Twist Bioscience Corporation — Q2 FY2020 Form 10-Q
Reporting period: Fiscal second quarter and six months ended March 31, 2020; comparisons are with the corresponding 2019 periods unless noted. Amounts are in U.S. dollars. Twist develops and sells synthetic DNA products, including synthetic genes, oligo pools, NGS tools, and DNA libraries.
Key financial metrics
| Metric | Three months ended March 31, 2020 | Three months ended March 31, 2019 | Six months ended March 31, 2020 | Six months ended March 31, 2019 |
|---|---|---|---|---|
| Revenue | $19.3 million | $13.6 million | $36.5 million | $25.0 million |
| Gross profit and gross margin | $5.7 million; 29.7% | $1.8 million; 13.0% | $9.1 million; 25.0% | $1.4 million; 5.6% |
| Operating loss | $32.1 million | $26.3 million | $87.9 million | $49.2 million |
| Net loss attributable to common stockholders | $31.8 million | $25.9 million | $87.4 million | $48.6 million |
| Basic and diluted loss per share | $0.85 | $0.93 | $2.49 | $2.06 |
- Revenue grew 42% in the quarter and 46% for the six-month period. Quarter revenue included $9.1 million from synthetic genes and $7.7 million from NGS tools.
- For the six months, operating cash use was $93.6 million, versus $42.5 million in 2019. Investing activities provided $41.2 million, mainly reflecting investment maturities; financing provided $190.1 million, primarily from equity offerings.
- At March 31, cash and cash equivalents were $184.4 million and short-term investments were $45.7 million, totaling $230.1 million. Total debt was $6.3 million, including $3.3 million current debt. Current assets were $260.2 million and current liabilities $30.2 million.
- Total assets were $323.9 million; stockholders’ equity was $264.2 million. Accumulated deficit was $405.9 million.
Material changes versus prior comparable periods
- Quarter revenue increased $5.7 million, led by synthetic genes and NGS tools. Genes shipped rose 28% to 88,545. Management attributed gene growth mainly to higher sales of longer 5.0KB and 3.0KB products, and NGS growth to broader customer adoption.
- For the six months, cost of revenue rose 16%, below revenue growth; gross margin improved. Management cited payroll and facilities/IT costs, including consolidation of manufacturing operations into one South San Francisco facility.
- Six-month R&D expense rose 29% to $20.9 million, reflecting expanded DNA synthesis development. SG&A increased 56% to $53.6 million, including higher headcount and stock compensation, and $8.4 million of additional legal fees primarily related to the Agilent litigation.
- The six-month results include a $22.5 million litigation settlement charge, accrued in the quarter ended December 31, 2019. The settlement was paid in February 2020.
- Cash and short-term investments increased from $138.1 million at September 30, 2019 to $230.1 million, mainly following $188.4 million of net proceeds from public and at-the-market offerings. Shares outstanding rose from 32.9 million to 41.0 million.
Outlook, management commentary, and risks
- Management said available funds were expected to support operating expenses, capital expenditures, and debt service for at least one year from issuance of the financial statements. It cautioned that additional financing may be needed beyond that period and may be dilutive or impose debt obligations or covenants. No specific revenue or earnings guidance is provided in the filing.
- Twist reported no significant financial effect from COVID-19 through March 31, 2020, but said subsequent effects were uncertain and could be material. Risks cited include weaker customer demand, academic funding reductions, supply and shipping disruptions, and constraints on sales activity. The company increased inventory and implemented employee safety and remote-work measures.
- The Agilent dispute was dismissed on February 14, 2020 after settlement. The agreement includes mutual releases, no admission of liability, a limited non-exclusive license to certain asserted trade secrets extending to Twist’s supply chain, and a limited patent-related covenant; it does not provide a general release of patent-infringement claims.
- Other significant risks include continuing losses and operating cash burn; dependence on synthetic DNA sales and a limited number of large customers; manufacturing concentration at one facility and reliance on a single-source component supplier; competition, scaling and product-adoption challenges; and intellectual-property, regulatory, and cybersecurity risks.
Important facts for investors to verify
- Whether revenue growth and improved gross margin continue while operating losses and cash use remain substantial.
- How the $230.1 million liquidity balance changes relative to operating cash burn, capital needs, and the stated one-year funding horizon.
- Customer concentration and the sustainability of demand from major customers, including Ginkgo Bioworks.
- The evolving effects of COVID-19 on orders, academic research spending, supply availability, manufacturing, and delivery.
- The precise scope of the Agilent settlement’s license and covenants, and any subsequent intellectual-property claims or proceedings.