Twist Bioscience Corporation

Welcome to TWIST's Biosciences Fiscal 2024 Second Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Angela Binning, SVP of Corporate Affairs. Please go ahead.

Thank you, Operator. Good afternoon, everyone. I would like to thank all of you for joining us today for TWIS Biosciences' conference call to review our fiscal 2024 second quarter financial results and business progress. We issued our financial results release after the market, and the release is available at our website at www.twistbioscience.com. With me on today's call are Dr. Emily LaPruce, CEO and co-founder of Twist, and Adam Laponis, CFO of Twist. Emily will begin with a review of our recent progress on Twist business. Adam will report on our financial and operational performance. Emily will come back to discuss our upcoming milestones and direction. We'll 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 in actual results and financial periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include those set forth in our press release we issued earlier today, as well as those more fully described in our filings with the SEC. The forward-looking statements in this presentation are based on information available to us as the dates here are, and we disclaim any obligation to update any forward-looking statements except as required by law. We'll also discuss adjusted EBITDA, which is a financial measure that does not perform with generally accepted accounting principles. Information may be calculated differently than similar non-GAAP data presented by other companies. When reported, a reconciliation between GAAP and non-GAAP financial measures will be included in our earnings document, which can be found at our investor relations website at www.quistbioscience.com. With that, I will now turn the call over to our Chief Executive Officer and Co-Founder, Dr. Emily LaBruce.

Thank you, Angela, and good afternoon, everyone. I am thrilled to be here today to share the remarkable achievements and outstanding performance our company has delivered over the past quarter. Our strong results validate the hard work, dedication, and innovative spirit that define our team at Twist. We've made significant strides in executing our growth strategy, increasing our customer base, and driving towards profitability for the business. Our proprietary platform for making synthetic DNA remains at the core of our product portfolio, defines our competitive advantage in all markets, and enables our flywheel for growth and the strong financials we share today. Over the course of the second quarter, we continued our robust growth trajectory, increasing revenue 25% year-over-year to $75.3 million. Orders for the quarter reached a record level of over $93 million. The strong quarter was driven by growth in our synthetic biology product line, including X-ray genes, and bolstered by consistent strength in NGOs. We recorded a 49% growth margin for the quarter, an increase of 10 margin points, versus the same period last year. We do see put-and-takes in the margin, quarter to quarter, which Adam will discuss in his remarks. That said, over the next several periods, we expect the initiatives we are thinking will drive us to a close margin above 50% by the end of fiscal 2025. To dive deeper for Symbio, revenue increased to $29.8 million, with very strong orders of $44.9 million. Sinbayo revenue grew 24% year-over-year and 11% sequentially. Orders in Sinbayo included significant blanket purchase orders, where a customer placed a single blanket order for a large amount and then orders against that PO over the course of the next several quarters. TWIS receives blanket POs routinely, primarily in the first quarter of the calendar year, as budgets reset. That said, this level of blanket PO exceeds prior year significantly. We believe this increase is due to our diversified product line, including express gene and consistent rapid turnaround times, both of which give our customers confidence to commit to this for the year. As you know, in late January, we expanded our express gene offering from a limited launch, including about half of our clonal gene volumes, to include all clonal genes. At the time, we began a marketing campaign and outreach to potential customers buying from competitors or making their own genes. So still relatively early days for X-rayed genes, we are pleased with the progress to date. Keeping in mind that our current quarter, our fiscal third quarter, will be the first full quarter that includes all X-rayed gene offerings, we want to provide a bit more color around the success to date. Approximately 15%, 1.5% of clonal genes revenue for the second quarter came from X-rayed genes. As of March 31st, we have received more than 1,600 orders for ExpressGems since launch in November, with more than 700 accounts purchasing ExpressGems today. This includes more than 100 NetNew accounts specific to ExpressGems. We define NetNew accounts as a new customer organization entirely, or it can be a new shipping address at an existing institution. Both count as NetNew accounts. Customers receive ExpressGems in about five to seven days, significantly faster than our standard jeans turnaround time. For this speed, they upped into a premium price. We varied this premium based on capacity within our large Westernville, Oregon facility, a site custom built for this product line, and a site that allowed for expansion into other significant products. Because we make rollerclad jeans on the express timeline, the increase in price premium fully drops to gross margin. At the end of February, we began differentiating the premium between academic and district customers, with industry groups receiving a higher premium, a common practice in the industry. Moving to NGS, we posted another very strong quarter, as revenue grew to $40.8 million, an increase of 40% year-over-year, with $42.5 million in orders. This quarter, strengths for NGS portfolio came from customers who have advanced their assets into clinical studies and became commercial as well as growth in the smaller NGS customers who are earlier in the development processes. Several clinical customers include twists in their assets, and we applaud the incredible progress it is making for patients in rare disease, cancer detection, early cancer detection, and monitoring of minimal residual disease. Our panels are incorporated into a number of different, sometimes competitive tests, and what we see over time is that providers are adopting these tests. The volume of commercial tests increases with patient adoption, as each test that is run requires twist DNA. We have customers who are doing very well, leveraging the twist chemistry advantage, and others who need additional funding to continue scaling. The benefit of our business model is that we have diversified our revenue across many customer applications, with no single customer accounting for more than 10% of our revenue. In addition, we continue to add smaller accounts that have the potential to grow significantly as the volume of their applications or tests ramps. Up until this year, our NTS product portfolio has been focused primarily on target enrichment for the analysis of DNA, RNA, and methylation samples. As we have said before, we want to offer our customers a complete workflow solution from the sample to the sequencer, and we are confident that our latest products solidify our leading position in the liquid biopsy and MRD while expanding our differentiation within other areas of the workflow. Importantly, we introduced differentiated products to advance science and clinical capabilities. In February, we added an incredibly powerful cell-free DNA library prep that captures missed in these assays. Because the sensitivity of a liquid biopsy research assay begins with laboratory prep, capturing more molecules can improve the single-to-nose ratio and the sensitivity of the test. We believe our innovative CLENA laboratory prep provides an advantage here, and the initial commercial performance is very encouraging. During the quarter, we announced technology early access for a second truly differentiated laboratory prep, the ultra-high throughput laboratory prep kits. We believe this is the highly differentiated product we need to contact customers using macroarray to NGS panels plus sequencing with applications in agbio and genotyping. We believe this is a very large market opportunity, and we expect that this product will drive NGS revenue in the medium to long term as it requires a changed workflow for the customers from macroarray readers to sequencers. Separately, for our customers in Europe, we launched a CE-Mark portfolio of precision DX products to support the evolving regulatory landscape in that geography. This is our first foray into the regulated market, and we look forward to continued evolution in markets beyond Europe. We believe our experience with regulated products will inform any future product developments driven by FDA's move to regulate laboratory-developed tests or LEDs in the U.S. For Biopharma, revenue was $4.7 million, with order increasing to $5.8 million. We continue to deliver on programs for our partners across a spectrum of offerings. Importantly, we expect at least one partner to initiate human studies with an antibody discovery using the TWiST platform within the next year. For data storage, we remain focused on technology development and enablement of the CERA by Century Archive workflow for early access in Canada 2025. Progress continues, and we see this area of our business as a valuable asset with optionality at multiple points of development. As we look at margins in fiscal Q1, we reported a strong gross margin driven primarily by mixed and significant MGS revenues. We maintain our margin in the second quarter, beating our guidance by two points with continued strength in our MGS business as well as expressed GIMP contribution. As we look over the next 18 months, In addition to driving revenue goals, which is the primary driver of margin, we intend to continue to focus on margin improvement initiatives, including product enhancement, operational excellence, insourcing, and process optimization. In addition, we are in the process of negotiating contracts with suppliers, and in some cases, with customers willing to provide volume commitments for fixed premium pricing on ExpressG. We believe these initiatives, as well as further volume leverage of our fixed costs, enable our ability to improve our margins by several points, and we see a passive growth margin north of 50% by the end of fiscal 2025.