Twist Bioscience Corporation — Q1 FY2024 10-Q
Reporting period: Three months ended December 31, 2023; comparisons are with the three months ended December 31, 2022 unless noted. Twist develops and sells synthetic DNA products, NGS tools, DNA libraries and antibody discovery services. The company reports one segment.
Financial results and liquidity
- Revenue: $71.5 million, up 32% from $54.2 million. Growth was led by NGS tools (+$15.1 million), synthetic genes (+$3.6 million) and DNA libraries (+$1.1 million), partly offset by lower antibody discovery revenue (−$2.9 million).
- Gross profit and margin: $29.0 million and approximately 40.5%, compared with $24.8 million and approximately 45.7%. Cost of revenue rose 44% to $42.5 million, faster than revenue, reflecting higher material costs, depreciation and personnel costs.
- Operating expenses: R&D was $23.1 million, down 26%; selling, general and administrative expense was $52.8 million, up 25%. Operating loss was $47.0 million, versus $44.6 million; operating margin was approximately −65.7%, versus −82.3%.
- Net loss: $43.0 million, versus $41.8 million; diluted loss per share was $0.75, versus $0.74. Interest income increased to $4.1 million from $3.0 million.
- Cash flow: Operating cash used was $23.0 million, compared with $54.1 million. Investing activities provided $4.2 million, versus using $7.0 million; financing activities used $1.5 million, versus $0.4 million.
- Liquidity: Cash and cash equivalents were $266.3 million and short-term investments $44.9 million at quarter-end, totaling $311.1 million, down from $336.4 million at September 30, 2023. Current assets were $390.2 million and current liabilities $65.2 million.
- Debt and obligations: The balance sheet reports no borrowings; operating lease liabilities totaled $91.9 million, including $14.8 million current. Capital expenditure commitments were $1.5 million. The company reported no off-balance-sheet arrangements.
Material changes and management commentary
- NGS tools accounted for 55% of revenue, up from 45%; synthetic genes were 28%, versus 30%. Antibody discovery fell to 7% from 15%, which management attributed primarily to reduced orders while rebuilding the commercial team after integration challenges.
- Genes shipped increased 28% to approximately 171,000; customers served rose to approximately 2,140 from 2,060. Management cited improved synthetic-gene turnaround time and broader adoption of NGS tools.
- R&D expense declined, reflecting lower personnel, stock compensation, lab supplies and depreciation costs. SG&A increased, substantially affected by a prior-year stock-compensation reversal; lower Wilsonville pre-commercialization costs partly offset increases.
- Management said the $311.1 million of cash and short-term investments was expected to fund operations for at least one year from issuance of the financial statements. Losses and negative operating cash flow are expected to continue as the company invests in development, manufacturing and commercialization.
- No specific financial guidance was provided in the supplied filing text. The 2023 restructuring, including a workforce reduction of about 270 employees and consolidation of synthetic biology production at Wilsonville, was substantially completed in fiscal 2023.
Risks, contingencies and unusual items
- Disclosure controls and procedures were deemed ineffective at December 31, 2023 because a previously identified material weakness in internal control over financial reporting remained unremediated. Management reported additional post-close procedures and an ongoing remediation plan.
- A securities class action alleging misleading statements about DNA products and accounting practices remains at a preliminary stage. The company cannot estimate the likelihood or amount of loss and intends to defend the case. A related derivative action is stayed pending the class-action motion to dismiss.
- Manufacturing depends primarily on the Wilsonville facility; disruption could constrain production. Other disclosed exposures include delivery disruptions, natural disasters, intellectual-property challenges, competition, financing needs and economic conditions.
- The prior-year comparison included a $4.1 million benefit from changes in fair value of acquisition consideration and holdbacks, which did not recur. Prior-year stock-based compensation also included a $9.9 million reversal related to an unmet acquisition performance condition.
- Twist adopted the expected-credit-loss standard on October 1, 2023, recording a $0.1 million increase to opening accumulated deficit. A $0.9 million allowance for credit losses was reported at quarter-end.
Important facts for investors to verify
- Whether revenue growth and improved cash use persist, given gross-margin compression and continued operating losses.
- Whether NGS tools concentration and the decline in antibody discovery revenue change materially in subsequent quarters.
- Progress in remediating the material weakness and any related effects on financial reporting.
- Wilsonville manufacturing capacity, operating performance and concentration risk, including the production of Express Genes.
- Developments in the securities class action and derivative action, for which potential losses are not estimable.
- Liquidity runway assumptions and future financing needs; management’s at-least-one-year assessment is not a guarantee of future funding availability.