DNA and biopharma libraries revenue was $3.2 million, versus $1.4 million.
- Healthcare revenue rose to $16.6 million from $5.8 million, accounting for 53% of quarterly revenue. Synthetic gene revenue was nearly flat at $9.2 million.
- Quarterly cost of revenue was 61% of sales, compared with 70% a year earlier; the resulting gross-margin improvement reflected higher volumes and product mix. The six-month cost-of-revenue ratio was 63% versus 75% as reported in MD&A.
- Quarterly R&D expense increased 49% to $15.8 million and SG&A increased 26% to $34.4 million. Higher payroll, headcount, and stock compensation contributed to expense growth.
Cash flow, liquidity, and debt
- At March 31, cash and cash equivalents were $399.3 million and short-term investments were $156.3 million, totaling $555.7 million. Total current assets were $608.0 million and current liabilities were $40.4 million.
- For the six months, operating cash use was $49.5 million, compared with $93.6 million a year earlier. Capital expenditures were $12.0 million; cash flow from operations less capital expenditures was approximately negative $61.5 million.
- Investing activities provided $27.7 million, principally reflecting net investment maturities. Financing activities provided $328.4 million, including $323.9 million net proceeds from a December 2020 public offering.
- At quarter-end, the balance sheet showed $3.2 million of current debt carrying value and no long-term debt carrying value. The filing’s maturity schedule lists $2.5 million of remaining principal, with repayments scheduled through fiscal 2022. No borrowings were outstanding on the $10 million revolving facility; the company reported covenant compliance.
- Management stated that available funding was expected to support operations for at least one year from issuance of the financial statements. The company has accumulated losses of $529.3 million and has not generated positive operating cash flow since inception.
Material changes, outlook, and risks
- Revenue growth was driven mainly by greater NGS tools adoption and higher DNA/library sales. The company said pricing changes were not a meaningful driver; synthetic gene pricing was relatively stable, while product mix changed.
- Six-month operating loss narrowed year over year, in part because the prior-year period included a $22.5 million Agilent litigation settlement; current-period operating expenses increased in several categories. In Q2 alone, operating and net losses widened year over year.
- No specific revenue or earnings guidance for the remainder of FY2021 is provided in the filing. Management expects losses to continue and identifies ongoing investment in R&D, manufacturing, and commercialization.
- COVID-19 had not significantly affected results in the first half, but the company said future effects remained uncertain and could be material. Risks cited include supply-chain disruption, customer budget reductions, shipping constraints, and workforce or control-process disruptions.
- Customer concentration is a monitoring point: Ginkgo Bioworks contributed $2.4 million, or 8% of quarterly revenue, versus $3.9 million, or 20%, a year earlier. The company served approximately 1,692 customers during the quarter.
- Expansion commitments increased. A 12-year Wilsonville, Oregon lease for a 110,995-square-foot facility had not commenced at quarter-end; expected initial annual base rent is about $1.7 million, and the filing lists $27.9 million in future minimum payments. Subsequent to quarter-end, the company amended the lease to add approximately 101,000 square feet, with estimated aggregate rent of $17.6 million for the added premises over the initial term. It also entered a five-year warehouse lease in Brisbane, California.
- Disclosure controls and procedures were deemed ineffective at March 31 due to previously identified material weaknesses involving journal entries, revenue order entry, and IT general controls. Remediation was underway but had not yet been shown to operate effectively for a sufficient period.
- The company disclosed ordinary-course legal claims and said their resolution was not expected to have a material adverse effect. It also identifies competition, dependence on a single-source critical component, manufacturing capacity, intellectual property, and potential future financing needs as significant risks.
Important facts for investors to verify
- Whether NGS tools and healthcare-driven revenue growth persists and translates into sustainable gross-margin improvement.
- Whether operating cash burn, capital spending, and continuing losses remain consistent with management’s stated liquidity runway.
- The timing, cost, capacity benefits, and execution risks of the expanded Wilsonville and Brisbane facilities and associated lease obligations.
- Progress and independent testing of remediation for the disclosed material weaknesses in financial reporting controls.
- Changes in Ginkgo and other large-customer exposure, and any supply disruption involving the critical single-source component.