Twist Bioscience Corporation — FY2020 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended September 30, 2020; fiscal Q4 ended on that date. Twist sells synthetic DNA products, including synthetic genes, oligo pools, next-generation sequencing (NGS) tools, and DNA and biopharma libraries, using a silicon-based DNA synthesis platform. It served approximately 2,200 customers in FY2020.
Key financial results
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $90.1 million | $54.4 million |
| Gross profit / margin | $28.7 million / 31.8% | $7.0 million / 12.8% |
| Operating loss | $140.1 million | $108.9 million |
| Net loss | $139.9 million | $107.7 million |
| Net loss per share, basic and diluted | $3.57 | $3.92 |
| Net cash used in operating activities | $142.3 million | $87.9 million |
- Fiscal Q4 revenue was $32.4 million, compared with $15.7 million in the prior-year quarter; Q4 net loss was $24.3 million versus $31.2 million.
- NGS tools generated $44.0 million (49% of FY2020 revenue), up from $21.0 million. Synthetic gene revenue was $35.2 million, versus $26.7 million; DNA and biopharma libraries contributed $6.3 million.
- At September 30, 2020, cash and cash equivalents were $93.7 million and short-term investments were $196.3 million, totaling $290.0 million. Working capital was $298.8 million; total assets were $398.9 million and total liabilities were $62.6 million.
- Long-term debt, including current portion, was $4.7 million; principal maturities were $3.3 million in FY2021 and $0.8 million in FY2022. The company also had $31.2 million of operating lease liabilities.
- Financing activities provided $303.7 million, principally from public and at-the-market equity offerings. Common shares outstanding rose from 32.9 million to 45.1 million during the year.
Material changes versus FY2019
- Revenue increased 66%, driven primarily by NGS adoption and growth in synthetic genes and libraries. Gross margin improved to 31.8% from 12.8%.
- Operating expenses increased to $230.2 million from $163.2 million. FY2020 included a $22.5 million litigation settlement expense; excluding that unusual item, operating expenses were still higher year over year.
- Net loss widened to $139.9 million from $107.7 million, and operating cash use rose to $142.3 million from $87.9 million.
- Healthcare became the largest end-market category at $40.0 million, or 44% of revenue, compared with $17.4 million, or 32%, in FY2019. International customers accounted for approximately 36% of revenue.
Outlook, commentary, and risks
- Management said existing cash and investments were expected to fund operating expenses, capital expenditures, and debt service for at least one year from issuance of the financial statements. No specific FY2021 revenue or earnings guidance is provided in the supplied filing text.
- Management reported that COVID-19 had not significantly affected FY2020 results, but warned that future effects could be material, including through demand, academic research funding, supply chains, staffing, and operations.
- The company expects continued losses and negative operating cash flow while investing in product development, manufacturing, and sales. It may require additional financing beyond the stated runway, which could dilute shareholders or impose debt restrictions.
- Key business risks include dependence on a single-source supplier for a critical synthesis component, manufacturing concentration at its South San Francisco facility, customer concentration, intense competition and pricing pressure, regulatory uncertainty, and execution risks in antibody discovery and DNA data storage.
- The Agilent litigation was settled in February 2020 for $22.5 million in cash, with no admission of liability or wrongdoing. The settlement also included a limited non-exclusive trade-secret license.
- Management and the auditor identified material weaknesses in financial reporting controls related to journal-entry segregation and review, revenue order-entry accuracy and segregation of duties, and IT general controls. The weaknesses did not result in a reported financial-statement misstatement; remediation was underway and was not yet considered complete.
Most important facts for investors to verify
- Whether NGS and synthetic-gene growth can continue while gross margin improves and operating losses and cash burn are controlled.
- How long the $290.0 million cash-and-investment balance supports operations under actual spending and investment plans.
- Progress and independent testing of the remediation plan for the material weaknesses, especially revenue controls and financial-system access.
- Exposure to major customers and the single-source supplier, and the status of supply-chain diversification and manufacturing capacity.
- Commercial progress, regulatory status, and economics of antibody partnerships, COVID-related products, and the DNA data-storage program.