Twist Bioscience Corporation — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2020. Financial figures are in U.S. dollars; amounts are in millions unless otherwise stated.
Business context and reporting period
Twist develops and sells synthetic DNA products using a proprietary silicon-chip DNA synthesis platform. Products include synthetic genes, oligo pools, next-generation sequencing (NGS) tools, and DNA and biopharma libraries. The company reported one operating segment and continued to invest in manufacturing, research and development, and commercial expansion.
Financial performance and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $21.2 | $13.6 | $57.7 | $38.6 |
| Gross profit / margin | $4.7 / 22.3% | $2.2 / 16.2% | $13.8 / 24.0% | $3.6 / 9.3% |
| Operating loss | $(28.2) | $(28.1) | $(116.1) | $(77.3) |
| Net loss | $(28.2) | $(27.9) | $(115.6) | $(76.5) |
| Net loss per share | $(0.67) | $(0.92) | $(3.09) | $(2.97) |
Q3 revenue increased 56% year over year; nine-month revenue rose 49%. Q3 growth reflected higher synthetic-gene and NGS-tools sales. NGS tools generated $9.1 million in Q3, including products related to COVID-19. Healthcare represented 40% of Q3 revenue, compared with 24% a year earlier. Q3 gene shipments increased 22% year over year.
Q3 gross margin improved, but the operating loss remained approximately unchanged as operating expenses continued to exceed revenue. Nine-month net loss increased, including a $22.5 million litigation-settlement charge recorded in the first quarter of fiscal 2020. The settlement payment was made in February.
Cash and cash equivalents were $207.9 million and short-term investments were $103.9 million at June 30, totaling $311.8 million. Net cash used in operating activities was $117.1 million for the nine months, versus $64.6 million a year earlier. Capital expenditures for property and equipment were $7.6 million. Financing activities provided $298.2 million, primarily from equity offerings.
Total debt was approximately $5.5 million at June 30, comprising $3.3 million current and $2.2 million long-term. Current liabilities were $31.4 million and current assets were $344.6 million. Operating lease liabilities totaled $32.4 million. Management stated that cash, cash equivalents and short-term investments were expected to fund operations for at least one year from issuance of the financial statements.
Material changes versus the prior comparable period
- Revenue growth was led by synthetic genes and NGS tools; management cited broader NGS customer adoption and sales of longer gene products. Product pricing was described as relatively stable.
- Quarterly cost of revenue rose 45%, less than revenue growth, and gross margin improved. Nine-month cost of revenue rose 25%.
- Q3 research and development expense increased 16% year over year; nine-month expense increased 25%, reflecting investment in DNA synthesis capabilities, partly offset by a $1.5 million reimbursement.
- Q3 selling, general and administrative expense rose 5%; nine-month expense increased 37%, including higher personnel, stock compensation and legal costs. The Agilent matter was settled for $22.5 million, with a limited non-exclusive license included in the agreement.
- Common shares outstanding increased to 44.6 million from 32.9 million at September 30, 2019. Public offerings generated substantial financing proceeds, including $107.5 million net from the June 2020 offering.
Outlook, commentary, risks and unusual items
The filing does not provide a clear numerical revenue or earnings forecast. Management said available liquidity was sufficient for at least one year, while noting that additional financing may be needed beyond that period. It expects continued investment and losses.
Management said results through the quarter were not significantly affected by COVID-19, but warned that future effects could be material and were uncertain. Risks cited include possible changes in demand, supply-chain disruption, shipment delays and costs, constraints on sales activity, and reduced academic research funding. The company increased inventory and adopted workplace safety and remote-work measures.
Other material risks include reliance on a single-source supplier for a critical manufacturing component, manufacturing concentration at its South San Francisco facility, competition and pricing pressure, customer concentration, and ongoing cash burn. The company also disclosed related-party raw-material purchases of $1.1 million in Q3. Adoption of lease accounting in October 2019 materially increased reported assets and liabilities but did not materially affect operating results. Management reported disclosure controls were effective at a reasonable-assurance level.
Important facts for investors to verify
- Whether revenue growth and improved gross margins continue, particularly for NGS tools and longer synthetic-gene products.
- Operating cash burn, capital needs, and the durability of management’s liquidity estimate; additional financing could dilute shareholders or add restrictions.
- Current customer concentration and the degree to which COVID-related NGS demand affects results.
- Continuity of critical-component supply and manufacturing capacity, including the company’s reliance on one principal facility.
- Potential ongoing costs or exposure from litigation, intellectual-property claims, and the Agilent settlement terms.