Twist Bioscience Corporation

Welcome to TWIS Biosciences Fiscal 2023 Fourth Quarter Financial Results Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session and instructions will be given at that time. Please be advised that this call is being recorded. I would like to turn the conference call over to Angela Bidding, Senior Vice President of Corporate Affairs and Chief ESG Officer.

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 fourth quarter and full year 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 LaProuste, CEO and co-founder of TWIST, and Jim Thorburn, acting CFO of TWIST. Emily will begin with a review of our recent progress, and Jim will report on our financial and operational performance. Emily will come back to discuss our upcoming milestones and direction. We will then open the call for questions. We would ask that you limit your questions to only one and then re-queue as a courtesy to others on the call. As a reminder, this call is being recorded. The audio portion will be archived in the 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 the press release we issued earlier today, as well as those more fully described in our filings with the Securities and Exchange Commission. The forward-looking statements in this presentation are based on information available to us as of the date hereof, and we disclaim any obligation to update any forward-looking statements except as required by law. With that, I will now turn the call over to our Chief Executive Officer, Dr. Emily LaPruce.

Thank you, Angela, and good morning, everyone. Fiscal 2023 was a year of growth and strong execution for TWIST. We grew our business with We completed internal integration of our biopharma group and we implemented strategic action to align our cost structure and at optimizing our operations with a clear focus on increasing growth margin along our accelerated path to profitability. We invested in our best-in-class innovation to set the stage for near and long-term success. And now, we are focused on profitable and scalable growth moving to fiscal 2024 and beyond. Getting to the specifics for the first quarter, we grew revenue to $166.9 million and $245.1 million for the full year, exceeding our updated guidance for the quarter and the year. Our gross margin was approximately 37% for both the quarter and the year, and we ended the year with approximately $336 million of cash, cash equivalents, and investment. Across the business, our efforts over the last 24 months in building the Wilsonville facility, expanding our production line, and streamlining workflows are now benefiting both our SynBio and NGS product lines to allow us to deliver what our customers need. Within our factory in Wilsonville, we have analyzed each process in the SynBio workflow to remove excess time, and our production data shows that we are able to turn jeans around in six business days consistently. This is an incredible feat and one that required all hands on deck to optimize every process and procedure. This robust workflow now allows us to make more Symbio products in less than half the time we could even one year ago. On Tuesday, we launched ExpressGene, what we previously called FastGene. This is the first product that we'll directly benefit from and has been made possible by the time and infrastructure investment in our Wilsonville facility. With ExpressGene, we have the opportunity to increase contribution margins for the Symbio product group as well as our overarching growth margin. I'd like to note four important things about how the launch of ExpressGene impacts our business. This is our clonal gene service, our bread and butter of the Symbio products. About half of our clonal genes order qualify for this express gene service today, with an eye towards expanding to the majority of clonal genes ordered moving forward. Genes that do not qualify for express service will continue to be ordered at standard speed and will be priced starting at $0.09 per base pair. For express genes, it is the same great product delivered faster, and so we charge a premium price for that speed. The price will be dynamic based on how full the fab is. Second, all jeans, whether standard or express, will be manufactured on the same manufacturing line. This is a streamlined, highly automated process where all jeans go through the same steps. Standard jeans will either wait before or after synthesis, as we will use standard jeans to maximize cheap utilization. This is similar to how airlines use standby passengers to run planes that are as full as possible. So, with higher revenues through premium pricing for express jeans, we expect to see margin improve. Our objective with pricing is to expand our market opportunities significantly into the maker's market, as well as capturing additional customers within the buyer's market. This means that our offering must resonate as a cost-effective alternative to customers making and cloning the jeans themselves. Working with pricing experts, our initial dynamic price range is designed to optimize our pricing in a way that will not alienate existing customers. At the same time, we expect to increase our margin from this differentiated product line while serving a large unmet need for our current and future customers. Fourth, because we are making all genes at x-ray speed, our genes capacity for our research site is now close to double compared to the 10 days turnaround time production timeline. That's a strategic and key point that allows us to continue to scale. Also note that we've implemented the improvement in turnaround time throughout the SynBio product line, so our gene fragments can now be delivered in ASUS 2 business days and Oliverpools in ASUS 3 business days. For Freymans and Oegopools, we are pleased to offer these products at competitive pricing without a premium. The enhanced speed and efficiency of our operations have allowed us to gain a stronger foothold in the market while maintaining healthy contribution margins for these products. With a successful launch of XPS genes, our aim is twofold. To scale up our gene volume with existing customers and to attract new customers, thereby expanding our market reach. In the initial phase of launch, we are directing our efforts towards our current customer base. Once we know the workflow is tried and true, we will amp up our marketing efforts, targeting customers' conversions from competitors as well as new customers who have not yet used Twist for their clonal gene needs. As we run Express Genes, we expect the book-to-be ratio will essentially approach one, as there are so few days between order and delivery. As such, orders for SynBio becomes less informative. will be revenue growth in SynBio. Importantly, the speed of expressed genes unlocks additional applications, including long genes, complex genes, additional IgG antibodies, as well as mRNA production. So not only are expressed genes an opportunity to increase margin and take market share, but they also lay the foundation for growth into the future. Moving to AGS over the course of the year and particularly in the fourth quarters, we saw the work we have done with customers to optimize their workflow over time beginning to pay off. Several key customers are now scaling production for validation and commercialization. In addition, we see strength driving into the middle of the market. We see an increasing number of customers using our RNA6 workflow and several customers are implementing our minimal residual disease or MRD workflow. We believe both of these product groups validate our innovative approach to develop and commercialize products that our customers need. At a high level, our licensed SynBio and NGS products grew at more than 23% year-over-year. Production is ripping. As we think about our trajectory towards profitability, we believe we have set ourselves up for success. We have momentum going into fiscal year with the launch of Express Jeans and the ability to unlock future product lines. We have energy extractions with the top and middle of the market, as well as initial R&D seek and MRV uptake, and an energized team that is committed to driving the business forward towards profitability and scalable growth. As a management team, we have a strong track record for executing against our strategy, growing our customer base, and driving best-in-class product innovation. We are now laser-focused on increasing our growth margin and driving towards profitability. Turning to Biopharma, we have effectively addressed our internal integration challenges, and as of early October, our commercial team was fully staffed with all territories covered. We've shared that it typically takes about six months for a new representative to come up to speed, and orders for biopharma directly translate into revenue in a three- to six-month time frame. For the fourth quarter, orders increased quarter-by-quarter for the first time this fiscal year. We see this uptick as a positive sign of health for the overarching biopharma services business. Of note, the majority of our orders came from large pharma. The last few months, we announced agreements with Ono Pharmaceuticals, Bayer, and more, and we are cautiously optimistic that the fourth quarter of 2023 will represent the low point for biopharma revenue as the spectrum for SynBio all the way through biopharma services is gaining traction. The biothermic group continues to provide a strategic advantage, allowing us to utilize our syn-bio products, including genes, fragments, oligopools, laboratories, and IgG antibodies, all the way through to antibody discovery optimization and humanization services, differentiating us from our competition and providing upside through potential milestones and royalties. Our acquisition of Adveris broadened our offering beyond synthetic laboratories and enabled in vivo discovery through animal models. This has been integral in extending our comprehensive offering. Now fully integrated, BioPharma provides a full menu of in vivo in vitro and in silico services to our customers. This means that we have a powerful comprehensive offering that is able to meet varying customer needs under one roof. For example, our large pharma and biotech customers often pick and choose from a broad menu based on their needs, whereas smaller companies often benefit from a full end-to-end offering. Finally, our in-situ eco-services enable us to provide more sequences and heads for our customers' in-vivo and in-vivo projects, which maximizes their chances of success. For data storage, we have made progress in our approach to enzymatic synthesis for this application. We're working to implement an industrial-grade codec, the encoding and decoding algorithm, with a large industry partner. We remain on track with our plan to demonstrate an end-to-end gigabyte century archive workflow by the end of December, with the early access launch of a terabyte century archive solution expected in calendar 2025. On the corporate side, we added a key operational leader in Mark Buck as our SVP of operations. He brings a military background as well as deep expertise in supply chain, quality, and production. At his prior company, he was responsible for 21 production facilities, and we look forward to the perspectives he brings with respect to optimizing our operations further for scale and improving gross margin. With that, I'll turn it over to Jim.

All right. Thank you, Emilie. We're happy to report we hit another record in orders and revenue for our fourth quarter and full fiscal year 2023. I want to thank all our twisters, customers and partners who made this possible. Revenue for quarter four grew to ending September 30th to $245.1 million, as compared to $203.6 million in fiscal 22, and that's year-over-year growth of approximately 20%. Orders increased to $71.1 million for the quarter, bringing orders for the year to approximately $264 million, and that's year-over-year growth of 17%. And gross margin for the quarter increased to 36.6%, and was 36.6% for the year We also increased our customer base to approximately 3,450, and that's up from 3,300 in fiscal 22. And we ended the year with cash investments of approximately $336.4 million. Now I'll provide a deeper dive starting with NGS. NGS revenue for the fourth quarter grew to approximately $37.1 million compared to $29.2 million in the fourth quarter of fiscal 22, and that's an increase of 27% year over year. for the full year revenue increased to 123.7 million for fiscal 23 as compared to 99.3 million fiscal 22 and that's year-over-year growth of 25 percent the record revenue for fiscal 23 was due primarily to an increase in revenue from our top 10 customers which accounted for approximately 37 percent of revenue for the year we served approximately 1,020 NGS customers in fiscal 23, and we believe our NGS products have a compelling competitive advantage and save our customers downstream sequencing costs. And this advantage is reflected in our orders for the fourth quarter of $39.1 million and $131.5 million for the year, and that's 26% year-over-year growth. As we've noted in our previous calls, we track the larger account opportunities. That is, accounts we believe have potential to be larger than $250,000 per year And the overall count remains at 279, with 131 adopted, which is the same as last quarter. At this stage, we believe we identified the vast majority of players in this market, and we'll be focused on landing and expanding these accounts. We're now turning to SynBio products, which includes genes, DNA preps, IgG, DNA libraries, and all the good goals. We had another strong year, and excited about leveraging our investment in our Wilsonville facility. up from 80 million in fiscal 22 as we continue to expand our customer base and product offering. SynBio orders for quarter four were 26.2 million, which brings our fiscal 23 orders to 110.9 million, up from 90.7 million in fiscal 22, and that's 22% year-over-year growth. Some of the highlights include growing our customer base to approximately 2,700 SynBio customers in fiscal 23, as compared to 2,300 in fiscal 22, We increased our jeans revenue to $73.5 million versus $61.5 million, which is year-over-year growth of approximately 20%. And we shipped 634,000 jeans in fiscal 23 as compared to 558,000 in fiscal 22. All of the pool's revenue grew to $14.5 million. and that's up from $6.1 million, predominantly due to growth in large pharma and industrial biotech. For biopharma revenue for the fourth quarter, it was $3.4 million, bringing the total revenue for biopharma to $23.2 million in fiscal 23, and that's a decline from $24.2 million in fiscal 22. Importantly, orders for the quarter rose sequentially to $5.8 million from $3.5 million in quarter three, and the number of active programs declined from 82 to 69. However, new projects started in the quarter increased from 34 in quarter three to 44 in the fourth quarter, and that's associated with recovery in orders. And the total number of completed programs as of September 30th was 806, with six to eight including milestones and or royalties. I'll now briefly cover our revenue breakdown by industry and provide a regional update Healthcare revenue rose to $137.1 million for fiscal 23 compared to $106.4 million in fiscal 22. Industrial chemical revenue rose to $59.3 million, and that's up from $57.9 million in fiscal 22. And academic revenue was $45.8 million, and that's up from $37.1 million in fiscal 22. On a regional basis, EMEA revenue rose to $71.4 million versus $62.1 million in fiscal 22. APAC increased to $22.5 million compared to $19.1 million in fiscal 22, including China revenue of $7 million, which is flat for the previous fiscal year. The U.S., including America's revenue, increased to $151.3 million in fiscal 23 versus $122.5 million for fiscal 22. Now moving down to P&L, our gross margin for the fourth quarter increased to 36.6%. margin to 36.6% for the year. Cost of revenues increased from 119.3 million in the prior year to 155.4 million in the year ended September 30, 2023. The major factors contributing to the increase in cost of sales were a 14.7 million increase in material costs due to higher volume, 9.9 million payroll Our operating expenses for fiscal 23, which includes R&D, SG&A, and change in fair value and mark-to-market adjustments of acquisitions, decreased to approximately $306.8 million as compared to approximately $319 million in fiscal 22. To break it down, R&D for the year was $106.9 million, a decline from $120.3 million in the previous fiscal year, primarily due to the conclusion of rebel R. Appreciation included in R&D was $4 million for fiscal 23. SG&A for the year was $190 million, and that's a decline from $212.9 million, which includes a $43 million reduction in stock-based compensation expense offset by increases in pre-commercialization costs, facilities, payroll, and IT-related service costs. OPEX includes approximately $30 and fair value of contingent considerations and indemnity holdbacks for the year resulted in the gain of $6 million versus the gain of $14 million in fiscal 2022. For restructuring and other costs, we invested approximately $16.2 million for the strategic initiatives we announced in May, with $9.4 million to support our valued employees with severance packages, as well as assets and payment charges of $6.8 million. Stock-based compensation for the year was approximately $30.3 million as compared to $80 million in fiscal 2022. Depreciation and amortization costs were $29 million for fiscal 2023. And loss from operations was approximately $217.2 million in fiscal 2023 as compared to $234.8 million in fiscal 2022. Other income and expense was again a $14.3 million associated with interest income. million in fiscal 2022, and we ended the year with 32.1 million, down from 39 million at the end of fiscal 2022, and concluded the year with cash investments of approximately $336 million. I will now provide updated financial guidance for fiscal 2024. We enjoyed record bookings in Q4 and are excited about the launch of our express jeans. Our Wilsonville facility is doing well, and we took actions during the year to manage our cost structure as we transitioned SINBio activities to Wilsonville. For fiscal 24, we expect total revenues to increase in the range of approximately $285 million to $290 million, SINBio revenue approximately $113 to $116 million, NGS revenue of $147 to $149 million, and BioPharma revenue approximately $25 million. Gross margin of approximately 39% to 40%. Operating expense approximately $294 million to $298 million, which includes $100 million to $102 million in RMD expenses, $194 million to $196 million to $60 million. Depreciation and amortization, approximately $40 million. Data storage operating expense, approximately $37 to $39 million. CapEx for FY24 is projected to be approximately $20 million. Ending cash, approximately $245 million. For the first quarter of fiscal 24, we expect overall revenue of $67 to $68 million. Then buyer revenue of $27 million. NGS revenue of $36 to $37 million. biopharma revenue of $4 million, gross margin of 38% to 39%, op-ex of $73 million, and loss from operations of $47 to $48 million. In summary, we continue to maintain financial discipline throughout the organization and make progress in reducing our operating losses. We expect to exit the fourth quarter of fiscal 24 with $78 million in revenue, and our estimated loss from operations to be $38 to $40 million, which excludes any one-time adjustments and includes stock-based compensation of $15 million, depreciation of $10 million, and data storage cash operating expense of $8 million. We continue to make decisive and proactive actions to achieve profitable growth. To achieve this, we're focused on scaling express genes offering and leveraging our investment in the Wilsonville facility, managing our costs, and continuing to execute by growing revenue, expanding our gross margin. We're incredibly excited about the future and confident that the year ahead will bring many exciting milestones and achievements. With that, I'll turn the call back to Emily.

Thank you, Tim. I'd like to take a minute to thank all of the twisters for their dedication, commitment, and excellence through the last fiscal year. The year requires perseverance and discipline across the board, and our financial results reflect the hard work of the team. Our Symbion NGS groups are stronger than ever, demonstrating consistent and sustained growth in revenue, customers, and market share. We expect our strategic investments in this area will fuel our next leg of growth and past profitability. In the months ahead, we look forward to reporting on the uptake of our Express Genes launch and the resulting impact on gross margin. We've given guidance for fiscal 2024, and in that guidance, we assume that Express Genes will grow over time with some current customers transitioning to these new products, but primarily new opportunities moving forward as we leverage our digital marketing infrastructure and tools to reach new customers and the long tail of the DNA makers. The biopharm and service groups booked increasing orders in the fourth quarter, and we expect the positive momentum to continue. In addition, we continue to advance our solutions for DNA data storage that has the potential to be a valuable asset longer term. In summary, We exceeded fiscal 2023 with a solid cash position, growing revenues, reduced cost structure, and incredible opportunities ahead. We have built a diversified and complementary portfolio of products, services, and future opportunities that puts the company in a strong position to achieve consistent and sustained growth while minimizing risk. Our growth margin for fiscal 2023 was just under 37%, and this is an area of our current and future focus. In May, we implemented strategic adjustments aimed at optimizing our operations with a clear focus on enhancing growth margins. Our objective is to set a positive trajectory to our financial performance, moving towards profitability as a business. Looking at the financials, we can exceed this target if we grow at the same rate as the market, and we believe we are positioned to take market share, exceeding market CAGRs. We look forward to delivering increasing value to each of our shareholders as we continue to work in service of our customers who inspire us each and every day to go faster, run harder, and truly make a difference in the world. With that, let's open the call for questions. Operator?

Thank you. If you'd like to ask a question, please press star 1-1. If your question has been answered and you'd like to remove yourself from the queue, please press star 1-1 again. Our first question comes from Luke Serget with Barclays. Your line is open.

With Barclays? Hey, guys. Thanks again for the time here. I guess when I look at the guide, can you talk about how much of the guidance implies or bakes in the FASH genes? You know, you see the margins step up here from 38 in 1Q and ending the year.

know at 40 39 40 kind of give us a sense of the cadence there and how the fast genes or you know how much of your guide bakes in the uh this this business in the in in the revenue and margins you want to take it jim yeah i'll start uh thanks for the question um yeah so in terms of um express genes uh excited that launch uh this week as emily highlights in the call um We're going through the price discovery. Factually, the future is going well. I think we're excited about the endpoints in terms of exiting this year margins. Revenue increased sequentially from quarter three to quarter four. by roughly 3 million, and gross margin dollars increased by 3 million. So that highlights the leverage from Q3 to Q4. As we're thinking about next year, fiscal year 24, which we're now in, we've got some macroeconomic environment issues that we're taking into account. We're seeing, and Emily can talk about the early days of Express Genes. We're seeing good feedback from the marketplace. And as usual, as we look out into the future, we're prudent in terms of forecasts. NGS is going well. SynBio is going well. We've got the added boost from Express Genes. And we want to be thoughtful in terms of the guidance we're giving. I saw biopharma last quarter, we saw pick up in biopharma. So we feel that as we look next year, good solid growth in gross margin. As we continue to scale the factory, we're going to see upside in terms of that gross margin as we execute. We're very focused on having a strong cash position and very focused on operational excellence. And I'll turn it across to Emily to talk a little bit more about the express jeans.

Thank you, Jamie. So we're one week in for Express Jeans. We have nice orders. So far, we've tested premium pricing of starting Monday of 50%, Tuesday 60%, and then we dropped to 40%, went back to 40%, and then today we are at 20%. So we are in that expression of the price range. It's great to see that we're getting orders on Monday, which will have the first shipment of expressed genes. So it's early days, but quite optimistic in the uptake.

Great. And then can you talk about the feedback you're getting for expressed genes now, I guess, and where this is coming from and from the maker's market? You know, are you getting most interest from pharma, or is it pretty broad-based? Um, and then like within that maker's market, a lot of these people, a lot of these companies and businesses had internal, uh, teams there. So talk about like the, the, the, the, the conversations that you're having with them and, and what their plans are, um, and, and some of the, you know, how they're thinking about ramping on, on the express gene platform.

Yeah. So maybe a quick clarification. Uh, so, um, So far, we've turned on FastGene on the website. Anybody can go and look at it. And then we only did a press release. So it's a little bit of a muted launch on purpose. Right now, we want to focus on existing customers. We want to give existing customers a choice when they order to upgrade to Fast. Right now, we are not yet trying to beat up all the drums and send the balloons and do the marketing launch that will happen early in calendar year 2025. And the reason is, again, we want to make sure that the process is fully baked and for any net new customer, we want it to be undeniably an amazing performance the first time. So we want to bake it in a little bit. So far, the process is going great, but We've learned that it's always better to try a new product with existing customers. And so we are not yet trying to reach out to the net new DNA buyer. That being said, in the order so far, we have a great mix of... The spectrum of the customers we expect from big pharma, small pharma, even academic, we need the speed.

Thank you. Our next question comes from Matt Sykes with Goldman Sachs.

Your line is open.

Great. Good morning. Thanks for taking my questions. Maybe just to follow up on the express genes. Just one point of clarification, Emily. You said that you're going to do the marketing launch in calendar year 25. Did you mean 24? Thank you, Matt.

Thank you so much.

And then just on your current penetration of the maker's market with your standard jeans, can you give us a reminder of where you are today and what the potential white space is to expand into that market? I think just giving that context of sizing would be helpful in terms of what the opportunity is.

Thank you for doing the proofreading on the fly. I appreciate it. Our analysis shows that the makers market, so people that do cloning themselves, that is a $1.4 billion market of people that buy enzymes and PCR primers and mutation kits and competent cells and and agar plates and so on. And so that is the buggy that we think we can convert to the DNA biocide. So far, we have a very, very tiny slice of the DNA makers. The one slice we have are people that need to make very long genes. So they are makers of very long genes. And what they do is they buy shorter genes, so 1.8, three, five KBs from us. So they are bio of those small genes, and then they assemble the small ones into bigger ones themselves. So that is the small slice of the pie we have. And the opportunity is to really go after the bulk of the DNA makers market and that bulk are people that do need short genes. They need a 5KB, 3KB, 1KB gene, but they need them fast. And right now, the only choice is to go clone it yourself. And with our express gene launch, I think we have an opportunity to go after them.

Got it. And then just to follow up on express genes, I think it would be helpful just for us to understand how you are going to communicate the express gene, either revenue or margin contribution over the course of next year, just to give us a sense of how that's going. I think, you know, following up on Luke's question about the gross margins, I guess we would have expected there to be a little bit more gross margin expansion given the premium pricing. How should we kind of think about tracking that, and what's your kind of level of disclosure on a quarterly basis for that business specifically?

Yeah, Matt, I can touch on that. If you look at our queue and you look at the key, um you'll see that uh we do cover um you know the gene revenue and gene shipments and if you look over the last last few years uh you'll see that our gene pricing has in fact increased uh over the last two or three years and so every quarter you'll be able to see right what's the gene revenue and how many genes we shipped and what's the average price per gene so you'll be able to track it that way great thank you very much we'll start giving more insight in that in our earnings call as we go forward.

Got it. Thank you very much. Okay.

Thank you. Our next question comes from Vijay Kumar with Evercore ISI. Your line is open.

Hey, guys. Thanks for taking my question. I had two votes related on guidance here. Q1, pretty solid front-loaded guidance. I think guidance implies in the mid-20s kind of growth. But if you look at the components here, I think NGS is up like 50% implied by the guide. Symbio perhaps a little bit softer. And I think the guide, the annual guide implies like Symbio to growth rates to further decel. So maybe if you can just talk about the assumptions here between those segments and what you're seeing from end markets.

Yeah, I mean, I can start, BJ. Thanks for the question. So NGS, we're doing extremely well. We ended the year with very strong NGS orders, just under $40 million, making great progress on NGS. Obviously, some of that's driven by some of our liquid biopsy customers, MRT customers. So we feel well-positioned in terms of SynBio. We have another strong year of growth. You know, the overall business, if you step back and look at it, you know, excluding biopharma, I think everybody's familiar with biopharma issues, and it's good to see biopharma recurring. But year over year, you know, NGS products and bioproducts, I mean, the orders from REBI are 24%, 25%. We feel good, but we're our express genes. The guide for this quarter reflects the fact that we get vacation and it's year end for some of our customers. So we ended the year, good solid position, doing well in terms of both NGS and bio. And at the same time, when we're looking at the guide, as in previous years, there's always some microeconomic environment issues that we need to take to comprehend. I was thrilled to see that in terms of margins, if you look sequentially, we've gone from low 30s up towards 37%. You look at the revenue growth last quarter, almost 100% of that fell through the margins. So that gets back to the point in terms of leverage we talked about. We're going to manage our cost structure going forward. We're very focused on profitability. We're excited about the opportunity Express Teens brings in terms of margin enrichment. As I highlighted to Matt, we'll be giving an update on a quarterly basis in terms of pricing for jeans. So, factory's doing well. We're well positioned. And at the same time, when we're building our forecast, we want to comprehend any potential macroeconomic impact.

Understood. Then one, Jim, maybe on that operating leverage you brought up, can you look at the cadence here? Gross margin, it seems like a more modest ramp. Put your Q1 versus Q4 exit rate, I think, implied numbers. Your OPEX is going to step down while your revenues are up from Q1 to Q4. I think they're up like $10 million. Your OPEX is down. Is there some incremental cost actions coming in? What is driving that OPEX and why are we assuming a more muted gross margin ramp?

Yeah, so in terms of gross margin ramp, you know, if you look at the revenue and the go forward basis, you know, the revenue is almost flat with Q4. The gross margin ramp will come later in the year as we continue to leverage the fixed costs back to the future. I think what's interesting is you would do take a look at our forward guidance. The lost from operations this coming quarter is about 47, 48 million and revenue 67, 68. If you look at the guidance we gave for Q4, we're projecting revenue roughly 78 million. The loss from operations is 38 to 40. Revenue is up by roughly 10 million. Loss from operations is down by roughly 8 or 9 million. Our focus is, as we scale, reduce the loss. That loss from operations also includes stock-based comp with 15 and depreciation of 10. As we continue to scale, you'll see that loss from operations declines, so cash loss declines. This year, the numbers are fairly noisy, but there's a step up in stock-based comps, so the thing to focus on next year is what is our cash operating loss as we go forward, and that's going to decline sequentially throughout the year.

Thanks, Jackson.

Thank you. Our next question comes from Puneet Sudha with Learing Partners. Your line is open.

Hi, Emily, Jim. Thanks for taking the question. So, maybe, Emily, I'll start with one sort of high-level question for you. I mean, you're seeing, you know, NGS growth here. Your orders are up on NGS. You're, you know, your top end of your fiscal 24 guide is just sort of slightly shy of where, you know, street was in revenue. And you just delivered, you know, 20% growth. You're expecting what implies December around 17 to 18% next year, mid 20% for Q, December ending quarter. So again, all of this, you know, looks like, you know, you're doing better versus what the backdrop is. You were expecting significant pickup from express jeans. It seems like you're production ready. So I think the question is really, you know, the demand in the market, which according to most of the life science tools peers is weak, to put it briefly. So maybe just help us understand how TWIST is seeing the market sort of differently versus other NGS oligo peers and overall trends. what we're hearing from the broader market. Just help us conceptualize where you think you're going to continue to win despite the market backdrop.

Thank you. That's a very thoughtful question. I think at the end of the day, it all comes down to the platform. We've always said that the success that we have comes from two things. One is the innovation and the silicon technology that we have. And the second is the very violent commercial execution that we have. And I think you see it in our guide for next year. I can see that, I agree with you that when you look at our peers, it seems like the demand is weak. However, we just have very, very differentiated product. And I think in a difficult environment, our platform just shines. If you think about NGS, our big customers in NGS are domestic customers. What they need as their own funding environment is difficult, as their own reimbursement is difficult. They need... really improved margin. And that's what we sell it in NGS is if you switch to Twist because of the quality of the product that we provide, because we have all the regions from A to Z, we're able to provide a comprehensive solution that expands margins for our customers because of the lower cost of sequencing. And so that resonates really well now. And as some of our customers that we've been working with for years are finally going to commercialization, as those panels and tests start to run commercially, we benefit because for every patient, there's some DNA that is being burned. In pharma, on the Symbio side, there's definitely some funding pressure. And at the same time, that means that the researchers, they are under pressure to get the latest and greatest technologies to get to discover and develop their therapies. And that is exactly what we provide, is more shots on goal. And now with our huge investment in improving the speed, we're able to enable them to develop again, do that work not only better, because they can get access to margins, but also faster, which is very useful for them. So I think what you're saying is just the combination of the great work that the twisters have done and leveraging the technology where it's a real differentiator based on technology. We've heard competitors trying to emulate our marketing, but at the end of the day, it's not about marketing. It's about real product capabilities, and I think we just shine thanks to the platform.

Got it. That's helpful. And then if I can touch on biopharma, I mean, you're implying a high single-digit growth here. Could you maybe outline how much of that is from services or any other, you know, sort of milestone payments that you're expecting here? Because when we look at some of the antibody discovery peers, obviously the market is pressured by the emerging biotechs, you know, pulled back meaningfully. Maybe can you talk a little bit about how much of the mix is large pharma versus those emerging biotechs and What does that mean for the source of new projects that you expect to receive in BioPharma in 2024, I mean, fiscal 2024?

Yeah, maybe I'll start. So, the guide implies no milestones or realities. It's all a fee-for-service guide. And I agree with you that if you look year over year, the growth looks not very big. Actually, if you look at the low point of biopharma in 23 compared to the higher point to Q4 2024, we're going to see some substantial growth. We had a stumbling commercial application, and so we had a few quarters of biopharma services going down. But now we've rebuilt the commercial team. We add a sequential growth in our orders. As we say inside the company, we've done it one quarter in a row. And now we have to just go do it again. And I expect to see some significant growth when you look from the low point to Q4. And that's the direction we want to see.

Okay, I've got it. And then if I could ask a brief one to Jim. Jim, what are you expecting for the spend on data storage in fiscal 24? And then maybe if you can provide, how should we think about the cash burn as we go into sort of the next two years?

Yeah, so overall operating expense for data storage is going to be uh in the range of 37 to 39 million uh for uh this uh this this year in terms of cash burn uh approximately about uh 30 32 million in terms of cash burn thank you our next question comes from catherine schultz with baird your line is open

Hi, thanks for the questions. Maybe first, it looks like you are, but can you just confirm that you're still expecting to achieve adjusted EBITDA breakeven for NGS and SynBio in the fourth quarter? And thanks for parsing out the DNA data storage, Ben, but how should we be thinking about adjusted EBITDA loss for biopharma for the year?

Yeah, so as we highlighted, our focus is getting to adjusted EBITDA breakeven as quickly as possible. You look at the guidance we've given, lost from operations in Q4 next year, roughly 38 to 40. That comprehends stock-based comp 15, depreciation of 10, and there you get data storage cash costs in Q4 approximately 8 million. So you can see from those numbers that we're within striking point of getting to break even from a cash position. And as we continue to scale, I mean, our focus is, as Emily highlighted, to get to profitability as fast as possible and having a very solid balance sheet to support the growth going into 2025.

Okay. And then, Emily, just to your point on the ramp for biopharma throughout fiscal 2024, I guess just how much visibility do you have in that 25 million number? Maybe how much is already accounted for in current programs versus assumptions around winning new products? Because it does imply a pretty steep ramp throughout the year. And is there any way to quantify the impact of the new Bayer partnership?

Yes. So great question. As we've mentioned previously in biopharma for services, we get orders. And we can convert those orders into revenue in two to three quarters. And so the great quarter that we had in Q4 will be converted from an order front of you will be converted in revenue in the coming two quarters. So in terms of visibility, we have the visibility of the order. This is pretty much as much as we have. And then to get to that other number, we have definitely a funnel. And so we do measure the strength of the funnel. And now that we have a commercial team in every territory, we can track and push each of those business managers to make sure that they achieve their quota.

Thank you.

Our next question comes from Steven Moth with TD Cowen. Your line is open.

Great. Thanks for taking the questions. I've got a three-part follow-up question on Express Genes. One, on the existing customers, are you doing a dynamic pricing model with them? And then if so, what's been the early reaction to that pricing model? Is that something that's new to them? And then a second, how long do you expect to be in this early launch mode? And then third, given that Express Genes, the turnaround time seems to be a little bit faster. Is there a new annual revenue capacity for the Fact of the Future we should keep in mind? Thank you.

Yes, thank you. Thank you, Steve. So the way the dynamic pricing works, we've designed our e-commerce to have two characteristics. One is very subtle, but at the same time, which means that as people order the jeans the regular way, it's subtle that there is an option to get fast jeans. However, at the point of ordering, it is a very strong in-your-face and very clear differentiation in terms of for that extra dollar, you can get that extra benefit and customers have to make a yes or no decision. And so on the one hand, We've done it subtly, but customers have to make a decision. I saw the early reaction that you were asking. We can look at how many percent of customers chose the express gene option as a function of different prices. That's ongoing. In terms of your second question, how long will we be in that early launch phase? It should be until early calendar 2024. Matt won't have to correct me this time. So early 2024, that's when we'll do the full launch to all the customers.

And then what was your third question? I think there was a first question that I don't remember.

Faster you can factor the future, given the turnaround times, faster for express genes.

Oh, yes, yes. Thank you, Steve, for that. In terms of capacity, yes. Because now, if all the others were ordered fast, Yeah, we've basically doubled the capacity that we have in our FAB. So we have not quantified that with the dollar at this point, but we will over time. Thank you.

Thank you. Our next question comes from Sungji Nam with Scotiabank. Your line is open. Hi, thanks for taking the question.

Just to pile on one more question on biopharma, just for that customer base, kind of curious whether you're seeing any signs of improvement. Obviously, there are, you know, definitely macro factors that everyone's talking about. But do you think the growth next year is largely due to TWIST's own, you know, integration efforts and restructuring efforts that are bearing fruit? Or are you kind of seeing any signs of improvement, whether from a re-prioritization standpoint from large pharma or even smaller biotech at this point. Thank you.

Yes, I'm sorry for the question. I know that definitely there is a funding pressure in biopharma. The few quarters that we add on, Our analysis was that it was a self-inflicted wound. We were not suffering from market headwinds. It was more from a commercial execution headwinds. And we have a very, very strong offering with in vivo, in vitro, in silico. We are I think the only company that offers that very wide breadth of opportunity. And so we think that if we execute commercially, we can be very successful in the current market. And lately, we've been focusing on larger companies, and that has been working quite well. So, of course, we're open for business for all customers, but we have especially focused effort on larger pharma companies.

Great. We'll get back into queue. Thank you.

Thank you. Our next question comes from Matthew LaRue with William Blair. Your line is open.

Hi, this is Madeline on for Matt. Just a quick one for me on the expressed genes. I know it's early stages now, but I was just wondering if there was sort of an optimum proportional breakdown between expressed genes and the more standard clonal genes that you're targeting long-term or that allows the factory of the future to be at its maximum efficiency, if there was sort of a ideal breakdown between the two pricing points?

No, Madeleine, that's a great question. So as a point of clarification, what we have with phage gene is something that is actually quite unique because it's the same production line for express and standard, meaning that if all our customers decided to pick express gene, we will be able to make them all express. And that is very different from what other competitors can do. Maybe they can do a few genes fast by cutting the queue and skipping ahead and managing their backlog. But for us, we don't have to do that. We've built something that is intrinsically fast for 100% of the genes. And so to go back to your question around optimum pricing, for us, our goal will be to maximize our gross margin dollars. making sure that the FAB is fully utilized and find the pricing that maximize the penetration into the DNA naked and ultimately really delight our customers and enable them to do their science faster. And I think that would be a win-win because they'll get faster science and we'll get more of those and we think we'll be able to take very significant market share. So the intrinsic technology really enables us to be very flexible on what the ultimate price is going to be. And if need be, we can make all of those express. And that is hugely differentiating.

Great. Thank you. Thank you. There are no further questions at this time. I'd like to turn the call back over to Emily for any closing remarks.

As we've shared today, it is a very exciting time for Twist. We've launched ExpressGene this week that is further differentiating our SynBio product offering, and we have taken steps to position the company for enduring and consistent growth. In fiscal 2024, we have the opportunity for expanded margin, and we look forward to keeping you appraised of our progress. Thank you.

Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect. Everyone, have a great day.