Twist Bioscience Corporation — Q1 FY2023 Form 10-Q
Reporting period: Three months ended December 31, 2022. The filing is unaudited. Twist develops and sells synthetic DNA products and related tools and services using its silicon-chip DNA synthesis platform.
Financial performance and liquidity
| Metric | Q1 FY2023 | Q1 FY2022 |
|---|---|---|
| Revenue | $54.2 million | $42.0 million |
| Gross profit / margin | $24.8 million / 46% | $15.0 million / 36% |
| Operating loss | $44.6 million | $55.9 million |
| Net loss | $41.8 million | $45.6 million |
| Net loss per share, diluted | $0.74 | $0.91 |
| Operating cash used | $54.1 million | $46.7 million |
| Capital expenditures | $11.8 million | $12.8 million |
- Revenue increased 29% year over year. Growth was led by NGS tools (+$5.1 million), antibody discovery (+$3.4 million) and synthetic genes (+$2.7 million). Healthcare represented 55% of revenue; NGS tools represented 45%.
- Gross margin improved to 46% from 36%. Management cited richer product mix sequentially; year-over-year cost of revenue rose 9%, less than revenue growth.
- R&D expense rose 38% to $31.2 million, primarily from increased headcount and related compensation, IT services and depreciation. SG&A declined 17% to $42.3 million, largely due to lower stock-based compensation.
- Cash and cash equivalents were $316.7 million and short-term investments were $122.0 million at quarter-end. Total current assets were $541.9 million versus current liabilities of $83.8 million. Management said existing resources should fund operations for at least one year from issuance of the statements.
- Cash, cash equivalents and restricted cash totaled $319.1 million at quarter-end, down $61.2 million during the quarter. Operating cash use was $54.1 million; investing and financing used $7.0 million and $0.4 million, respectively.
- The balance sheet reports $94.0 million of operating lease liabilities. No separate debt balance is presented in the balance-sheet table; the filing references a credit facility and says lower outstanding borrowing reduced interest expense.
Changes, outlook and notable matters
- Compared with the prior-year quarter, revenue and gross margin improved, while net loss narrowed. Operating cash use increased by $7.4 million.
- Sequentially, revenue fell from $57.3 million in the September 2022 quarter to $54.2 million. Management attributed lower NGS tools revenue partly to a strong prior quarter, COVID-related disruption in China, and large customers deferring deliveries to the March 2023 quarter.
- Management highlighted the planned Fast Genes launch in fall 2023 and ongoing investment in the Wilsonville, Oregon manufacturing facility. Manufacturing began there in January 2023. The filing provides no quantitative revenue or earnings guidance.
- Management expects continued losses and negative operating cash flow as it invests in product development, manufacturing and commercialization. It said funding beyond the stated one-year period may require additional financing, with no assurance of acceptable terms.
- Unusual items benefited reported expenses: the Abveris 2022 revenue target was not met, reversing $9.9 million of previously recognized stock-based compensation and eliminating $2.1 million of contingent consideration. A $4.1 million gain was recorded for changes in acquisition consideration and holdbacks. Stock-based compensation was a net credit of $2.3 million for the quarter.
- A securities class action filed in December 2022 alleges misleading statements concerning, among other matters, DNA-chip technology and accounting practices. The case is preliminary; the company says it cannot estimate the likelihood or amount of potential loss and intends to defend itself.
- Disclosure controls were deemed ineffective because a previously identified material weakness in internal control over financial reporting remained unremediated. Management reported additional procedures and said the weakness had not caused a misstatement in the periods presented.
- Key risks include ongoing losses and cash burn, manufacturing scale-up and reliance on a single-source supplier for a critical component, customer and market volatility, COVID-related impacts, competition and intellectual-property challenges. The filing also notes an initial European patent decision to revoke a Twist patent, which the company intends to appeal.
Important facts for investors to verify
- Whether deferred NGS customer deliveries occurred in the March 2023 quarter and whether China demand recovered.
- Progress, production capacity and costs at Wilsonville, and the timing and commercial performance of the Fast Genes launch.
- Cash burn, capital spending and liquidity runway relative to management’s one-year funding assessment.
- Underlying margins and operating expenses after the Abveris-related compensation reversal and other acquisition fair-value gains.
- Remediation and testing of the material weakness in financial controls.
- Developments in the securities class action and European patent appeal, including any change in estimated exposure.