Twist Bioscience Corporation — Form 10-Q
Reporting period: Fiscal third quarter and nine months ended June 30, 2023. Amounts are in U.S. dollars; financial figures are unaudited. Twist develops and sells synthetic DNA products and related tools, including NGS tools, DNA libraries and antibody discovery services.
Financial performance
| Metric | Q3 FY2023 | Q3 FY2022 | Nine months FY2023 | Nine months FY2022 |
|---|---|---|---|---|
| Revenue | $63.7M | $56.1M | $178.2M | $146.3M |
| Gross margin | 34.4% | 44.8% | 36.6% | 40.0% |
| Operating loss | $60.8M | $61.2M | $167.0M | $177.9M |
| Net loss | $57.4M | $60.5M | $158.4M | $166.7M |
| Net loss per share | $1.01 | $1.08 | $2.79 | $3.15 |
Quarterly revenue grew 14% year over year; nine-month revenue grew 22%. NGS tools were the largest product category, at $33.2M in the quarter, up from $27.8M. Synthetic genes revenue was $19.3M versus $17.4M, while antibody discovery revenue declined to $4.6M from $6.2M. Management cited growth in NGS tools, synthetic genes and DNA libraries, including higher orders from large customers and improved gene turnaround times. Genes shipped rose 5% in the quarter to approximately 171,000 and 11% over nine months to approximately 457,000.
Quarterly gross margin fell to 34.4% from 44.8%, principally as cost of revenue rose 35%—faster than revenue—amid Wilsonville facility commercialization, higher materials and payroll costs, and increased depreciation. Nine-month operating loss narrowed, but included a $12.7M restructuring charge; lower operating expenses and higher interest income also contributed to the smaller net loss.
Cash, liquidity and obligations
At June 30, 2023, cash and cash equivalents were $307.5M and short-term investments were $49.7M, totaling $357.1M; total cash, cash equivalents and restricted cash were $311.8M. Cash and cash equivalents plus short-term investments were down from $505.0M at September 30, 2022. Current assets were $445.5M and current liabilities $72.8M. The filing reports no material conventional debt balance at quarter-end; operating lease liabilities totaled $93.0M, of which $13.1M was current.
For the first nine months, operating cash used was $121.8M, compared with $123.1M a year earlier. Investing activities provided $52.9M, largely reflecting investment maturities net of purchases, while property and equipment purchases were $25.4M. Financing activities provided $0.5M; the prior-year period included $269.8M of public offering proceeds. Management said available funds should support planned operations, capital spending and debt service for at least 12 months from issuance of the financial statements. Capital expenditure commitments were $3.6M.
Material changes, outlook and risks
- Restructuring: A May 2023 plan affects approximately 270 employees, or 25% of the workforce, and consolidates overlapping synthetic biology production between South San Francisco and Wilsonville. The company recorded $12.7M of costs and expected up to $1.0M more in severance and other associated costs, with possible additional facility-consolidation charges not yet estimable. The plan was expected to be substantially complete by fiscal year-end 2023.
- Outlook: Management described continued investment and losses as expected; it did not provide a clear numeric revenue or earnings forecast in the supplied filing text. The company planned to launch Fast Genes in fall 2023 and identified Wilsonville production and new product commercialization as important to growth.
- Financial reporting controls: Disclosure controls were deemed ineffective at June 30, 2023 because a previously identified material weakness in internal control over financial reporting remained unremediated. Management reported additional post-closing procedures and said the weakness had not caused a misstatement in the periods presented.
- Litigation and other risks: A securities class action filed in December 2022 remains at a preliminary stage; the company could not estimate the likelihood or amount of potential loss and intends to defend itself. Other key risks include persistent losses and cash burn, execution and costs of restructuring, Wilsonville manufacturing transition and capacity, reliance on a single-source critical supplier, competition and customer budget variability, and intellectual-property, regulatory and cybersecurity risks.
- Unusual items: Interest income increased to $4.0M for the quarter and $10.5M for nine months, reflecting higher rates. The company converted a $3.5M convertible note into a 15% equity interest in a privately held company; the resulting $3.7M equity investment is classified as Level 3. The Abveris 2022 revenue target was not achieved, resulting in reversals of contingent consideration and associated performance-award compensation.
Investor verification points
- Assess whether revenue growth can translate into improved gross margin as production shifts to Wilsonville and related depreciation and operating costs rise.
- Track restructuring completion, actual savings, additional facility-consolidation charges and any operational or staffing disruption.
- Monitor cash burn against the $357.1M cash-and-short-term-investment balance and management’s at-least-12-month liquidity assessment.
- Review remediation progress for the material weakness and the status, potential costs and developments in the securities class action.
- Verify execution of the Fast Genes launch and customer demand across NGS tools, synthetic genes and antibody discovery.