Twist Bioscience Corporation — Form 10-Q summary
Reporting period: Fiscal second quarter and first six months ended March 31, 2019. Financial amounts are in U.S. dollars; millions unless otherwise stated. Twist develops and sells synthetic DNA products, including synthetic genes, oligo pools, DNA libraries and next-generation sequencing (NGS) tools.
Financial performance and position
| Metric | Three months ended Mar. 31, 2019 | Year-over-year change | Six months ended Mar. 31, 2019 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $13.6 million | +120% | $25.0 million | +139% |
| Gross profit (loss) | $1.8 million | Improved from $(1.9) million | $1.4 million | Improved from $(5.1) million |
| Gross margin | 13.0% | Improved from (31.3)% | 5.6% | Improved from (48.8)% |
| Operating loss | $(26.3) million | Widened from $(16.6) million | $(49.2) million | Widened from $(33.4) million |
| Net loss | $(25.9) million | Versus $(16.9) million | $(48.6) million | Versus $(33.8) million |
| Operating cash used | — | — | $(42.5) million | Versus $(32.5) million |
Quarterly net loss per share was $(0.93), compared with $(6.32) in the prior-year quarter; weighted-average shares rose substantially following the IPO and preferred-stock conversion, so per-share comparisons reflect the enlarged share base. Six-month loss per share was $(2.06), versus $(12.74).
- Revenue mix: Quarterly NGS tools revenue was $5.5 million (41% of revenue), versus $0.6 million a year earlier. Synthetic gene revenue was $6.1 million, up from $4.6 million. For the six-month period, NGS tools revenue was $9.3 million and synthetic genes were $12.6 million.
- Costs and margins: Quarterly cost of revenue increased 46% to $11.8 million, slower than revenue growth; management cited increased production, materials and staffing as capacity was expanded. R&D rose 89% to $8.9 million and SG&A rose 92% to $19.1 million, including investment in personnel, sales and marketing, public-company costs, stock compensation and legal expenses.
- Liquidity: At March 31, cash and cash equivalents were $28.7 million and short-term investments were $75.6 million, totaling $104.3 million. Current assets were $121.0 million and current liabilities $18.6 million. Cash, cash equivalents and restricted cash totaled $29.5 million.
- Debt and capital spending: Long-term debt was $9.2 million, including $3.3 million current and $5.8 million non-current. Six-month capital expenditures were $5.7 million; capital expenditure commitments were $6.5 million.
- Financing and equity: The October 2018 IPO generated approximately $69.6 million in net proceeds. Preferred stock converted to common stock in connection with the IPO. Common shares outstanding were 28.0 million at March 31, 2019; 28.04 million were outstanding April 29.
Material changes versus the prior comparable period
- Revenue growth reflected NGS tools adoption and commercial-volume ramp-up, as well as higher synthetic-gene revenue. Six-month gene shipments increased 21% to 140,333; quarterly shipments were 69,087, down 3% year over year.
- Healthcare customers represented 38% of quarterly revenue, compared with 19% a year earlier; industrial chemicals represented 40%, compared with 59%. The United States accounted for 69% of quarterly revenue.
- Operating losses expanded as R&D and SG&A investments grew faster than revenue. Six-month operating cash use increased by $10.0 million year over year.
- Cash and short-term investments increased from $80.8 million at September 30, 2018 to $104.3 million at March 31, 2019, supported by the IPO, despite operating cash burn and investment purchases.
Outlook, management commentary and risks
- Management expects continued losses while investing in product development, manufacturing, sales and marketing. It believes cash, investments and operating resources will fund operations for at least 12 months from issuance of the financial statements, but says additional financing may be required and cannot be assured on acceptable terms.
- Growth priorities include scaling manufacturing, expanding NGS tools and international sales, developing biologics drug-discovery products and exploring DNA data storage. The filing identifies moving manufacturing operations to South San Francisco and obtaining relevant ISO certifications as execution risks.
- The company reported an ongoing Agilent lawsuit alleging trade-secret misappropriation and related claims. Twist disputes the allegations and is pursuing counterclaims; trial was set for February 24, 2020. The company said it could not estimate a reasonably possible loss and recorded no accrual.
- Other highlighted risks include dependence on a single-source component supplier, customer and research-budget variability, competition and pricing pressure, reliance on key customers, manufacturing scale-up, intellectual-property protection, cybersecurity, and regulatory and international expansion risks. The filing notes Ginkgo Bioworks accounted for 34% of fiscal 2018 revenue; its quarterly synthetic-gene revenue was $2.2 million, down from $2.7 million sequentially.
- No numerical revenue or earnings guidance is provided in the supplied filing text. Management cautions that results may fluctuate and that further capital may be needed. Disclosure controls were assessed as effective at the reasonable-assurance level.
Important facts for investors to verify
- Whether NGS tools adoption and commercial-volume growth continue, and whether production scaling improves gross margins.
- Cash burn, capital commitments and debt-service requirements relative to management’s stated 12-month liquidity expectation.
- Customer concentration, including current revenue dependence on Ginkgo Bioworks, and the sustainability of e-commerce-driven sales.
- Developments, costs and potential business impact of the Agilent litigation; no loss estimate was available in this filing.
- Potential dilution from outstanding options and restricted stock units, future equity needs, and the execution of facility relocation and ISO certification plans.