Twist Bioscience Corporation: Q1 FY2021 Form 10-Q
Reporting period: Three months ended December 31, 2020. Amounts are in U.S. dollars; financial statement amounts are in millions unless noted. The filing describes Twist as a synthetic biology and genomics company selling synthetic DNA products, including genes, oligo pools, NGS tools, and DNA and biopharma libraries.
Financial results and liquidity
| Metric | Q1 FY2021 | Q1 FY2020 |
|---|---|---|
| Revenue | $28.2 | $17.2 |
| Gross profit / gross margin | $10.0 / 35.5% | $3.4 / 19.7% |
| Operating expenses | $61.0 | $73.0 |
| Operating loss | $(32.8) | $(55.8) |
| Net loss | $(32.9) | $(55.6) |
| Net loss per share, basic and diluted | $(0.72) | $(1.69) |
| Cash used in operating activities | $(24.9) | $(34.9) |
Revenue grew 64% year over year. NGS tools generated $15.6 million, up from $7.0 million; synthetic genes were $8.9 million, versus $7.8 million. Healthcare accounted for $16.0 million, or 57% of revenue, compared with $5.8 million, or 34%, a year earlier. Gross margin improved as cost of revenue fell to 65% of revenue from 80%.
Quarterly revenue declined from $32.4 million in the September 2020 quarter. Management attributed the sequential drop in NGS tools revenue partly to a $9.0 million large-customer order in the prior quarter; the current quarter included a $4.6 million order from another large customer. Synthetic gene revenue also declined sequentially, including lower non-Ginkgo sales.
At December 31, 2020, cash and cash equivalents were $348.8 million and short-term investments were $238.5 million, totaling $587.3 million. Current assets were $634.4 million and current liabilities were $37.1 million. Total debt carrying value was approximately $4.0 million, including a $3.3 million principal balance; the company had not drawn on its $10 million revolving facility and was in covenant compliance. Management said available funds should cover operations, capital expenditures, and debt service for at least one year from issuance of the financial statements.
Operating cash use was $24.9 million. Investing activities used $45.9 million, primarily reflecting net purchases of investments and $3.6 million of property and equipment. Financing activities provided $326.9 million, principally from the December public offering, which generated $323.9 million net proceeds. The quarter-end accumulated deficit was $491.4 million.
Changes, outlook, and notable items
- The net loss narrowed year over year, with the prior-year quarter including a $22.5 million litigation settlement expense. That settlement was paid in February 2020; no settlement expense was recorded in the current quarter.
- R&D expense increased 36% to $14.0 million, primarily from higher payroll, stock compensation, and engineering services. SG&A rose 9% to $28.8 million, with higher headcount and professional services partly offset by lower legal and travel costs.
- The company served approximately 1,500 customers, versus 1,000 a year earlier. Ginkgo Bioworks revenue was $1.4 million, or 5% of total revenue, compared with $2.1 million, or 12%, in the prior-year quarter.
- Management reported no significant COVID-19 effect on current-quarter revenue or financial results, but said the pandemic could materially affect future operations and results; the extent and timing were uncertain. The filing gives no specific revenue or earnings guidance.
- Twist signed a 12-year lease for a 110,995-square-foot Wilsonville, Oregon facility. The lease had not commenced at quarter-end; rent was expected to begin in Q1 2022. The filing states future minimum lease payments of $27.9 million and an initial annual base rent of approximately $1.7 million, with 3% annual increases and a $13.3 million tenant improvement allowance.
- Disclosure controls and procedures were deemed ineffective because of previously identified material weaknesses in journal entries, revenue order entry, and IT general controls. Remediation was underway but not yet considered complete.
- The company has incurred losses since inception and expects losses to continue. Key risks include revenue growth and customer concentration, manufacturing capacity and dependence on a single-source critical component, competition, financing needs, COVID-19 uncertainty, and intellectual property and regulatory risks.
Key facts for investors to verify
- How much of revenue growth and margin improvement is repeatable, given large customer orders and the change in product and industry mix?
- Whether NGS tools and synthetic gene demand sustain growth, and how sequential revenue trends develop after the prior-quarter large order.
- Progress in addressing the disclosed internal-control material weaknesses and whether remediation is tested and effective.
- Cash-burn trajectory and funding needs relative to management’s stated minimum 12-month liquidity outlook.
- Timing, buildout, and total economic commitments for the Wilsonville facility, including lease payments and capital requirements.
- The filing’s market-risk discussion states cash and cash equivalents of $384.8 million at December 31, 2020, while the balance sheet reports $348.8 million. Verify the correct figure; the filing text does not reconcile this discrepancy.