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spk35: the TWIS Biosciences Fiscal 2023 First Quarter Financial Results Conference Call. At this time, all participants are in listen-only mode. After the speaker's prepared remarks, we will conduct a question and answer session. Instructions will be given at that time. As a reminder, this call may be recorded. I would like to turn the call over to Angela Bidding, Senior Vice President of Corporate Affairs and Chief ESG Officer.
spk11: Thank you, Operator. Good morning, everyone.
spk07: I would like to thank all of you for joining us today for the TWIST Bioscience Conference Call to review our fiscal 2023 first quarter financial results and business progress. We issued our financial results release this morning, which is available at our website at www.twistbioscience.com. With me on today's call are Dr. Emily Lipprust, CEO and co-founder of TWIST, and Jim Thorburn, CFO of TWIST. Emily will begin with a review of our recent progress on TWIS businesses. Jim will report on our financial and operational performance. Emily will come back to discuss our upcoming milestones and directions, and then we'll open the call for questions. We would ask that you limit your questions to a maximum of two 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 investor section of our website and will be available for two weeks. During today's presentation, we will be making forward-looking statements within the meaning of the U.S.
spk08: federal securities laws.
spk07: 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 the press release we issued earlier today, as well as those more fully described in our filings with the Securities and Exchange Commission. 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. With that, I will now turn the call over to our Chief Executive Officer and Co-Founder, Dr. Amaline Leprous.
spk27: Thank you, Angela, and good morning, everyone. For the first quarter of fiscal 23, we reported revenues of $54.2 million, consistent with our guidance shared on our fiscal year-end call in November, and we posted strong orders of $64.7 million. What we saw in the first quarter across SynBio and NGS is a story of an expanding customer base, making up for a larger percentage of our revenue, meaning that we are landing more customers with an increasing potential to expand within existing accounts. Beginning with Symbio, we reported revenues of $21.7 million above our guidance of $21 million. In addition, we reported orders of $26.6 million. We continue to ship our kernel genes, starting at 10 business days, gene fragments and oligopools in as few as 5 days, and we see this consistent turnaround time benefiting our expanding share of the DNA buy-off market. We shipped our first revenue-gerating products out of the Fracture of the Future last week, which, as we said previously, means that we are now delivering the same products with a turnaround time equivalent to our South San Francisco site. We shipped oligopools and gene fragments from our Wilsonville site and leveraged our load balancing software to send orders to the right locations. And we expect to begin shipping clonogens next month. will be focused on decreasing turnaround time for clonal genes significantly, with the launch of our fast genes offering expected default, which will enable us to tap into new markets, specifically the DNA makers market. We shared our competitive advantage across all platforms during our Factors of the Future visit at the end of November. Virtually every product we make builds off of our silicon platforms to manufacture synthetic DNA at scale. This front-end proprietary advantage enables a significantly different variable cost profile for twist oligosynthesis, which then feeds into all of our product lines. Speaking specifically to the cost of making a gene, today, our variable cost for oligosynthesis is less than $1 for clonal genes, with total variable cost of approximately $35 to $40 per gene. This cost profile enables us to continue to serve our customers as the low-cost, high-quality provider while still achieving a contribution margin of 65% to 70% for our Symbio products. In addition, a key component of our cost advantage is the scale we have built and continue to drive. Moving forward, we expect to continue to leverage this advantage to pursue the customers who currently make their own DNA because they need it faster, a group we call the DNA Makers. We believe we'll be able to command premium pricing for these genes. To provide a bit more context around who makes the maker's market, these are medical and academic research scientists who make their own DNA rather than buying. We know from the Bureau of Labor Statistics Pew Research that as of 2019, there were 270,000 of these scientists in the United States alone. These are all potential customers. We believe the maker market is ripe for disruption with rapid DNA synthesis and a reasonable price offering. We are in the process of price discovery to analyze the way to maximize margins for this particular product. Genes are available today from competitors at a faster runtime, but their capacity is limited and the cost can be up to $1 per base, which is cost prohibitive for most researchers. To draw an analogy of a market that has been disrupted in a similar way, it used to be tedious to purify DNA. It was a complicated process that required making buffers and many time-consuming steps. This market was disrupted by offering a kit that contained ready-to-use components to make the process simple and seamless. Initially, some scientists hesitated to adopt based on price, but today, these kits are used globally to purify DNA. We see a direct parallel here in converting DNA makers into DNA buyers by applying similarly appealing products to convert behavior. Beyond fast genes, we believe we have an opportunity to launch additional products out of our Wilsonville facility, including RNA, long-term and GMP DNA. Moving to NGS, we reported revenue of $24.4 million, just short of per gallon, and orders of $31.2 million for the quarter. As we shared last quarter, we see another back-halt through the year, with larger customers reordering in the last two quarters of our fiscal year. As expected, we saw a few key customers move orders out from December into the first calendar quarter. We remain confident in our fiscal year guidance that NGS will continue to grow substantially year over year. We see this business continue to extend, with new sequencing offerings and game-changing clinical applications. Our targeted solution leverages the higher degree of uniformity from our oligos. Therefore, our solution decreases the cost per sample for our customers, and we are essentially selling a gross margin improvement. We continue to work with a variety of existing and new sequencing companies, as we are sequencer agnostics. As this cost of sequencing comes down, we believe volumes will continue to increase, as we have seen over the last two decades. Importantly, we believe that for indications like oncology, where clinical applications including liquid biopsy and minimal residual disease require deep sequencing, panel and exome sequencing will continue to be the mainstay. And we see the reduction of sequencing costs driving reimbursement across key areas. encouraging access by a broader group of patients, which will create subsequent volume increases. In addition, we continue to expand our COVID control offering in new disease areas, as well as cancer, with our latest COVID control released during the quarter. While we see consistent othering, it is not material due to the evolving nature of the pandemic. As a related note, we do not plan to file a size 10 verification for SARS-CoV-2 panel that received emergency use authorization from the FDA in 2021 as revenue was not material for this product. We believe the opportunity across cancer continues to grow while COVID products are decelerating. For BioPharma, we reported $8.2 million in revenue, a bit ahead of our guidance, and $6.9 million of orders. Of note, we signed a multi-target agreement with Astellas that was announced in January. We are now focused on enabling our sales team to sell the integrated offering between our South San Francisco and Boston offices. In the one roof, we offer in vitro synthetic library in vivo discovery and screening, and in silico lead optimization, candidate selection, and optimization with AI and machine learning. We believe this offers a fully integrated and established discovery engine with a guaranteed deliverable. As we are now operating as an integrated team, our total partners, active and competitive programs will include the historical average business. As of December 31st, 2022, we have served 278 partners, with 95 ICIS programs and 63 of our programs as milestones and our royalties associated with the projects. In addition, we continue to advance many internal candidates through the early discovery stage, and we have several antibodies that have reached the preclinical stage and are close to potential out licensing by biotech or pharma partners. Turning to data storage, we continue development work on our first data storage system, which combines our proof-of-concept chip with a recently assembled proof-of-concept writer. We have engineered a scalable end-to-end system to store data in DNA and are now writing software to coordinate all the steps required to code, write, store, sequence, and decode digital data. Once completed, we will begin to run the system in pilot production. All of this work is in support of the release of early access to our first product, the Century Archive, which we expect to be available towards the end of Canada year. With that, I'd like to turn the call over to Jim to talk through our financial team.
spk14: All right. Thank you, Emilie. We had another strong quarter of execution at TWIS despite a volatile microeconomic environment. Revenue for quarter one was 54.2 million, which is year-over-year growth of 29% and a sequential decline of 5%, which is in line with our guidance of 54 million. were 64.7 million for the quarter, a sequential increase of 4% and 30% growth year-over-year. Gross margin for the quarter was 45.7%, and we shipped to approximately 2,100 customers, and that's up from approximately 1,800 customers in quarter one, fiscal 22. And we ended quarter one with cash investments of approximately 439 million. Our NGS revenue for quarter one was 24.4, slightly below our guidance, and 27% year-over-year growth. As we noted in our previous earnings call, we had a strong fourth quarter, and a couple of our larger customers pushed shipments from December quarter into January, and we were negatively impacted by the COVID pandemic in China, which continues to impact our China revenue in the current quarter. Our first quarter orders were 31.2 million, which is a record. It represents sequential growth of 10% and 43%, growth year over year. And this growth reflects the strength of our product portfolio, with the top 10 customers accounting for approximately 40% of our NGS revenue, and we served approximately 600 NGS customers in fiscal quarter one. Our pipeline for larger opportunities continues to scale, and we're now tracking 264 accounts, and that's up from 257 noted in our last earnings call, and 130 have now adopted twist and that's an increase from 121 last quarter. Now turning to SynBio, which includes genes, DNA preps, IgG, libraries, and oligopols. SynBio revenue for the quarter was 21.7 million, and that's exceeding our guidance and representing a year-over-year increase of approximately 21%. Orders for the quarter were 26.6 million, which represents 20% growth year-over-year. Some of the highlights include shipping to approximately 1,600 Zinbio customers, which has grown from approximately 1,270 in quarter one fiscal 22. The customer base, as Emily noted previously, includes biotech and large pharma companies. Gene's revenue increased to $16.2 million, and that's up from $13.5 million in the first quarter of fiscal 22, and that's year-over-year growth of approximately 20%. and we shipped 134,000 genes in the quarter, and that's an increase of 7% year-over-year. All of your goals, and in our strong quarter, with a revenue of 3.7 million, and demand came primarily from the healthcare segment. Now to biopharma, we continue to scale our antibody discovery business. Biopharma revenue for fiscal first quarter, 23, was 8.2 million, and that's year-over-year growth of 70%, and is consistent with our prior guidance. Orders for the quarter were $6.9 million, down sequentially from $9.4 million in the fourth quarter. Biopharma orders have been impacted by an overall weaker environment, and we did not see the pharma Christmas in the quarter as we've seen in past years. That said, we added four more milestone and royalty agreements, which brings the total up to 63, and that's up from the 59 we noted in the previous earnings column. While Emily reported total biopharma metrics, including historical adverse agreements, solely for the first quarter of fiscal 23, we had 95 active programs for the combined twist and adverse antibody services. I'll give a quick update in terms of breakdown by industry and a quick update in our regional progress. Healthcare for the first quarter was $30 million as compared to $21.1 million in the same period of fiscal 22. Industrial chemical revenue was $13.6 million in the first quarter of 23 as compared to $12.5 million in the first quarter of 22. And academic revenue was $10 million in the first quarter of 23 compared to approximately $8 million in the same period of fiscal 22. On a regional basis, EMEA revenue rose to $16.3 million in the first quarter of fiscal 23 compared to $15.4 million in Q1 fiscal 22. As we noted earlier, APAC was negatively impacted by the COVID pandemic in China, but had a slight increase in revenue to $4.3 million as compared to $4 million for the same period of fiscal 22. U.S., including America's revenue, increased to $33.6 million in the first quarter as compared to $22.6 million for the same period of 22. Now moving down to P&L, our gross margin for quarter one was 45.7%, for the quarter of $29.4 million. Cost of revenue does include $1.1 million of stock-based compensation expenses and $3 million depreciation. Now to operating expenses. Our operating expenses for the fiscal quarter, including R&D, SG&A, and change in fair value, and mark-to-market adjustments of acquisitions, were approximately $69.4 million as compared to $70.9 million in Q1 fiscal 2022. To break it down, R&D for the fiscal quarter was $31.2 million, and that's an increase from $22.6 million in the same period of fiscal 22. This does include DNA storage spend of $6.1 million and biopharma spend of $7.7 million in the first quarter of fiscal 23. The major contributors to the increased R&D spend were primarily increased compensation costs of $5 million associated with increased number of employees which does include adding additional 12,000 data storage. Depreciation for R&D in quarter one was approximately $1 million. SG&A in Q1 includes approximately $18 million credit due to the combination of stock forfeitures associated with departing employees and the release of an earn-in holdback as we determined that Veris missed the earn-in revenue hurdle. The Veris team came very close to achieving the earn-in, we look forward to fully integrating the boston team into twist organization we remain very enthusiastic of the team and the potential opportunity for the combined of various and twist organization back to the future pre-commercialization costs include included in sga or 12.5 million in the first quarter which includes compensation costs of 4.3 million Material expenses of $4.7 million associated with pre-commercialization training activities. Facilities and depreciation costs of $1.8 million, as well as outside services of $1.2 million. Stock-based compensation for the quarter was a credit of $2 million due to the aforementioned credits primarily associated with the various acquisitions. Depreciation and amortization for the quarter was $5.8 million, and CapEx Spend in the quarter was approximately $12 million. We'll now cover our outlook for fiscal year 23. We continue to project fiscal 23 revenue in the range of $261 million to $269 million, including SINBIO revenue of $104 to $106 million, NGS revenue of $120 to $123 million, and biopharma revenue of $77 to $40 million. and there has been no change to our revenue projections from our previous guidance given November. For the second quarter of fiscal 23, we anticipate revenue of approximately $56.5 million, which breaks down as follows. Send-by revenue of $24 million, a sequential increase reflecting the higher orders. NGS revenue of $25 million. Although orders were strong to approximately $31 million in quarter one, we see the beneficial impact of those orders translating into revenue in the second half of our fiscal year. By our farmer revenue, approximately $7.5 million, and this reflects the lower orders we saw in quarter one. We anticipate gross margin for the quarter to be approximately 30%, as we bring on the cost associated with the Wilsonville Manufacturing Facility. As we scale our revenue in the second half of fiscal 23, we're projecting our gross margin to be 39% to 40% for the year, which is in line with the guidance provided in our previous earnings calls. We decreased our operating expense guidance for the year to approximately $230 million as compared to previous guidance of $365 million, primarily to reflect the expected reduction in stock-based compensation. We're now projecting R&D expense of $130 million as compared to $138 million in our previous guidance. We expect SG&E expense of $204 million, and that's a decrease from a previous guidance of $220 million, primarily due to the impact of lower stock-based compensation. Mark-to-market is projected to be a credit of $4 million for the year. Depreciation and amortization is projected to be approximately $29 million. Under projection for stock-based compensation, declined from $83 to $15 million for fiscal 2023 due to the combination of the aforementioned credits. In addition, we reduced the number of projected shares granted to our executives and employees to approximately $1 million in stock awards at a lower share price than originally projected. Net loss for the year is projected to be approximately $225 million, and that's a decrease from capex projected to be 50 million, and our ending cash is projected to be approximately 300 million. In addition, there is no change to our fiscal 24 guidance we provided in November. In summary, we had a robust start to our fiscal year with record orders in quarter one. We shipped our initial commercial products from the factory to the future in January, and we're focused on scaling our business to achieve adjusted EBITDA breakeven in our core and our pharma businesses, And with that, I'll turn the call back to Emily.
spk27: Thank you, Jim. In November, we outlined our three-year plan to address the EBITDA break-even for our core business, and this remains our focus. We are in receipt of our shareholders' feedback that achieving profitability is top of mind. This fits with our operating plan that we've been executing in the past few years. Working towards that objective in SynBio, we re-ramp our manufacturing capabilities in Wilsonville, Oregon to increase revenue out of our factory of the future, building on our first shipment at the end of January. Looking towards the full timeframe, we expect to bring down our current time and offer fast-growing products for all of our customers and expand our commercialization effort into the make-up market. For NGS, We expect continued expansion of our customer base, as well as the few large customers generating revenue in the back half of the fiscal year. In addition, we are looking towards RNA workflows to augment our DNA workflows with a consistent focus on owning the workflow between the sample and the sequencer. In Biopharma, we are beginning to offer an integrated portfolio of antibody discovery and optimization services, capitalizing on efficiencies between our in vitro, in vivo, and in silico approaches. In data storage, we are making good progress to bring up the chip and our new pilot production DNA data storage writer. We plan to launch our SensorArchive solution as an early access offering in late Canada 2023. In parallel, we will continue to seek to partner with leaders to set the stage for commercial success while preparing the market for DNA data storage. We remain extremely excited about our opportunities ahead and look forward to keeping you appraised of our progress. Let's open the call for questions. Operator?
spk35: As a reminder, to ask a question, please press star 1-1. If your question hasn't answered or you wish to remove yourself from the queue, please press star 1-1 again. One moment for questions. And our first question comes from Steve Ma with Cohen. Your line is open.
spk21: Great. Thanks, and thanks for taking the questions. My first question is on the DNA makers, you know, there's an analogy within prep, you know, this thing that people started branching out into. But, you know, given that, you know, the 270,000 commercials, I think a lot of them are going to be academics, you know, which have cheaper like grads labor. Give us a sense of how you're going to this market to try to find the price to get the adoption in this academic market and give us a sense of how long it will take for this discovery.
spk27: Thank you, Steve. Your line was a bit choppy, but I think you're asking for the 270,000 gin makers, those that are in academia, how we do the price discovery. And now we'll convert them. Two things that I'll share. One, in the past, we had a uniform pricing at Swiss for academia and industry, meaning that we differentiate pricing between those two groups. We've recently started to differentiate a little bit. I expect that for fast gene, there probably would be a different price. There possibly could be a different price for academia versus industry just to account for the value of the product to those two different groups. That's number one. And number two, what we've been saying for multiple years now is we've been... supporting iGEM. So iGEM is a group and every year there's a competition with thousands of students where they apply synthetic biology. And in the past, iGEM teams had to do their own cloning. They'll get parts and they'll do Gibson assembly and mutagenesis. And we've given, I think, 20,000 bases to every iGEM team for the last few years. And our goal is to get the best and brightest students early on, get them used to not clone anymore. And it will take some time, but we think that similarly right now in academia, nobody does their own prep. They all use kits. I think over time we can, we can drive some transformation. So we'll be for enterprise. Um, and, um, and we've been already working in, in changing the frame of mind that, that, uh, that, you know, you just don't close just so much easier to, uh, and, and faster, uh, to, to get the clone from companies like us.
spk21: Okay. Got it. I appreciate that. Uh, and, uh, uh, next question, uh, on gross margins is question for Jim. So, yeah, the gross margins in the quarter was maybe a bit lower than we expected. Can you give us some color on that and then also some color on the gross margin recovery in fiscal year 24 back up to 49 percent?
spk14: Yeah. So, Steve, if I picked up your question correctly, you said gross margin is a little lower. Gross margin Q1 was 45.7 percent. we are projecting that to decline to 30% this quarter as we bring on the cost associated with factory future. As we scale the business, and you've touched on the maker's market, I mean, it's a huge opportunity for us, 1.4 billion. We've already seen strong SynBio growth over this last year. The orders were good in the first quarter at record, so we feel good about the growth in the second half. First half revenue is about 40-odd percent of the business, which is in line with previous years. So we're going to see growth in the second half, driven by continued growth in Symbio, NGS, pharma picking up. We feel good about the 261 to 269. And as we continue to scale, we see cross margins this year consistent with our previous forecast of 39 to 40%. And next year, as we continue to scale the business, we see cross margins in the range of 49%, as we've highlighted below. And that's driven by, you know, executing and scaling the fight to the future, leveraging our fixed costs, and continuing to do well in terms of expanding our customer base.
spk21: Okay. Thanks for the call, and apologies for the bad line. I'll get back in the queue. Thanks. Okay.
spk35: Thank you. Our next question comes from Matt Sykes with Goldman Sachs. Your line is open.
spk10: Hi. This is Evie Kozlowski on for Matt. Realize that you just started shipping commercially from Factory of the Future, and you've talked about fast gene being launched in the fall of this year. Could you talk about how you've been able to break into the gene makers market prior to that launch, or will the launch be an inflection point for getting into that market?
spk27: Great question. We've been getting into the makers market a little bit over the last few years. with our long jeans. So what we know is that some customers buy short jeans, and then they assemble themselves the short jeans into long jeans. So they buy short jeans, but they are makers of long jeans. And when we offer our long jean offering, it's very fast, very cost-effective, and some of our revenue growth comes from us converting some long jean makers. So we are a little bit in the DNA makers market, but we do miss the speed, which means that, as you pointed out, when we have fast gene, that's when we should see an inflection point.
spk10: Okay, great. That's helpful. And then, what do you think the potential gross margin uplift is for fast gene this year? Will it ramp enough for us to see it come through in 23? Or will that mostly come in next year?
spk14: Overall, we see our gross margins. So gross margins in Q1 were just under 46%. This quarter, we see gross margins 30%. We're launching our fast genes in the fall of this year. So overall this year, gross margins, the range is actually 90% to 40%. And as fast genes pick up next year and we continue to scale our manufacturing operations, we'll leverage fixed costs. And that's primarily going to be driven by volume and success of fast genes. So that kicks in in FY24.
spk11: Okay, great. Thank you.
spk35: Thank you. Our next question comes from Sungji Nam with Scotiabank. Your line is open.
spk09: Hi, thanks for taking the questions. Just to have a couple of high-level and market trend questions, maybe starting with biopharma. Was wondering, you know, obviously solid growth there. I'm kind of expecting a bit more muted, I think, growth for the next quarter. And, you know, was wondering if you might be able to call out kind of the trends you're seeing in the near term, if you, you know, if there are any kind of differentiated trends, you know, across, you know, different segments within biopharma. And, you know, also if you expect the weakness to be prolonged throughout the year, any kind of color you could provide there. And then the second question is in terms of ex-U.S. markets like China, Europe, as well as Europe, in terms of whether you kind of called out China continuing to see headwinds from the COVID situation And if you might be able to kind of compare whether that has materially worsened in the current quarter versus what you were seeing last quarter, just also any additional color there would be very helpful. Thank you.
spk27: Thank you, Sanjeev. Maybe I'll answer the first question, and Jim will cover the second question on the global markets. So in terms of biopharmaceuticals, some of the trends we are seeing is is definitely some of our customers have some funding headwinds. Some others are very big companies and maybe less big. For the companies that have funding headwinds, I think it is an opportunity for us. It may take time to have them see it, but what we offer is more shots on goal, and so we basically extend their budget. So I think our are offering is very well suited for them. The other trend we see is that people maybe spend a little bit in the balance of the budget. Maybe there is a bit less for upfront discovery and maybe they're balancing more towards later stage work, which means that maybe they will do 10 discovery projects a year and maybe they're shrinking to eight or less. We have barely penetrated into the market. And so if we just get one project or two projects, it's a win for us. So it's not necessarily a big issue, but something that we are seeing. And so I think in general, we are stepping back and relying on the strength of our platforms. And our platform is really best in class. We have in vitro, in vivo, in silico. And last year, we were playing a little bit with one arm tied behind our back because we were trying to let the advanced team be as internal as possible to make their own out. But now we can integrate. We can have one team. We can have one product offering. I think the integration of those three in vitro in vivo in silico is a very powerful offering that will enable us to get more than our fair share in the market, even though the market in general is experiencing some headwinds in biopharma. Do you want me to take the second question?
spk14: Yeah, so in terms of China, I actually met with the China team last couple of weeks. So it was interesting. China was impacted in the first quarter, i.e. December quarter, October, November. impacted by the lockdowns. Then obviously China opened up and then the companies were impacted by COVID. That's extended into January, February. So China sales in Q1 declined to approximately just over a million, 1.4 million. We see modest pickup in the second quarter, our second quarter, which is March. And then we see significant pickup in as things normalize in the last half of the year. And if you look at our revenue, you see our first half revenue is about 40, 42, 43% of the overall year. You see China having a modest impact on that. Plus, overall, we're seeing some large NGS customers coming in the second half of the year. So overall, we're doing well in China. We've increased our leadership in China, enhanced our leadership, and we continue to win good accounts in China. And we're well positioned as the economy starts to normalize there and open up after as they're dealing with COVID. In terms of Europe, we actually had... Europe is up year over year. The December quarter is always a tricky one because of the vacations, but it continues to be strong in Europe and we see good opportunities in biopharma. We continue to make enrollments with our Symbio portfolio in Europe. NGS is looking good. You've seen some announcements there. And, you know, back to why we're winning, it's strength of the portfolio. And we're excited about launching the factory future. I think that gives us great opportunities to engage with some of our larger customers and positions as well for next year.
spk09: Great.
spk35: Thank you so much.
spk14: All right.
spk35: Thank you. Our next question comes from Luke Sergut with Barclays. Your line is open.
spk05: Great. Thanks for the time here. Good morning, everybody. So a couple here for me. Jim, can you just talk about the strength, and Emily, the strength that you guys had on gross margin in the first quarter? It usually expected some type of seasonal step down, but this came in well above, I think, everybody, what they were looking for.
spk14: Yeah, so back to strength and gross margin in the first quarter, it came in just under 46%, which is a great start for the year. That was driven by we were working in terms of product mix and focusing in terms of continuing to manage our contribution margins. So we saw a strong strong actually contribution margins in both SynBio and in NGS. So it's driven by a richer mix of products, and we're excited about that. It continues to reaffirm that we're going the right direction. The step down in Q2, down to 30%, is purely driven by the impact to bring on fixed costs associated with factory future.
spk05: Yeah. Okay. And then on the second quarter guide from a revenue perspective, is this mostly relatively flat? Is this mostly due to a capacity constraint on the factor of the future? So I guess what I'm trying to get at is you have a really strong one Q gross margin, assuming that that's full capacity utilization that you guys are running there. And then as you're bringing the factor of the future on, you're not really going to be selling a lot out of the factor of the future in the second quarter. And that's why you're taking on all those fixed costs. So your GM steps down massively. And your revs kind of stay tight with that first factory going at full capacity. Am I thinking about that right?
spk14: Yeah. So what's interesting is if you look at Q1, you know, San Francisco was not actually at full capacity. You know, the jeans revenue, jeans volume did peak up. And You're right in terms of this step down is driven by bringing fixed calls on. What was interesting is we continue to build our customers. We saw SynBio pick up, and we continue to see good margin improvement in SynBio and consistent margins in NGS. So part of this is driven by the growth. Part of it is driven by the mix and this focus on expanding our SynBio footprint as well. You're absolutely right. Bring fixed costs on in Q2. Margin dips down to 30%. And then as we scale in Q3, Q4, we see the gross margin for the year in the range of 39% to 40%. Okay, great.
spk05: And then lastly, on the bookings, you guys had a really big step up there. Can you talk about what you were seeing from Is that a lot of the biopharma? Because I saw your active program step up really meaningfully. I'm just trying to get the sense of the cadence of the different segments and how they're going to roll on through the rest of the year.
spk14: Yeah, I mean, you know, what's interesting is we had record bookings in NGS. The question is going to be, okay, so why isn't Q2 NGS number higher than revenue, much higher than we're projecting? The answer is because those orders impact the second half. We saw good, strong. We continue to do well in SynBio, continue to do well in Jeans, beginning to see some impact on IGGs. I mean, across the SynBio portfolio, we're doing well. And what's driving that is performance, turnaround time, customer experience, ability to scale, and deliver at great values. So if you look at the value proposition, NGS, It gives our customers significant reduction in sequencing. The number of larger customers continues to scale. We keep getting adopted into new assays. In terms of the SYNBio portfolio, particularly in genes, we brought the turnaround time down. We offer terrific pricing in terms of the market, and because of that, we're winning customers. And because of that, we're seeing a number of small customers come in. And that gives us a good platform or springboard for going out to the maker's market. So I would say we're executing according to the strategy.
spk04: Great. Yeah, it's going to be interesting to watch. Thanks.
spk35: Thank you. Our next question comes from Matt LaRue with William Blair. Your line is open.
spk18: Hi, good morning. The price for Jean has increased meaningfully here over the last four quarters, even more so than what's been a nice trend line over the last few years. Can I just walk through what the key drivers of that increase has been? I think Jim just mentioned IGG had a nice quarter, but what maybe some of the key drivers are ahead of which I assume will push that trend line even higher.
spk27: Yeah. Maybe I'll start. Thanks for the question. You know, I really like looking at but sometimes we have to be a little bit careful because it can be a little bit, you can make a good story either way. So what happens is, Our short jeans are priced at $0.09 per base. Our long jeans are priced at $0.15 per base. And so when we penetrate more into the maker's market where they buy long jeans instead of buying short jeans, then the ASP goes up because now it's $0.15 per base and it's a long jean, so the ASP per jean goes up. So from that point of view, that's a great story. That's good. At the same time, when we're doing really well in biopharma, the average gene size goes down because antibody genes are small. And so from that point of view, the ASP goes down a little bit. And so it is a little bit of a mix of is there strength in the long gene business or is there strength in the human gene size genes that are done. And then in addition to that, we have been pushing price increases a little bit. And so on NGS, we did our second annual price increase in January. And then in Symbio, we increased prices started last summer. So there's a little bit of... benefit from that as well.
spk17: Okay, thank you.
spk18: And then as you work towards vaccines in the back half, just remind us what else is required on your end to get those on the market. I think particularly you've mentioned software and training on that software, but just kind of get us from here to there.
spk27: No, no, great question. So, yes, there's a couple things. So, First of all, we need to be able to make fast genes. And so we developed, designed the factor of the future to be able to do it. And so we have the instruments in place. And so the instruments in place and the current software enable us to make genes that are the same speed as what we do in San Francisco. And then there is a few more software components we need to deliver and training of the team to have the factory be able to make jeans faster. So that's step one. Step two, we need to have an e-commerce that is adapted to be able to price and book orders for slow versus fast jeans and there's a big effort on the customer experience if people can't afford fast jeans we don't want them to feel bad at the same time if we want to make it like the Apple website where you don't know why but there's money coming out of your wallet and people are incentivized to choose the fast jeans so there's quite a bit of e-commerce software design that needs to happen so it's beautiful, frictionless, and intuitive. And then the last piece is continue to develop and enhance our digital marketing engine. A lot of the fashion customers, 270,000 customers, were not going to send an account manager to a lab in a university is just not cost-effective. And so we need to reach those customers through a digital approach. And there's multiple ways to do that, you know, being at conferences, being part of iGEM. So Twist is already part of the mindset. But the other goal is through digital teams, get people on the Twist website, get them onto the e-commerce platform, have a touchless order where no human interaction, and then have it shipped to them in a way that's, again, frictionless. So those are the components that we are still refining. A lot of software, basically.
spk19: Okay. Thanks, Amal.
spk35: Thank you. Our next question comes from Vijay Kumar with Evercore. Your line is open.
spk03: Hey, guys. Thanks for taking my question. Emily, maybe my first question is on the guidance and revenue assumptions. And I look at your order growth here, 30% in Q1. In your second quarter revenue guidance, that's 17%. Is there something going on and on the macro for, and apologies if you've commented on this, was there any China impact or, and I know in the past we've spoken about share gains in gene synthesis, is that still going on? And when I look at that order number of 65 million, that annualizes to about 260 million, which is roughly your revenue guidance. Is there some capacity issue here that you're facing as you bring factory of the future online?
spk27: Well, maybe I'll start and Jim can add as needed. But yeah, as you pointed out, the other number of trends towards our guidance, the first quarter is 30% above Q1 last year. which 30% is about the growth that we anticipate delivering this year. And we've mentioned that it would be a back half loaded story. And if we look at the ratio of first half, second half, the ratio for this year is about the same. as last year, the year before, and the year before. It's somewhere between 40-45% of first half to second half. That's the business we've been living in. The market is there. We have a great technology. We have a sales team that is extremely aggressive and great products. I think the bases are loaded, but we have to execute and deliver what we said we would. Jim, I don't know if there's anything else you want to add.
spk14: So, Vijay, I mean, you're correct. Overall, strong orders in the first quarter. I mean, particularly in NGS, we saw a number of larger customers come in, place larger orders, getting as well positioned for the second half. I did mention China earlier on the call. So I'll give you the cliff notes in China. October and November impacted by lockdown. China was down sequentially from September quarter down to December. As the economy opened up with COVID, people got COVID. Some of our... Some of the weeks in our offices, about 80% of staff are out. That's obviously impacting January, February. So we see a little pickup this quarter in China. And as the pandemic works its way through, we see pickup in the second half. In China, last year, put in perspective, was about 7 million. Even with the first half impacting COVID, we still see a pickup in China to about 9 million this year. We know we're all happy with the bookings and there's more opportunity for us, as Emily's highlighted. The commercial organization have got tough quotas to meet this year. They're aggressively going after that and we keep building our number of customers. We're getting a lot of interest in terms of the future. and our focus to execute and continue to deliver in terms of our top line and focus on getting to the core business to adjust EBIT to break even at 300 and then continue to focus and grow pharma and get that to adjust EBIT to break even as well.
spk03: And just maybe one more, Jim, for you on the second half cadence, both on the revenues and growth margins, right? I think from a revenue perspective, I'm looking at perhaps sub-25% in first half. That would imply well north of 30% above your annual guidance. Your comps get harder in second half. What is driving that acceleration? The same goes for gross margins. I think your first half implied is around 37%, 38%. You need to hit about 40% in back half. What is driving this back half?
spk14: past trend in both from a revenue growth perspective and gross margins yeah um so touched on it i touched on a little bit with the question i mean uh our bookings in the first quarter our orders for the first quarter were approximately 65 million um we saw the pickup in terms of ngs uh so ngs is is driving the the overall growth in the second half um if you look at ngs first half it's about 50 million in terms of revenue. The growth in the second half to hit roughly 120 million is 70 million. What's driving that? You can see there that the orders in Q1 for NGS We're in excess of $30 million. We continue to see on SynBio, we see sequential pickup in SynBio, which is driving that number of customers, continuing to deliver from a performance point of view. The team in San Francisco has done a fantastic job in terms of aggressively reducing turnaround time, and that's been well-received in the market. So execution, in terms of your question around gross margin improvement in the second half, That's about growing the top line, leveraging our fixed costs. We do bring the factory to future costs online this quarter as the facility is now commercially operational. It's exciting that we actually shipped our first product. The focus is execution. It's going up to the maker's market, 1.4 billion opportunity. The pipeline for NGS continues to scale. The number of wins in ISBs continues to scale. So it's more of execution. Obviously, some new products impacting us as well. It's continuing to gain share in a growing market.
spk35: Thank you. Our next question comes from Puneet Suda with SBB Securities. Your line is open.
spk15: Yeah, hi, Emily, Jim, thanks for taking the question. So just following up on the NGS side, obviously booked a bill higher, but could you elaborate, you know, is this more on the pickup in the second half pickup on the NGS is more RUO driven or more of the liquid biopsy customer demand? Sort of just elaborate a bit on that. And then, you know, how much of that is volume versus pricing? I mean, you're expecting a meaningful pickup here. in both growth and as well as obviously gross margins too. So just trying to understand how much of that is pricing and volume in the context of NGS and given the fixed cost that you have now and the 30% gross margin that you have for the next quarter.
spk14: I can start, Emily. So let me just address the 30% gross margin this quarter. I appreciate the question. That's primarily driven by the fixed cost coming online in the factory future. I mean, we're scaling the factory future this quarter, so we'll give an update in terms of the volumes and in terms of products going through factory future in the next earnings call. We're commercially bringing it on, fixed costs come on, so we've got an under-recovery. The consequence of that is our gross margin dips to 30%. Then as we scale the volume in Q3, Q4, we'll see our gross margins improve. In terms of NGS, I mean, we've been working on this for a number of years. providing metrics in terms of the larger NGS customers that we continue to service. We define the larger NGS customers as those customers that provide revenue in excess of $250,000 a year. That's continued to scale. We're now tracking approximately 264 of them. And that's a scale from less than 100 about 18 months ago. And we continue to run in terms of assays. And as we continue to run in terms of assays, we see that impact in terms of bookings, placing orders, we continue to gain share. And that's what's picking up. We see the pick up in the second half of this year. So we're well positioned for a strong second type in NGS, and as NGS picks up, revenue picks up and gross margins improve.
spk15: Okay, got it. That's helpful. And then just wondering, some of our reagents peers have talked about softness from the smaller biotechs. Wondering if you're seeing any of that. And then lastly, appreciate the comments on the maker's market. Maybe Emily just wanted to understand, You know, academic customers, sure, a large number of them out there, but more price sensitive. So, wondering, you know, what's your expectation on both the sort of, you know, pricing of the product there and the sort of the quality of product difference? Liquid biopsy customers, could you maybe elaborate a bit on that too? Thank you.
spk27: You get off for a second there. Yes, I think we don't have different quality. It's one grade for academia and it's the same product for academia and companies. And we break the... We break... the revenues for academia and companies, for the entire companies, but not for NGS. But I think we've seen in the past that the majority of our NGS revenues are around clinical product.
spk15: And on the smaller biotechs, are you seeing any of that in the quarter? And currently, are you seeing any impact? Some of your peers had commented around weakness in the REO segment.
spk27: Yeah, no, I don't think we have any specific comment around RU versus clinical. Thank you. Thank you.
spk35: Thank you. Our next question comes from Rachel Vattenstall with JPM. Your line is open.
spk20: Hi, this is Noah for Rachel. First, if I could just potentially get a little additional clarity here. You know, just as it relates to NGS, You mentioned that there is an annual price increase that you pushed during January. So could we get a little commentary regarding the pricing strategy here? How did you see orders trend in NGS pre-price increase versus post-price increase? And then I have one more. Thank you so much.
spk27: Yeah, I think we tried to price on value. And I think there's an understanding that costs are going up. And so we were able to, based on the quality of our product, based on the strength of our product, we were able to put in a price increase, which has been quite well received.
spk20: Awesome. Thanks so much. And then just regarding the data storage offering, you know, you've partnered with some big tech giants to bring, you know, DNA data storage, you know, into existence. Can you talk about, you know, conversations you've had with these partners in recent weeks as, you know, we've seen some of the tech industry starting to tighten their belts around investments relating to, you know, non-core businesses and, you know, do some layoffs. So, like, how do you expect to push the, you know, adoption curve of DNA storage, or what have you been hearing from your customers regarding timelines for adoption there? Thanks so much.
spk27: Yeah, that's a very, very good question. I think the data storage, over the last several years, we've made a concerted effort in creating an industry. And so it's not just us, but we've created the DNA Data Storage Alliance, Data Alliance Code into SNIRS, Now you have data storage conference where on their own they are putting a DNA data storage track. And so in the industry, it used to be when I would talk to data storage customers, they would say, oh, I've never heard of storing in DNA. And then it moved to, oh, I've heard about storing DNA, but I don't believe it. And now it's, oh, yeah, I've heard about DNA storage in DNA. Where can I buy it? And so there's definitely a string in DNA sticking mindshare because there's such a need for deep archive where tape and hard drive are just not well suited. And so. I think it's becoming, in my view, an inevitability just because there is such a strong need on the archiving market to get something that is better than tape and hard drive because people just don't like it.
spk16: Awesome. Thanks so much.
spk35: Thank you. There are no further questions. I'd like to turn the call back over to Emily Leprous for closing remarks.
spk27: Thank you very much for joining us today. I apologize for being a few minutes late, and we're looking forward to seeing you at LGBT next week and at the Cowan Healthcare and Barclays Conference in March. Thank you.
spk35: Thank you. This does include the program. You may now disconnect. Everyone, have a great day.
spk08: The conference will begin shortly.
spk05: To raise and lower your hand during Q&A, you can dial star 1 1.
spk12: Thank you. Thank you. music Thank you. Bye.
spk35: Welcome to TWIS Biosciences Fiscal 2023 First Quarter Financial Results Conference Call. At this time, all participants are in listen-only mode. After the speaker's prepared remarks, we will conduct a question and answer session. Instructions will be given at that time. As a reminder, this call may be recorded. I would like to turn the call over to Angela Bidding, Senior Vice President of Corporate Affairs and Chief ESG Officer.
spk11: Thank you, Operator.
spk07: Good morning, everyone. I would like to thank all of you for joining us today for the TWIST Bioscience Conference Call to review our fiscal 2023 first quarter financial results and business progress. We issued our financial results release this morning, which is available at our website at www.twistbioscience.com. With me on today's call are Dr. Emily Lipprust, CEO and co-founder of TWIST, and Jim Thorburn, CFO of TWIST. Emily will begin with a review of our recent progress on TWIS businesses. Jim will report on our financial and operational performance. Emily will come back to discuss our upcoming milestones and directions, and then we'll open the call for questions. We would ask that you limit your questions to a maximum of two 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 investor section of our website and will be available for two weeks. During today's presentation, we will be making forward-looking statements within the meaning of the U.S.
spk08: federal securities laws.
spk07: 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 the press release we issued earlier today, as well as those more fully described in our filings with the Securities and Exchange Commission. 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. With that, I will now turn the call over to our Chief Executive Officer and Co-Founder, Dr. Amaline Leprous.
spk27: Thank you, Angela, and good morning, everyone. For the first quarter of fiscal 23, we reported revenues of $54.2 million, consistent with our guidance shared on our fiscal year-end call in November, and we posted strong orders of $64.7 million. What we saw in the first quarter across SynBio and NGS is a story of an expanding customer base, making up for a larger percentage of our revenue, meaning that we are landing more customers with an increasing potential to expand within existing accounts. Beginning with Symbio, we reported revenues of $21.7 million above our guidance of $21 million. In addition, we reported orders of $26.6 million. We continue to ship our kernel genes, starting at 10 business days, gene fragments and oligopools in as few as 5 days, and we see this consistent turnaround time benefiting our expanding share of the DNA buy-off market. We shipped our first revenue-generating products out of the Fracture of the Future last week, which, as we said previously, means that we are now delivering the same products with a turnaround time equivalent to our South San Francisco site. We shipped oligopools and gene fragments from our Wilsonville site and leveraged our load balancing software to send orders to the right locations. And we expect to begin shipping clonogens next month. will be focused on decreasing turnaround time for clonal genes significantly, with the launch of our fast genes offering expected defaults, which will enable us to tap into new markets, specifically the DNA makers market. We shared our competitive advantage across all platforms during our Fracture of the Future visit at the end of November. Virtually every product we make builds off of our silicon platforms to manufacture synthetic DNA at scale. This front-end proprietary advantage enables a significantly different viable cost profile for twist oligosynthesis, which then feeds into all of our product lines. Speaking specifically to the cost of making a gene, today our viable cost for oligosynthesis is less than $1 for a clonal gene, with total viable cost of approximately $35 to $40 per gene. This cost profile enables us to continue to serve our customers as the low-cost, high-quality provider while still achieving a contribution margin of 65% to 70% for our Symbio products. In addition, a key component of our cost advantage is the scale we have built and continue to drive. Moving forward, we expect to continue to leverage this advantage to pursue the customers who currently make their own DNA because they need it faster, a group we call the DNA Makers. We believe we'll be able to command premium pricing for these genes. To provide a bit more context around who makes the maker's market, these are medical and academic research scientists who make their own DNA rather than buying. We know from the Bureau of Labor Statistics Pew Research that as of 2019, there were 270,000 of these scientists in the United States alone. These are all potential customers. We believe the maker market is ripe for disruption with rapid DNA synthesis and a reasonable price offering. We are in the process of price discovery to analyze the way to maximize margins for this particular product. Genes are available today from competitors at a faster runtime, but their capacity is limited and the cost can be up to $1 per base, which is cost prohibitive for most researchers. To draw an analogy of a market that has been disrupted in a similar way, it used to be tedious to purify DNA. It was a complicated process that required making buffers and many time-consuming steps. This market was disrupted by offering a kit that contained ready-to-use components to make the process simple and seamless. Initially, some scientists hesitated to adopt based on price, but today, these kits are used globally to purify DNA. We see a direct parallel here in converting DNA makers into DNA buyers by applying similarly appealing products to convert behavior. Beyond fast genes, we believe we have an opportunity to launch additional products out of our Wilsonville facility, including RNA, long-term and GMP DNA. Moving to NGS, we reported revenue of $24.4 million, just short of per gallon, and others of $31.2 million for the quarter. As we shared last quarter, we see another back-halt through the year, with larger customers reordering in the last two quarters of our fiscal year. As expected, we saw a few key customers move orders out from December into the first calendar quarter. We remain confident in our fiscal year guidance that NGS will continue to grow substantially year-over-year. We see this business continue to extend, with new sequencing offerings and game-changing clinical applications. Our targeted solution leverages the higher degree of uniformity from our oligos. Therefore, our solution decreases the cost per sample for our customers and we are essentially selling a gross margin improvement. We continue to work with a variety of existing and new sequencing companies as we are sequencer agnostics. As this cost of sequencing comes down, we believe volumes will continue to increase, as we have seen over the last two decades. Importantly, we believe that for indications like oncology, where clinical applications including liquid biopsy and minimal residual disease require deep sequencing, panel and exome sequencing will continue to be the mainstay. And we see the reduction of sequencing costs driving reimbursement across key areas, encouraging access by a broader group of patients, which will create subsequent volume increases. In addition, we continue to expand our COVID control offering in new disease areas, as well as cancer, with our latest COVID control released during the quarter. While we see consistent othering, it is not material due to the evolving nature of the pandemic. As a related note, we do not plan to file a size 10 tier application for SARS-CoV-2 panel that received emergency use authorization from the FDA in 2021, as revenue was not material for this product. We believe the opportunity across cancer continues to grow while COVID products are decelerating. For BioPharma, we reported $8.2 million in revenue, a bit ahead of our guidance, and $6.9 million of orders. Of note, we signed a multi-target agreement with Astellas that was announced in January. We are now focused on enabling our sales team to sell the integrated offering between our South San Francisco and Boston offices. In the one roof, we offer in vitro synthetic library in vivo discovery and screening, and in silico lead optimization, candidate selection, and optimization with AI and machine learning. We believe this offers a fully integrated and established discovery engine with a guaranteed deliverable. As we are now operating as an integrated team, our total partners, active and competitive programs will include the historical average business. As of December 31st, 2022, we have served 278 partners, with 95 IT programs and 63 of our programs as milestones and our royalties associated with the projects. In addition, we continue to advance many internal candidates through the early discovery stage, and we have several antibodies that have reached the preclinical stage and are close to potential out licensing by biotech or pharma partners. Turning to data storage, we continue development work on our first data storage system, which combines our proof-of-concept chip with a recently assembled proof-of-concept writer. We have engineered a scalable end-to-end system to store data in DNA and are now writing software to coordinate all the steps required to code, write, store, sequence, and decode digital data. Once completed, we will begin to run the system in pilot production. All of this work is in support of the release of early access to our first product, the Century Archive, which we expect to be available towards the end of the calendar year. With that, I'd like to turn the call over to Jim to talk through our financials. Jim?
spk14: All right. Thank you, Emily. We had another strong quarter of execution at TWIS despite a volatile microeconomic environment. Revenue for quarter one was $54.2 million, which is year-over-year growth of 29% and a sequential decline of 5%, which is in line with our guidance of $54 million. were 64.7 million for the quarter, a sequential increase of 4%, and 30% growth year-over-year. Gross margin for the quarter was 45.7%, and we shipped to approximately 2,100 customers, and that's up from approximately 1,800 customers in quarter one, fiscal 22. And we ended quarter one with cash investments of approximately 439 million. Our NGS revenue for quarter one was 24.4, slightly below our guidance, and 27% year-over-year growth. As we noted in our previous earnings call, we had a strong fourth quarter, and a couple of our larger customers pushed shipments from December quarter into January, and we were negatively impacted by the COVID pandemic in China, which continues to impact our China revenue in the current quarter. Our first quarter orders were 31.2 million, which is a record. It represents sequential growth of 10% and 43%, growth year over year. And this growth reflects the strength of our product portfolio, with the top 10 customers accounting for approximately 40% of our NGS revenue, and we served approximately 600 NGS customers in fiscal quarter one. Our pipeline for larger opportunities continues to scale, and we're now tracking 264 accounts, and that's up from 257 noted in our last earnings call, and 130 have now adopted twist and that's an increase from 121 last quarter. Now turning to SynBio, which includes genes, DNA preps, IgG, libraries, and oligopols. SynBio revenue for the quarter was 21.7 million, and that's exceeding our guidance and representing a year-over-year increase of approximately 21%. Orders for the quarter were 26.6 million, which represents 20% growth year-over-year. Some of the highlights include shipping to approximately 1,600 Zinbio customers, which has grown from approximately 1,270 in quarter one fiscal 22. The customer base, as Emily noted previously, includes biotech and large pharma companies. Gene's revenue increased to $16.2 million, and that's up from $13.5 million in the first quarter of fiscal 22, and that's year-over-year growth of approximately 20%. and we shipped 134,000 genes in the quarter, and that's an increase of 7% year-over-year. Olive Hill Pools had another strong quarter with a revenue of 3.7 million, and demand came primarily from the healthcare segment. Now to Biopharma. We continue to scale our antibody discovery business. Biopharma revenue for fiscal first quarter, 23, was 8.2 million, and that's year-over-year growth of 70% and is consistent with our prior guidance. Orders for the quarter were $6.9 million, down sequentially from $9.4 million in the fourth quarter. Biopharma orders have been impacted by an overall weaker environment, and we did not see the pharma Christmas in the quarter as we've seen in past years. That said, we added four more milestone and royalty agreements, which brings the total up to 63, and that's up from the 59 we noted in the previous earnings column. While Emily reported total biopharma metrics, including historical adverse agreements, solely for the first quarter of fiscal 23, we had 95 active programs for the combined twist and adverse antibody services. I'll give a quick update in terms of breakdown by industry and a quick update in our regional progress. Healthcare for the first quarter was $30 million, as compared to $21.1 million in the same period of fiscal 22. Industrial chemical revenue was $13.6 million in the first quarter of 23 as compared to $12.5 million in the first quarter of 22. And academic revenue was $10 million in the first quarter of 23 compared to approximately $8 million in the same period of fiscal 22. On a regional basis, EMEA revenue rose to $16.3 million in the first quarter of fiscal 23 compared to $15.4 million in Q1 fiscal 22. As we noted earlier, APAC was negatively impacted by the COVID pandemic in China, but had a slight increase in revenue to $4.3 million as compared to $4 million for the same period of fiscal 22. U.S., including America's revenue, increased to $33.6 million in the first quarter as compared to $22.6 million for the same period of 22. Now moving down to P&L, our gross margin for quarter one was 45.7%, with cost of revenue for the quarter of $29.4 million. Cost of revenue does include $1.1 million of stock-based compensation expenses and $3 million depreciation. Now to operating expenses. Our operating expenses for the fiscal quarter, including R&D, SG&A and change in fair value, and mark-to-market adjustments of acquisitions were approximately $69.4 million as compared to $70.9 million in Q1 fiscal 2022. To break it down, R&D for the fiscal quarter was $31.2 million, and that's an increase from $22.6 million in the same period of fiscal 22. This does include DNA storage spend of $6.1 million and biopharma spend of $7.7 million in the first quarter of fiscal 23. The major contributors to the increased R&D spend were primarily increased compensation costs of $5 million associated with increased number of employees which does include adding additional 12,000 data storage. Depreciation for R&D in quarter one was approximately $1 million. SG&A in Q1 includes approximately $18 million credit due to the combination of stock forfeitures associated with departing employees and the release of an earn-in holdback as we determined that Veris missed the earn-in revenue hurdle. The Veris team came very close to achieving the earn-in, and we look forward to fully integrating the Boston team into TWIS organization. We remain very enthusiastic with the team and the potential opportunity for the combined of VERUS and TWIS organization. Back to the future, pre-commercialization costs included in SG&E were 12.5 million in the first quarter, which includes compensation costs of 4.3 million, Material expenses of $4.7 million associated with pre-commercialization training activities. Facilities and depreciation costs of $1.8 million, as well as outside services of $1.2 million. Stock-based compensation for the quarter was a credit of $2 million due to the aforementioned credits primarily associated with the various acquisitions. Depreciation and amortization for the quarter was $5.8 million. And CapEx. Spend in the quarter was approximately $12 million. We will now cover our outlook for fiscal year 23. We continue to project fiscal 23 revenue in the range of $261 million to $269 million, including sin bio revenue of $104 to $106 million, NGS revenue of $120 to $123 million, and biopharma revenue of $77 to $40 million. And there has been no change to our revenue projections from our previous guidance given November. For the second quarter of fiscal 23, we anticipate revenue of approximately $56.5 million, which breaks down as follows. So, environmental revenue of $24 million, a sequential increase reflecting the higher orders. NGS revenue of $25 million. Although orders were strong to approximately $31 million in quarter one, we see the beneficial impact of those orders translating into revenue in the second half of our fiscal year. By our farmer revenue, approximately $7.5 million, and this reflects the lower orders we saw in quarter one. We anticipate gross margin for the quarter to be approximately 30%, as we bring on the cost associated with the Wilsonville Manufacturing Facility. As we scale our revenue in the second half of fiscal 23, we're projecting our gross margin to be 39% to 40%, for the year, which is in line with the guidance provided in our previous earnings calls. We decreased our operating expense guidance for the year to approximately $230 million as compared to previous guidance of $365 million, primarily to reflect the expected reduction in stock-based compensation. We're now projecting R&D expense of $130 million as compared to $138 million in our previous guidance. We expect SG&E expense of $204 million, and that's a decrease from our previous guidance of $220 million, primarily due to the impact of lower stock-based compensation. Market-to-market is projected to be a credit of $4 million for the year. Depreciation and amortization is projected to be approximately $29 million. Under projection for stock-based compensation, declined from 83 to 15 million for fiscal 23 due to the combination of the aforementioned credits and in addition we reduced the number of projected shares granted to our investors employees to approximately 1 million stock awards at a lower share price than originally projected net loss of the year is projected to be approximately 225 million and that's a decrease from 200 projected to be $50 million, and our ending cash is projected to be approximately $300 million. In addition, there is no change to our fiscal 24 guidance we provided in November. In summary, we had a robust start to our fiscal year with record orders in quarter one. We shipped our initial commercial products from the factory to the future in January, and we're focused on scaling our business to achieve adjusted EBITDA breakeven in our core and our pharma businesses. And with that, I'll turn the call back to Emily.
spk27: Thank you, Jim. In November, we outlined our three-year plan to address the EBITDA break-even for our core business, and this remains our focus. We're in receipt of our shareholders' feedback that achieving profitability is top of mind. This fits with our operating plan that we've been executing in the past few years. Working towards that objective in SynBio, we re-ramp our manufacturing capabilities in Wilsonville, Oregon to increase revenue out of our factory of the future, building on our first shipment at the end of January. Looking towards the full timeframe, we expect to bring down our current time and offer fast-growing products for all of our customers and expand our commercialization effort into the makeup market. For NGS, We expect continued expansion of our customer base, as well as the few large customers generating revenue in the back half of the fiscal year. In addition, we are looking towards RNA workflows to augment our DNA workflows with a consistent focus on owning the workflow between the sample and the sequencer. In Biopharma, we are beginning to offer an integrated portfolio of antibody discovery and optimization services, capitalizing on efficiencies between our in vitro, in vivo, and in silico approaches. In data storage, we are making good progress to bring up the chip and our new pilot production DNA data storage writer. We plan to launch our sensor archive solution as an early access offering in late Canada 2020. In parallel, we will continue to seek to partner with leaders to set the stage for commercial success while preparing the market for DNA data storage. We remain extremely excited about our opportunities ahead and look forward to keeping you appraised of our progress. With that, Let's open the call for questions. Operator?
spk35: As a reminder, to ask a question, please press star 1-1. If your question hasn't answered or you wish to remove yourself from the queue, please press star 1-1 again. One moment for questions. And our first question comes from Steve Ma with Cohen. Your line is open.
spk21: Great. Thanks, and thanks for taking the questions. My first question is on the DNA makers, you know, there's an analogy within prep, you know, this thing that people started branching out into. But, you know, given that, you know, the 270,000 conversions, I think a lot of them are going to be academics, you know, which have cheaper like grads labor. Give us a sense of how you're going to this market to try to find the price to get the adoption in this academic market and give us a sense of how long it will take for this discovery.
spk27: Thank you, Steve. Your line was a bit choppy, but I think you're asking for the 270,000 gin makers, those that are in academia, how we'll do the price discovery. And now we'll convert them. Two things that I'll share. One, in the past, we had a uniform pricing at Swiss for academia and industry, meaning that we differentiate pricing between those two groups. We've recently started to differentiate a little bit. I expect that for fast gene, there probably would be a different price. There possibly could be a different price for academia versus industry just to account for the value of the product to those two different groups. That's number one. And number two, what we've been saying for multiple years now is we've been... supporting iGEM. So iGEM is a group and every year there's a competition with thousands of students where they apply synthetic biology. And in the past, iGEM teams had to do their own cloning. They'll get parts and they'll do Gibson assembly and mutagenesis. And we've given, I think, 20,000 bases to every iGEM team for the last few years. And our goal is to get the best and brightest students early on, get them used to not clone anymore. And it will take some time, but we think that similarly right now in academia, nobody does their own prep. They all use kits. I think over time we can drive some transformation. So we'll be for enterprise and we've been already working in changing the frame of mind that you just don't close just so much easier and faster to get the clone from companies like us.
spk21: Okay, got it. I appreciate that. And next question, on gross margins, this question is for Jim. So, yeah, the gross margins in the quarter was maybe a bit lower than we expected. Can you give us some color on that and then also some color on the gross margin recovery in fiscal year 24 back up to 49 percent?
spk14: Yeah. So, Steve, if I picked up your question correctly, you said gross margin is a little lower. Gross margin Q1 was 45.7 percent. We are projecting that to decline to 30% this quarter as we bring on the cost associated with factory future. As we scale the business, and you've touched on the maker's market, I mean, it's a huge opportunity for us, 1.4 billion. We've already seen strong Sinbio growth over this last year. The orders were good in the first quarter at record, so we feel good about the growth in the second half. First half revenue is about 40-odd percent of the business, which is in line with previous years. So we can see growth in the second half, driven by continued growth in Symbio, NGS, pharma picking up. We feel good about the 261 to 269. And as we continue to scale, we see cross margins this year consistent with our previous forecast of 39 to 40%. And next year, as we continue to scale the business, we see cross margins in the range of 49%, as we've highlighted below. And that's driven by executing and scaling the fight to the future, leveraging our fixed costs, and continuing to do well in terms of expanding our customer base.
spk21: Okay, thanks for the caller, and apologies for the bad line. I'll get back in the queue, thanks. Okay.
spk35: Thank you. Our next question comes from Matt Sykes with Goldman Sachs. Your line is open.
spk10: Hi, this is Evie Kozlowski on for Matt. Realize that you just started shipping commercially from Factory of the Future, and you've talked about fast gene being launched in the fall of this year. Could you talk about how you've been able to break into the gene makers market prior to that launch, or will the launch be an inflection point for getting into that market?
spk27: Great question. We've been getting into the makers market a little bit over the last few years. with our long jeans. So what we know is that some customers buy short jeans, and then they assemble themselves the short jeans into long jeans. So they buy short jeans, but they are makers of long jeans. And when we offer our long jean offering, it's very fast, very cost-effective, and some of our revenue growth comes from us converting some long jean makers. So we are a little bit in the DNA makers market, but we do miss the speed, which means that, as you pointed out, when we have fast gene, that's when we should see an inflection point.
spk10: Okay, great. That's helpful. And then, what do you think the potential gross margin uplift is for fast gene this year? Will it ramp enough for us to see it come through in 2023 or will that mostly come in next year?
spk14: Overall, we see our gross margins. Gross margins in Q1 were just under 46%. This quarter, we see gross margins 30%. We're launching our fast genes in the fall of this year. So overall this year, gross margins, the range is actually 90% to 40%. And as fast genes pick up next year and we continue to scale our manufacturing operations, we'll leverage fixed costs. And that's primarily going to be driven by volume and success of fast genes. So that kicks in in FY24.
spk11: Okay, great. Thank you.
spk35: Thank you. Our next question comes from Sungji Nam with Scotiabank. Your line is open.
spk09: Hi, thanks for taking the questions. Just to have a couple of high-level and market trend questions, maybe starting with biopharma. Was wondering, you know, obviously solid growth there. I'm kind of expecting a bit more muted, I think, growth for the next quarter. And, you know, was wondering if you might be able to call out kind of the trends you're seeing in the near term, if you, you know, if there are any kind of differentiated trends, you know, across, you know, different segments within biopharma. And, you know, also if you expect the weakness to be prolonged throughout the year, any kind of color you could provide there. And then the second question is in terms of ex-US markets like China, Europe, as well as Europe, in terms of whether you kind of called out China continuing to see headwinds from the COVID situation. And you might be able to kind of compare whether that has materially worsened in the current quarter versus what you're seeing last quarter. There's also any additional color that would be very helpful. Thank you.
spk27: Thank you, Sanjeev. Maybe I'll answer the first question, and Jim will cover the second question on the global markets. So in terms of biopharmaceuticals, some of the trends we are seeing is is definitely some of our customers have some funding headwinds. Some others are very big companies and maybe less big. For the companies that have funding headwinds, I think it is an opportunity for us. It may take time to add them to it, but what we offer is more shots on goal, and so we basically extend their budget. So I think our are offering is very well suited for them. The other trend we see is that people maybe spend a little bit in the balance of the budget. Maybe they're a bit less for upfront discovery and maybe they're balancing more towards later stage work, which means that maybe they will do 10 discovery projects a year and maybe they're shrinking to eight or less. We have barely penetrated into the market. And so if we just get one project or two projects, it's a win for us. So it's not necessarily a big issue, but something that we are seeing. And so I think in general, we are stepping back and relying on the strength of our platforms. And our platform is really best in class. We have in vitro, in vivo, in silico. And last year, we were playing a little bit with one arm tied behind our back because we were trying to let the various teams be as in-panel as possible to make their own out. But now we can integrate. We can have one team. We can have one product offering. I think the integration of those three in vitro in vivo in silico is a very powerful offering that will enable us to get more than our fair share in the market, even though the market in general is experiencing some headwinds in biopharma. Do you want to take the second question?
spk14: Yeah, so in terms of China, I actually met with the China team last couple of weeks. So it was interesting. China was impacted in the first quarter, i.e. December quarter, October, November, impacted by the lockdowns. Then obviously China opened up and then the companies were impacted by COVID. That's extended into January, February. So China sales in Q1 declined to approximately just over a million, 1.4 million. We see modest pickup in the second quarter, our second quarter, which is March. And then we see significant pickup as things normalize. in the uh the last half of the year and if you look at our revenue uh you see our first half revenue is about 40 42 43 of the overall uh year uh you see china having a modest impact on that plus overall we're seeing some large ngs customers coming in the second half of the year um So overall, we're doing well in China. We've increased our leadership in China, enhanced our leadership, and we continue to win good accounts in China. And we're well positioned as the economy starts to normalize there and open up after as they're dealing with COVID. In terms of Europe, we actually had, Europe is up year over year. The December quarter is always a tricky one because of the vacations, but it continues to be strong in Europe and we see good opportunities in biopharma. We continue to make enrollments with our Symbio portfolio in Europe. NGS is looking good. You've seen some announcements there. And, you know, back to why we're winning, it's strength of the portfolio. And we're excited about launching the factory future. I think that gives us great opportunities to engage with some of our larger customers and positions as well for next year.
spk09: Great. Thank you so much.
spk14: All right.
spk35: Thank you. Our next question comes from Luke Sergut with Barclays. Your line is open.
spk05: Great. Thanks for the time here. Good morning, everybody. So a couple here for me. Jim, can you just talk about the strength, and Emily, the strength that you guys had on gross margin in the first quarter? It usually expected some type of seasonal step down, but this came in well above, I think, everybody, what they were looking for.
spk14: Yeah, so back to strength and gross margin in the first quarter, it came in just under 46%, which is a great start for the year. That was driven by we were working in terms of product mix and focusing in terms of continuing to manage our contribution margins. So we saw a strong strong actually contribution margins in both SynBio and in NGS. So it's driven by a richer mix of products and we're excited about that. It continues to reaffirm that we're going the right direction. The step down in Q2, down to 30%, is purely driven by the impact it brings on fixed costs associated with the factory's future.
spk05: Yeah. Okay. And then on the second quarter guide from a revenue perspective, is this mostly relatively flat? Is this mostly due to a capacity constraint on the factor of the future? So I guess what I'm trying to get at is you have a really strong one Q gross margin, assuming that that's full capacity utilization that you guys are running there. And then as you're bringing the factor of the future on, you're not really going to be selling a lot out of the factor of the future in the second quarter. And that's why you're taking on all those fixed costs. So your GM steps down massively and your revs kind of stay tight with that first factory going at full capacity. Am I, am I thinking about that? Right.
spk14: Um, yeah. So, so what's interesting is, um, if you look at, uh, Q1, um, you know, San Francisco was not actually full capacity. Um, you know, the jeans jeans revenue, uh, jeans volume did pick up. Um, and, You're right in terms of this step down is driven by bringing fixed calls on. What's interesting is we continue to build our customers. We saw SynBio pick up, and we continue to see good margin improvement in SynBio and consistent margins in NGS. So part of this is driven by the growth. Part of it is driven by the mix and this focus on expanding our SynBio footprint as well. You're absolutely right. Bring fixed costs on in Q2. Margin dips down to 30%. And then as we scale in Q3, Q4, we see the gross margin for the year in the range of 39% to 40%. Okay, great.
spk05: And then lastly, on the bookings, you guys had a really big step up there. Can you talk about what you were seeing from Is that a lot of the biopharma? Because I saw your active program step up really meaningfully. I'm just trying to get the sense of the cadence of the different segments and how they're going to roll on through the rest of the year.
spk14: Yeah, I mean, you know, what is interesting is we had record bookings in NGS. The question is going to be, okay, so why isn't Q2 NGS number higher than revenue, much higher than we're projecting? The answer is because those orders impact the second half. We saw good, strong, we continue to do well in SynBio, continue to do well in Jeans, beginning to see some impact in IGGs. I mean, across the SynBio portfolio, we're doing well, and what's driving that is performance, turnaround time, customer experience, ability to scale, and deliver a great value. So if you look at the value proposition, NGS gives our customers significant reduction in sequencing. The number of larger customers continue to scale. We keep getting adopted into new assays. In terms of the SYNBIO portfolio, particularly in genes, we brought the turnaround time down. We offer terrific pricing in terms of the market. And because of that, we're winning customers. And because of that, we're seeing a number of small customers come in. And that gives us a good platform or springboard for going after the makers market. So I would say we're executing according to the strategy.
spk04: Great. Yeah, it's going to be interesting to watch. Thanks.
spk35: Thank you. Our next question comes from Matt LaRue with William Blair. Your line is open.
spk18: Hi, good morning. The price for Jean has increased meaningfully here over the last four quarters, even more so than what's been a nice trend line over the last few years. Can I just walk through what the key drivers of that increase has been? I think Jim just mentioned IGG had a nice quarter, but what maybe some of the key drivers are ahead of which I assume will push that trend line even higher.
spk27: Yeah. Maybe I'll start. Thanks for the question. You know, I really like looking at , but sometimes we have to be a little bit careful because it can be a little bit, you can make a good story either way. So what happens is, Our short jeans are priced at $0.09 per base. Our long jeans are priced at $0.15 per base. And so when we penetrate more into the maker's market where they buy long jeans instead of buying short jeans, then the ASP goes up because now it's $0.15 per base and it's a long jean, so the ASP per jean goes up. So from that point of view, that's a great story. That's good. At the same time, when we're doing really well in biopharma, the average gene size goes down because antibody genes are small. And so from that point of view, the ASP goes down a little bit. And so it is a little bit of a mix of is there strength in the long gene business or is there strength in the human gene size genes that are done. And then in addition to that, we have been pushing price increases a little bit. And so on NGS, we did our second annual price increase in January. And then in Symbio, we increased prices started last summer. So there's a little bit of... benefit from that as well.
spk17: Okay, thank you.
spk18: And then as you work towards fasting in the back half, just remind us what else is required on your end to get those on the market. I think particularly you've mentioned software and training on that software, but just kind of get us from here to there.
spk27: No, no, great question. So yes, there's a couple things. So First of all, we need to be able to make fast genes. And so we developed, designed the factor of the future to be able to do it. And so we have the instruments in place. And so the instruments in place and the current software enable us to make genes that are the same speed as what we do in South San Francisco. And then there's a few more software components we need to deliver and training of the team to have the factory be able to make jeans faster. So that's step one. Step two, we need to have an e-commerce that is adapted to be able to price and book orders for slow versus fast jeans and there's a big effort on the customer experience if people can't afford fast jeans we don't want them to feel bad at the same time if we want to make it like the Apple website where you don't know why but there's money coming out of your wallet and people are incentivized to choose the fast jeans so there's quite a bit of e-commerce software design that needs to happen so it's beautiful frictionless and intuitive and then the last piece is continue to develop and enhance our digital marketing engine A lot of the fashion customers, 270,000 customers, were not going to send an account manager to a lab in a university. It's just not cost-effective. And so we need to reach those customers through a digital approach. And there's multiple ways to do that, being at conferences, being part of iGEM. So TWIST is already part of the... the mindset, but the goal is through digital teams, get people on the Twizz website, get them onto the e-commerce, have a touchless order where no human interaction, and then have it shipped to them in a way that's, again, frictionless. So those are the components that we are still refining. A lot of software, basically.
spk19: Okay. Thanks, Emily.
spk35: Thank you. Our next question comes from Vijay Kumar with Evercore. Your line is open.
spk03: Hey, guys. Thanks for taking my question. Emily, maybe my first question is on the guidance and revenue assumptions. And I look at your order growth here, 30% in Q1. In the second quarter, revenue guidance, that's 17%. Is there something going on on the macro for NFOs, if you're commenting on this? Was there any China impact? And I know in the past, we've spoken about share gains in gene synthesis. Is that still going on? And when I look at that order number of 65 million, that annualizes to about 260 million, which is roughly your revenue guidance. Is there some capacity issue here that you're facing? as you bring factory of the future online?
spk27: Well, maybe I'll start and Jim can add as needed. But yeah, as you pointed out, the other number of trends towards our guidance, the first quarter is 30% above Q1 last year. which 30% is about the growth that we anticipate delivering this year. And we've mentioned that it would be a back half loaded story. And if we look at the ratio of first half, second half, the ratio for this year is about the same as last year, the year before, and the year before. It's somewhere between 40 and 45%. of first half to second half. So that's the business we've been living in. And the market is there. We have a great technology. We have a sales team that is extremely aggressive and great products. So I think the bases are loaded, but we have to execute and deliver what we said we would. Jim, I don't know if there's anything else you want to add.
spk14: I think, so Vijay, I mean, you're correct. Overall strong orders in the first quarter. I mean, particularly in NGS, we saw a number of larger customers come in, place larger orders, getting as well positioned for the second half. I did mention China earlier on the call. I'll give you the cliff notes in China. October and November were impacted by lockdown. China was down sequentially from September quarter down to December. As the economy opened up with COVID, people got COVID. In some of the weeks in our offices, about 80% of staff were out. That's obviously impacted in January and February, so we see a little pick-up this quarter in China. As the pandemic works its way through, we see a pick-up in the second half. In China last year, put in perspective, it was about 7 million. Even with the first half impacting COVID, we still see a pick-up in China to about 9 million this year. We know we're all happy with the bookings, and there's more opportunity for us, as Emily's highlighted. The commercial organization have got tough quotas to meet this year. They're aggressively going after that, and we keep building our number of customers. We're getting a lot of interest in terms of the future. and our focus to execute and continue to deliver in terms of our top line and focus on getting to the core business to adjust EBIT to break even at 300 and then continue to focus on Grow Pharma and get that to adjust EBIT to break even as well.
spk03: And just maybe one more, Jim, for you on the second half cadence, both on revenues and growth margins, right? I think from a revenue perspective, I'm looking at perhaps sub-25% in first half. That would imply well north of 30% above your annual guidance. Your comps get harder in second half. What is driving that acceleration? The same goes for gross margins. I think your first half implied is around 37%, 38%. You need to hit about 40% in back half. What is driving this back half? strength in both from a revenue growth perspective and gross margins?
spk14: Yeah. So to touch on it, I touched on it a little bit with the question. I mean, our bookings in the first quarter, our orders for the first quarter were approximately 65 million. We saw the pickup in terms of NGS. So NGS is driving the overall growth in the second half. If you look at NGS first half, it's about 50 million in terms of revenue. So the growth in the second half to hit say roughly 120 million is 70 million. So what's driving that? You can see there that the orders in Q1 for NGS We're in excess of 30 million. We continue to see on SynBio, we see sequential pickup in SynBio, which is driving that number of customers, continuing to deliver from a performance point of view. The team in San Francisco has done a fantastic job in terms of aggressively reducing turnaround time, and that's been well received in the market. So execution, in terms of your question around gross margin improvement in the second half, That's about growing the top line, leveraging our fixed costs. We do bring the factory to future costs online this quarter as the facility is now commercially operational. It's exciting that we actually shipped our first product. The focus is execution. It's going up to the maker's market, 1.4 billion opportunity. The pipeline for NGS continues to scale. The number of wins and athletes continues to scale. So it's more of execution. Obviously, some new products impacting us as well. It's continuing to gain share and a growing market.
spk35: Thank you. Our next question comes from Puneet Suda with SBB Securities. Your line is open.
spk15: Yeah, hi, Emily, Jim, thanks for taking the question. So just following up on the NGS side, obviously booked a bill higher, but could you elaborate, you know, is this more on the pickup in the second half pickup on the NGS is more RUO driven or more of the liquid biopsy customer demand? Sort of just elaborate a bit on that. And then, you know, how much of that is volume versus pricing? I mean, you're expecting a meaningful pickup here. in both, you know, growth and as well as, you know, obviously gross margins too. So just trying to understand how much of that is, you know, pricing and volume in the context of NGS and given the sort of the fixed cost that you have now and the 30%, you know, gross margin that you have for the next quarter.
spk14: I can start, Emily. So let me just address the 30% gross margin this quarter. I appreciate the question. That's primarily driven by the fixed costs coming online in the factory future. I mean, we're scaling the factory future this quarter, so we'll give an update in terms of the volumes and in terms of products going through factory future in the next earnings call. we're commercially bringing it on, fixed costs come on, so we've got an under-recovery. And then the consequence of that is our gross margin dips to 30%. Then as we scale the volume in Q3, Q4, we'll see our gross margins improve. In terms of NGS, I mean, we've been working on this for a number of years. providing metrics in terms of the larger NGS customers that we continue to service. We define the larger NGS customers as those customers that provide revenue in excess of $250,000 a year. That's continued to scale. We're now tracking approximately 264 of them. And that's a scale from less than 100 about 18 months ago. And we continue to run in terms of assays. And as we continue to run in terms of assays, we see that impact in terms of bookings, placing orders, we continue to gain share. And that's what's picking up. We see the pick up in the second half of this year. So we're well positioned for a strong second type of NGS and as NGS picks up, revenue picks up and gross margins improve.
spk15: Okay, got it. That's helpful. And then just wondering, some of our reagents peers have talked about softness from the smaller biotechs. Wondering if you're seeing any of that. And then lastly, appreciate the comments on the maker's market. Maybe Emily just wanted to understand You know, academic customers, sure, a large number of them out there, but more price sensitive. So, wondering, you know, what's your expectation on both the sort of, you know, pricing of the product there and the sort of the quality of product difference? Liquid biopsy customers, could you maybe elaborate a bit on that too? Thank you.
spk27: Um, you get off for a second there. Um, yes, I think, you know, we, we don't have different quality. It's one grade for, for academia and it's the same product for academia and, um, and, and companies. Um, and we, we, uh, we break the, we break, um, the revenues for academia and companies, for the entire companies, but not for NGS. But I think we've seen in the past that the majority of our NGS revenues are around clinical product.
spk15: And on the smaller biotechs, are you seeing any of that in the quarter? And currently, are you seeing any impact? Some of your peers had commented around weakness in the REO segment.
spk27: Yeah, no, I don't think we have any specific comment around RU versus clinical. Thank you. Thank you.
spk35: Thank you. Our next question comes from Rachel Vattenstall with JPM. Your line is open.
spk20: Hi, this is Noah for Rachel. First, if I could just potentially get a little additional clarity here. You know, just as it relates to NGS, You mentioned that there is an annual price increase that you pushed during January. So could we get a little commentary regarding the pricing strategy here? How did you see orders trend in NGS pre-price increase versus post-price increase? And then I have one more. Thank you so much.
spk27: Yeah, I think we tried to price on value. And, you know, I think there's an understanding that costs are going up. And so, you know, we were able to, based on the quality of our product, based on the strength of our product, we were able to put in a price increase which has been quite well received.
spk20: Awesome. Thanks so much. And then just regarding the data storage offering, you know, you've partnered with some big tech giants to bring, you know, DNA data storage, you know, into existence. Can you talk about, you know, conversations you've had with these partners in recent weeks as, you know, we've seen some of the tech industry starting to tighten their belts around investments relating to, you know, non-core businesses and, you know, do some layoffs. So, like, how do you expect to push the, you know, adoption curve of DNA storage, or what have you been hearing from your customers regarding timelines for adoption there? Thanks so much.
spk27: Yeah, that's a very, very good question. I think the data storage, over the last several years, we've made a concerted effort in creating an industry. And so it's not just us, but we've created the DNA Data Storage Alliance, Data Alliance Code into SNIRS, Now you have data storage conference where on their own, they are putting a DNA data storage track. And so in the industry, it used to be when I would talk to data storage customers, they would say, oh, I've never heard of storing in DNA. And then it moved to, oh, I've heard about storing DNA, but I don't believe it. And now it's, oh yeah, I've heard about DNA storage in DNA, you know, where can I buy it? And so there's definitely a string in DNA sticking mindshare because there's such a need for deep archive where tape and hard drive are just not well suited. And so I think it's becoming, in my view, an inevitability just because there is such a strong need on the archiving market to get something that is better than tape and hard drive because people just don't like it.
spk16: Awesome. Thanks so much.
spk35: Thank you. There are no further questions. I'd like to turn the call back over to Emily Leprous for closing remarks.
spk27: Thank you very much for joining us today. I apologize for being a few minutes late, and we're looking forward to seeing you at LGBT next week and at the Cowan Healthcare and Barclays Conference in March. Thank you.
spk35: Thank you. This does include the program. You may now disconnect.
spk27: Everyone, have a great day.
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