Twist Bioscience Corporation — Q1 FY2022 Form 10-Q
Reporting period: Three months ended December 31, 2021. The company develops and sells synthetic DNA products using a silicon-chip synthesis platform. Results are unaudited; the company’s fiscal year ends September 30.
Financial performance
| Metric | Q1 FY2022 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $42.0 million | $28.2 million | +49% |
| Gross profit / gross margin | $15.0 million / 35% | $10.0 million / 35% | Margin broadly unchanged |
| Operating loss | $55.9 million | $32.8 million | Loss widened |
| Net loss | $45.6 million | $32.9 million | Loss widened |
| Basic and diluted loss per share | $0.91 | $0.72 | Loss per share increased |
| Cash used in operations | $46.7 million | $24.9 million | Use increased |
Revenue growth was led by synthetic genes ($13.5 million, up from $8.9 million), NGS tools ($19.2 million, up from $15.6 million) and antibody discovery ($4.8 million, up from $1.1 million). Healthcare accounted for 50% of revenue; Americas, 54%. The company served approximately 1,800 customers, compared with 1,500 a year earlier, and shipped approximately 125,000 genes versus 84,000.
Cost of revenue rose 49% alongside shipments. Research and development expense increased 62% to $22.6 million, and selling, general and administrative expense increased 77% to $51.1 million. Stock-based compensation was approximately $18.1 million. A $10.4 million income-tax benefit, primarily related to the Abveris acquisition, reduced the reported net loss; loss before taxes was $56.0 million.
Liquidity, debt and cash flow
- At December 31, 2021, cash and cash equivalents were $191.6 million, short-term investments $110.2 million and long-term investments $106.8 million: approximately $408.7 million in total cash and investments.
- Current assets were $385.0 million and current liabilities $80.0 million. The balance sheet reported $159.99 million of total liabilities, including operating lease liabilities; no long-term debt remained outstanding.
- Investing activities used $226.6 million, principally reflecting $205.6 million net purchases of investments, $12.8 million of property and equipment purchases and $8.2 million for the acquisition, net of acquired cash. Financing activities used $1.0 million. Cash, cash equivalents and restricted cash fell by $274.2 million, largely due to investment purchases.
- The company reported $69.7 million of capital expenditure commitments. Management stated that available proceeds and cash were expected to fund operations for at least one year from issuance of the financial statements.
Material changes, outlook and risks
- Abveris acquisition: Completed December 1, 2021, adding in vivo antibody discovery capabilities. Preliminary purchase consideration was $102.6 million, including cash, stock, contingent consideration and holdbacks. The acquisition added $61.8 million of goodwill and $46.5 million of intangible assets; acquired results were not material for the quarter. Purchase accounting estimates remain preliminary. Certain employee awards depend on 2022 revenue targets and continued employment.
- Revelar: Twist contributed assets and licensed antibody rights to Revelar, a consolidated variable-interest entity developing a SARS-CoV-2 antibody. Twist may receive more than $100 million in development, regulatory and commercial milestones and mid-single-digit royalties, but these are contingent on successful development and commercialization. Twist had invested $5 million in a SAFE by quarter-end and purchased an additional $2.5 million SAFE on February 3, 2022.
- Operations and outlook: Management expected Phase 1 of the Wilsonville, Oregon “Factory of the Future” expansion to begin operations in Q3 FY2022. The filing provides no specific revenue or earnings guidance. Management said COVID-19 had not significantly affected the quarter, but its future impact remained uncertain.
- Control weakness: Disclosure controls were not effective as of December 31, 2021 because previously identified material weaknesses in financial reporting controls remained unremediated. Management reported additional review procedures and continued remediation efforts.
- Key risks: Ongoing losses and operating cash use; possible need for additional financing; execution and capacity risks from rapid growth and facility expansion; reliance on a single-source critical supplier; competition and pricing pressure; customer and research-budget variability; COVID-19 and supply-chain disruption; acquisition integration and dilution; and intellectual-property, regulatory, cybersecurity and internal-control risks. The company reported no material off-balance-sheet arrangements and stated that ordinary-course legal matters were not expected to have a material adverse effect.
Investor verification priorities
- Track revenue growth and gross margin by product, particularly NGS tools and antibody discovery, and assess whether customer growth translates into sustainable revenue.
- Reconcile cash burn, investment purchases and capital commitments against management’s stated minimum one-year funding outlook.
- Monitor Wilsonville expansion costs, timing and production ramp, alongside the $69.7 million of capital expenditure commitments.
- Review Abveris purchase-price allocation, contingent consideration and employee-award conditions as estimates are finalized; assess any resulting dilution and expense.
- Follow remediation and testing of the material weaknesses in financial reporting controls.
- Distinguish recurring operating performance from the acquisition-related tax benefit and fair-value adjustments; the income statement presents a $2.8 million reduction in operating expenses for fair-value changes.