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spk07: Welcome to TWIS 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 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 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.
spk06: Please go ahead.
spk09: 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.
spk28: 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% the other year to $75.3 million, while the other 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 reported 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 dollars. Symbio revenue grew 24% year-over-year and 11% sequentially. Orders in Symbio 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 twist 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 offering, 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 as 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 roller-clad jeans on the express timeline, the increase in price premium fully drops to gross margins. 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 MGS portfolio came from customers who have advanced their assets into clinical studies and became commercial as well as growth in the smaller MGS 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 other times 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 customers and 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 many otherwise be missed in these assays. Because the sensitivity of a liquid biopsy research assay begins with laboratory prep, capturing more molecules can improve the signal-to-noise ratio and the sensitivity of the test. We believe our innovative CLDNA 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-marked 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 LDCs in the U.S. For Biopharma, revenue was $4.7 million, with order increasing to $5.8 million. We'll 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 in the TWiST platform within the next year. For data storage, we remain focused on technology development and enablement of the Theravide Century Archive workflow for early access in Canada 2025.
spk16: Progress continues, and we see this area of our business as a valuable asset with optionality at multiple points of development. As we looked at margins in fiscal Q1, we reported a strong gross margin driven primarily by mixed and significant MGS revenues.
spk28: We maintained our margin in the second quarter, beating our guidance by two points with continuous strength in our MGS business as well as expressed GIM 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 advancement, 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 cost, 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.
spk16: With that, I'll turn over the call to Adam to discuss our financials. Thank you, Emily.
spk14: Revenue for the second quarter increased to $75.3 million, growth of 25% year-over-year and approximately 5% sequentially. Orders increased substantially to $93.2 million, with strong orders driven by significant blanket purchase orders expected to be used over the next three quarters. This includes approximately $21 million for SynBio and $9 million for NGS. As Emily said, gross margin came in higher than expected at 41% for the second quarter of fiscal 2024. During the second quarter, we shipped to 2,253 customers. We ended the quarter with cash, cash equivalents, and short-term investments of approximately $293 million. Taking a deeper dive into revenue, Symbio revenue increased to $29.8 million, growth at 24% year-over-year, with orders increasing to $44.9 million. We shipped 193,000 jeans in the quarter. Synthetic genes revenue, which includes both clonal genes, gene fragments, and IgG, increased to approximately $22.4 million, close to approximately 24% year-over-year. Approximately $15.6 million, or 52% of our SynBio revenue, was from clonal genes, with $2.2 million in revenue coming from express genes. Within the SynBio umbrella, oil pool revenue increased to $3.9 million, and DNA Library's revenue increased to $3.5 million, year-over-year growth of 19% and 25% respectively. MGS revenue for the second quarter grew to approximately $40.8 million compared to $29 million in the second quarter of fiscal 2023, an increase of 40% year-over-year. For the quarter, revenue from our top 10 MGS customers accounted for approximately 36% of revenue. Orders increased to $42.5 million, which we anticipate sets the stage for further NGS growth. We served 558 NGS customers in the quarter, with 138 having adopted our products. For BioPharma, revenue was $4.7 million, with orders increasing to $5.8 million. We had 67 active programs at the end of March 2024, and we started 34 new programs during the quarter. Looking at revenue by industry, Healthcare revenue rose to $40.9 million for the second quarter of 2024, compared to $33.8 million for the same period of fiscal 2023, reflecting the increased uptake of our products by pharma, biotech, and diagnostic companies. Industrial chemical revenue rose to $20.3 million in the second quarter, up from $14.4 million in the same period of fiscal 2023. Strong growth year over year. Academic revenue was $13.7 million for the second quarter of 2024, up from $11.1 million in the same period of fiscal 2023, with growth coming from both Symbio and NGS customers. Looking geographically, America's revenue increased to approximately $45.9 million in the second quarter, compared to $34.9 million in the same period of fiscal 2023, growth of 32% year over year. EMEA revenue rose to $22.3 million in the second quarter versus $18.8 million in the same period of fiscal 2023, growth of 19% year-over-year. APAC revenue increased to $7.2 million in the second quarter compared to $6.5 million in the same period of fiscal 2023, growth of 11% year-over-year. China revenue was $1.4 million, a small percent of our total revenue for the quarter. Our gross margin for the second quarter increased to 41.0%. We saw strength from Express Genes revenue lifting margins offset by a contracted Symbio customer who placed and received a large order within the discount terms in Q2. Our NGS offerings continue to have strong gross margin performance. However, we did see and expect to continue to see puts and takes in the gross margin based on contracted customer mix where margin fluctuates based on the individual customer orders in a given quarter. Finally, I am encouraged by the enterprise-wide focus on gross margin improvement initiatives and also expect these initiatives will take multiple quarters to result in a material impact. In total, operating expenses for the second quarter were $124.2 million, compared with $121.8 million in the same period of 2023. Breaking this down. Cost of revenues increased to $44.4 million in the second quarter of 2024, compared with $41.7 million in the same period of fiscal 2023, primarily due to higher product volume as well as increased depreciation and amortization expense, mostly due to the build-out of our new manufacturing facility in Wilsonville, Oregon. R&D decreased to $24.1 million compared with $27.4 million in the same period of fiscal 2023, primarily due to the reduction in headcount as well as lab supplies. SG&A was $55.6 million the second quarter compared with $54 million. The increase was driven largely by stock-based compensation and bonus accrual catch-up as the business is performing above forecast at this time. Operating expenses included approximately $7 million for data storage. Stock-based compensation for the quarter was approximately $13.8 million. Depreciation and amortization were $8.3 million for the quarter. Net loss attributable to common stockholders was $45.5 million, or 79 cents per share, for the second quarter of 2024. compared to a net loss of $59.2 million, or $1.04 per share, to the same period of fiscal 2023. Cash flow from operating activities continues to improve, and we are driving the break-even. The six months ended March 31, 2024. Net cash used in operating activities was $42.4 million, compared to $98.4 million for the equivalent six-month period in 2023. Moving forward, we will also provide adjusted EBITDA. A non-GAAP measure. The reconciliation between the GAAP and non-GAAP financial measures will be included in our earnings documents, which can be found on our investor relations website. Looking back in time, the second quarter of fiscal 2023, adjusted EBITDA loss was approximately $46 million. In the second quarter of fiscal 2024, adjusted EBITDA loss was approximately $27 million. For the fourth quarter of fiscal 2024, we see a path to an adjusted EBITDA loss of less than $20 million. Turning to guidance. For fiscal 2024, we now expect total revenue to increase by $12 million across the range to approximately $300 million to $304 million, anticipated growth of 22% to 24% year-over-year. Increase in biorevenue of $118 to $120 million, an increase across the range, with the year-over-year growth anticipated to be 20% to 22%. NGS revenue of $162 to $164 million, an increase of $12 million across the range, and anticipated growth of 31% to 33% year-over-year. Biopharma revenue of approximately $20 million, a decrease of $4 million in prior guidance, and 13% year-over-year. We are increasing our expected gross margin to approximately 41.5 to 42% for the year. We are reducing our expected loss from operations before taxes to approximately $183 to $188 million, a decrease compared with prior guidance, $189 to $194 million. CapEx is still projected to be approximately $15 million for fiscal 2024, unchanged from prior guidance. We project ending cash with more than $245 million at the end of fiscal 2024. For the third quarter of fiscal 2024, we expect overall revenue of approximately $77 million. Some biorevenue increasing to approximately $31 million with the full launch of ExpressGN's portfolio. NGS revenue of approximately $41 million on track with our increased annual guidance. Biopharma revenue of approximately $5 million. Gross margin for the third quarter of 41 to 42%. For the fourth quarter, we expect overall revenue in the range of $77 to $80 million. Gross margin for the fourth quarter of 43 to 44%. In summary, I'm encouraged by the progress in an enterprise-wide focus on financial discipline that I've seen during my first quarter with Twisted. We will continue to maintain financial discipline throughout the organization and make progress on a path to profitability.
spk13: With that, I'll turn the call back to Emil.
spk16: Thank you, Adam.
spk28: In closing, we are very confident in the continued impact and growth opportunities generated from our proprietary DNA-sensitive platform. Our growing customer base, our increasing revenue profile, our defining product portfolio, and, of course, our exceptional employees positively move the needle for our customers across multiple industries. I often have the privilege of talking to our customers, listening to how they drive groundbreaking scientific advancement in wide-ranging fields, from healthcare to chemicals to academia, ag bio, and more. I am very proud that TWIST plays an important role in facilitating this work, and we are only getting started. We are enabling our customers to produce proteins that target and destroy cancer cells to create new diagnostic tools that detect diseases early and accurately. to make compounds that are more sustainable and also less expensive, to name only a few applications. We manufacture our DNA in two locations, one in California and one in Oregon, with a global commercial and support team to deliver superior service to all of our customers. As we look ahead, we are more excited than ever about the vast potential that lies before us. With our cutting-edge technology, world-class teams, and laser-focused strategy, we are poised to capitalize on the immense opportunities that lay ahead in synthetic biology, NGS, biopharma, and data storage.
spk16: I am incredibly proud of what we have accomplished, and I am confident that our best days are yet to come. Let's open up the call for questions. Operator?
spk07: Thank you. As a reminder, if you would like to ask a question, please press star 11 on your telephone. Also, we ask that you wait for your name and company to be announced before you proceed with your question. Our first question today is coming from Matt Sykes of Goldman Sachs. Your line is open.
spk11: Good afternoon, Emily, Adam, and Angela. Congrats on the quarter. Maybe I could just start out on margins. You obviously beat gross margins this quarter. It looked like on the back of NGS, but a small contribution from Express Genes of like 2.2 million. So I expect most of that beat was from NGS. But as the year progresses... and expressed genes continue to grow, could you give us a sense for the contribution of margin expansion from expressed genes, maybe either providing some expectations for expressed gene revenue growth or volumes for the balance of the year, and what contribution to margin expansion is already in the guide from expressed genes specifically?
spk14: Hey, Matt, thanks for the question. This is Adam. I'm happy to give you some of the quantitative on this, and then Emily can jump in with color as well. First, we are very excited about the express chief launch this quarter. And then remember when we launched it here in late January with the full offering, it was still only a partial quarter. So we expect in Q3 here that we're currently in the end of June will be our first quarter of full express chiefs. We have not broken out the exact expressed genes volume in the guide. We do see that contributing to the gross margin sequential improvements we have in our guide, and it did help with the movement we saw this quarter. But we're still early days, and we continue to use the some of the testing we're doing day-to-day in terms of the pricing and what we're monitoring and watching it.
spk15: But we have not broken that out in our guidance at this point.
spk10: Got it.
spk11: And then just on the NGS tools business, just hearing from some of your competitors in that space that are having some challenges, it seems as if given your results, you're continuing to take share there. Could you maybe just help us understand for context sort of what the market share opportunity is
spk28: the ngs tools business for you and what is sort of the runway that you have for accelerating growth either given the market structure your current penetration and share and what it could be thanks okay thank you matt this is um emily um you're correct that we're definitely taking market share um and it's not an accident it's based on the the innovation that we've built into the product from the quality of our panel that reduces the cost of sequencing to extending to other applications to RNA and methylation so the fact that we now offer a full workflow solution from the sample to the sequencer and finally and very importantly us being a supply chain partner to our customers as they grow. So far, the vast majority of our revenue comes from liquid biopsy applications. And in terms of the market potential for liquid biopsy, it's really big. We are only at the beginning. of liquid biopsy adoption. And as the adoption of those test ramps, as liquid biopsy market as a whole grows, our goal is to be able to capture about 10% of the COGS of our customers. So we believe that there is a lot of room to grow in liquid biopsy. for the other markets, mRNA. Well, it's very early days. The pilots and the initial tests are encouraging. And then for us, for the capture of the AgBio market that is currently being done on microarrays where we want to move it to twist blood sequencing, we think that that market alone could be $500 million. So a lot of opportunity for us. And again, it's not an excellent space on the differentiation of the products and the commercial violence that we deploy. Great. Thanks, Emily.
spk07: Thank you. One moment for our next question. And our next question will be coming from Vijay Kumar of Evercore. Your line is open.
spk17: Hey, guys. Thanks for taking my question, and congrats on everything. Good print here, Emily. Maybe my first one here on the orders here, that's a big, big number, up 45%. Were there any one-timers? Was there any pull forward or maybe just characterize the order trends as a quarter progress? Yes.
spk28: Yeah, great question. Thank you. So there are two types of orders. There are orders that are actionable today, meaning it's the order, the PO comes with the sequence. And in SYNBIO, it gets made in five days. In NGS, it gets made in a few weeks, gets shipped, we book the revenue. And one thing that was a bit particular this quarter is is we got a bigger number of the second kind of orders, which are blanket PO orders. So those are, they come from customers where they kind of have a budget and they decide, typically at the beginning of the year, they decide where they're going to spend that budget with which company. And so the blanket PO gets provided, gives us a sense of volume that's coming. And then as the researcher designs the sequence that they want, this under the sequence, the other is already there, we produce again ship and book revenue. And so what happened this quarter is we had more blanket PO orders that we typically have had in the first quarter of the calendar year. And I think that's a reflection of the fact that in our first quarter, so in calendar Q4, some customers have tested express gene. In our Q2, calendar Q1, more customers have tested express gene, and as they have received those genes on time, basically, our express genes do what what it says on the label, I think we have earned the confidence of those companies. And they've been willing to give us their blanket pre-order, meaning they're giving us their confidence that they will order from us in the rest of the year. So I think that's the dynamic that we see. It's a reflection of the strengths of our offering.
spk17: Yes, that's fantastic. And then, Adam, maybe just back to the question. So you don't think there was anything one-off. These are underlying trends. And is that what's driving the sequential growth margins in the 3Q and the 4Q? That's a pretty meaningful step up in growth margins for Q4. This is Adam.
spk14: It's a great question. I think it's fair to say that this was not a one-time, but it also did break from our historical behavior that oftentimes some of our larger customers do put in blanket purchase orders at the beginning of the year. We're seeing a larger volume of that this year. So I think it's a vote of confidence, but it's not something I would expect sequentially to occur every quarter because of the nature of the calendar year or folks that does that. In terms of us moving forward, both in terms of the growth in the business, the increase in the guide of about $12 million in the midpoint from where we were before for the year, as well as the expansion on gross margin, both full year and sequentially, this does play as a tailwind. I think we talk a lot about express genes, and we talk a lot about NGS mix rather than margin, but the number one driver for margin-first is to continue growth and volume.
spk15: Fantastic, guys. Thank you.
spk07: Thank you. One moment for the next question. And our next question will be coming from Steve Maugh of TD Cal. Your line is open.
spk18: Great. Congrats on the quarter, and thanks for the questions. I've got a three-part question on expressed genes. First, so, you know, now that you have another quarter of experience, can you give us a sense for the customer feedback on the dynamic pricing? And I know in the last call you also talked about there was a push by larger accounts wanting to trade the dynamic pricing for sort of like a fixed subscription-like pricing model. And then second, can you give us a sense on how the increased marketing effort on Express Chains how that's going, and then third, on the 100 net new accounts ordering express chains, what's the profile of that customer? Is it academia, pharma, biotech, or mix?
spk28: Thank you. Thank you, Steve. Great question. In terms of the customer feedback, we haven't had any negative feedback from the premium pricing. I think people understand that the We've made a significant investment. The product differentiation is very, very strong. Again, the performance is such that it does what it says on the label. So that's all positive. And at the same time, several customers would like to have predictability. And so they've been very willing to provide a volume commitment in exchange for a fixed premium pricing. And some of that was reflected in the strong blanket POs that we have gotten. So I think that's the answer on your first question. Second question, sense on the margin. So we're not, as Adam mentioned earlier, we're not breaking out margin for expression at this time. The one thing that and we iterate is whatever is that average premium pricing increase, 100% of that increase drops to the gross margin line. So we anticipate that it will be a component of gross margin improvement over time. And then last question on the 100 net new accounts. It's a mix, which was really great to see. It's a very good mix, of course, big for my customers, as well as smaller for my customers. And not surprising, but very good to see also a lot of academic groups have been testing and ordering and reordering. And obviously, when we look at the average size of an order from a pharma company, it is bigger than from an academic group. But I think I'd say that the majority of the net new accounts were academic groups. And so it's great to see that we are penetrating not only the industrial companies, which would have been more predictive, but also academic groups.
spk18: Okay, great. Maybe just a quick follow-up on that. Did you mention that you had a different pricing structure for academic versus industry? Thank you.
spk28: So yes, in the middle of the quarter. So at the beginning, it was the same premium pricing for academic and industry. And then in the middle of the quarter, we started to have a bifurcation where the premium for academic was not as strong as for industry, which is a standard practice. So I'll say that we are more now in the standard practice than we used to be. OK, great. Thank you.
spk07: Thank you. One moment while we prepare for the next question. And the next question will be coming from Matt LaRue. Oh, William Blair, your line is open.
spk08: Hi, this is Madeline Mullman on for Matt LaRue. I wanted to touch a little bit on biopharma. I noticed the biopharma still was an area that the guide came down. And I know you mentioned previously that you were in the process of onboarding your new BD hires. It takes about six months to get fully ramped. Can you talk a little bit about where the BD hires are in the process and how much of that ramping contributed to the change in biopharma guidance?
spk28: Thank you for the question. We have a full team at this point in terms of headcounts, maybe not fully ramped yet, but we have a full team. I travel quite a bit with that team, and it's very clear that the market is there. There's no market headwinds at all. the technology the the product and service offering that we have is extremely strong within vivo in vitro in silico so in my mind um victory is certain uh but the timing we're still working on it uh so um we were just doing all the right thing now we're focusing on activity building the funnels um the the orders for this quarter at 5.8 million dollars were encouraging And so now we just have to do it again and grow this business. It is the smallest business of the company. It is right now the business that has the lowest growth. But it has all the characteristics of a very strong business, of a very strong twist business, which is high differentiation of the services. And as we connect with more customers, convert more customers, I'm very confident that we can do really well.
spk08: Great. Thank you. And then I think you said that expressed genes were 15% of clonal genes revenue for the quarter. Can you give any color on sort of on a monthly basis how expressed genes as a proportion of clonal genes has trended? And that includes, if you can, into this quarter, current quarter as well.
spk14: Sure. This is Adam, and I'm happy to talk about it. I think what we're seeing since launch is we've seen sequential increases in the express gene business pretty much consistently month over month, partly due to the fact that we did the full commercial launch in late January this year, so you'd expect that natural step up. There is also the behavior, as Emily mentioned earlier in the call, some of the larger institutional customers, when they ordered, they were high volume. So, you know, a couple of orders can have an impact, especially early on.
spk15: But we are seeing that sequential step up month after month.
spk08: Great. Thank you so much.
spk07: Thank you. One moment for the next question. And our next question will be coming from Tom Peterson of Beard. Your line is open.
spk21: Hey, everyone. Congrats on the quarter, and thanks for taking my questions. I just want to first start on Express Genes and some of the metrics that you provided here, you know, whether it be percentage of clonal genes or some of these customer conversions or new account wins. You know, how are you defining what medium-term success looks like for the Express Genes offering, and if you could share any sort of targets that you're looking for, you know, over the medium term, I think that'd be helpful.
spk28: Yeah, thanks. I think, in general, for us, success is the three numbers of revenue, gross margin. And so we do have internal targets for all of the product lines. But sometimes one of the strengths of the business is the fact that we have a very differentiated, sorry, very diverse type of customers, you know, thousands of them working on very diverse types of applications. And so, really, it's all of the above product lines that contribute to the great results. And I can be sure that we are pushing the team to leverage not only expressions but all of the high-differentiality products that we have.
spk21: Great. That's helpful. And then maybe just one on the gross margin outlook, specifically kind of that 50% plus exit rate by 2025. You know, given the quarterly guide for fiscal 24, how should we think about the cadence to get to that target in fiscal 25, you know, given the 24 guidance?
spk14: No, I think that's a great question, and it's one where we internally are absolutely excited about the progress we've seen. I think we go back and you look at four quarters ago, we were at a 31% gross margin. To see that grow to 41% over the last four quarters is impressive. And you'll notice it did happen over time, but it's not always perfectly linear. But I think the idea here is we do expect to see those sequential gains continue as we go into 2025. And we do expect also there will be some, you know, it will be perfectly linear with revenue growth every quarter because some of the initiatives, and I'll use the example of some of the things we're doing on process improvements, you spend the energy to make the process improvement in a given period. But then you may have inventory you need to burn through before you get the advantage of the cost savings and the impact. on the P&L. So some of these things will take time, but we are encouraged by both the continued growth in the business as well as the progress on the process improvements that we see across the business so that we expect the sequential increases throughout 2025.
spk05: Thanks again. Appreciate it.
spk07: Thank you. One moment for the next question. And our next question will be coming from Puneet Suda of Lyric Partners. Your line is open.
spk19: Hi, good afternoon. You got Michael on for Puneet. My first question has to do with the regulated diagnostics products you're launching. We saw the FDA publish their final rules for LDT. I was kind of curious if any of the changes affecting your plans for how TWiST is approaching their diagnostic products, and if anything, incremental needs to be done.
spk28: Yeah, no, thank you. That's a great question. We are great students of those roles. I think, in general, we are quite encouraged with the new rules. They grandfathered in a number of LDTs. Regulation in general, I think, will probably benefit larger players, maybe reduce fragmentation in the market. And to the extent that we are very well penetrated in those larger players, that's good for us. The new test or the work required to validate the test will probably require more validation. that will probably be a tailwind for us. Then finally, over time, as diagnostic tests need to be modified, it just will be a little bit harder to modify. And one of the things we provide is we make it easier to do modification. And so all in all, I think those rules are probably, in the grand scheme of things, probably beneficial to us. And as you mentioned, we launched CE marked products in Europe in the recent past. And while those exact products cannot be ported into the U.S., going through the exercise of launching those products helped us build a muscle inside a company that we'll be able to use and leverage in the U.S. with the new regulations.
spk19: Great. Thanks. And then my second question has to do with biopharma funding. So we've seen a bit of an uptick in the first quarter. I was curious if you have any views on where that might flow through, maybe some lag time. And if you've seen differences in buying activity between large and small pharma?
spk28: I'm not sure we're seeing big differences. I think for us, we're very focused on gaining market shares. And the last few years have been kind of our customers broadly have been in a mode of tightness around funding and budget. And because of the high differentiation of our products, we've been able to gain more than our fair share in market shares. So as we see now that, yes, the budgets get a little bit easier, will we be able to keep doing this, taking more of our fair share? I think I'm encouraged by the performance of the X-ray genes in particular, where, again, it does what it says on the label and is highly differentiated. And we also have a number of products that we are planning on launching in the near term, which will enable us to take more of those budgets. And I think the order volume that we had in Q2, which is Canada Q1, those large blanket orders, it's a good first step in making sure that as the biopharma budget loosens up, that we'll be in pole positions to take advantage of them.
spk05: Great, thank you.
spk07: Thank you. This does conclude the Q&A session for today, and I would now like to turn the call over to Emily LaPrause for closing remarks. Please go ahead.
spk28: Thank you for your time and attention today. Our unwavering commitment to pushing the boundaries of innovation has allowed us to unlock new opportunities and drive value for our customers, shareholders, and the broader scientific community, and we will continue on our path towards profitability. We look forward to keeping you apprised of our progress. Thank you.
spk07: This concludes today's conference call. You may all disconnect. Music. Hello. Thank you. Thank you. Thank you. Thank you. Welcome to TWIST 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'll 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.
spk06: Please go ahead.
spk09: Thank you, Operator. Good afternoon, everyone. I would like to thank all of you for joining us today for TWIST Bioscience's 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 reach you 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 we date Pura, 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.
spk28: 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. All those 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 gene, and bolstered by consistent strength in NGL. 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. Symbio revenue grew 24% year-over-year and 11% sequentially. Orders in Symbio 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. due to our diversified product line, including express gene and consistent rapid turnaround times, both of which give our customers confidence to commit to twist 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 as an existing institution. Both count as NetNew accounts. Customers receive ExpressGems in about five to seven days, significantly faster than our standard jeans turn around time. For this speed, they up into a premium price. We vary this premium based on capacity within our large Westernville, Oregon facility, a site custom built for this product line, and a site that allows for expansion to other significant products. Because we make all chronology 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 industry 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 other times 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 application or test 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 introduce differentiated products to advance science and clinical capabilities. In February, we added an incredibly powerful cell-free DNA laboratory prep that captures many molecules that may otherwise be 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 DNA 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 library prep, the ultra-high throughput library prep kit. We believe this is the highly differentiated product we need to contact customers using microarray 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 accrual readers to sequencers. Separately, for our customers in Europe, we launched a CE-Marked Portfolio of Precision DX product 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 LDDs 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 in a twist platform within the next year. For data storage, we remain focused on technology development and enablement of the 3rd-by-century archive workflow for early access in Canada 2025.
spk16: 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 revenue.
spk28: We maintain our margins, strengths in our NGS business, as well as express chain 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 advancement, 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 express chain. 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 path to growth margin north of 50% by the end of fiscal 2025.
spk16: With that, I'll turn over the call to Adam to discuss our financials. Thank you, Emily.
spk14: Revenue for the second quarter increased to $75.3 million, growth of 25% year-over-year and approximately 5% sequentially. Orders increased substantially to $93.2 million, with strong orders driven by significant blanket purchase orders expected to be used over the next three quarters. This includes approximately $21 million for SynBio and $9 million for NGS. As Emily said, gross margin came in higher than expected at 41% for the second quarter of fiscal 2024. During the second quarter, we shipped to 2,253 customers. We ended the quarter with cash, cash equivalents, and short-term investments of approximately $293 million. Taking a deeper dive into revenue, Symbio revenue increased to $29.8 million, growth at 24% year-over-year, with orders increasing to $44.9 million. We shipped 193,000 jeans in the quarter. Synthetic genes revenue, which includes both clonal genes, gene fragments, and IgG, increased to approximately $22.4 million, close to approximately 24% year-over-year. Approximately $15.6 million, or 52% of our Symbio revenue, was from clonal genes, with $2.2 million in revenue coming from express genes. Within the Symbio umbrella, oil pool revenue increased to $3.9 million, And DNA Library's revenue increased to $3.5 million, year-over-year growth of 19% and 25% respectively. MGS revenue for the second quarter grew to approximately $40.8 million compared to $29 million in the second quarter of fiscal 2023, an increase of 40% year-over-year. For the quarter, revenue from our top 10 MGS customers accounted for approximately 36% of revenue. Orders increased to 42.5 million, which we anticipate sets the stage for further NGS growth. We served 558 NGS customers in the quarter, with 138 having adopted our products. For biopharma, revenue was $4.7 million, with orders increasing to $5.8 million. We had 67 active programs at the end of March 2024, and we started 34 new programs during the quarter. Looking at revenue by industry, healthcare revenue rose to $40.9 million for the second quarter of 2024, compared to $33.8 million for the same period of fiscal 2023, reflecting the increased uptake of our products by pharma, biotech, and diagnostic companies. Industrial chemical revenue rose to $20.3 million in the second quarter, up from $14.4 million in the same period of fiscal 2023. Strong growth year over year. Academic revenue was $13.7 million for the second quarter of 2024, up from $11.1 million in the same period of fiscal 2023, with growth coming from both Symbio and NGS customers. Looking geographically, America's revenue increased to approximately $45.9 million in the second quarter, compared to $34.9 million in the same period of fiscal 2023, growth of 32% year-over-year. EMEA revenue rose to $22.3 million in the second quarter versus $18.8 million in the same period of fiscal 2023, growth of 19% year-over-year. APAC revenue increased to $7.2 million in the second quarter compared to $6.5 million in the same period of fiscal 2023, growth of 11% year-over-year. China revenue was $1.4 million, a small percent of our total revenue for the quarter. Our gross margin for the second quarter increased to 41.0%. We saw strength from Express Genes revenue lifting margins offset by a contracted Symbio customer who placed and received a large order within the discount terms in Q2. Our NGS offerings continue to have strong gross margin performance. However, we did see and expect to continue to see puts and takes in the gross margin based on contracted customer mix where margin fluctuates based on the individual customer orders in a given quarter. Finally, I am encouraged by the enterprise-wide focus on gross margin improvement initiatives and also expect these initiatives will take multiple quarters to result in a material impact. In total, operating expenses for the second quarter were $124.2 million, compared with $121.8 million in the same period of 2023. Breaking this down. Cost of revenues increased to $44.4 million in the second quarter of 2024, compared with $41.7 million in the same period of fiscal 2023, primarily due to higher product volumes as well as increased depreciation and amortization expense, mostly due to the build-out of our new manufacturing facility in Wilsonville, Oregon. R&D decreased to $24.1 million compared with $27.4 million in the same period of fiscal 2023, primarily due to the reduction in headcount as well as lab supplies. SG&A was $55.6 million the second quarter compared with $54 million. The increase was driven largely by stock-based compensation and bonus accrual catch-up as the business is performing above forecast at this time. Operating expenses included approximately $7 million for data storage. Stock-based compensation for the quarter was approximately $13.8 million. Depreciation and amortization were $8.3 million for the quarter. Net loss attributable to common stockholders was $45.5 million, or 79 cents per share, for the second quarter of 2024. compared to a net loss of $59.2 million, or $1.04 per share, to the same period of fiscal 2023. Cash flow from operating activities continues to improve, and we are driving the break-even. The six months ended March 31, 2024. Net cash used in operating activities was $42.4 million, compared to $98.4 million for the equivalent six-month period in 2023. Moving forward, we will also provide adjusted EBITDA. A non-GAAP measure. The reconciliation between the GAAP and non-GAAP financial measures will be included in the earnings documents, which can be found on our investor relations website. Looking back in time, the second quarter of fiscal 2023 adjusted EBITDA loss was approximately $46 million. In the second quarter of fiscal 2024, adjusted EBITDA loss was approximately $27 million. For the fourth quarter of fiscal 2024, we see a path to an adjusted EBITDA loss of less than $20 million. Turning to guidance. For fiscal 2024, we now expect total revenue to increase by $12 million across the range to approximately $300 million to $304 million, anticipated growth of 22% to 24% year-over-year. Increase in biorevenue of $118 to $120 million, an increase across the range, with year-over-year growth anticipated to be 20% to 22%. NGS revenue of $162 to $164 million, an increase of $12 million across the range, and anticipated growth of 31% to 33% year-over-year. Biopharma revenue of approximately $20 million, a decrease of $4 million in prior guidance, and 13% year-over-year. We are increasing our expected gross margin to approximately 41.5 to 42% for the year. We are reducing our expected loss from operations before taxes to approximately $183 to $188 million, a decrease compared with prior guidance, $189 to $194 million. CapEx is still projected to be approximately $15 million for fiscal 2024, unchanged from prior guidance. We project ending cash with more than $245 million at the end of fiscal 2024. For the third quarter of fiscal 2024, we expect overall revenue of approximately $77 million. Some biorevenue increasing to approximately $31 million with the full launch of ExpressGN's portfolio. NGS revenue of approximately $41 million on track with our increased annual guidance. Biopharma revenue of approximately $5 million. Gross margin for the third quarter of 41 to 42%. For the fourth quarter, we expect overall revenue in the range of $77 to $80 million. Gross margin for the fourth quarter of 43 to 44%. In summary, I am encouraged by the progress in an enterprise-wide focus on financial discipline that I've seen during my first quarter with Twisted. We will continue to maintain financial discipline throughout the organization and make progress on a path to profitability.
spk13: With that, I'll turn the call back to Emil.
spk16: Thank you, Adam.
spk28: In closing, we are very confident in the continued impact and growth opportunities generated from our proprietary DNA-sensitive platform. Our growing customer base, our increasing revenue profile, our defining product portfolio, and, of course, our exceptional employees positively move the needle for our customers across multiple industries. I often have the privilege of talking to our customers, listening to how they drive groundbreaking scientific advancement in wide-ranging fields, from healthcare to chemicals to academia, ag bio, and more. I am very proud that TWIST plays an important role in facilitating this work, and we are only getting started. We are enabling our customers to produce proteins that target and destroy cancer cells to create new diagnostic tools that detect diseases early and accurately. to make compounds that are more sustainable and also less expensive, to name only a few applications. We manufacture our DNA in two locations, one in California and one in Oregon, with a global commercial and support team to deliver superior service to all of our customers. As we look ahead, we are more excited than ever about the vast potential that lies before us. With our cutting-edge technology, world-class teams, and laser-focused strategy, we are poised to capitalize on the immense opportunities that lay ahead in synthetic biology, NGS, biopharma, and data storage. I am incredibly proud of what we have accomplished, and I am confident that our best days are yet to come.
spk16: Let's open up the call for questions. Operator?
spk07: Thank you. As a reminder, if you would like to ask a question, please press star 11 on your telephone. Also, we ask that you wait for your name and company to be announced before you proceed with your question. Our first question today is coming from Matt Sykes of Goldman Sachs. Your line is open.
spk11: Good afternoon, Emily, Adam, and Angela. Congrats on the quarter. Maybe I could just start out on margins. You obviously beat gross margins this quarter. It looked like on the back of NGS, but a small contribution from Express Genes of like 2.2 million. So I expect most of that beat was from NGS. But as the year progresses... and expressed genes continue to grow, could you give us a sense for the contribution to margin expansion from expressed genes, maybe either providing some expectations for expressed gene revenue growth or volumes for the balance of the year, and what contribution to margin expansion is already in the guide from expressed genes specifically?
spk14: Hey, Matt, thanks for the question. This is Adam. I'm happy to give you some of the quantitative on this, and then Emily can jump in with color as well. First, we are very excited about the express chief launch this quarter. And then remember when we launched it here in late January with the full offering, it was still only a partial quarter. So we expect in Q3 here that we're currently in the end of June will be our first quarter of full express chiefs. We have not broken out the exact expressed genes volume in the guide. We do see that contributing to the gross margin sequential improvements we have in our guide, and it did help with the movement we saw this quarter. But we're still early days, and we continue to use some of the testing we're doing day-to-day in terms of the pricing and what we're monitoring and watching it.
spk15: But we have not broken that out in our guide.
spk10: Got it.
spk11: And then just on the NGS Tools business, just hearing from some of your competitors in that space that are having some challenges, it seems as if given your results, you're continuing to take share there. Could you maybe just help us understand for context sort of what the market share opportunity is in the NGS Tools business for you and what is sort of the runway that you have for accelerating growth, either given the market structure, your current penetration in share, and what it could be? Thanks.
spk28: okay thank you matt this is um emily um you're correct that we are definitely taking market share um and it's not an accident it's based on the um the innovation that we've built into the product from the quality of our panel that reduces the cost of sequencing um to uh extending to other applications to rna and methylation uh so the fact that we now offer a full workflow solution from the sample to the sequencer. And finally, and very importantly, us being a supply chain partner to our customers as they grow. So far, the vast majority of our revenue comes from liquid biopsy applications. in terms of the market potential for liquid biopsy, it's really big. We are only at the beginning of liquid biopsy adoption. And as the adoption of those test ramps, as liquid biopsy, the biopsy market as a whole grows, our goal is to be able to capture about 10% of the COGS of our customers. So we believe that there is a lot of room to grow in liquid biopsy. For the other markets, mRNA, well, it's very early days. The pilots and the initial tests are encouraging. And then for us, for the capture of the AgBio market, that is currently being done on microarrays where we want to move it to 2S plus sequencing. We think that that market alone could be $500 million. So a lot of opportunity for us. And again, it's not an excellent space on the differentiation of the products and the commercial violence that we deploy. Great. Thanks, Emily.
spk07: Thank you. One moment for our next question. And our next question will be coming from Vijay Kumar of Evercore. Your line is open.
spk17: Hey, guys. Thanks for taking my question, and congrats on everything. Good friend here, Emily. Maybe my first one here on the orders here, that's a big, big number, up 45%. Were there any one-timers? Was there any pull forward or maybe just characterize the order trends as a quarter progress?
spk28: Yeah, great question. Thank you. So there are two types of orders. There are orders that are actionable today, meaning it's the order, the PO comes with the sequence. And in SYNBIO, it gets made in five days. In NGS, it gets made in a few weeks, gets shipped, we book the revenue. And one thing that was a bit particular this quarter is is we got a bigger number of the second kind of orders, which are blanket peer orders. So those are, they come from customers where they kind of have a budget and they decide, typically at the beginning of the year, they decide where they're going to spend that budget with which company. And so the blanket peer gets provided, gives us a sense of volume that's coming. And then as the researcher designs the sequence that they want, this and there's a sequence, the other is already there. We produce, again, ship and book revenue. And so what happened this quarter is we had more blanket PO orders that we typically have had in the first quarter of the calendar year. And I think that's a reflection of of the fact that in our first quarter, so in calendar Q4, some customers have tested express gene. In our Q2, calendar Q1, more customers have tested express gene. And as they have received those genes on time, basically, our express genes do what what it says on the label, I think we have earned the confidence of those companies. And they've been willing to give us their blanket pre-order, meaning they're giving us their confidence that they will order from us in the rest of the year. So I think that's the dynamic that we see. It's a reflection of the strengths of our offering.
spk17: Yes, that's fantastic. And then, Adam, maybe just back to the question. So you don't think there was anything one-off. These are underlying trends. And is that what's driving the sequential growth margins in the 3Q and the 4Q? That's a pretty meaningful step up in growth margins for Q4.
spk14: This is Adam. It's a great question. And I think it's fair to say that this was not a one time, but it also did break from our historical behavior that oftentimes some of our larger customers do put in blanket purchase orders at the beginning of the year. We're seeing a larger volume of that this year. So I think it's a vote of confidence, but it's not something I would expect sequentially to occur every quarter because the nature of the calendar year where folks put those out. In terms of us moving forward, both in terms of the growth in the business, the increase in the guide of about $12 million in the midpoint from where we were before for the year, as well as the expansion on gross margin, both full year and sequentially, this does play as a tailwind. I think we talk a lot about express genes, and we talk a lot about NGS mix rather than margin, but the number one driver for margin-first is to continue growth and volume.
spk15: Fantastic, guys. Thank you.
spk07: Thank you. One moment for the next question. And our next question will be coming from Steve Maugh of TD Cal. Your line is open.
spk18: Great. Congrats on the quarter, and thanks for the questions. I've got a three-part question on expressed genes. First, so, you know, now that you have another quarter of experience, can you give us a sense for the customer feedback on the dynamic pricing? And I know in the last call you also talked about there was a push by larger accounts wanting to trade the dynamic pricing for a sort of like a fixed subscription-like pricing model. And then second, can you give us a sense on how the increased marketing effort on Express Genes how that's going, and then third, on the 100 net new accounts ordering ExpressGenes, what's the profile of that customer? Is it academia, pharma, biotech, or mix? Thank you.
spk28: Thank you, Steve. Great question. In terms of the customer feedback, we haven't had any negative feedback from the premium pricing. I think people understand that We've made a significant investment. The product differentiation is very, very strong. Again, the performance is such that it does what it says on the label. So that's all positive. And at the same time, several customers would like to have predictability and so they've been very willing to provide a volume commitment in exchange for a fixed premium pricing and some of that was reflected in the strong blanket POs that we have gotten. So I think that's the answer on your first question. Second question, sense on the margin. So we're not, as Adam mentioned earlier, we're not breaking out margin for excretion at this time. The one thing that I'll reiterate is whatever is that average premium pricing increase, 100% of that increase drops to the gross margin line. So we anticipate that it will be a component of gross margin improvement over time. And then last question on the 100 net new accounts. It's a mix, which was really great to see. It's a very good mix, of course, big for my customers, as well as smaller for my customers. And not surprising, but very good to see also a lot of academic groups have been testing and ordering and reordering. And obviously, when we look at the average size of an order from a pharma company, it is bigger than from an academic group. But I think I'd say that the majority of the net new accounts were academic groups. And so it's great to see that we are penetrating not only the industrial companies, which would have been more predictable, but also academic groups.
spk18: Okay, great. Maybe just a quick follow-up on that. Did you mention that you had a different pricing structure for academic versus industry? Thank you.
spk28: Yes, in the middle of the quarter. At the beginning, it was the same premium pricing for academic and industry. In the middle of the quarter, we started to have a bifurcation where the premium for academic was not as strong as for industry, which is a standard practice. I'll say that we are more now in the standard practice than we used to be. Okay, great. Thank you.
spk07: Thank you. One moment while we prepare for the next question. And the next question will be coming from Matt LaRue of William Blair. Your line is open.
spk08: Hi, this is Madeline Mullman on for Matt LaRue. I wanted to touch a little bit on biopharma. I noticed the biopharma still was an area that the guide came down. And I know you mentioned previously that you were in the process of onboarding your new BD hires. It takes about six months to get fully ramped. Can you talk a little bit about where the BD hires are in the process and how much of that ramping contributed to the change in biopharma guidance?
spk28: Thank you for the question. We have a full team at this point in terms of headcounts, maybe not fully ramped yet, but we have a full team. I travel quite a bit with that team, and it's very clear that the market is there. There is no market headwinds at all. The technology, the product and service offering that we have is extremely strong with in vivo, in vitro, in silico. So in my mind, victory is certain, but the timing, we're still working on it. So we were just doing all the right thing. Now we're focusing on activity, building the funnels. The orders for this quarter at $5.8 million were encouraging. And so now we just have to do it again and grow this business. It is the smallest business of the company. It is right now the business that has the lowest growth. But it has all the characteristics of a very strong business, of a very strong twist business, which is high differentiation of the services. And as we connect with more customers, convert more customers, I'm very confident that we can do really well.
spk08: Great. Thank you. And then I think you said that expressed genes were 15% of clonal genes revenue for the quarter. Can you give any color on sort of on a monthly basis how expressed genes as a proportion of clonal genes has trended? And that includes, if you can, into this quarter, current quarter as well.
spk14: Sure. This is Adam, and I'm happy to talk about it. I think what we're seeing since launch is we've seen sequential increases in the express gene business pretty much consistently month over month, partly due to the fact that we did the full commercial launch in late January this year, so you'd expect that natural step up. There is also the behavior, as Emily mentioned earlier in the call, some of the larger institutional customers, when they ordered, they were high volume. So, you know, a couple of orders can have an impact, especially early on.
spk15: But we are seeing that sequential step up month after month.
spk08: Great. Thank you so much.
spk07: Thank you. One moment for the next question. And our next question will be coming from Tom Peterson of Beard. Your line is open.
spk21: Hey, everyone. Congrats on the quarter, and thanks for taking my questions. I just want to first start on Express Genes and some of the metrics that you provided here, you know, whether it be percentage of clonal genes or some of these customer conversions or new account wins. You know, how are you defining what medium-term success looks like for the Express Genes offering, and if you could share any sort of targets that you're looking for, you know, over the medium term, I think that'd be helpful.
spk28: Yeah, thanks. I think, in general, for us, success is the three numbers of revenue, gross margin. And so we do have internal targets for all of the product lines. But sometimes one of the strengths of the business is the fact that we have a very differentiated, sorry, very diverse type of customers, you know, thousands of them working on very diverse types of applications. And so really it's all of the above product lines that contribute to the great results. And I can be sure that we are pushing the team to leverage not only expressions, but all of the high differentiated products that we have.
spk21: Great. That's helpful. And then maybe just one on the gross margin outlook, specifically kind of that 50% plus exit rate by 2025. You know, given the quarterly guide for fiscal 24, how should we think about the cadence to get to that target in fiscal 25, you know, given the 24 guidance?
spk14: No, I think that's a great question, and it's one where we internally are absolutely excited about the progress we've seen. I think we go back and you look at four quarters ago, we were at a 31% gross margin. To see that grow to 41% over the last four quarters is impressive. And you'll notice it did happen over time, but it's not always perfectly linear. But I think the idea here is we do expect to see those sequential gains continue as we go into 2025. And we do expect also there will be some, you know, it won't be perfectly linear with revenue growth every quarter because some of the initiatives, and I'll use the example of some of the things we're doing on process improvements, you spend the energy to make the process improvement in a given period. But then you may have inventory you need to burn through before you get the advantage of the cost savings and the impact. on the P&L. So some of these things will take time, but we are encouraged by both the continued growth in the business as well as the progress on the process improvements that we see across the business so that we expect the sequential increases throughout 2025.
spk05: Thanks again. Appreciate it.
spk07: Thank you. One moment for the next question. And our next question will be coming from Puneet Suda of Lyric Partners. Your line is open.
spk19: Hi, good afternoon. You got Michael on for Puneet. My first question has to do with the regulated diagnostics products you're launching. We saw the FDA publish their final rules for LDT. I was kind of curious if any of the changes affecting your plans for how TWiST is approaching their diagnostic products, and if anything, incremental needs to be done.
spk28: Yeah, no, thank you. That's a great question. We are great students of those rules. I think, in general, we are quite encouraged with the new rules. They grandfathered in a number of LDTs. Regulation in general, I think, will probably benefit larger players, maybe reduce fragmentation in the market. And to the extent that we are very well penetrated in those larger players, that's good for us. The new test or the work required to validate the test will probably require more validation. That will probably be a tailwind for us. Then finally, over time, as diagnostic tests need to be modified, it just will be a little bit harder to modify. And one of the things we provide is we make it easier to do modification. And so all in all, I think those rules are probably, in the grand scheme of things, probably beneficial to us. And as you mentioned, we launched CE marked products in Europe in the recent past. And while those exact products cannot be ported into the U.S., going through the exercise of launching those products helped us build a muscle inside a company that we'll be able to use and leverage in the U.S. with the new regulations.
spk19: Great. Thanks. And then my second question has to do with biopharma funding. So we've seen a bit of an uptick in the first quarter. I was curious if you have any views on where that might flow through, maybe some lag time. And if you've seen differences in buying activity between large and small pharma?
spk28: I'm not sure we're seeing big differences. I think for us, we're very focused on gaining market shares. And the last few years have been kind of our customers broadly have been in a mode of tightness around funding and budget. And because of the high differentiation of our products, we've been able to gain more than our fair share in market shares. So as we see now that, yes, the budgets get a little bit easier, will we be able to keep doing this, taking more of our fair share? I think I'm encouraged by the performance of the X-ray genes in particular, where, again, it does what it says on the label and is highly differentiated. And we also have a number of products that we are planning on launching in the near term, which will enable us to take more of those budgets. And I think the order volume that we had in Q2, which is Canada Q1, those large blanket orders, it's a good first step in making sure that as the biopharma budget loosens up, that we'll be in pole positions to take advantage of them.
spk05: Great, thank you.
spk07: Thank you. This does conclude the Q&A session for today, and I would now like to turn the call over to Emily LaPrause for closing remarks. Please go ahead.
spk28: Thank you for your time and attention today. Our unwavering commitment to pushing the boundaries of innovation has allowed us to unlock new opportunities and drive value for our customers, shareholders, and the broader scientific community, and we will continue on our path towards profitability. We look forward to keeping you apprised of our progress. Thank you.
spk07: This concludes today's conference call. You may all disconnect.
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