Twist Bioscience Corporation

Good morning, ladies and gentlemen, and welcome to Twist Biosciences Fiscal 2023 Second Quarter Financial Results Conference Call. Later, we will conduct a question and answer session. To ask a question during the session, you will need to press star 11 on your touch phone telephone. You will then hear an automatic message advising your hand is raised. I would now like to turn the conference call over to Angela Binning, Senior Vice President, Corporate Affairs and GPSG Officer. Please go ahead.

Thank you, Operator. Good morning, everyone. I'd like to thank all of you for joining us today for TWIST Bioscience's conference call to review our fiscal 2023 second 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 LaCruz, CEO and co-founder of TWIST, and Jim Sorburn, CFO of TWIST. Emily will begin with a review of our recent progress on TWIST businesses, Jim will report on our financial and operational performance, and then Emily will come back to discuss our upcoming milestones and directions. We will then open the call for questions. We would ask that you limit your questions to a maximum of two and then re-cue 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 make forward-looking statements within the meaning of the U.S. federal securities laws. forward-looking statements generally relate to future events or future financial or operating performance. Our expectations and beliefs regarding these matters may not materialize and actual results in financial periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include those set forth in our press release we issued earlier today, as well as those 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. We'll also discuss financial measures that do not conform with generally accepted accounting principles, including adjusted EBITDA. Information may be calculated differently than similar non-GAAP data presented by other companies. When reported, a reconciliation between these GAAP and non-GAAP financial measures will be included in our earnings documents, which can be found on our investor relations website at www.twistbioscience.com. With that, I'll now turn the call over to our Chief Executive Officer and Co-Founder, Dr. Emily Leproust.

Thank you, Angela, and good morning, everyone. It is a busy time for TWIST. I'm very pleased with our performance through the first half of the fiscal year. In Q2, we delivered our first quarter over $60 million in revenue. In addition, this morning we announced that we have taken strategic actions to accelerate our path to profitability. I am happy to share that we expect to achieve a quarterly run rate that is adjusted EBITDA break-even for both the core and biopharma businesses as we exit the September 2024 quarter in about 15 months. I will focus on three main themes. First, our confidence in our near-term revenue growth. Second, our decisive actions designed to achieve adjusted EBITDA break-even in the near term. And third, the drivers of growth in all businesses moving forward. Beginning with top-line growth for our revenue-generating businesses, I am pleased to share very strong results for the second quarter of fiscal 2023, with reported record revenue of $60.2 million, exceeding our guidance of $56.5 million. Strength in the core business, particularly NGS, drove the beat. Orders came in at $64.2 million, indicating solid growth moving into the second half of our fiscal year. In the quarter, we began commercial shipments out of our Wilsonville, Oregon facility, the factor of the future which we believe will deliver manufacturing efficiencies leading to margin improvements going forward. We continue to see increasing enthusiasm for our jeans, jean fragments, oligopools, and library products, with our consistent rapid turnaround time driving that demand. I'd like to note that this is for our standard speed jeans. We have not yet taken orders for fast jeans, which we expect to launch in the fall with premium pricing. We continue to take market shares from our peers and remain far ahead of emerging players because of our consistent turnaround time, together with our perfect quality jeans at a scale and price unavailable elsewhere, which continues to resonate with our customers. Our reliable products and exceptional customer service has been key to creating loyalty with our customers, which then facilitates reorders and quarter-over-quarter revenue growth. In addition, our customer surveys continually state that we are their preferred provider because ordering is easy, and we over-deliver on turnaround time. For NGS, we see customers advancing development of their tests and also gaining traction within the market. Our NGS revenue is significantly linked to the commercial ramp of our customers' tests, and while that can be quarter-to-quarter lumpiness, we have confidence that revenue will grow year over year. The point to remember is our business is sticky, we grow with our customers, and our customer base continues to expand. In biopharma, we began integrating the Boston team at the end of the calendar year, following the contractual limitations of the acquisition. We continue to see opportunities ahead, particularly as we now have an integrated team and portfolio of services. While it's true that the funding environment for emerging biotech companies has been constrained, our share of the biopharma services market is small and largely untapped by our commercial team. That said, we are facing some internal headwinds as we re-platform systems and integrate commercial territories. We've made changes to address these challenges and expect the revenue lift will come within six months. We continue to sign collaborations and agreements with customers and we are expanding our wallet share with existing partners. As an example, we announced another agreement with Astellas in April, our third collaboration with this pharmaceutical company. We do expect fewer massive royalties for corporations as we move forward, as we are now prioritizing near-term top-line revenue growth. Our commercial team for Synbio, NGS, and Biopharma is now firing on all cylinders, and we are seeing large opportunities ahead. I will now move from top-line to operating expenses and our significant actions to accelerate our path to profitability. The factor of the future outside of Portland, Oregon is now shipping products to customers. In fact, all of our jeans, jeans fragments, and a vast majority of oligopools have been made in Oregon for more than a month. To accelerate our top line to reach profitability, we conducted a comprehensive review to re-engineer our code base and achieve this goal more quickly. We have made difficult decisions, resizing many teams throughout the organization, which will result in the elimination of approximately 270 positions to operate more efficiently while still continuing to support our high-growth focus areas. It is difficult to say goodbye to the many talented and committed twisters who have been integral in our success to date. We wish them well. We will support them as they identify their next opportunities, and we look forward to what they will achieve as they bring their experience from TWIST to the larger ecosystem. Provide a bit more color on the shape of the organization moving forward. The sales force will remain largely intact to drive top-line growth. We removed the duplication of SYNBio production across South San Francisco and Portland, significantly lowering our fixed cost structure. In addition, we resized the BioPharma teams to focus on revenue generating partnerships, deprioritizing the majority of our internal assets. Throughout the organization, we streamlined teams, including R&D, to focus on programs where TWIS has a clear competitive advantage and to selectively deploy our platform in areas where we see the greatest potential for long-term value creation. In data storage, we remain integrally involved in market development and continue to advance our technology. We do not see a near-term competitor close to a commercial launch at this time, and that's significant. It enables us to substantially reduce our operating expenses for data storage While continuing our efforts at a more modest level, yet still, we made ahead of the competition. We will focus our efforts on the storage as a service business model and plan to delay the distributed on-premise approach until after the service business has proven to be a success. We expect to demonstrate an end-to-end gigabyte century archive service by the end of Canada 2023. Following on this, in early Canada 2025, we expect to launch a terabyte Century Archive solution. As I said, we believe we will deliver on all of this while reducing the overall cash flow. Moving into our future growth, we see many opportunities ahead. As we look forward, the planned launch of fast genes in Symbiote this fall will be targeting the $1.4 billion DNA makers market. These are scientists and researchers in large pharmaceutical companies and academia that currently make their own DNA instead of buying it, as they need it faster and more cost-effectively than we believe it can deliver from virtually any source today. This is one area that we are confident will increase our thin biocontribution margin, as we believe we will be able to command a premium price that leverages dynamic pricing for rapidly delivering these products. Additionally, we do not expect to add commercial headcount to pursue this large market, as we believe our e-commerce portal and digital marketing capabilities enable us to acquire customers cost-effectively. For NGS, our customers continue to increase, particularly in the oncology space. We have several large commercial customers and a growing mid-tier group of development-stage customers with the potential for compounding growth. In both instances, Twizz is poised to grow with them. We continue to be included in more and more assets, and we believe the growth of our NGS opportunity will be sustainable for the foreseeable future. In the near term, we plan to add RNA workflow tools to our NGS portfolio. Scientists often run RNA assays multiple times for the same sample, as RNA changes at different time points in different tissues in both normal and busy states, providing a large market opportunity that complements our DNA workflow tools. RNA workflows are used primarily within the research market, an area where we have a significantly smaller footprint to date, but believe we can grow and expand. We expect to launch several R&D tools in the near future. In biopharma, we continue to see opportunities for our competitively priced high-value services, even more so with the integration of the offerings. We will focus on selling services that drive top-line revenue while we digest the resizing of the organization. The largest shift we'll be aware from R&D on our internal assets until we see some momentum in out-licensing antibody leads where we have done the most work. For data storage, the very large opportunity remains within our site. Because we are not seeing direct competitors at this time, we are slowing our investment. Therefore, we have revised our commercial plans while we advance at a more modest rate without losing our first mover best-in-class competitive advantage. With that, I'll turn it over to Jim.

All right. Thanks, Emily.

We had another quarter robust execution at Twist, despite a volatile macroeconomic environment. Revenue for quarter two was $60.2 million, which is year-over-year growth of approximately 25%, and a sequential increase of 11%. Orders were $64.2 million for the quarter, an increase of approximately 17% year-over-year, and gross margin for the quarter was 7.8%. We shipped to approximately 2,100 customers, as compared to $2,000 in quarter two, fiscal 22, and we ended quarter two with cash investments of approximately $388 million. Our NGS revenue for quarter two was $29 million, which is year-over-year growth of 26%. As we noted in our previous earnings call, we had a couple of larger customers push shipments from the December quarter into January. Our second quarter orders were $28 million, a sequential decline of 10%, but growth of 19% year over year. As Emily stated, revenue growth in NGS is linked to the ramp of our customer tests, which can drive some quarter-to-quarter lumpiness in revenues. The top 10 customers accounted for approximately 38% of our NGS revenue, and we served approximately 600 NGS customers in fiscal quarter two. Our pipeline for larger opportunities continues to scale, and we're now tracking 270 accounts, up from 264 noted in our last earnings call. 131 have adopted Twist, as compared to 130 last quarter. Now turning to SynBio, which includes genes, DNA preps, IgG, libraries, and oligopoles. SynBio revenue for the quarter rose to $24.1 million, representing a sequential growth of 11% and a year-over-year increase of approximately 31%. Orders for the quarter were $30.9 million, which represents a 16% sequential increase and a 31% year-over-year growth. Some of the highlights include shipping to approximately 1,660 SynBio customers, which has grown from approximately 1,400 in the second quarter of fiscal 22. The customer base includes many biotech and large pharma companies. Gene's revenue increased to $18 million, which is year-over-year growth of approximately 27%. We shipped approximately 152,000 genes in fiscal quarter two, which is an increase of approximately 23% year over year. And all it could pull is another strong quarter with revenue of 3.3 million, with demand primarily coming from the healthcare segment. Now to BioPharma, our BioPharma revenue for the second quarter fiscal 23 was 7 million, down sequentially from 8.2 million, orders for the quarter 5.3 million, down sequentially from 6.9 million in the first quarter, primarily due to integration challenges Emily described. That said, we had 93 active programs at the end of the quarter and added three more milestone and royalty agreements, which brings the total to 66, up sequentially from 63. I'll now cover our revenue breakdown by industry and our regional progress. Healthcare revenue for the second quarter of fiscal 23 was 33.8 million, as compared to 24.1 million in the same period of fiscal 22. Industrial chemical revenue was 14.4 million in the second quarter of fiscal 23, as compared to 14.1 million in the second quarter of fiscal 22. Academic revenue was 11.1 million in the second quarter of fiscal 23, as compared to 9.5 million in the same period of fiscal 22. EMEA revenue rose to 18.8 million in Q2 fiscal 23 versus 15.2 million in Q2 fiscal 22. APAC continued to see recovery in China, with their revenue in China increasing to approximately 2 million, up from 1.4 million in the prior quarter. For APAC, overall revenue increased to 6.5 million compared to 4.5 million for the same period of 22. The US, which includes Americas, revenue increased to 34.9 million in the second quarter versus 28.5 million for the same period fiscal 22. Now moving down the P&L. Our gross margin for quarter two was 30.8% with cost of revenue for the quarter of $41.7 million. The change in gross margin was expected as the cost of revenue increased sequentially from $29.4 million primarily due to approximately $5 million associated with the commercialization of the Sunbio Labs and Factory of the Future. In addition we had approximately $1 million scrap associated with the Factory of the Future in the quarter. Our operating expenses For fiscal quarter, including R&D, SG&A, change in fair value and mark-to-market adjustments of acquisitions, there's approximately 80.1 million as compared to 79.2 million in Q2 fiscal 22. To break it down, R&D for this fiscal second quarter was 27.4 million, a decline from 31.2 million in the same period of fiscal 22, primarily due to the conclusion of REBEL-R. This includes D&A storage R&D spend of 5 million, and biopharma R&D spend of 4.7 million in the second quarter of fiscal 23. SG&A in quarter two was approximately 54 million. Factually, the future pre-commercialization costs included in SG&A were approximately 6 million for the first month of the quarter when the factory was not yet commercial. In addition, we have a number of labs that are still in pre-commercial phase and will transition to COGS as they're qualified in the second half of fiscal 23. Stock-based compensation for the quarter was approximately 10 million. Depreciation amortization for the quarter was $7.1 million, an increase from $5.8 million in the previous quarter and associated with the commercialization of the Factory of the Future. CapEx cash investment in the quarter, too, was approximately $9 million, which brings total CapEx cash spent for the first six months of the fiscal year to $21 million. As we've highlighted, the launch of the Factory of the Future is going very well. We had a strong quarter of operational performance, and as noted, we continue to see year-over-year growth in Symbio and NGS businesses. We're focused on achieving adjusted EBIT to breakeven and then profitability as we scale. We are resizing the organization by approximately 25%, with reductions aimed at managing our operation cost structure, lowering our revenue breakeven point, and limiting our investment in data storage as we transition to breakeven. Note the reductions outside of the U.S. may be delayed as we work through the required regulatory processes. About 60% of the staff reductions affect the COGS line and 40% affect OPEX. In particular, we have resized the biopharma group to achieve breakeven at 40 million instead of revenue of 80 million. And for the core business, we have streamlined the organization across the board in order to achieve breakeven of 285 million instead of 300 million. Cash restructuring costs are estimated to be approximately $9 to $11 million. We anticipate cash savings are approximately $9 to $11 million per quarter in the go-forward basis beginning in the first quarter of fiscal 24. The savings primarily impacting our operations as we exit gene manufacturing in South San Francisco and ramp up the factory's future, as well as moderate our investment in R&D with the majority of the spend reductions in biopharma and DNA storage. Because we've taken actions to address our cost structure, we do believe it is prudent to revise our revenue for fiscal 23 as we digest these changes. We are revising this guidance to approximately $235 to $238 million versus our prior guidance of $261 to $269 million. SINBIO revenue ranges $96 to $98 million, and that's down from $104 to $106 million. NGS revenue ranges $113 to $114 million, down from $120 to $123 million. Biopharma revenue is 26 million, and that's down from 37 to 40. For the second half of fiscal 23, we anticipate revenue of approximately 60 to 61 million in quarter three, and 62 to 63 million in quarter four, and gross margin to be approximately 30% in Q3, and 36% in Q4. For the full fiscal year, we're projecting gross margins of approximately 35 to 36%. We're decreasing operating expense guidance for the year to approximately $313 to $319 million as compared to our previous guidance of $330 million. We're now projecting R&D expense of $112 to $114 million as compared to our previous guidance of $130 million. We expect SG&A to be $197 to $200 million, and that's a decrease from our previous guidance of $204 million. Market-to-market is projected to be a credit of $5 million. One-time separation costs from a reduction force are projected to be $9 to $11 million. Depreciation amortization is projected to be approximately $29 million. Our projection for stock-based compensation is declined to approximately $43 million from $50 million. Operating expense for DNA storage is expected to be approximately $40 million compared to the previous guidance, $46 million. And for fiscal 24, we also expect $40 million operating expense for data storage compared to previous guidance of 57. Net operating loss for the year is projected to be approximately 230 to 234 million, which includes one-time charges of approximately 9 to 11 million for separation costs. CapEx for the year is projected to be 40 million, a decrease from the previous guidance of 50 million. Ending cash is projected to be 320 million compared to the previous guidance of 300 million. In summary, we had record revenue in quarter two. We're commercially shipping from the factory of the future. We're focused on managing the business and our cost structure as we scale. Importantly, we expect to exit fiscal 24 with a fourth quarter adjusted EBITDA breakeven for the core and biopharma business. We define adjusted EBITDA as EBITDA plus add back for stock-based compensation. And we're also projecting ending cash balance of $220 million at September 30th, 2024, and that's up from our previous guidance of $170 million. With that, I'll now turn the call back to Emily.

Thank you, Jim. We continue to have aggressive goals, and we have aligned the business to pursue significant opportunities. As importantly, we announced decisive and proactive actions to accelerate our path to profitability, preserving cash, and mitigating risk, all the while leveraging our outside opportunities in the marketplace. We always evaluate the business from every lens, and we remain laser-focused on achieving adjusted EBITDA requirements for core and biopharma businesses, while maintaining optionality on investments for the incredible upside we see in data storage. Our core business in SyncBio and NGS continue to scale, and we have near-term opportunities for each with an energized commercial team to deploy. We are resizing and refocusing the biopharma organization for an integrated service offering that we believe will drive top-line revenue growth. And we have moderated our stand for data storage while ensuring we maintain our competitive edge. We revised our guidance to a cautious level with potential for upside. We have been strategic in our action this quarter, positioning us as a leaner, meaner organization, specifically focused on disruptive market opportunities for profitable and scalable growth. With these substantive changes, We believe we are operating for a position of strength in the current environment, accelerating our projecting timeline to adjust the GDP tap rate given for both the core and biopharma businesses as we exit the September 2024 quarter, or about 16 months from now. We remain extremely excited about rising in the future. And with that, let's open the call for questions. Operator?

Thank you. Ladies and gentlemen, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. As a reminder to accommodate all participants in the queue, we ask that you please limit yourself to one question and follow up. If you have additional questions, you may re-enter the queue's time permits. Please stand by while we compile the Q&A roster. And now, first question coming from the line of Vijay Kumar with Evercore ISI. Your line is open.

Hey, guys. Congrats on the in the quarter, and thanks for taking my question. I guess my first question is on the guidance here. It makes sense for the guidance to be a reset given the environment. The back half here, I think, implied as high single digits, and it looks like all segments were cut, but perhaps biopharma a little bit more than the others. Can you just talk about the macro environment? What has changed versus three months ago from a macro perspective in How much of this is twist specific versus the general environment that you're seeing? And how comfortable are you in this high single digit growth for the back half?

Thanks, Vijay. Thanks for the question. So if we step back, there's a number of things going on. One is in terms of biopharma. We feel very good about where we're at. The challenges we've had in biopharma is just purely integration. So that's an execution issue. We acquired Averis last year. We had an RNN. It was important that we supported Averis to be positioned to achieve that RNN. And consequently, we had this independence between And then as we started to integrate, we realized we had some integration challenges. We're launching the new offering, and we feel good about where we're positioned. And because of the internal challenge there, we reduced the revenue outlook for BioPharma. It's a large market. We've got great service offerings, so we feel very well positioned. In terms of the other two areas, same bio and NGS, we've just reduced the organization by approximately 25%. We believe it's going to take some time to digest that reduction. The overall order growth rate is solid. We continue to see an NGS growth in large customers. We're launching new products. At the same time, you know, taking 25% of the organization, we believe we need to be prudent in terms of our outlook in terms of top line. I think the advantage is that we're positioning the company to get to adjusted EBIT and break even earlier and come out with a stronger balance sheet. So this is internal, but we really, really believe that we're well positioned from the platform.

We're seeing large customer growth, so it's more prudence on our part.

And just sorry, Jim, just to clarify that point, what you're saying is 25% headcount reduction. Did that come from the commercial side? Because I think what you're saying is orders and customers, you know, the market seems to be healthy, but this is more a function of the restructuring actions you've taken, and hence the guide cuts here in the back half.

That's correct. Yeah, the market's strong. We're up, as we were highlighted, year over year. We're growing faster than the market. We're focused on launching new products. So this is just about pure internal issue in terms of digesting such a large change. I mean, we've done a great job in terms of launching the factory in the future. It's going exceptionally well. Turnaround times are excellent. Customer feedback is great. And at the same time, we believe for the next six months, we're going to be prudent in terms of our outlook due to the reduction of the organization by 25%.

Understood. And then one on the gross margins, Jim. If I look at your third quarter and fourth quarter commentary here, fourth quarter revenues up a couple of million, but I think the implied gross profit dollars are up $4 million. What drives that gross margin, that 36% gross margin strength in Q4? And is that the right jump off point for next year? How should we think about gross margins for RAC24?

Yeah, good question. I mean, as we continue to scale, you can imagine we've adjusted the cost structure. We're going to digest that, continue to grow, launch fast genes. So that 36% is starting off point for next year. And as we continue to scale, we're going to see incremental improvements in gross margin. get to adjust even to break even for the core business by Q4 next year. We want to leverage the factory in the future, want to drive in the new products, fast genes, want to drive in the new products in NGS.

And we're very, very well positioned to see a gross margin improvement next year.

Thank you. And our next question coming from the line of Matt Sachs with Goldman Sachs. Your line is now open.

Hi, this is Evie on for Matt. Are you feeling any weakness from the biotech funding environment? And then what is your exposure as a percentage of revenue look like for that?

So in terms of the biotech funding environment, I mean, clearly it's having an impact in the world industry. I mean, we see it as an opportunity. In terms of where we're at with Veris and our biopharma integration, we're going to be launching our integrated offering. We've taken adjustments in terms of the organization, and we're very focused on streamlining the business. We anticipate getting to adjust the EBIT to break even at 40 for biopharma. And at the same time, there's a huge open market, there's a huge market for us. As you saw last quarter, the number of customers dealing with us is solid. We continue to see strong growth in terms of the number of projects. And the outlook with the offering, we're feeling good about that outlook. So I think overall, maybe there is issues. However, our issues have been internal. And sorry, I missed the second question you asked.

Just what was the percent exposure as a percentage of your overall revenue to the biotech environment?

We haven't disclosed that overall. Our healthcare revenue is about 50-odd percent of our overall business, and that's been growing year over year. So, I mean, it gets back to the strength of our product offering, NGS. We provide our customers reduced sequencing costs, fast time from Sample to Sequencer, SynBio, we're continuing to scale into biotech. And with the biopharma business, we'll have integrated offerings. So we see ourselves moving into the large pharma customers. That continues to be a good trend for us. So overall, if you look at our orders, our orders are up year over year. Revenue is up year over year. So this is, I mean, we're focused on execution. We believe that due to our platform, we can provide significant value to our customer base.

Okay, great. That's helpful. Thank you. And then where is the cost reduction mostly weighted towards? Is it like towards one specific segment or is it pretty equal across the board?

Cost reductions are across the board. We're managing our data storage investment. We've adjusted the biopharma cost structure. And for the core business, we've migrated our gene business to the factory of the future. So we're leveraging the factory of the future and investment made there and taking advantage of the fast turnaround time. So it's a piece of segments. The outcome is for the core business, i.e. NGS and SynBio and BioPharma, the goal is to get to adjust the rate even by Q4 next year and exit next year with a strong cash position.

Great. Thank you.

Thank you. And our next question coming from the line of Meddler with William Blair. Your line is open.

good morning uh one of them um about data storage so obviously mentioned your moderating expenses there but then we also mentioned that you feel like you have a significant lead just curious why that level of reduction in spend uh was the right one that you contemplate perhaps more or or pausing or or maintaining the investment just sort of uh given that it's a modest reduction just want to get a sense for what was contemplated and why you ended up settling on that level of investment.

Thank you, Matt. Very, very great question. I think we see a tremendous opportunity in data storage for long-term value creation. At the same time, we also have to deliver short-term value creation, so we have to make some very thoughtful capital allocation decisions. What we are seeing is that the market for the test storage, the more we sense it, the more certain we are about it at the same time. As I mentioned, we were head and shoulders ahead of the competition, and so we see our data storage investment as a lever that we have in managing the business. And so as we are focusing on adjusted EBITDA, a breakeven for the core and biopharma business, and ending, getting there with as much cash in the bank as possible. we're able to lower our investment in data storage without losing our competitive edge. And so what that means is we'll have to do less, so we'll do a bit less of market development. We are not going to do the early access with the gigabyte chip. Instead, we'll show the end-to-end demonstration, which is important, because it's a system, so it's going to show that we can do data in, data out, but we don't have to go commercial with that system. Instead, we're going to focus on going commercial with the next chip, the terabyte chip, which is going to be disruptive from a total cost of ownership point of view. And so that's a significant change. The gigabyte chip was more of a demonstration. And so we're not going to commercialize something that's a demonstration. Instead, we're going to focus on commercializing a chip a chip that is service based on a chip that is disruptive from the one where we can get revenue growth and really good margin from day one.

Okay, understood. And then, you know, if we sort of look at your quarterly results, I think those bear out that in SynBio and MGS, you enter those market disruptors and, you know, taking share, growing above market. I think it's more challenging on the outside looking in to look at biopharma and assess how that has been going, just given the number of acquisitions that you've made there. You know, from the outside looking in, that market seems to be a bit more crowded and certainly evolving. What's your assessment of kind of, you mentioned sort of the right assets, but you're also going through some internal changes. What's your assessment for the offering you have there relative to your assessment of competition and how you think you've been growing, perhaps either measured by win rate or pitches or revenue, what sort of the right metrics you're looking at internally that give you confidence that that asset is really competitive and differentiated?

Yeah, no, that's a very, very good question. And so from a technology point of view, our technology, our in vitro technology from the original twist, we know that that is a very strong, best-in-class technology. We have scientific data that the mouse that we got from Atveris is a slow head-to-head with other mouse. is best in class as well. And so the combination together plus the addition of Insimico that we added, our belief is that that is the best set of tools, comprehensive gold standard that you can have for antibody discovery. So from a technology point of view, we are extremely confident. From a commercial point of view, it's a different story. In the change that we made, the decisive action that we did, the sales team is untouched, basically. However, in biopharma, we had to completely retool our sales team. And so we're in a situation where we have a fantastic technology that we strongly believe in. disruptive in the twist spirit where when we go in, we go in with an unfair advantage and we just now put in place the commercial team that is going to monetize that technology. So in terms of metric to look at, what we will report to the street is orders. Orders have been done. And so what we're going to look for is a reversal of orders. And orders is the first step to getting to revenues. And in biopharma, all the orders are upfront payments. So usually there's 100% conversion to revenue. So what we're looking at is orders. And then in terms of from internal metric, It's a classic sales business development metrics. What are the activities and really how many new customers we get in. We have a secret weapon with our CSO, Aaron Sato. He's an outdoor opener. And then we can have the sales team to come work up. And then we are extending the scientific level of our sales team to be able to do more of that. So at this point, we're very confident in the technology we have. And it's a sales business development execution from now on.

OK. Thank you.

Thank you. And our next question coming from the lineup, Stephen Ma with Cow and Yellen is now open.

Oh, great. Thanks for the question. A question for Jim. Could you give us some color on the CapEx pullback in 2023 from $50 million to $40 million? And then a follow-up on that. Is there going to be any impact on the fact of the future build-out and the fast gene and RNA launches and other launches out of the fact of the future because of that?

Thanks for the question, Steve. In terms of the CapEx pullback, it's just fiscally managing our CapEx. We see no impact. The key thing for us over the next four or five months is to execute in terms of taking into account the impact of the reduction headcount. As part of this, we have an ongoing focus in terms of managing both our capex, managing our networking capital, and continuing to drive growth and at the same time manage the balance sheet. So just part of prudent management. And there'll be no impact in terms of the factory in the future.

Okay, thanks for that color. And then a question for Emily. On the enhanced whole genome sequencing and enhanced whole exome sequencing early access programs, can you give us some color on how the response has been and how the traction has been there? And then secondly, you know, I noticed that the press release on Aster Insight, could you give us a little bit of color on how the economics and revenue share work with a partner like Aster Insight? Thank you.

Great question. So on EWGS, the initial customer feedback has been very, very positive. We are going to leverage that technology to the agricultural business where cost per sample is extremely tight. Internally, we say that's where price is king. And so the technology that we've developed internally is really going to enable those AgBio customers to do thousands, hundreds of thousands, millions of samples at the very low cost with a very high resolution on the genotype that they are looking for. And so those are big contracts. When they land, it's going to be big, big lumps. So that means it's going to take a little bit of time. But the initial technology assessment is extremely positive. What's the second question? I'm sorry, yeah, here.

Oh, it was about the economic share with Aster Insight on your kits where you're using some of their content. on your platform?

Yes. What we can say is that it's built with our design expertise. It's some custom NGS tools, and they have a great channel, but we're not sharing the economics. Okay. All right. Thank you. Thank you, Steve.

Thank you. Our next question coming from the line of Sungjin Nam with Scotiabank. Your line is open.

Hi, thanks for taking the questions. Just to expand on Matt's question earlier with regards to just, you know, if you could provide more color around kind of the rationale and your thought process in terms of the timing and the magnitude of the restructuring and, you know, what gives you confidence that, you know, this might not be overly aggressive or I guess not sufficient enough, you know, to drive growth in the future, just kind of You could, you know, give us a bit more information there.

Yeah, I mean, thank you. Any go, Emily?

Maybe I'll start with the high level, and Jim will keep filling the details. So the general principle was that from a company morale point of view, we wanted to do it, you know, once and done. And so we didn't want a drip, drip, drip. And so we cut really, really deep so that we didn't have to do it. At the same time, we also know that we have some strategic hires that we have to make. And so we cut deep enough to make sure that we left room for those strategic hires. that have to happen. So that was the high-level guiding principle, and I'll let Jim fill in the details.

Yes, so in terms of timing, we launched the factory feature in the middle of the quarter from commercialization. It's going really well. We've invested significantly over the last 18 months. And in terms of the The timing right now, we're seeing the benefit of our investment and we're seeing the opportunity in the marketplace. We've got a lot of interest in terms of factory of the future. We're getting well positioned to launch fast chains. And what's important to us also is maintaining a strong balance sheet to support the business as we move from losses to adjusted EBIT to break-even. runway for a core business to get there. And at the same time, we see opportunity for top-line growth and continued opportunity for R&D organizations to innovate. This restructuring supports the balance sheet, supports the company, and supports our focus on innovation and growth.

Okay, got it. And then in terms of the FAST genes, could you remind us kind of what are the key remaining steps in terms of, you know, from the market development standpoint or manufacturing capability standpoint that are remaining before you're launched?

Yeah, no, thank you. Great question. So all of the jeans as of late March, jeans, jean fragments, and most of the logo pools are being made in Wilsonville, Oregon. And so we now have stress-tested that factory under high volume, and we're very happy with the performance, the turnaround time, and the The final yields are equivalent to what we were getting in the South San Francisco FAB. And the turn on time right now is blazing fast. I think our average is about 10 days and the 90th percentile of genes ship in 14 days. So it's really great performance. And now, in terms of fast genes, to your question, there's two avenues that we're still working on, and they are both on software. The first avenue is we have internally some software tools that we're finalizing to enable fast genes. So the process is the same, but we're adding more software tools such that there is less human intervention, less human thinking in terms of what has to happen next. And that means that the genes will spend less time waiting in the freezer about what has to happen next. So that's the software tools. The software seems to be fantastic. It's on track. The second piece is also a software tool, and that is the external tool, the e-commerce tool that needs to be updated. We are adding a key feature of dynamic pricing that would be, in our view, very critical in extracting the most value out of the speed that will be created.

Great. Thank you so much.

Thank you. And our next question coming from the line of Luke Serkut with Barclays. The ceiling is open.

Hey, guys. Morning. A couple things here. So I just wanted to follow up on Doc's question about, you know, the step up in the margins there in 4Q with the minimal step up in REVs. And you provided some early color there. But I thought that the fact of the future, and the fast genes coming online, that was all going to be incremental. So talk about kind of the dynamic there about maybe cannibalizing some of your past work with the fast genes and how the factor of the future is coming online.

Yeah, just in terms of the step up in margin from quarter three to quarter four, that's driven by top line revenue growth. As we continue to leverage the Back to the Future, in terms of the impact to restructure, we see our cost benefits really coming in Q124. The step up you're seeing there is partial impact of the cost benefits of the leveraged factory future in Q4 this year. But as you move into Q1, you see the full benefit of the cost improvements. And then you get the impact of the fast genes as we launch them in the fall. benefits is all fiscal 24. And you see also the full benefit of the cost reductions in starting Q1 of 24. In the short term, you see partial benefits For the cost reductions, you see the benefit of leveraging the fixed cost as we scale revenues sequentially. And then as you move into next year, we'll anticipate moving towards adjusted to breakeven by Q4 of fiscal 24.

All right.

So, I mean, this is just a follow-up on that. So, if it's – I get that you're recognizing a lot of those cost benefits, but the – so that On the guide down, is it that the fast change and the fact of the future is taking longer to ramp?

No. So the guide down is sort of two key components. One is the guide down is on the biopharma business. Why is the biopharma business guide down? It's because we've had internal integration issues from a commercial point of view in terms of both Symbio and NGS. The only reason we've taken a guide down is – we see some potential risk of digesting a 25% reduction in our organization. It's not because of any market issues. It's because of our own internal prudence in terms of managing such an organizational transition.

All right, great. And then last here for Emily, on the internal candidates and the decision there, I think you said you're going to stop the internal – So, I thought when you guys had those, it was basically, and this might be oversimplifying it, but I thought when you had those, it was basically the code that you could just store or like keep on ice. So, talk about the incremental spend that those required and then just, I guess, the lack of, you know, what was driving, I guess, the lack of interest among partnerships there for those candidates.

Great. Great question. So, yes, we've been developing some internal candidates. Those were R&D investments. We are not throwing away the investment that we've done. What we are doing is slowing further investment into those assets. And so we are focusing now on monetizing those assets And as we monetize them, as that creates upside, we'll decide then how we allocate the capital. But that could be the trigger to further develop other assets at this point. It's prudent for us to set the biopharma business such that it can be adjusted EBITDA break-even at $40 million revenue instead of $80 million. And so there'll be less R&D effort on our own assets, but we are not stopping the monetization effort of the assets that we've been doing. And I wouldn't say that there's no interest, but we only have limited capabilities on outsourcing antibodies. We've done, at least, we have an NF1. We had an out licensing last year. But we have limited time and resources inside the company to do it, and so we don't want to get the R&D development ahead of the monetization skis, and so that's what we're doing. Okay, thanks.

Thank you. And our next question coming from the line of Punit Sutta with SPB Securities. Your line is now open.

Yeah, hi, Emily and Jim. Thanks for taking the question. So first one really is, know why is this guide um cut um the last one um just given the situation in the macro the biotech funding and the dx moderations which i think everyone on this call is aware of those things are not necessarily immediately improving in the market we have seen guide reductions from a number of companies multiple times so at this point in time a sort of you know Workforce reductions are also happening at diagnostic companies in their cutting spend. So your reduction of 25% is one of the most meaningful in this space. So given all that dynamic, I mean, just help us understand what gives you confidence in this, you know, in the guide overall for 23 and for FY24. There was a 350 million guide before with 49% gross margin. Can you just update us on that FY24 guide too? Thank you.

All right, I can start and Emily can polish off what I say. So in terms of what gives us confidence, we highlighted our orders. We're strong in this last quarter. We continue to, on the NGS side, continue to build that portfolio, continue to build that customer base. On the SynBio side, factory future commercialization in this last quarter has gone extremely well. As Emily's highlighted on the call, our turnaround times are excellent. Number of customers continues to increase. So in terms of the guide outlook for NGS and SynBio, we're looking at the reduction just purely due to digesting As you said, it's very meaningful. It's meaningful because we've invested significantly in the factory future that's going well, and we're seeing opportunities in terms of upside, and at the same time, because we have such a meaningful reduction in headcount, we're going to be prudent in terms of right look. In terms of biopharma, this is purely an internal execution issue with the absorption of varus. and execution in terms of being able to integrate commercial organizations. We could not do that for the last year. We're launching the integrated offering, and we feel good in terms of a number of active projects. We're 95 last quarter. We're seeing strong interest from our customer base. And at the same time, because of the meaningful reductions, we want to be prudent in terms In terms of where we're going next year, as we continue to see the margin increase from Q3 to Q4, as we continue to leverage the factory future, we see the benefits of the cost reductions. We'll see the launch of the fast chains. And our outlook for next year is to get to adjust the EBIT to break even by Q4. And we will continue to give updates in terms of our progress on each of the quarterly earnings call. So I'm going to turn it over to Emily to round that out.

I think, Jimmy, you covered it as well. Okay. And then on pricing of the products, can you just update us? Do you expect to raise any pricing on the NGS or SynBio products? And overall competition in the market, just can you sort of give us a sense of what you're seeing from some of the larger competitors, the competitive dynamics changing in the market? Thank you. Yeah, great question.

So we did our second annual price increase on NGS. That was well received. In SynBio, we did do a price increase last summer, but there is no plan at this point. Except for launching the FASG in SynBio, our strategy is to increase the value of the product in addition to the amazing scale and quality and ease of ordering. We're going to add speed and using an approach of dynamic pricing, we're confident we'll be able to get the premium pricing. So that's the price increase that's coming in this environment. It's in exchange to providing better value to the customer.

Thank you. And our next question coming from the line of Tom Peterson with Bear Dealers Open.

Yeah, thanks for the question, Tom, and for Katherine. We're just wondering if you could provide any more color on the revenue expectations by product line for fiscal 3Q and 4Q, given the overall reductions in the guide for the year.

Jim, can you take that?

Yeah, sorry, I forgot to hit on you. So, thanks for the question. So, overall, I mean, we've given the guide for both spin bio, NGS, and also for biopharma for the year. So, we didn't break it out because of just the quarter transition we've given overall outlook. You know, for Q3, revenue is going to be 60 to 61. Q4, 62 to 63 million is the range. And for SynBio, the range for the year is 96 to 98. NGS revenue, 113 to 114. And Biopharma, 26. So, in terms of the outlook, we believe it's prudent. Why is it prudent? We've just taken a 25% reduction in the organization. And yeah, so, I mean, overall, business is up 25% year over year for total business. The pipeline looks good. We continue to launch new products. We continue to get great feedback, strong feedback from the marketplace. And at the same time, we've made a meaningful reduction in our headcount. I really appreciate the contribution of everybody who's supported Twist in the growth. And at the same time, as we go forward, we're very focused on getting to profitability. And the first milestone there is getting to adjust EBITDA Q4 next year. And we're positioned to do that. And, you know, the overall environment, we're getting comments, overall environment's tough. However, we've got a great portfolio and we're growing faster than the market. And we're going to leverage our investments and we're going to deliver solid results as we continue to scale and get to adjust even to break even.

Got it. Thanks. That's helpful.

And then maybe just one more from me on the OpEx guidance reduction. I mean, obviously appreciate the significance of the headcount reduction, but as we look forward towards that, adjust to be with that target for fiscal 4Q of next year, you know, how should we think about, you know, if there's any more room for additional OpEx reductions, I guess, how much flexibility do you still see left within the business? Thanks.

So in terms of business, I mean, nobody can predict the future. However, what we're going to do is manage the business based on the environment. So a couple of key metrics. What does the environment look like overall? I would say it's tough. However, we're growing significantly in that environment. We've made investments in the factory in the future. We'll manage our investments and we'll manage our investments, get to adjust to break even, and then we'll focus on getting to profitability. As Emily's highlighted, we moderated our investment in DNA storage. So based on the environment, we were going to take the decisions to ensure that we're delivering value for shareholders, our customers, our employees. And part of that is having a strong balance sheet. And another part of it is we've got to continue strong execution and innovation that Twist Culture is known for. And we're focused on supporting that and transitioning to the growth opportunities delivering fast genes in Q4 calendar this year.

Got it. Thank you.

Thank you. And our next question coming from the line of Rachel with JP Morgan. Your line is open.

Great. Thanks for taking the question. So, a few questions here on BioPharma. It looks like active partnerships between Legacy, BioPharma, and Embarrass was roughly 112 active programs during fiscal 4Q. That stepped down to 95 during fiscal 1Q, and then it looks like today you have 93 active programs. So, can you just walk us through how much of that step down was really due to programs being cut, and do you expect additional declines in program count throughout the year? And then as a follow-up to that, you've mentioned that challenges from biopharma are purely just integrational and executional related. So can you just help us understand what exactly was the breakdown there from the integration issues?

Yeah, thank you. Great question. So in terms of another effective program, the way it works is we get an order for a program. So we report it as an order, and then probably these are the next quarter or the one after. that is done, we've provided the answers to the customers, and then that gets put to revenue, and then that program goes down, right? And so it's not that those programs were cut. There may have been a very small number of cancellations, but most likely those are programs that have been completed and moved to revenue, and that's why revenue is the lagging metric and order is the leading metric. And then in terms of the commercial integration, we had to let Adveris run on its own, and so there were territories, conflict, and there was some technology that had to be learned. And that took a bit more time than we wanted, and it happened a bit later than we wanted. But at this point, the territories have been rationalized. We have replatformed all the systems, and I'm confident that the BD sales team is having high activities, and we have the right cadence of getting in front of new customers and closing them.

Thank you.

Great. Then maybe just a follow-up quick here. There's been quite a few questions on guidance and macro backdrops, so maybe I'll just shift gears over to DNA data storage. I appreciate that you're rationalizing some of the spend to that offering just given the macro backdrop, but can you just talk about what are your plans for your enzymatic offering? If I recall, you were planning on getting that fully online to support that DNA data storage offering, which is going to be kind of key to the thesis in terms of the competitive positioning as peers have entered with their own enzymatic products. So can you walk us through, does that timeline shift at all for your enzymatic offering? And can you give us a tech update in terms of how that's trended as well? Thank you.

That's a great question. And so, yes, we are delaying the on-premise technology development. And we mostly, we 100% needed enzymatic synthesis for that on-premise. We had said, too, that we could use enzymatic in-house. and that will have the choice of chemical or enzymatic. In the current we have not touched the enzymatic program. We think even though the first product for data storage is going to be an in-house machine, right now we saw that there is some potential advantage for us to use the enzymatic program that we have developed. been pursuing, and so we have optionality that the first product could be enzymatic or chemicals. We are pursuing both, but I'm optimistic that we may leverage the enzymatic technology for that first data storage launch.

Thank you, and I will now turn the call back over to Emily Lippers for any closing remarks.

Thank you very much for joining us today, and I appreciate us getting a little bit behind schedule. We look forward to seeing some of you at Goldman Sachs, William Blair, and Scotiabank in the next few months ahead. Thank you.

Ladies and gentlemen, that's our conference for today. Thank you for your participation. You may now disconnect.

Thank you. Thank you. Thank you. Thank you. music music

Good morning, ladies and gentlemen, and welcome to TWIS Biosciences Fiscal 2023 Second Quarter Financial Results Conference Call. Later, we will conduct a question and answer session. To ask a question during the session, you will need to press star 11 on your touch phone telephone. You will then hear an automatic message advising your hand is raised. I would now like to turn the conference call over to Angela Bidding, Senior Vice President, Corporate Affairs and GPSG Officer. Please go ahead.

Thank you, Operator. Good morning, everyone. I'd like to thank all of you for joining us today for TWIST Bioscience's conference call to review our fiscal 2023 second 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 LaCruz, CEO and co-founder of TWIST, and Jim Sorburn, CFO of TWIST. Emily will begin with a review of our recent progress on TWIST businesses, Jim will report on our financial and operational performance, and then Emily will come back to discuss our upcoming milestones and directions. We will then open the call for questions. We would ask that you limit your questions to a maximum of two and then re-cue 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 make forward-looking statements within the meaning of the U.S. federal securities laws. Forward-looking statements generally relate to future events or future financial or operating performance. Our expectations and beliefs regarding these matters may not materialize and actual results in financial periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include those set forth in our press release we issued earlier today, as well as those 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. We'll also discuss financial measures that do not conform with generally accepted accounting principles, including adjusted EBITDA. Information may be calculated differently than similar non-GAAP data presented by other companies. When reported, a reconciliation between these GAAP and non-GAAP financial measures will be included in our earnings documents, which can be found on our investor relations website at www.twistbioscience.com. With that, I'll now turn the call over to our Chief Executive Officer and Co-Founder, Dr. Emily Leproust.

Thank you, Angela, and good morning, everyone. It's been a busy time for TWIST. I'm very pleased with our performance through the first half of the fiscal year. In Q2, we delivered our first quarter over $60 million in revenue. In addition, this morning we announced that we have taken strategic actions to accelerate our path to profitability. I am happy to share that we expect to achieve a quarterly run rate that is adjusted EBITDA break-even for both the core and biopharma businesses as we exit the September 2024 quarter in about 15 months. I will focus on three main things. First, our confidence in our near-term revenue growth. Second, our decisive actions designed to achieve adjusted EBITDA break-even in the near term. And third, the drivers of growth in all businesses moving forward. Beginning with top-line growth for our revenue-generating businesses, I am pleased to share very strong results for the second quarter of fiscal 2023, with reported record revenue of $60.2 million, exceeding our guidance of $56.5 million. Strength in the core business, particularly NGS, drove the beat. Orders came in at $64.2 million, indicating solid growth moving into the second half of our fiscal year. During the quarter, we began commercial shipments out of our Wilsonville, Oregon facility, the factor of the future which we believe will deliver manufacturing efficiencies leading to margin improvements going forward. We continue to see increasing enthusiasm for our jeans, jean fragments, oligopools, and library products, with our consistent rapid turnaround time driving that demand. I'd like to note that this is for our standard speed jeans. We have not yet taken orders for fast jeans, which we expect to launch in the fall with premium pricing. We continue to take market shares from our peers and remain far ahead of emerging players because of our consistent turnaround time, together with our perfect quality jeans at a scale and price unavailable elsewhere, which continues to resonate with our customers. Our reliable products and exceptional customer service has been key to creating loyalty with our customers, which then facilitates reorders and quarter-over-quarter revenue growth. In addition, our customer surveys continually state that we are their preferred provider because ordering is easy and we over-deliver on turnaround time. For MGS, we see customers advancing development of their tests and also gaining traction within the market. Our MGS revenue is significantly linked to the commercial ramp of our customers' tests, and while that can be quarter-to-quarter lumpiness, we have confidence that revenue will grow year over year. The point to remember is our business is sticky, we grow with our customers, and our customer base continues to expand. In biopharma, we began integrating the Boston team at the end of the calendar year, following the contractual limitations of the acquisition. We continue to see opportunities ahead, particularly as we now have an integrated team and portfolio of services. While it's true that the funding environment for emerging biotech companies has been constrained, our share of the biopharma services market is small and largely untapped by our commercial team. That said, we are facing some internal headwinds as we re-platform systems and integrate commercial territories. We've made changes to address these challenges and expect the revenue lift will come within six months. We continue to sign collaborations and agreements with customers and we are expanding our wallet share with existing partners. As an example, we announced another agreement with Astellas in April, our third collaboration with this pharmaceutical company. We do expect fewer massive royalties for corporations as we move forward, as we are now prioritizing near-term top-line revenue growth. Our commercial team for Synbio, NGS, and Biopharma is now firing on all cylinders, and we are seeing large opportunities ahead. I will now move from top-line to operating expenses and our significant actions to accelerate our path to profitability. The factor of the future outside of Portland, Oregon is now shipping products to customers. In fact, all of our jeans, jeans fragments, and the vast majority of oligopools have been made in Oregon for more than a month. To accelerate our top line to reach profitability, we conducted a comprehensive review to re-engineer our code base and achieve this goal more quickly. We have made difficult decisions, resizing many teams throughout the organization, which will result in the elimination of approximately 270 positions to operate more efficiently while still continuing to support our high growth focus areas. It is difficult to say goodbye to the many talented and committed twisters who have been integral in our success to date. We wish them well. We will support them as they identify their next opportunities, and we look forward to what they will achieve as they bring their experience from TWIST to the larger ecosystem. provide a bit more color on the shape of the organization moving forward, the sales force will remain largely intact to drive top-line growth. We removed the duplication of SYNBio production across San Francisco and Portland, significantly lowering our fixed cost structure. In addition, we resized the BioPharma teams to focus on revenue generating partnerships, deprioritizing the majority of our internal assets. Throughout the organization, we streamlined teams, including R&D, focus on programs where Twist has a clear competitive advantage and to selectively deploy our platform in areas where we see the greatest potential for long-term value creation. In data storage, we remain integrally involved in market development and continue to advance our technology. We do not see a near-term competitor close to a commercial launch at this time, and that's significant. It enables us to substantially reduce our operating expenses for data storage, While continuing our effort at the more modest level, yet still, we made ahead of the competition. We will focus our efforts on the storage as a service business model and plan to delay the distributed on-premise approach until after the service business has proven to be a success. We expect to demonstrate an end-to-end gigabyte century archive service by the end of Canada 2023. Following on this, in early Canada 2025, we expect to launch a terabyte Century Archive solution. As I said, we believe we will deliver on all of this while reducing the overall cash flow. Moving into our future growth, we see many opportunities ahead. As we look forward, the planned launch of fast genes in SymbioD4 will be targeting the $1.4 billion DNA makers market. These are scientists and researchers in large pharmaceutical companies and academia that currently make their own DNA instead of buying it, as they need it faster and more cost-effectively than we believe it can deliver from virtually any source today. This is one area that we are confident will increase our thin biocontribution margin, as we believe we will be able to command a premium price that leverages dynamic pricing for rapidly delivering these products. We do not expect to add commercial headcount to pursue this large market, as we believe our e-commerce portal and digital marketing capabilities enable us to acquire customers cost-effectively. For NGS, our customers continue to increase, particularly in the oncology space. We have several large commercial customers and a growing mid-tier group of development-stage customers with the potential for compounding growth. In both instances, TWIS is poised to grow with them. We continue to be included in more and more assets, and we believe the growth of our NGS opportunity will be sustainable for the foreseeable future. In the near term, we plan to add RNA workflow tools to our NGS portfolio. Scientists often run RNA assets multiple times for the same sample, as RNA changes at different time points in different tissues in both normal and busy states, providing a large market opportunity that complements our DNA workflow tools. RNA workflows are used primarily within the research market, an area where we have a significantly smaller footprint to date, but believe we can grow and expand. We expect to launch several R&D tools in the near future. In biopharma, we continue to see opportunities for our competitively priced high-value services, even more so with the integration of the offerings. We will focus on selling services that drive top-line revenue while we digest the resizing of the organization. The largest shift We'll be aware from R&D on our internal assets until we see some momentum in out-licensing antibody leads where we have done the most work. For data storage, the very large opportunity remains within our site. Because we are not seeing direct competitors at this time, we are slowing our investment. Therefore, we have revised our commercial plans while we advance at a more modest rate without losing our first mover best-in-class competitive advantage. With that, I'll turn it over to Jim.

All right, thanks, Emily.

We had another quarter of robust execution at twist, despite a volatile macroeconomic environment. Revenue for quarter two was 60.2 million, which is year-over-year growth of approximately 25%, and a sequential increase of 11%. Orders were 64.2 million for the quarter, an increase of approximately 17% year-over-year, and gross margin for the quarter is 10.8%. We shipped approximately 2,100 customers as compared to 2,000 in quarter two fiscal 22. And we ended quarter two with cash investments for approximately $388 million. Our NGS revenue for quarter two was $29 million, which is year-over-year growth of 26%. As we noted in our previous earnings call, we had a couple of larger customers push shipments from the December quarter into January. Our second quarter orders were $28 million, a sequential decline of 10%, but growth of 19% year over year. As Emily stated, revenue growth in NGS is linked to the ramp of our customer tests, which can drive some quarter-to-quarter lumpiness in revenues. The top 10 customers accounted for approximately 38% of our NGS revenue, and we served approximately 600 NGS customers in fiscal quarter two. Our pipeline for larger opportunities continues to scale, and we're now tracking 270 accounts, up from 264 noted in our last earnings call. 131 have adopted TWIST, as compared to 130 last quarter. Now turning to SynBio, which includes genes, DNA preps, IgG, libraries, and oligopoles. SynBio revenue for the quarter rose to $24.1 million, representing a sequential growth of 11%, and year-over-year increase of approximately 31%. Orders for the quarter were 30.9 million, which represents a 16% sequential increase and a 31% year-over-year growth. Some of the highlights include shipping to approximately 1,660 SynBio customers, which has grown from approximately 1,400 in the second quarter of fiscal 22. The customer base includes many biotech and large pharma companies. Jeans revenue increased to $18 million, which is year-over-year growth of approximately 27%. We shipped approximately 152,000 jeans in fiscal quarter two, which is an increase of approximately 23% year-over-year. And all it could pull is another strong quarter with revenue of $3.3 million, with demand primarily coming from the healthcare segment. Now to BioPharma. Our BioPharma revenue for the second quarter of fiscal 23 was $7 million, down sequentially from 8.2 million. Orders for the quarter, 5.3 million, down sequentially from 6.9 million in the first quarter, primarily due to integration challenges Emily described. That said, we had 93 active programs at the end of the quarter and added three more milestone and royalty agreements, which brings the total to 66, up sequentially from 63. I'll now cover our revenue breakdown by industry and our regional progress. Healthcare revenue for the second quarter of fiscal 23 was $33.8 million as compared to $24.1 million in the same period of fiscal 22. Industrial chemical revenue was $14.4 million in the second quarter of fiscal 23 as compared to $14.1 million in the second quarter of fiscal 22. Academic revenue was $11.1 million in the second quarter of fiscal 23 as compared to $9.5 million in the same period of fiscal 22. EMEA revenue rose to $18.8 million in Q2 fiscal 23 versus $15.2 million in Q2 fiscal 22. APAC continued to see recovery in China, with their revenue in China increasing to approximately $2 million, up from $1.4 million the prior quarter. For APAC, overall revenue increased to $6.5 million compared to $4.5 million for the same period of 22. The U.S., which includes Americas, Revenue increased to $34.9 million in the second quarter versus $28.5 million for the same period of fiscal 22. Moving down the P&L, our gross margin for quarter two was 30.8%, with cost of revenue for the quarter of $41.7 million. The change in gross margin was expected as the cost of revenue increased sequentially from $29.4 million, primarily due to approximately $5 million associated with the commercialization of the Sunbio Labs and Factory of the Future, In addition, we had approximately 1 million scrap associated with the Factory of the Future in the quarter. Our operating expenses for our fiscal quarter, including R&D, SG&A, change in fair value and mark-to-market adjustments of acquisitions was approximately 80.1 million as compared to 79.2 million in Q2 fiscal 22. To break it down, R&D for the fiscal second quarter was 27.4 million, a decline from 31.2 million in the same period of fiscal 22, primarily due to the conclusion of REBEL-R. This includes DNA storage R&D spend of $5 million and biopharma R&D spend of $4.7 million in the second quarter of fiscal 23. SG&A in quarter two was approximately $54 million. Factually, the future pre-commercialization costs included in SG&A were approximately $6 million for the first month of the quarter when the factory was not yet commercial. In addition, we have a number of labs that are still in pre-commercial phase and will transition to COGS as they're qualified in the second half of fiscal 23. Stock-based compensation for the quarter was approximately $10 million. Depreciation amortization for the quarter was $7.1 million, an increase from $5.8 million in the previous quarter and associated with the commercialization of the factory in the future. CapEx. Cash investment in the quarter two was approximately $9 million, which brings total cash spent for the first six months of the fiscal year to $21 million. As we've highlighted, the launch of the factory of the future is going very well. We had a strong quarter of operational performance, and as noted, we continue to see year-over-year growth in symbio and NGS businesses. We're focused on achieving adjusted EBITDA break-even and then profitability as we scale. We are resizing the organization by approximately 25% with reductions aimed at managing our operation cost structure, lowering our revenue breakeven point, and limiting our investment in data storage as we transition to breakeven. Note the reductions outside of the U.S. may be delayed as we work through the required regulatory processes. About 60% of the staff reductions affect the COGS line and 40% affect OPEX. In particular, we have resized the biopharma group to achieve breakeven at $40 million instead of revenue of $80 million. And for the core business, we have streamlined the organization across the board in order to achieve breakeven of $285 million instead of $300 million. The cash restructuring costs are estimated to be approximately $9 to $11 million. We anticipate cash savings of approximately $9 to $11 million per quarter on a go-forward basis beginning in the first quarter of fiscal 24. The savings primarily impacting our operations as we exit gene manufacturing in South San Francisco and ramp up the factory's future, as well as moderate our investment in R&D with the majority of the spend reductions in biopharma and DNA storage. Because we've taken actions to address our cost structure, we do believe it is prudent to revise our revenue for fiscal 23 as we digest these changes. We're revising this guidance to approximately $235 to $238 million versus our prior guidance of $261 to $269 million. So in biorevenue, the range is $96 to $98 million, and that's down from $104 to $106 million. NGS revenue range is $113 to $114 million, down from $120 to $123. Biopharma revenue is $26 million, and that's down from $37 to $40. For the second half of fiscal 23, we anticipate revenue of approximately 60 to 61 million in quarter three and 62 to 63 million in quarter four and gross margin to be approximately 30% in Q3 and 36% in Q4. For the full fiscal year, we're projecting gross margins of approximately 35 to 36%. We're decreasing operating expense guidance for the year to approximately 313 to 319 million as compared to our previous guidance of $330 million. We're now projecting R&D expense of $112 to $114 million as compared to our previous guidance of $130 million. We expect SG&A to be $197 to $200 million, and that's a decrease from our previous guidance of $204 million. Market-to-market is projected to be a credit of $5 million. One-time separation costs from our reduction force are projected to be $9 to $11 million. Appreciation amortization is projected to be approximately $29 million. Our projection for stock-based compensation has declined to approximately $43 million from $50 million. Operating expense for DNA storage is expected to be approximately $40 million compared to the previous guidance of $46 million. And for fiscal 24, we also expect $40 million operating expense for data storage compared to previous guidance of $57 million. Net operating loss for the year is projected to be approximately $230 to $234 million, which includes one-time charges of approximately $9 to $11 million for separation costs. CapEx for the year is projected to be $40 million, a decrease from the previous guidance of $50 million. Ending cash is projected to be $320 million compared to the previous guidance of $300 million. In summary, we had record revenue in quarter two. We're commercially shipping from the factory to the future We're focused on managing the business and our cost structure as we scale. Importantly, we expect to exit fiscal 24 with a fourth quarter adjusted EBITDA break-even for the core and biopharma business. We define adjusted EBITDA as EBITDA plus add-back for stock-based compensation. And we're also projecting ending cash balance of $220 million at September 30, 2024, and that's up from our previous guidance of $170 million. With that, I'll now turn the call back to Emily.

Thank you, Jim. We continue to have aggressive goals, and we have aligned the business to pursue significant opportunities. As importantly, we announce decisive and proactive actions to accelerate our path to profitability, preserving cash, and mitigating risk, all while leveraging our outside opportunities in the marketplace. We always evaluate the business from every lens. and we remain laser-focused on achieving adjusted EBITDA break-even for core and biopharma businesses, while maintaining optionality on investments for the incredible upside we see in data storage. Our core business in SyncBio and NGS continue to scale, and we have near-term opportunities for each with an energized commercial team to deploy. We are resizing and refocusing the biopharma organization on an integrated service offering that we believe will drive top-line revenue growth. and we have moderated our stand for data storage while ensuring we maintain our competitive edge. We revised our guidance to a cautious level with potential for upside. We have been strategic in our action this quarter, positioning us as a leaner, meaner organization, specifically focused on disruptive market opportunities for profitable and scalable growth. With these substantive changes, we believe we are operating for a position of strength in the current environment accelerating our projecting timeline to adjust CDB data break-even for both the core and biopharma businesses as we exit the September 2024 quarter, or about 16 months from now. We remain extremely excited about rising in the future. And with that, let's open the call for questions. Operator?

Thank you. Ladies and gentlemen, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. As a reminder to accommodate all participants in the queue, we ask that you please limit yourself to one question and follow up. If you have additional questions, you may re-enter the queue's time permits. Please stand by while we compile the Q&A roster. And now, first question coming from the line of Vijay Kumar with Evercore ISI. Your line is open.

Hey, guys. Congrats on the and thanks for taking my question. I guess my first question is on the guidance here. It makes sense for the guidance to be a reset given the environment. The back half here, I think, implied as high single digits, and it looks like all segments were cut, but perhaps biopharma a little bit more than the others. Can you just talk about the macro environment? What has changed versus three months ago from a macro perspective in the how much of this is twist specific versus the general environment that you're seeing and how comfortable are you in this high single digit growth for the back half?

Thanks Vijay. Thanks for the question. So if we step back, there's a number of things going on. One is in terms of biopharma, We feel very good about where we're at. The challenges we've had in biopharmacy is purely integration. So that's an execution issue. We acquired Averis last year. We had an RNN. It was important that we supported Averis to be positioned to achieve that RNN. And consequently, we had this independence between And then as we started to integrate, we realized we had some integration challenges. We're launching the new offering, and we feel good about where we're positioned. And because of the internal challenge there, we reduced the revenue outlook for BioPharma. It's a large market. We get great service offerings, so we feel very well positioned. In terms of the other two areas, Symbio and NGS, we've just reduced the organization by approximately 25%. We believe it's going to take some time to digest that reduction. The overall order growth rate is solid. We continue to see an NGS growth in large customers. We're launching new products. At the same time, taking 25% out of the organization, we believe we need to be prudent in terms of our outlook in terms of top line. I think the advantage is that we're positioning the company to get to adjusted EBIT and break even earlier and come out with a stronger balance sheet. So this is internal, but we really, really believe that we're well positioned from the platform.

We're seeing large customer growth, so it's more prudence on our part. Understood.

And just sorry, Jim, just to clarify that point, what you're saying is 25% headcount reduction. Did that come from the commercial side? Because I think what you're saying is orders and customers, you know, the market seems to be healthy, but this is more a function of the restructuring actions you've taken, and hence the die cuts here in the back half.

That's correct. Yeah, the market's strong. We're up, as we were highlighted, year over year. We're growing faster than the market. We're focused on launching new products. So this is just about pure internal issue in terms of digesting social large change. I mean, we've done a great job in terms of launching the factory in the future. It's going exceptionally well. Turnaround times are excellent. Customer feedback is great. And at the same time, we believe for the next six months, we're going to be prudent in terms of our outlook due to the reduction of the organization by 25%.

Understood. And then one on the gross margins, Jim. If I look at your third quarter and fourth quarter commentary here, fourth quarter revenues up a couple of million, but I think the implied gross profit dollars are up $4 million. What drives that gross margin, that 36% gross margin strength in Q4? And is that the right jump off point for next year? How should we think about gross margins for RAC24?

Yeah, good question. I mean, as we continue to scale, you can imagine we've adjusted the cost structure. We're going to digest that, continue to grow, launch fast chains. So that 36% is starting off point for next year. And as we continue to scale, we're going to see incremental improvements in gross margin. is get to adjust even to break even for the core business by Q4 next year. We want to leverage the factory in the future. We want to drive in the new products, fast genes. We want to drive in the new products in the MGS.

And we're very, very well positioned to see a gross margin improvement next year.

Thank you. And our next question coming from the line of Matt Sachs with Goldman Sachs. Your line is now open.

Hi, this is Evie on for Matt. Are you feeling any weakness from the biotech funding environment? And then what is your exposure as a percentage of revenue look like for that?

So in terms of the biotech funding environment, I mean, clearly it's having an impact in the rural industry. I mean, we see it as an opportunity. In terms of where we're at with Veris and our biopharma integration, we're going to be launching our integrated offering. We've taken adjustments in terms of the organization, and we're very focused on streamlining the business. We anticipate getting to adjust the EBIT to break even at 40 for biopharma. And at the same time, there's a huge open market, there's a huge market for us. As you saw last quarter, the number of customers dealing with us is solid. We continue to see strong growth in terms of the number of projects. And the outlook with the offering, we're feeling good about that outlook. So I think overall, there is issues. However, our issues have been internal.

second question you asked?

Just what was the percent exposure as a percentage of your overall revenue to the biotech environment?

We haven't disclosed that overall. Our healthcare revenue is about 50-odd percent of our overall business, and that's been growing year over year. So, I mean, it gets back to the strength of our product offering. NGS, we provide our customers reduced sequencing cost, fast time from sample to sequencer, send bio, we can scale into biotech. And with the biopharma business, we'll have integrated offerings. We see ourselves moving into the large pharma customers. That continues to be a good trend for us. So overall, if you look at our orders, our orders are up year over year. Revenue is up year over year. So this is, I mean, we're focused on execution. We believe that due to our platform, we can provide significant value to our customer base.

Okay, great. That's helpful. Thank you. And then where is the cost reduction mostly weighted towards? Is it like towards one specific segment or is it pretty equal across the board?

Cost reductions are across the board. We're managing our data storage investment. We've adjusted the biopharma cost structure. And for the core business, We've migrated our gene business to Factory of the Future. So we're leveraging the Factory of the Future and investment made there and taking advantage of the fast turnaround time. So it's a piece of segments. The outcome is for the core business, i.e. NGS and SynBio and BioPharma, the goal is to get to adjust to break even by Q4 next year and exit next year with a strong cash position.

Great, thank you.

Thank you. And our next question coming from the line of Meddler with William Blair. Yolanda, it's open.

Hey, good morning. I wanted to ask about data storage. So you mentioned you're moderating expenses there, but then you also mentioned that you feel like you have a significant lead. Just curious why that level of reduction in spend Was the right one that you contemplate perhaps more or pausing or maintaining the investment to sort of, given that it's a modest reduction, just want to get a sense for what was contemplated and why you end up settling on sort of that level of investment.

Thank you, Matt. Very, very great question. I think we see a tremendous opportunity in data storage for long-term value creation. At the same time, we also have to deliver short-term value creation, so we have to make some very thoughtful capital allocation decisions. What we are seeing is that the market for the test storage, the more we sense it, the more certain we are about it at the same time. As I mentioned, we were head and shoulders ahead of the competition, and so we see our data storage investment as a lever that we have in managing the business. And so as we are focusing on adjusted EBITDA, a breakeven for the core and biopharma business, and getting there with as much cash in the bank as possible, we're able to lower our investment in data storage without losing our competitive edge. And so what that means is we'll have to do less, so we'll do a bit less of market development. We are not going to do the early access with the gigabyte chip. Instead, we'll show the end-to-end demonstration, which is important, because it's a system, so it's going to show us we can do data in, data out, but we don't have to go commercial with that system. Instead, we're going to focus on going commercial with the next chip, the terabyte chip, which is going to be disruptive from a total cost of ownership point of view. And so that's a significant change. The gigabyte chip was more for demonstration. And so we're not going to commercialize something that's a demonstration. Instead, we're going to focus on commercializing a chip. a chip that is service-based on a chip that is disruptive from day one where we can get revenue growth and really good margin from day one.

Okay, understood. And then, you know, if we sort of look at your quarterly results, I think those bear out that in SynBio and MGS, you enter those market disruptors and, you know, taking share, growing above market. And it's more challenging on the outside looking in to look at biopharma and assess how that has been going, just given the number of acquisitions that you've made there. You know, from the outside looking in, that market seems to be a bit more crowded and certainly evolving. What's your assessment of kind of, you mentioned sort of the right assets, but you're also going through some internal changes. What's your assessment for the offering you have there relative to your assessment of competition and how you think you've been growing, perhaps either measured by win rate or pitches or revenue. What's sort of the right metrics you're looking at internally that give you confidence that that asset is really competitive and differentiated?

Yeah, that's a very, very good question. And so from a technology point of view, our technology, our in vitro technology from the original twist, we know that that is a very strong, best-in-class technology. We have scientific data that the mouse that we got from Atveris is a slow head-to-head with other mouse. is best in class as well. And so the combination together plus the addition of Insimico that we added, our belief is that that is the best set of tools, comprehensive gold standard that you can have for antibody discovery. So from a technology point of view, we are extremely confident. From a commercial point of view, it's a different story. In the change that we made, the decisive action that we did, the sales team is untouched, basically. However, in biopharma, we had to completely retool our sales team, and so we're in a situation where we have a fantastic technology that we strongly believe in, disruptive in the twist spirit where when we're going, we're going with an unfair advantage and we just now put in place the commercial team that is going to monetize that technology. So in terms of metric to look at, what we will report to the street is orders, right? Orders have been done. And so what we're going to look for is a reversal of orders. And orders is the first step to getting to revenues. And in biopharma, all the orders are upfront payments. So usually there's a 100% conversion to revenue. So what we're looking at is orders. And then in terms of from internal metric, It's a classic sales business development metrics. What are the activities and really how many new customers we get in. We have a secret weapon with our CSO, Aaron Sato. He's our door opener. and then we can have the sales team to come work up. And then we are extending the scientific level of our sales team to be able to do more of that. So at this point, we're very confident in the technology we have, and it's a sales business development execution from now on.

Okay, thank you.

Thank you. And our next question coming from the lineup, Stephen Ma with Cow and Yellen is now open.

Oh, great. Thanks for the question. A question for Jim. Could you give us some color on the CapEx pullback in 2023 from $50 million to $40 million? And then a follow-up on that. Is there going to be any impact on the fact of the future build-out and the fast gene and RNA launches and other launches out of the fact of the future because of that?

Thanks for the question, Steve. In terms of the CapEx pullback, it's just fiscally managing our CapEx. We see no impact. The key thing for us over the next four or five months is to execute in terms of taking into account the impact of the reduction headcount. As part of this, we have an ongoing focus in terms of managing both our capex, managing our networking capital, and continuing to drive growth and at the same time manage the balance sheet. So just part of prudent management. And there'll be no impact in terms of the factory in the future.

Okay, thanks for that color. And then a question for Emily. On the enhanced whole genome sequencing and enhanced whole exome sequencing early access programs, can you give us some color on how the response has been and how the traction has been there? And then secondly, you know, I noticed the press release on Aster Insight. Could you give us a little bit of color on how the economics and revenue share work with a partner like Aster Insight? Thank you.

Great question. So on EWGS, the initial customer feedback has been very, very positive. We are going to leverage that technology to the agricultural business where cost per sample is extremely tight. Internally, we say that's where price is king. And so the technology that we've developed internally is really going to enable those AgBio customers to do thousands, hundreds of thousands, millions of samples at the very low cost with very high resolution on the genotype that they are looking for. And so those are big contracts. When they land, it's going to be big, big lumps. So that means it's going to take a little bit of time. But the initial technology assessment is extremely positive. What's the second question? I'm sorry, yeah, here.

Oh, it was about the economic share with Aster Insight on your kits where you're using some of their content. on your platform?

Yes. What we can say is that it's built with our design expertise. It's some custom NGS tools, and they have a great channel, but we're not sharing the economics. Okay. All right. Thank you. Thank you, Steve.

Thank you. Our next question coming from the line of Sungjin Nam with Scotiabank. Your line is open.

Hi, thanks for taking the questions. Just to expand on Matt's question earlier with regards to just, you know, if you could provide more color around kind of the rationale and your thought process in terms of the timing and the magnitude of the restructuring and, you know, what gives you confidence that, you know, this might not be overly aggressive or I guess not sufficient enough, you know, to drive growth in the future, just kind of You could, you know, give us a bit more information there.

Yeah, I mean, thank you. Any go, Emily?

Maybe I'll start with the high level, and Jim will keep filling the details. So the general principle was that from a company morale point of view, we wanted to do it, you know, once and done. And so we didn't want a drip, drip, drip. And so we cut really, really deep so that we didn't have to do it. At the same time, we also know that we have some strategic hires that we have to make. And so we cut deep enough to make sure that we left room for those strategic hires. that have to happen. So that was the high level guiding principle and I'll let Jim fill in the details.

Yes. So in terms of timing, we launched the factory feature in the middle of the quarter from commercialization. It's going really well. We've invested significantly over the last 18 months. And in terms of the is the timing right now we're seeing we're seeing the benefit of our investment uh and we're seeing the opportunity in the marketplace uh we've got a lot of interest in terms of uh factory the future uh we're getting well positioned to launch past jeans and what's important to us also is maintaining a strong balance sheet to support the business as we move from uh losses to adjust eva to break even by the runway for a core business to get there. And at the same time, we see opportunity for top-line growth and continued opportunity for R&D organizations to innovate. This restructuring supports the balance sheet, supports the company, and supports our focus on innovation and growth.

Okay, got it. And then in terms of the FAST genes, could you remind us kind of what are the key remaining steps in terms of, you know, from the market development standpoint or manufacturing capability standpoint that are remaining before you're launched?

Yeah, no, thank you. Great question. So all of the jeans as of late March, jeans, jean fragments, and most of the logo pools are being made in Wilsonville, Oregon. And so we now have stress-tested that factory under high volume, and we're very happy with the performance, the turnaround time, and the The final yields are equivalent to what we were getting in the South San Francisco FAB. And the turn on time right now is blazing fast. I think our average is about 10 days and the 90th percentile of genes ship in 14 days. So it's really great performance. And now, in terms of fast genes, to your question, there's two avenues that we're still working on, and they are both on software. The first avenue is we have internally some software tools that we're finalizing to enable fast genes. So the process is the same, but we're adding more software tools such that there is less human intervention, less human thinking in terms of what has to happen next. And that means that the genes will spend less time waiting in the freezer about what has to happen next. So that's the software tools. The software seems to be fantastic. It's on track. The second piece is also a software tool, and that is the external tool, the e-commerce tool that needs to be updated. We are adding a key feature of dynamic pricing that would be, in our view, very critical in extracting the most value out of the speed that will be created.

Great. Thank you so much. Thank you. And our next question coming from the line of Luke Serkut with Barclays. The ceiling is open.

Hey, guys. Morning. A couple things here. So I just wanted to follow up on Doc's question about, you know, the step up in the margins there in 4Q with the minimal step up in REVs. And you provided some early color there. But I thought that the fact of the future, And the fast genes coming online, that was all going to be incremental. So talk about kind of the dynamic there about maybe cannibalizing some of your past work with the fast genes and how the factor of the future is coming online.

Yeah, just in terms of the step up in margin from quarter three to quarter four, that's driven by top line revenue growth. As we continue to leverage the future in terms of the impact to restructure, we see our cost benefits really coming in Q124. The step up you're seeing there is partial impact of the cost benefits of the leveraged factoring future in Q4 this year. But as you move into Q1, you see the full benefit of the cost improvements. And then you get the impact of the FAST genes as we launch them in the fall. So the FAST genes benefits is all fiscal 24. and you see also the full benefit of the cost reductions in starting Q1 of 24. In the short term, you see partial benefit For the cost reductions, you see the benefit of leveraging the fixed cost as we scale revenues sequentially. And then, as you move into next year, we'll anticipate moving towards adjusting with the breakeven by Q4 of fiscal 24. All right.

So, I mean, just to follow up on that. So, if it's – I get that you're recognizing a lot of those cost benefits, but the – so On the guide down, is it that the fast change and the fact of the future is taking longer to ramp?

No. So the guide down is sort of two key components. One is the guide down is on the biopharma business. Why is the biopharma business guide down? It's because we've had internal integration issues from a commercial point of view in terms of both Symbio and NGS. The only reason we've taken a guide down is – some potential risk of digesting a 25% reduction in their organization. It's not because of any market issues. It's because of our own internal prudence in terms of managing such an organizational transition.

All right, great. And then last here for Emily, on the internal candidates and the decision there, I think you said you're going to stop the internal development. So I thought when you guys had those, it was basically, and this might be oversimplifying it, but I thought when you had those, it was basically the code that you could just store or like keep on ice. So talk about the incremental spend that those required. And then just, I guess, the lack of, you know, what was driving, I guess, the lack of interest among partnerships there for those candidates.

Great, great question. So, yes, we've been developing some internal candidates. Those were R&D investments. We are not throwing away the investment that we've done. What we are doing is slowing further investment into those assets. And so we are focusing now on monetizing those assets And as we monetize them, as that creates upside, we'll decide then how we allocate the capital. But that could be the trigger to further develop other assets. But at this point, It's prudent for us to set the biopharma business such that it can be adjusted EBITDA break-even at $40 million revenue instead of $80 million. And so there'll be less R&D effort on our own assets, but we are not stopping the monetization effort of the assets that we've been doing. And I wouldn't say that there's no interest, but we only have limited capabilities on outsourcing antibodies. We've done at least, we have an NF1. We had an out-licensing last year. But we have limited time and resources inside the company to do it, and so we don't want to get the R&D development ahead of the monetization skis, and so that's what we're doing. Okay, thanks.

Thank you. And our next question coming from the line of Punit Sutta with SBB Securities. Your line is now open.

Yeah, hi, Emily and Jim. Thanks for taking the question. So first one really is, know why is this guide um cut um the last one um just given the situation in the macro the biotech funding and the dx moderations which i think everyone on this call is aware of those things are not necessarily immediately improving in the market we have seen guide reductions from a number of companies multiple times so at this point in time a sort of you know Workforce reductions are also happening at diagnostic companies in their cutting spend. So your reduction of 25% is one of the most meaningful in this space. So given all that dynamic, I mean, just help us understand what gives you confidence in this, you know, in the guide overall for 23 and for FY24. There was a 350 million guide before with 49% gross margin. Can you just update us on that FY24 guide too? Thank you.

All right, I can start and Emily can polish off what I say. So in terms of what gives us confidence, we highlighted our orders. We're strong in this last quarter. We continue to on the NGS side, continue to build that portfolio, continue to build that customer base. On the SINBio side, factory future commercialization in this last quarter has gone extremely well. As Emily's highlighted on the call, our turnaround times are excellent. Number of customers continues to increase. So, in terms of the guide outlook for NGS and SynBio, we're looking at the reduction just purely due to digesting the reduction headcount. As you said, it's very meaningful. It's meaningful because we've invested significantly in the factory future. That's going well. And we're seeing opportunities in terms of In terms of biopharma, this is purely an internal execution issue with the absorption of varus and execution in terms of being able to integrate commercial organizations. We could not do that for the last year. We're launching the integrated offering, and we feel good in terms of a number of active projects. We're seeing strong interest from our customer base. And at the same time, because of the meaningful reductions, we want to be true in terms of In terms of where we're going next year, as we continue to see the margin increase from Q3 to Q4, as we continue to leverage the factory future, we see the benefits of the cost reductions. We'll see the launch of the fast genes. And our outlook for next year is to get to adjust the EBIT to break even by Q4. And we will continue to give updates in terms of our progress on each of the quarterly earnings call. So I'll maybe turn it over to Emily to to run that out.

I think, Jimmy, you covered it well. Yeah. Okay. And then on pricing of the products, can you just update us? Do you expect to raise any pricing on the NGS or SynBio products? And overall competition in the market, just can you sort of give us a sense of what you're seeing from some of the larger competitors, the competitive dynamics changing in the market? Thank you.

Yeah, great question. So we did our second annual price increase on NGS. That was well received. In SynBio, we did do a price increase last summer, but there is no plan at this point. except for launching the FASG. In SynBio, our strategy is to increase the value of the product in addition to the amazing scale and quality and ease of ordering. We're going to add speed, and using an approach of dynamic pricing, we are confident we'll be able to get premium pricing. So that's the price increase that's coming in this environment. It's in exchange to providing better value to the customer.

Thank you. And our next question coming from the line of Tom Peterson with Baird. Your line is open.

Yeah, thanks for the question, Tom, and for Katherine. We're just wondering if you could provide any more color on the revenue expectations by product line for fiscal 3Q and 4Q given the overall reductions in the guide for the year. Jim, can you take that?

Yeah, sorry. I forgot to hit that. I apologize. So, Tom, thanks for the question. So, overall, I mean, we've given the guide for both spin bio NGS and also for biopharma for the year. So, we didn't break it out because of just the quarter transition. We've given overall outlook for, you know, for Q3, revenue is going to be 60-61. Q4, 62-63 million is the range. And for SynBio, the range for the year is 96 to 98. NGS Revenue, 113 to 114. And Biopharma, 26. So in terms of the outlook, we believe it's prudent. Why is it prudent? We've just taken a 25% reduction in the organization. NGS, I mean, overall, business is up 25%. pipeline looks good. We continue to launch new products. We continue to get great feedback, strong feedback from the marketplace. And at the same time, I mean, we've made a meaningful reduction in our headcount. I really appreciate the contribution of everybody who's supported Twist in the growth. And at the same time, as we go forward, we're very focused on getting to profitability. And the first milestone there is getting to adjust EBITDA Q4 next year. And we're positioned to do that. And, you know, the overall environment, we're getting comments, overall environment's tough. However, we've got a great portfolio and we're growing faster than the market. And we're going to leverage our investments and we're going to deliver solid results as we continue to scale and get to adjust to break even.

Got it. Thanks. That's helpful.

And then maybe just one more from me on the OpEx guidance reduction. I mean, I obviously appreciate the significance of the headcount reduction, but as we look forward towards that, adjust to be with that target for fiscal 4Q of next year, you know, how should we think about, you know, if there's any more room for additional OpEx reductions? I guess how much flexibility do you still see left within the business? Thanks.

So in terms of business, nobody can predict the future. However, what we're going to do is manage the business based on the environment. So a couple of key metrics. What does the environment look like overall? Everybody says it's tough. However, we're growing significantly in that environment. We've made investments in the factory in the future. We'll manage our investments, and we'll manage our investments, get to adjust to break even, and then we'll focus on getting to profitability. As Emily's highlighted, we moderated our investment in DNA storage. So based on the environment, we were going to take the decisions to ensure that we're delivering value for shareholders, our customers, our employees. And part of that is having a strong balance sheet. And another part of it is we've got to continue strong execution and innovation that Twist Culture is known for. And we're focused on supporting that and transitioning to the growth opportunities delivering fast genes in Q4 calendar this year.

Got it.

Thank you.

Thank you. And our next question coming from the line of Rachel with JP Morgan. Your line is open.

Great, thanks for taking the question. So a few questions here on biopharma. It looks like active partnerships between Legacy, Biopharma, and Embarrass was roughly 112 active programs during fiscal 4Q. That stepped down to 95 during fiscal 1Q, and then it looks like today you have 93 active programs. So can you just walk us through how much of that step down was really due to programs being cut, and do you expect additional declines in program count throughout the year? And then as a follow-up to that, you've mentioned that challenges from biopharma are purely just integrational and executional related. So can you just help us understand what exactly was the breakdown there from the integration issues?

Yeah, thank you. Great question. So in terms of novel affective program, the way it works is we get an order for a program. So we report it as an order, and then probably these are the next quarter or the one after. that is done, we've provided the answers to the customers, and then that gets put to revenue, and then that program goes down, right? And so it's not that those programs were cut. There may have been a very small number of cancellations, but most likely those are programs that have been completed and moved to revenue, and that's why revenue is the lagging metric and order is the leading metric. And then in terms of the commercial integration, we had to let Adveris run on its own, and so there were territories, conflict, and there was some technology that had to be learned, and that took place. a bit more time than we wanted, and it happened a bit later than we wanted. But at this point, the territories have been rationalized. We have replatformed all the systems, and I'm confident that the BD sales team is having high activities, and we have the right cadence of getting in front of new customers and closing them.

Thank you. Great.

Then maybe just a follow-up quick here. There's been quite a few questions on guidance and macro backdrops, so maybe I'll just shift gears over to DNA data storage. I appreciate that you're rationalizing some of the spend to that offering just given the macro backdrop, but can you just talk about what are your plans for your enzymatic offering? If I recall, you were planning on getting that fully online to support that DNA data storage offering, which is going to be kind of key to the thesis in terms of the competitive positioning as peers have entered with their own enzymatic products. So can you walk us through, does that timeline shift at all for your enzymatic offering? And can you give us a tech update in terms of how that's trended as well? Thank you.

That's a great question. And so, yes, we are delaying the on-premise technology development. And we mostly, we 100% needed enzymatic synthesis for that on-premise. We had said, too, that we could use enzymatic in-house. and that we'll have the choice of chemical or enzymatic. In the current we have not touched the enzymatic program. We think even though the first product for data storage is going to be an in-house machine, right now we saw that there is some potential advantage for us to use the enzymatic program that we have developed. been pursuing, and so we have optionality that the first product could be enzymatic or chemicals. We are pursuing both, but I'm optimistic that we may leverage the enzymatic technology for that first data storage launch.

Thank you. And I will now turn the call back over to Emily Leprous for any closing remarks.

Thank you very much for joining us today, and I appreciate us getting a little bit behind schedule. We look forward to seeing some of you at Goldman Sachs, William Blair, and Scotiabank in the next few months ahead. Thank you.

Ladies and gentlemen, that's our conference for today. Thank you for your participation. You may now disconnect.