Twist Bioscience Corporation — Form 10-Q Summary
Reporting period: Fiscal first quarter ended December 31, 2018; filed February 11, 2019. Financial statements are unaudited. Amounts below are U.S. dollars.
Business context
Twist develops and sells synthetic DNA products using a silicon-chip-based manufacturing platform. Products include synthetic genes, oligo pools, DNA libraries and next-generation sequencing (NGS) tools. The company is an early-stage business investing in manufacturing, product development and commercialization; it reported losses in every period since inception.
Financial performance and liquidity
| Metric | Quarter ended Dec. 31, 2017 | Quarter ended Dec. 31, 2018 |
|---|---|---|
| Revenue | $4.313 million | $11.492 million |
| Cost of revenue | $7.498 million | $11.857 million |
| Gross profit (loss) | $(3.185) million | $(0.365) million |
| Gross margin | Approximately (73.8)% | Approximately (3.2)% |
| Operating loss | $(16.751) million | $(22.897) million |
| Net loss | $(16.937) million | $(22.639) million |
| Net loss per share, basic and diluted | $(6.42) | $(1.18) |
| Operating cash used | $(16.016) million | $(21.684) million |
Revenue increased 166% year over year. The gross loss narrowed substantially, but operating and net losses increased as expenses grew. The lower loss per share in 2018 reflects a much larger weighted-average share count following the IPO and preferred-stock conversion; it does not indicate improved net income.
Research and development expense was $7.273 million, up 69%, and selling, general and administrative expense was $15.259 million, up 65%. Stock-based compensation rose to $1.864 million from $0.536 million.
At December 31, cash and cash equivalents were $66.459 million and short-term investments were $63.707 million, totaling $130.166 million. Total current assets were $146.663 million versus current liabilities of $18.998 million. Debt was approximately $9.859 million, including $3.333 million current and $6.526 million long-term. The company used $1.922 million for property and equipment purchases and reported $2.4 million of capital expenditure commitments.
Material changes versus comparable period and recent quarter
- Product mix shifted: NGS tools revenue rose to $3.758 million from $0.161 million year over year, representing 33% of quarterly revenue. Synthetic gene revenue rose to $6.511 million from $3.116 million; oligo pool and DNA library revenue increased more modestly.
- Healthcare revenue increased to $3.981 million from $0.568 million, while industrial chemicals remained the largest industry category at $5.346 million.
- The company shipped 71,246 genes, up 59% year over year, and reported 2,943 shipments versus 964. Management attributed growth to increased sales infrastructure, international expansion, e-commerce and customer adoption of NGS tools.
- Sequentially, revenue increased 37% from $8.4 million in the prior quarter. NGS tools revenue grew from $0.9 million to $3.8 million. Gene revenue from Ginkgo Bioworks, the largest customer, declined to $2.7 million from $3.2 million, while non-Ginkgo gene revenue rose 30% to $3.8 million.
- The October 2018 IPO raised approximately $69.6 million net. All redeemable preferred stock converted to common stock in connection with the IPO; common shares outstanding were 28.013 million at quarter-end.
Outlook, risks and unusual items
- Management stated that cash, investments and expected cash flows should fund working capital, capital expenditures and financing obligations for at least the next 12 months. The filing also warns that additional financing may be needed and may not be available on acceptable terms. No specific revenue or earnings guidance is provided.
- Management expects continuing losses and negative operating cash flow while investing in product development, manufacturing and sales. Growth depends on scaling production, customer adoption and entering adjacent markets, including biologics discovery and DNA data storage.
- Agilent Technologies litigation: Agilent alleges contract breaches and trade-secret misappropriation, among other claims. Twist disputes the allegations, filed a demurrer and counterclaims, and intends to defend itself. Trial was set for February 2020. The company said it could not predict the outcome or estimate a reasonably possible loss; no amount was accrued.
- Customer concentration is a risk: Ginkgo accounted for 34% of fiscal 2018 revenue, and management cautions that loss or reduced purchases from a major customer could materially affect results.
- The company identifies risks from its early-stage status, persistent losses and funding needs, competition and pricing pressure, manufacturing scale-up, dependence on a single-source critical component, intellectual-property disputes, and regulatory, cybersecurity and international expansion challenges.
- Debt covenants restrict certain actions; substantially all assets other than intellectual property secure the credit facility. The company reported no off-balance-sheet arrangements. It also purchased $1.2 million of raw materials from a related-party investor during the quarter.
Important facts for investors to verify
- Whether NGS tools revenue and customer adoption continue to grow, and whether the product mix supports improved gross margins.
- Revenue concentration and purchasing trends for Ginkgo Bioworks and other major customers.
- Cash burn, capital expenditure needs, debt obligations and the assumptions underlying management’s stated 12-month-plus liquidity runway.
- Developments, potential costs and any financial impact of the Agilent litigation; no loss estimate was provided.
- Manufacturing capacity, supplier continuity and the company’s ability to sustain growth without further financing or significant shareholder dilution.