Twist Bioscience Corporation — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2021. The financial statements are unaudited; amounts below are in U.S. dollars 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. It reported one segment and served approximately 1,836 customers during the quarter, compared with 1,377 a year earlier.
Financial performance
| Metric | Three months ended June 30, 2021 | Year-over-year comparison | Nine months ended June 30, 2021 | Year-over-year comparison |
|---|---|---|---|---|
| Revenue | $35.0 million | Up 65% | $94.4 million | Up 64% |
| Cost of revenue | $20.9 million | Up 27% | $58.1 million | Up 33% |
| Gross margin | Approximately 40% | Up from 22% | Approximately 38% | Up from 24% |
| Operating expenses | $77.1 million | Up from $49.4 million | $207.3 million | Up from $173.8 million |
| Loss from operations | $42.1 million | Versus $28.2 million | $112.9 million | Versus $116.1 million |
| Net loss | $40.0 million; $0.82 per share | Versus $28.2 million; $0.67 per share | $110.9 million; $2.32 per share | Versus $115.6 million; $3.09 per share |
NGS tools drove much of the revenue growth: quarterly NGS tools revenue was $18.7 million, versus $9.1 million, and represented 53% of revenue. Healthcare revenue rose to $17.4 million from $8.6 million. For the nine-month period, NGS tools revenue increased to $51.2 million from $23.8 million. Synthetic gene pricing was described as relatively constant; management attributed growth primarily to broader customer adoption, product launches and international expansion.
Quarterly research and development expense increased 90% to $19.8 million, primarily from higher staffing and data-storage development activity. Selling, general and administrative expense rose 53% to $34.5 million, reflecting commercial hiring and related costs. Nine-month net loss improved year over year, partly because the prior-year period included a $22.5 million Agilent litigation settlement; quarterly net loss increased.
Cash, liquidity and debt
- At June 30, 2021, cash and cash equivalents were $475.3 million and short-term investments were $44.1 million, for combined cash and short-term investments of $519.4 million.
- Working capital was approximately $521.8 million, based on current assets of $576.6 million and current liabilities of $54.8 million.
- Nine-month operating cash use was $77.4 million, compared with $117.1 million in the prior-year period. Investing activities provided $132.2 million, mainly reflecting investment maturities net of purchases; financing activities provided $327.6 million, including $323.9 million of net public-offering proceeds.
- Balance-sheet long-term debt was $2.4 million, all current; no amount was drawn on the $10 million revolving facility. The company reported compliance with loan covenants.
- Management said available proceeds and cash were expected to fund operations for at least one year from issuance of the financial statements. The company has incurred losses since inception and does not expect positive operating cash flow in the near term.
Material changes, outlook and notable items
- Twist acquired iGenomX on June 14, 2021, adding NGS multiplex library-preparation capabilities. The preliminary acquisition allocation included $21.5 million of goodwill and $18.4 million of intangible assets. Acquisition-related contingent consideration and indemnity holdback were remeasured, producing a $1.9 million quarterly expense; acquisition-related deferred taxes contributed a $2.4 million income-tax benefit.
- The company expanded planned manufacturing and operating capacity through leases, including additional Wilsonville, Oregon space intended to support new offerings such as DNA data storage. It reported $24.7 million in capital-expenditure commitments and substantial future lease payments. A further seven-year South San Francisco office lease was entered into on July 28, 2021.
- No specific numerical revenue or earnings guidance is provided in the filing. Management cited continued investment in research and development, manufacturing, sales and marketing, and product expansion. It also cautioned that actual results may differ materially from expectations.
- Management said COVID-19 had not significantly affected results through June 30, 2021, but its future effects remained uncertain, including potential impacts on demand, supply chains, staffing and operations.
- Disclosure controls and procedures were deemed ineffective as of June 30, 2021 because previously identified material weaknesses in internal control over financial reporting remained. Remediation was underway, but management said the weaknesses would not be considered resolved until controls had operated effectively for a sufficient period and been tested.
Key investor verification points
- Track whether NGS tools and other product lines sustain growth, and whether revenue remains concentrated in NGS tools and healthcare.
- Monitor gross-margin progress against product mix, production costs and continued investment needs, alongside operating cash burn and capital spending.
- Review progress and commercial contribution from the iGenomX acquisition, including final purchase-accounting adjustments and contingent consideration.
- Assess the scale, timing and utilization of new facilities and lease commitments, particularly Wilsonville expansion and planned data-storage activities.
- Follow remediation and independent testing of the disclosed internal-control material weaknesses.
- Consider the company’s continuing losses, potential need for future financing, COVID-19 and supply-chain risks, and dependence on a single-source supplier for a critical synthesis component.