Twist Bioscience Corporation — Q2 FY2022 Form 10-Q
Reporting period: Three and six months ended March 31, 2022. Dollar amounts are in millions unless otherwise stated. Twist develops and sells synthetic DNA products, NGS tools and antibody discovery services.
Key financial results
| Metric | Three months ended Mar. 31, 2022 | Prior-year quarter | Six months ended Mar. 31, 2022 | Prior-year period |
|---|---|---|---|---|
| Revenue | $48.1 | $31.2 | $90.1 | $59.4 |
| Gross margin | 38% | 39% | Not clearly provided | Not clearly provided |
| Operating loss | $(60.8) | $(38.0) | $(116.7) | $(70.8) |
| Net loss | $(60.7) | $(37.9) | $(106.2) | $(70.8) |
| Loss per share, diluted | $(1.13) | $(0.78) | $(2.06) | $(1.50) |
| Cash used in operating activities | Not separately provided for quarter | $(89.0) | $(49.5) |
Quarterly revenue rose 54%, driven principally by NGS tools, synthetic genes and antibody discovery. Gross margin declined one percentage point. Operating expenses increased materially, including R&D up 98% and SG&A up 57% year over year for the quarter. Six-month net loss includes a $10.6 million tax benefit related mainly to the Abveris acquisition and an $8.8 million gain from fair-value changes in acquisition-related consideration and holdbacks.
Financial position and liquidity
- At March 31, 2022, cash and cash equivalents were $407.6 million; short- and long-term investments were $166.2 million and $30.6 million, respectively. Cash, cash equivalents and investments totaled approximately $604.4 million.
- Current assets were $664.4 million versus current liabilities of $84.6 million. Total liabilities were $158.3 million and stockholders’ equity was $863.4 million.
- No current portion of long-term debt was reported at March 31; the company reported $1.6 million of debt repayments during the six-month period. The filing does not provide a clear ending long-term debt balance in the balance-sheet extract.
- Investing activities used $239.9 million in the six months, including $44.8 million of property and equipment purchases and investment purchases net of maturities. Financing provided $270.6 million, primarily from a February 2022 equity offering that raised $269.8 million net.
- Capital expenditure commitments were $60.3 million as of March 31. Management stated existing cash and proceeds were 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.
Material changes and notable items
- Six-month revenue increased 52% year over year. NGS tools remained the largest product category; antibody discovery revenue increased substantially, partly due to the Abveris acquisition.
- Abveris was acquired on December 1, 2021 for estimated consideration of $102.6 million. The preliminary allocation included $61.8 million of goodwill and $46.5 million of intangible assets; purchase accounting remains subject to adjustment.
- In February 2022, Twist issued 5.2 million shares at $55 per share, receiving $269.8 million net proceeds. Shares outstanding increased to 56.2 million at March 31.
- Twist consolidates Revelar Biotherapeutics as a variable interest entity. Revelar is developing an antibody against SARS-CoV-2; potential milestone and royalty receipts depend on successful development and commercialization and are not assured. Twist had invested $5.0 million in Revelar SAFEs by the financial-statement date and made an additional $2.5 million SAFE investment on April 6, 2022.
Outlook, risks and controls
- No specific revenue, margin or earnings guidance is provided in this filing. Management expects continued investment in product development, manufacturing capacity, sales and marketing, and anticipates continued losses.
- Management said COVID-19 had not significantly affected results through the period, but future effects remain uncertain. Risks include supply-chain constraints, dependence on a single-source supplier for a critical synthesis component, manufacturing capacity and execution, competition, customer funding and demand, and the ability to manage rapid growth.
- Management stated available funds should cover at least one year, but additional financing may be needed thereafter or sooner if plans change; financing may not be available on acceptable terms.
- Disclosure controls were deemed ineffective at March 31 because previously identified material weaknesses in journal-entry, revenue order-entry and IT general controls remained unremediated. Management reported additional post-close procedures and stated the financial statements fairly present results; remediation requires controls to operate effectively for a sufficient period and be tested.
- Inflation had not, in management’s view, materially affected results to date, but cost pressure could reduce margins if price increases cannot offset it. Ordinary-course legal matters were not expected by management to have a material adverse effect.
Important facts for investors to verify
- Progress and testing of the internal-control remediation plan, and any future auditor assessment.
- Revenue growth quality, product-level demand, gross-margin trends and the trajectory of operating cash burn.
- Abveris integration, final purchase accounting, contingent consideration and the performance targets tied to acquisition-related awards.
- Wilsonville facility spending and capacity ramp, capital commitments, and exposure to the single-source supplier.
- Revelar’s development milestones, additional funding needs and the conditions required for any potential milestone or royalty revenue.