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.