Twist Bioscience Corporation — Q1 FY2020 Form 10-Q
Reporting period: Three months ended December 31, 2019; filed February 10, 2020. Amounts below are in U.S. dollars. The company develops and sells synthetic DNA products, including synthetic genes, oligo pools, DNA libraries and next-generation sequencing (NGS) tools.
Financial performance and liquidity
| Metric | Q1 FY2020 | Q1 FY2019 |
|---|---|---|
| Revenue | $17.2 million | $11.5 million |
| Cost of revenue | $13.8 million | $11.9 million |
| Gross margin | 19.6% | (3.2%) |
| Operating loss | $55.8 million | $22.9 million |
| Net loss | $55.6 million | $22.6 million |
| Net loss per share, basic and diluted | $1.69 | $1.18 |
| Cash used in operating activities | $34.9 million | $21.7 million |
Revenue grew 49% year over year. NGS tools generated $7.0 million, up from $3.8 million; synthetic genes generated $7.8 million, up from $6.5 million. The company shipped 79,851 genes, 12% more than a year earlier. Calculated gross margin improved to 19.6% from negative 3.2%.
Operating expenses were $73.0 million, including a $22.5 million litigation settlement accrual. R&D expense rose 42% to $10.3 million; selling, general and administrative expense rose 73% to $26.4 million. The reported loss includes the settlement charge.
At December 31, cash and cash equivalents were $26.0 million and short-term investments were $77.1 million, totaling $103.1 million, versus $138.1 million at September 30, 2019. Total debt was approximately $7.0 million, including $3.3 million current. Current assets were $129.3 million and current liabilities $57.8 million. Operating lease liabilities totaled $35.9 million. The company reported $34.9 million of operating cash outflow and $2.1 million of financing cash inflow for the quarter.
Material changes and unusual items
- Revenue growth was led by NGS tools adoption and higher synthetic gene sales, including the launch of longer gene products. EMEA revenue increased to $5.9 million from $2.4 million; U.S. revenue was $9.8 million versus $8.6 million.
- The $22.5 million Agilent settlement was agreed on February 6, 2020, after quarter-end, but accrued in the quarter ended December 31. Twist agreed to pay the amount within 14 days. The agreement provides releases of litigation-related claims and a limited non-exclusive trade-secret license; it contains no admission of liability or wrongdoing. Court dismissal was expected in February 2020.
- In January 2020, the company sold shares under its at-the-market program for $46.0 million net proceeds. The program authorized sales of up to $50.0 million in aggregate, and the January issuance represents additional equity financing after quarter-end.
- Adoption of the new lease accounting standard on October 1, 2019 added $35.8 million of right-of-use assets and $34.3 million of lease liabilities; the company said the adoption materially affected the balance sheet but not operations.
- Weighted-average shares used in loss-per-share calculations increased to 33.0 million from 19.2 million.
Outlook, commentary and risks
Management stated that cash and cash equivalents and available resources were expected to fund operating expenses, capital spending and debt service for at least one year from issuance of the financial statements. The filing provides no specific revenue or earnings guidance. Management expects continued losses while investing in product development, manufacturing, sales and marketing; the company has incurred losses since inception and reported an accumulated deficit of $374.2 million.
Key disclosed risks include the need for additional financing beyond the stated runway; execution and manufacturing scale-up; competition and pricing pressure; reliance on a single-source supplier for a critical manufacturing component; dependence on significant customers, including Ginkgo Bioworks; and intellectual-property, regulatory, international-expansion and customer-budget risks. The filing also identified the newly reported coronavirus outbreak as a potential disruption risk, but did not quantify any effect on results. Management reported disclosure controls were effective at the reasonable-assurance level and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the Agilent settlement was paid as agreed, the case was formally dismissed, and the license terms have the expected operational effect.
- Cash runway after the settlement payment, quarterly operating cash burn, and the impact of the January ATM proceeds and associated share dilution.
- Whether NGS growth and improved gross margin persist, and how product mix, manufacturing costs and capacity affect margins.
- Revenue concentration and trends in major customers, particularly Ginkgo Bioworks, as well as international revenue and collection exposure.
- Debt covenant compliance, lease obligations, and the status of the critical single-source supplier and manufacturing expansion plans.