Yahoo Finance Twist Bioscience Corporation (NASDAQ:TWST) Q2 2024 Earnings Call Transcript
Twist Bioscience Corporation (NASDAQ:TWST) Q2 2024 Earnings Call Transcript May 2, 2024
Twist Bioscience Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Welcome to Twist Bioscience's Fiscal 2024 Second Quarter Financial Results Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please hereby, so todays conference is being recorded. I would like to turn the conference over to Angela Bitting, SVP of Corporate Affairs. Please go ahead.
Angela Bitting: Thank you, operator. Good afternoon, everyone. I'd like to thank all of you for joining us today for Twist Biosciences conference call to review our fiscal 2024 second quarter financial results and business progress. We issued our financial results release after the market and the release is available at our website at www.twistbioscience.com. With me on today's call are Dr. Emily Leproust, CEO and Co-Founder of Twist; and Adam Laponis, CFO of Twist. Emily will begin with a review of our recent progress on Twist businesses. Adam will report on our financial and operational performance. Emily will come back to discuss our upcoming milestones and direction. We will then open the call for questions. We would ask that you limit your questions to only one and then re-queue as a courtesy to others on the call.
As a reminder, this call is being recorded. The audio portion will be archived in the Investors section of our website and will be available for two weeks. During today's presentation, we will make forward-looking statements within the meaning of the US federal securities laws. Forward-looking statements generally relate to future events or future financial or operating performance. Our expectations and beliefs regarding these matters may not materialize and actual results and financial periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include those set forth in our press release we issued earlier today, as well as those partially described in our filings with the SEC.
The forward-looking statements in this presentation are based on information available to us as of the date hereof and we disclaim any obligation to update any forward-looking statements except as required by law. We'll also discuss adjusted EBITDA, which is a financial measure that does not reform with Generally Accepted Accounting Principles. Information may be calculated differently than similar non-GAAP data presented by other companies. When reported, the reconciliation between GAAP and non-GAAP financial measures will be included in our earnings estimates, which can be found at our Investor Relations website at www.twistbioscience.com. With that, I will now turn the call over to our Chief Executive Officer and Co-Founder, Dr. Emily Leproust.
Emily Leproust: Thank you, Angela, and good afternoon, everyone. I'm thrilled to be here today to share the remarkable achievements and outstanding performance our company has delivered over the past quarter. Our strong results validate the hard work, dedication and innovative spirit that defines our team at Twist. We've made significant strides in exhibiting our growth strategy, increasing our customer base and driving towards profitability for the business. Our proprietary platform for making synthetic DNA remains at the core of our product portfolio, defines our competitive advantage in all markets, and enables our flywheel for growth and the strong financials we’ll share today. Now looking for the second quarter, we continued our robust growth trajectory, increasing revenue 25% year-over-year to $75.3 million while the third quarter reached a record level of over $93 million.
The strong quarter was driven by growth in our synthetic biology product line, including Express Gene and bolstered by consistent strength in NGS. We recorded the full guidance [ph] on gross margin for the quarter, an increase of 10 margin points versus the same period last year. We do see good uptakes in the margin quarter-to-quarter which Adam will discuss in his remarks. That said, over the next several periods, we expect initiatives we are thinking will drive us to a gross margin above 50% by the end fiscal 2025. To dive deeper for SynBio; revenue increased to $29.8 million with base from orders of $44.9 million. SynBio revenue grew 24% year-over-year and 11% sequentially. Other than SynBio included significant blanket purchase order where Twist will now place the single blanket order for large amounts and then all those against those PO over the course of the next several quarters.
Twist receives blanket POs routinely, primarily in the first quarter of the calendar year as budget resets. That said, this level of blanket PO exceeds prior year significantly. We believe this increase is due to our diversified product line including Express Gene and consistent rapid turnaround time, both of which give our customers confidence to committed with OBEDIA [ph]. As you know, in late January, we extended our Express Gene offering from a limited launch including about half of our clonal gene volumes to include all clonal genes. At the time, we began a marketing campaign and outreach to potential customers buying from competitors or making their own genes. So theoretically early days for Express Gene, we are pleased with the progress to date.
Keeping in mind that our current quarter, our fiscal third quarter will be the first full quarter that includes all Express Gene offerings. We want to provide a bit more color around the success today. Approximately 15% of clonal genes revenue for the second quarter came from Express Gene. As of March 31, we have received more than 1500 orders for Express Gene since launched in November, with more than 700 accounts purchasing as Express Genes today. This includes more than 100 net new accounts visiting to Express Gene. We define lending accounts as a new customer organization entirely, or it can be a new shipping address at an existing institution [ph]; both count as net new account. Customers receive Express Gene in about 5 to 7 days. Since [indiscernible] getting clonal genes turnaround time.
For this speed, that’s up into a premium price. We vary this premium based on capacity within our large Western Oregon facility. The site custom built for this product line and the site has allowed for expansion into other synthetic products. Because we make all clonal genes on the Express timeline, the increase in price premium fully drops to gross margin. At the end of February, we began differentiating the premium between academic and industry customers. Within these two groups we’re receiving a higher premium, a current practice in the industry. Moving to NGS, we posted another very strong quarter as revenue grew to $40.8 million, an increase of 40% year-over-year, with $42.5 million in orders. This quarter strength for NGS portfolio came from customers who have advanced their assets into clinical studies and became commercial, as well as go into smaller NGS customers who are earlier in the development processes.
Several clinical customers include Twist in the assets, and we applaud the incredible progress Twist is making for patients in rare disease, cancer detection, early cancer detection and monitoring of minimal residual disease. Our panels are incorporated into a number of different, sometimes competitive [ph] tests and where we see other times is that providers are adopting these tests. The volume of commercial tests increases with patient adoption, as each test that is when required [indiscernible]. We have customers who are doing very well leveraging the Twist advantage and others, we need additional funding to continue scaling. The benefit of our business model is that we have diversified our revenue across many customers applications with no single customer accounting for more than 10% of our revenue.
In addition, we continue to add small accounts that have the potential to grow significantly as the volume of their application of tests ramps. Up until this year, our NGS product portfolio has been focused primarily on target enrichment for the analysis of DNA, RNA and mutations [ph]. As we've said before, we want to offer our customers a complete workflow solution from the sample to the sequencer, and we are confident that our latest products solidify our leading position in the liquid biopsy NMR [ph], while extending our differentiation within other areas of the workflow. Importantly, we introduced differentiated products within science and clinical capabilities. In February, we added an incredibly powerful cell free DNA library that captures many molecules that may otherwise be missed in these assets.
Because the sensitivity of the liquid biopsy research assay begins with every prep, capturing more molecule can improve the signal-to-noise ratio, and the sensitivity of the tests. We believe our innovative cDNA library prep provides an advantage here and the initial commercial performance is very encouraged. During the quarter, in the US, this technology has early access for truly differentiated delivery prep, the ultra-high throughput [indiscernible]. We believe this is the highly differentiated product, we need to conduct tests with customers using microarray to NGS panels plus sequencing with applications in ag bio and genotyping. We believe this is a very large market opportunity, and we expect that these products will grab NGS roughly in the medium to long-term as it requires a change in workflow for the customer from acquiring readers to sequences.
Separately, for our customers in Europe, we launched a CE mark portfolio of precision EX products to support the evolving regulatory landscape in that geography. This is a first foray into the regulated market and we look forward to continued evolution in markets beyond Europe. We believe our extensively regulated products will inform any future product developments driven by FDAs move to regulate liberate developers, or entities in the US. For Biopharma, revenue was $4.7 million with other increasing to $5.8 million. We continue to deliver on programs for our partners across a spectrum of offerings. Importantly, we expect at least one partner to initiate human studies with an antibody discovery in Twist platform within the next year. For Data Storage, we remain focused on technology development and enablement of the Gigabyte Century Archive workflow for early access in Canada 2025.
Progress continues, and we see this area of our businesses as a valuable asset with optionality at multiple points of development. As we look at margins, in fiscal Q1 we reported a strong gross margin driven primarily by mix and significant NGS revenue. We maintain our margin in the second quarter, beating our guidance by 2 points with continued strength in our NGS business, as well as Express Gene contribution. As we look over the next 18 months, in addition to driving revenue goals which is the primary driver of margin, we intend to continue to focus on margin improvement initiatives including product investments, operational excellence in sourcing and process optimization. In addition, we're in the process of negotiating contracts with suppliers and in some cases, with customers willing to provide volume commitments of fixed premium pricing in Express Gene.
We believe these initiative, as well as further volume leverage of our fixed costs enable our ability to improve our margins by several points, and we see our path to gross margin north of 50% by the end of fiscal 2025. With that, I turn over the call to Adam to discuss our financials.
Adam Laponis: Thank you, Emily. Revenue for the second quarter increased $75.3 million, growth at 25% year-over-year and approximately 5% sequentially. Orders increased substantially to $93.2 million with strong orders driven by a significant Blanket Purchase Orders expected to be used over the next three quarters. This includes approximately $21 million for SynBio, and $9 million for NGS. As Emily said, gross margin came in higher than expected at 41% in the second quarter of fiscal 2024. During the second quarter, we shipped to 2253 customers. We ended the quarter with cash, cash equivalents and short-term investments of approximately $292 million. Taking a deeper dive into revenue. SynBio revenue increased to $29.8 million, growth at 24% year-over-year, with orders increasing to $44.9 million.
We shipped 193,000 genes in the quarter. Synthetic genes revenue, which includes both clonal genes, gene fragments and IgG increased to approximately $22.4 million, growth of approximately 24% year-over-year. Approximately $15.6 million or 52% of our SynBio revenue was from clonal genes, with $2.2 million in revenue coming from Express Genes. Within the SynBio umbrella, Oligo Pool revenue increased to $3.9 million and DNA libraries revenue increased to $2.5 million; year-over-year growth of 19% and 25% respectively. NGS revenue for the second quarter grew to approximately $40.8 million, compared to $29 million in the second quarter of fiscal 2023, an increase of 40% year-over-year. For the quarter, revenue from our Top 10 NGS customers accounted for approximately 36% [ph].
Orders increased to $42.5 million, which we anticipate sets the stage for further NGS growth. We served 558 NGS customers in the quarter, with 138 having adopted our products. For Biopharma revenue was $4.7 million, with orders increasing to $5.8 million. We had 67 active programs at the end of March 2024, and we started 34 new programs during the quarter. Looking at revenue by industry. Healthcare revenue rose to $40.9 million for the second quarter of 2024 compared to $33.8 million for the same period of fiscal 2023, reflecting the increased uptake of our products by pharma, biotech and diagnostic companies. Industrial chemical revenue rose to $20.3 million in the second quarter, up from $14.4 million in the same period of fiscal 2023, strong growth year-over-year.
Academic revenue was $13.7 million for the second quarter of 2024, up from $11.1 million in the same period of fiscal 2023; with growth coming from both, SynBio and NGS customers. Looking geographically, America's revenue increased to approximately $45.9 million in the second quarter, compared to $34.9 million in the same period of fiscal 2023, growth of 32% year-over-year. EMEA revenue rose to $22.3 million in the second quarter versus $18.8 million in the same period of fiscal 2023, growth of 19% year-over-year. APAC revenue increased to $7.2 million in the second quarter compared to $6.5 million in the same period of fiscal 2023, growth of 11% year-over-year. China revenue was $1.4 million, a small percent of our total revenue for the quarter.
Our gross margin for the second quarter increased to 41.0%. We saw strength in Express Genes revenue lifting margins offset by a contracted SynBio customer who placed and received a large order within a discount terms in Q2. Our NGS offerings continue to have strong gross margin performance. However, we did see and expect to continue to see puts and takes in their gross margin based on contracted customer mix where margin fluctuates based on the individual customer orders in a given quarter. Finally, I am encouraged by the enterprise-wide focus on gross margin improvement initiatives. And I also expect these initiatives will take multiple quarters to result in a material impact. In total, operating expenses for the second quarter were $124.2 million compared with $121.8 million in the same period of 2023.
Breaking this down; cost to revenue has increased to $44.4 million in the second quarter of 2024 compared with $41.7 million in the same period of fiscal 2023, primarily due to higher product volume, as well as increased depreciation and amortization expense, mostly due to the buildout of our new manufacturing facility in Wilsonville, Oregon [ph]. R&D decreased to $24.1 million compared with $27.4 million in the same period of fiscal 2023, primarily due to the reduction in headcount, as well as lab supplies. SG&A was $55.6 million for the second quarter compared with $54 million. The increase was driven largely by stock-based compensation and bonus accrual catch up as the business is performing above forecasts at this time. Our operating expenses included approximately $7 million for data storage.
Stock-based compensation for the quarter was approximately $13.8 million. Depreciation and amortization were $8.3 million for the quarter. Net loss attributable to common stockholders was $45.5 million or $0.79 per share for the second quarter of 2024 compared to a net loss of $59.2 million or $1.04 per share for the same period of fiscal 2023. Cash flow from operating activities continues to improve and we're driving the breakeven. For the six months ended March 31, 2024 net cash used in operating activities was $42.4 million compared to $98.4 million for the equivalent six months period in 2023. Moving forward, we will also provide adjusted EBITDA and non-GAAP measure. The reconciliation between the GAAP and non-GAAP financial measures will be included in earnings documents which can be found on our Investor Relations website.
Looking back in time, the second quarter of fiscal 2023 adjusted EBITDA loss was approximately $46 million. In the second quarter of fiscal 2024 adjusted EBITDA loss was approximately $27 million. For the fourth quarter of fiscal 2024, we see a path for adjusted EBITDA loss of less than $20 million. Turning to guidance. For fiscal 2024, we now expect total revenue to increase by $12 million across the range to approximately $300 million to $304 million, anticipated growth at 22% to 24% year-over-year. Increased SynBio revenue of $118 million to $120 million, an increase across the range with a year-over-year growth anticipated to be 20% to 22%. NGS revenue of $152 million to $164 million, an increase of $12 million across the range, an anticipated growth of 31% to 33% year-over-year.
Biopharma revenue of approximately $20 million, a decrease of $4 million in prior guidance, and 13% year-over-year. We're increasing our expected gross margin for approximately 41.5% to 42% for the year. We're reducing our expected loss from operations before taxes to approximately $183 million to $188 million, a decrease compared with prior guidance of $189 million to $194 million. CapEx is still projected to be approximately $15 million for fiscal 2024, unchanged from prior guidance. We project ending cash with more than $245 million at the end of fiscal 2024. For the third quarter of fiscal 2024, we expect overall revenue of approximately $77 million. SynBio revenue increasing to approximately $31 million with the full launch of Express Genes portfolio.
NGS revenue of approximately $41 million was on-track with our increase in annual guidance. Biopharma revenue was approximately $5 million. Gross margin for the third quarter was 41% to 42%. For the fourth quarter, we expect overall revenue in the range of $77 million to $80 million. Gross margin for the fourth quarter of 43% to 44%. In summary, I'm encouraged by the progress in an enterprise-wide focus on financial discipline that I've seen during my first quarter at Twist. We will continue to maintain financial discipline throughout the organization and make progress on the path to profitability. With that, I'll turn the call back to Emily.
Emily Leproust: Thank you, Adam. In closing, we are very confident in the continued impact and growth opportunities generated from our preparatory DNA synthesis platform. Our growing customer base, our increasing revenue profile, our defining portfolio [ph], and of course, our exceptional entry progressively moving the needle for our customers across multiple industry. I also had the privilege of talking to our customers, listening to how they drive ground-breaking scientific advancements in wide ranging fields from healthcare to chemicals to academia, add value, and more. I'm very proud that Twist plays an important role in facilitating this work, and we are only getting started. We're enabling our customers to produce probing into the target and destroy cancer cells, to create new diagnostic tools that detect disease early and accurately, to make compounds that are more sustainable and also less expensive, to name only a few applications.
We manufacture our DNA in two locations; one in California, and one in Oregon, with a global commercial booking to deliver superior service to all of our customers. As we look ahead, we are more excited than ever with the vast potential that lies before us. With cutting edge technology, world class team and laser focused strategy, we are poised to capitalize on the immense opportunities that we have in Synthetic Biology, NGS, Biopharma and Data Storage. I'm incredibly proud of what's been accomplished, and I am confident that our best days are yet to come. Let's open up the call for questions. Operator?
Operator: Thank you. [Operator Instructions] Our first question today is coming from Matt Sykes of Goldman Sachs. Your line is open.
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