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Twist Bioscience Corp (NASDAQ:TWST)
Q1 2020 Earnings Call
Feb 6, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Twist Bioscience Fiscal 2020 First Quarter Financial Results Conference Call. [Operator Instructions]

I would now like to hand the conference over to your speaker today, Jim Thorburn, Chief Financial Officer. Thank you, and please go ahead, sir.

Jim Thorburn -- Chief Financial Officer

All right. Thank you, Chris. Good afternoon everyone and thank you for joining us today for Twist Bioscience conference call to review our fiscal 2020 first quarter financial results and business progress. Please review our press releases we issued earlier today, which are available at our website www.twistbioscience.com.

With me on today's call are Dr. Emily Leproust, CEO and Co-Founder of Twist; and also Mark Daniels, Chief Legal Officer of Twist. Emily, who will begin with a review of recent progress in Twist businesses and Mark is available for Q&A on our litigation. I will report on our financial and operational performance and Emily will discuss our upcoming milestones and direction. We will then open the call for questions. 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 one week.

During today's presentation, we will make forward-looking statements within the meaning of the federal securities laws. Forward-looking statements generally relate to future events or future financial or operating performance. Our expectations and beliefs regarding these matters may not materialize and actual results and the financial periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include those set forth in the press release we issued earlier today as well as those more fully described in our filings with the Security and Exchange Commission. The forward-looking statements in this presentation are based on information available to us as of the date hereof, and we disclaim any obligation to update any forward-looking statements except as required by law.

With that I will now turn the call over to our Chief Executive Officer and Co-Founder Dr. Emily Leproust.

Emily Leproust -- Chief Executive Officer

Thank you, Jim, and good afternoon everyone. I'd like to begin our call with an update announced this afternoon that we have reached a settlement with Agilent in the litigation originally filed on February 3, 2016. Under the terms of the agreement, we obtain a full release of claims made against Twist Bioscience, myself, Siyuan Chen and Solange Glaize in exchange for a one-time payment of $22.5 million. The settlement agreement contains no admission of liability or wrongdoing because there were none. Agilent launched an all-out legal assault on Twist, and in the end, we not only survived but we thrived through the attack. We were prepared to take this case to trial. However, we have chosen to settle this litigation to remove the uncertainty and exceptional legal fees associated with the jury trial. In addition, we believe it is in the best interest of all our stakeholders as we eliminate this destruction and focus on our business at hand.

With that I'd like to turn to our financial results for the first quarter of fiscal 2020. We are off to a solid start with $17.2 million in revenues resulting from a larger number of other shipping in the last days of the quarter. We reported impressive growth in synthetic biology and NGS revenues year-over-year. And looking forward orders for both Synbio and NGS look very strong at almost $25 million for the first quarter, which is a yearly run rate of $100 million. While we believe our order increase is due to exceptional products and commercial team, we still believe that we had a bit of a bump due to the end of the calendar year from companies that need to spend their budget. We saw this in the first quarter of fiscal 2019 and we saw it again in fiscal 2020.

We also reported $700,000 in orders from biopharma. This is incredible growth and we are very excited about the progress of this vertical market opportunity. I do want to caution that we expect biopharma revenues to be exceptionally lumpy moving forward and may not grow quarter-by-quarter. Our gross margin was positive $3.4 million at 20%, essentially flat sequentially. As we have built up capacity for Synbio and NGS, we continue to invest in new product launches to fuel additional revenue growth for both businesses.

Moving to business segment. For Synbio we shipped about 80,000 genes in the first quarter, down a bit from the fourth quarter primarily due to holiday timing. During the first half of calendar 2020, we are bringing two new writers online, which will allow increased capacity. In addition, we're investing in additional resources at pinch point in our processes to continue to reduce our turnaround time. An important note, while we have improved turnaround time significantly over the past two years, we continue to focus on improving this metric to stay competitive and win additional market share.

Continuing our pursuit of the long tail, in the first quarter in comparison to the same period last year, we received about double the number of purchase orders, which were smaller in size by about 30%, resulting in substantial revenue growth overall. We remain on track to introduce product line extensions in mid-2020 that we believe will allow us to meet the need of large pharmaceutical companies that require larger quantities of DNA. In addition, to support growth in the long tail, we are on track to introduce in calendar 2020 our clonal-ready gene fragments. With this product, we will be expanding into two very important sub-segment that we are not serving today, with a roadmap to pursue other markets in the near future.

For genomics and targeted NGS, in the first quarter, we shipped our targeted enrichment products to 187 customers with 37 of these customers now in production. We continue to show good growth in this market and the very strong orders of $11.8 million in the first quarter. We reported revenues of $7 million, which is an increase of 86% year-over-year. We are currently pursuing large volume customers within liquid biopsy, cancer diagnostics and rare diseases. As we discussed in Synbio [Phonetic] we are now going after the SNP microarray market, which has resulted in two substantive conversions to Twist's NGS. In addition, we're expanding our scope to include the retail market. We expect continued product launches to serve the growing number of applications in the NGS space.

I'd like to take a few minutes to talk about the novel coronavirus. This is an emerging pathogen and proof again that nature is the greatest bioterrorist. As an emerging virus, that we have never seen an event before, there's a tremendous amount of research ongoing worldwide. Many customers have come to Twist as we work on products in key areas that enable rapid efficient research into a potential pandemic, like the new coronavirus. We are supporting customers by making specific genes and gene mutants, by making custom NGS nourishment panels that monitor outbreak areas, and by making antibody sequences that may word as a potential treatment for those infected. These areas exemplify the reason Twist exist today. Our customers take advantage of our silicon platform which quickly delivers genes, custom panels and antibody fragments. We do this in a safe and secure manner, leveraging our industry leading biosecurity platform, protocols and procedures.

Importantly, we can support a large number of customers and do it at scale, not just for the coronavirus, but also for a wide range of diseases and conditions that need advanced diagnostics and personalized therapies. That makes us an important resource and partner both as we face this emerging threat as a global community and as we provide synthetic DNA-based product to improve health and sustainability. A couple of important points. We make all of in DNA in the United States and because of this, manufacturing continues 24/7 with no impact to turnaround time from the coronavirus. And in terms of biosecurity, we routinely screen every single genes, all gene fragment sequence that is ordered, and we screen every customers against government list and other criteria. We have put in place a very robust biosecurity protocol that flags any sequence that matches a known pathogen of concern.

Because what we are doing for our customers around the coronavirus means providing a suite of products we offer regularly, we do not expect to see a significant dip in revenues from customers ordering the sequences. While we do not want to minimize the gravity of the situation, this is what we do each and every day and the orders coming in fit within our regular workflow.

Turning to our vertical market opportunities for biopharma. We have generated data around our seven GPCR targets, and we are leveraging this data to validate our approach and book business as evidenced by the $700,000 from biopharma orders this quarter. We reported data from TB01-3, a GPCR development candidate at an investor conference in January. TB01-3 is a potent GLP-1R antagonist that's in preclinical studies as shown complete inhibition of GP-1R at higher cost operations and in vivo efficacy in a glucose tolerance mouse study. An antibody like this could have potential applications in rare disease indications such as severe hypoglycemia.

In January we announced the collaboration with Schrodinger, a company focused on transforming the way therapeutics are discovered with a physics based competition of platform. We are bringing our two companies platforms together to discover new antibody therapeutics against GPCR targets and sharing any potential economics. This is an excellent example of the way we may access complementary technologies to develop better therapeutics in a wide range of diseases. We expect continued collaboration opportunities across a wide range of solutions that we offer in biopharma, some of which we expect will generate modest revenue initially. As we generate additional data in validation, we expect to have more robust contracts that include milestones and royalties. We do expect this to take some time, but we are encouraged by the progress we are seeing so far.

Turning to data storage. In January, we announced that, we were selected as the DNA synthesis provider for DNA data storage projects under the IARPA Molecular Information Storage or MIST program. We are collaborating with Georgia Tech Research Institute or GTRI Microsoft, the Univeristy of Washington and Roswell Biotechnologies to make long-term DNA data storage accessible and commercially viable within the next three to five years. The total contract is worth $25 million with Twist receiving up to $9.15 million. There is an additional $5.5 million of this contract that will go to GTRI would benefit the commercial development at Twist. As part of the contract, we are designing a seamless chip to drive a novel DNA synthesis device array. GTRI will collaborate with Twist on the device designs and will produce the prototypes. The subcontract to IARPA is an important step in securing financial backing for our data storage vertical and working with its collaborators integral for our efforts to build a commerical offering. Finally, because the next phase of data storage is highly dependent upon chip design, manufacturing and refinement, we expect that the cadence of our updates on data storage will be less frequent as a standard chip design build cycle is 18 months. As we scale up in data storage and a slow for all Synbio and NGS businesses, we have made some organizational changes to facilitate future growth.

Bill Banyai, one of our three co-founders will lead our DNA data storage efforts, as we develop a new silicon platform specific to this market. Bill's expertise in silicon is extensive and we look forward to him leading this important vertical foward. At the same time, Patrick Weiss has become COO. He built our operations from the ground up and he will take on additional responsibilities to build the infrastructure and processes to enable our rapid growth into the future.

At this time, I'd like to turn the call over to Jim to review our financial results for the quarter.

Jim Thorburn -- Chief Financial Officer

All right. Thank you, Emily. Our litigation is settled. We're executing well and we enjoyed a great quarter of sequential growth in orders and revenue. Let me touch on some of the quarterly highlights. Fiscal Q1 revenue was $17.2 million and exceeded our guidance. We billed $24.8 million in orders, which is a record for Twist. The quarter one book-to-bill ratio was approximately 1.4:1. Our Ginkgo business is doing well with $2.6 million in orders and revenue of $2.1 million. Synbio business, non-Ginkgo and NGS products are growing strongly, and we continue to build our customer base and we shipped approximately 1,000 customers this quarter. Biopharma orders is worth noting, as Emily highlighted, were approximately $700,000.

Looking at the details of orders for the first quarter fiscal 2020. $24.8 million in orders represents year-on-year growth of 63% and sequential growth of 24%. Synbio orders and our Synbio products are defined as genes libraries and oligo pools were $12.3 million for the quarter and that includes Ginkgo orders of $2.6 million. Although Ginkgo was down from $2.8 million in the fourth quarter, our Ginkgo business fluctuates based on their project activities and received orders of approximately $3.5 million in January. Our genes business is doing very well with orders of $9.5 million and we're seeing strength in both EMEA and the US markets, primarily from industrial biotech, academic and health segments. Our genomics products which I'll refer to as NGS, products continued to perform very well. We booked approximately $11.8 million orders for NGS products in quarter one, which is up sequentially from $8 million in quarter four. We received orders from 253 accounts in the quarter, and that's up from approximately 180 in quarter four with bookings primarily from healthcare, which includes diagnostics and academic institutions, such as abroad.

The pipeline for larger NGS opportunities continues to scale and we're now tracking 91 larger opportunities progressing through the pilot validation adoption phase with 37 customers adopting and that's up from 36 and a total of 54 in the pilots and validation phases. In terms of our progress with global expansion, approximately 40% of our bookings were outside Americas. EMEA delivered another strong quarter with $7.9 million orders, including $4 million from NGS with solid orders across industrial biotech, academic and health segments in Europe. APAC bookings were stronger in quarter one with $1.5 million including bookings of $1 million from China. America orders for quarter one were $15.4 million of which $8 million was Synbio, $6.7 million is NGS and thrilled to announce biopharma $0.7 million. Please note, we provide orders not to directly translate into revenue for the following quarter, but to -- more to provide a trend line for each product group. Currently both Synbio and NGS are growing strongly, although we anticipate both NGS and Ginkgo orders to be lumpy and fluctuate from quarter-to-quarter.

Now moving from orders to revenue. Quarter one revenue was $17.2 million and that's compared to our guidance of $15 million to $16.5 million. Our NGS product revenue was $7 million as compared to approximately $6.1 million in quarter four 2019 and $3.8 million in quarter one 2018. We continue to expand our customer base and shipped almost 190 NGS customers during the quarter as compared to approximately 152 customers in the previous quarter. Synbio revenue was $10 million with gene revenue $7.8 million in the quarter and that includes $2.1 million from Ginkgo. Our genes business does well -- is doing really well and once again we shipped approximately 80,000 genes in the quarter with a longer genes over 1.8 kb accounting for over 30% of our gene revenue in the quarter.

Now, let me quickly cover our global expansion. In fiscal first quarter '20, we continued to expand our global presence and are growing strongly across all regions. The Americas first quarter revenue is approximately $10 million as compared to $8.6 million in Q1 fiscal '19. The Americas now accounts for approximately 60% of revenue as compared to 75% in Q1 of fiscal '19, and that's due to strong growth in EMEA and APAC and our investments in our commercial organization is paying off. EMEA revenue was $5.9 million for the quarter as compared to $2.4 million in Q1 fiscal '19. APAC revenue for the first quarter totaled $1.2 million and $0.4 million versus $0.4 million in Q1 fiscal '19, so strong -- really strong growth outside the US, both EMEA and APAC doing well. In terms of segment revenue this quarter. The largest segments are industrial chemicals accounting for $6.1 million and healthcare $5.8 million. Year-over-year, the two largest growth segments are healthcare and academic was driven by NGS and Synbio products.

Now moving down to P&L. Gross margin, as we highlighted in our last earnings call, our gross margin is going to be a 20% positive in the first quarter and this includes about $0.4 million stock-based compensation for the quarter. Our operating expenses, excluding the cost of revenues and litigation settlement for the first quarter increased to approximately $36.7 million from $34.9 million in the fourth quarter. R&D was $10.3 million compared to $10.5 million. SG&A increased to $26.4 million in the first quarter compared to 24.4 million in the fourth quarter, reflecting additional commercial costs associated with our continued investment and our commercial organization and higher litigation fees. During quarter one, we added 19 personnel to our commercial organization and have now scaled the organization to 140. We now have approximately 70 field sales personnel, with 33 supporting NGS.

Our net loss, excluding litigation settlement for quarter one was $33.1 million, up from a loss of $31.2 million in the fourth quarter and compares to a loss guidance of $31 million to $32 million and that delta is mainly due to higher litigation fees. Our net loss for the first quarter including litigation settlement was $55.6 million.

In summary, the year is off to a very good start with quarter revenue of $17.2 million and $24.8 million in orders, and it's exciting to see the progress we're making. It is early in the year and we are maintaining our revenue guidance of $80 million to $84 million. Ginkgo revenue is estimated to be approximately $10 million. Non-ginkgo Synbio is estimated to be approximately $32 million to $33 million. NGS revenue is estimated to be $37 million to $40 million and pharma $1 million.

Our net loss guidance for the year excluding the settlement expense is $107 million to $110 million up from the previous guidance of $103 million to $106 million, and that's due to higher litigation expenses associated with defending and settling the case. In addition, as you saw in our press release, we accrued additional $22.5 million for our settlement of Agilent. So total estimated loss guidance, including litigation settlement is $129 million -- $129.5 million to $132.5 million. Finally, we closed the first quarter with $103.1 million in cash and strengthen our balance sheet and cash position as we completed at the market offering at the end of January. We issued approximately 2.24 million shares of common stock at an average price of $22.32 for a total of $48.2 million in net proceeds. This positioned us well to finalize our settlement with Agilent.

And with that I will turn the call back to Emily.

Emily Leproust -- Chief Executive Officer

Thank you, Jim. As we move into 2020 and we continue to innovate, execute and respond to the market needs. For Synbio, we expect continued revenue growth and diversification of customers. We expect to introduce new products, designed to meet the needs of markets we do not currently serve today. And we will continue to enhance our e-commerce experience. For NGS, we will continue our efforts to move customers through the pipeline from pilot to adoption. In parallel, we would introduce new products designed to meet the needs of those developing liquid biopsies and cancer research tools as well as continued focus on converting organizations that currently use SNP microarray. For biopharma, we expect to leverage the data we have generated to-date on our seven functional antibodies against GPCR targets to sign a revenue generating contracts. We announced our first collaboration in January and we remain on track to sign between 5 and 10 collaborations, some of which will include both milestones and royalties. And for data storage, we will continue to collaborate with our product team through the MIST program to create a fully integrated commercial offering in three to five years.

With that, let's open up the call for questions. Operator?

Questions and Answers:

Operator

[Operator Instructions] And our first question comes from the line of Luke Sergott with Evercore ISI. Your line is now open.

Luke Sergott -- Evercore ISI -- Analyst

Hey guys, a couple of congrats I think are in need. I guess to talk about the litigation, kind of walk us through why the timing is now and then deciding because you for a while you're talking about willing to go through the full nine-yard is understandable, why not just kind of how that shook out?

Emily Leproust -- Chief Executive Officer

Thank you, Luke. I'll pass it to Mark Daniels, our Chief Legal Officer.

Mark Daniels -- Chief Legal Officer, Chief Ethics and Compliance Officer, Senior Vice President and Secretary

Thank you. We were prepared to take this case all the way through the trial. But we have to understand almost all cases settle. 97% of cases that are brought settle, so it's not unusual that the case settled. It was the right thing to do for the company. It was the right thing to do for our stakeholders. We look at this settlement as a victory for Twist. It eliminates uncertainty and legal expenses. There are no royalties associated with this settlement and the legal claims were resolved.

Luke Sergott -- Evercore ISI -- Analyst

Thanks, that's -- we'd read like -- and I guess back to the business on, so I'm thinking about the margin dynamics, Jim, can you walk me through how that's going to shake out through the year. And also within most of the quarter right so, you guys did really well. You've placed a lot of -- sold a lot of the long genes, the higher margin business like NGS continue to ramp, but the margins came in a little light. Is that more from the capacity expansions and still not at utilization, just kind of walk us through that.

Jim Thorburn -- Chief Financial Officer

Yes. So good point Luke. When we set out the projections for this year, we were always ramping our gross margin and targeting to grow it as we scale our revenue from roughly 20% in the fourth quarter to exiting at roughly 40% -- 20% in the first quarter to roughly exiting at 40% in the fourth quarter. Yes, we're adding capacity. We're bringing some heads and slightly ahead of schedule in terms of preparing for the ramp-up in the next couple of quarters.

I think in terms of the way we would look at it, we're directionally heading toward the 40% gross margin as we scale our revenue. We're comfortable with the forecast $80 million to $84 million. We're comfortable of the average gross margin of about 32%. And I think it's really, really incredible progress the team has made to move into our 6,000 square foot facility here and as Emily highlighted, we are commissioning two new synthesizers which will give us capacity as we scale through the year. Before we get into the holidays, there we expected to some of our customers to actually be shut down over the Christmas holidays, we actually shipped more than we expected. And we've seen some spike demand and that's been a little extra cost and ahead than we expected, but we're tracking to what our internal models are looking like.

Luke Sergott -- Evercore ISI -- Analyst

All right. Great. Thanks.

Operator

Thank you. And our next question comes from the line of Catherine Schulte with Baird. Your line is now open.

Catherine Schulte -- Robert W. Baird -- Analyst

Hey guys. Congrats on the quarter and the settlement. A few questions for me. I guess first for the new shrouding or collaboration, what are the next steps and milestones that we should be expecting this coming year and what's the timeline to potentially reach proof-of-concept in preclinical development there?

Emily Leproust -- Chief Executive Officer

Thank you. So we are not sharing details of the milestones. I think in terms of news flow on the pharma side, aside I think we've signed up for 5 to 10 collaborations. And with time we expect to see is a growing economics of deals and then being able to command some milestones and royalty payments per contract. So I think those are the milestones to look forward to, number of contracts, size of economics and then milestones and royalties.

Catherine Schulte -- Robert W. Baird -- Analyst

Okay. And then I know it's early, but any qualitative comments on how the MGI collaboration is going so far. And perhaps just your outlook for NGS uptake in Asia more broadly?

Emily Leproust -- Chief Executive Officer

So far, it's going well. And as Jim mentioned, the bookings in China are growing and we anticipate that that the portion of the growth that will come in the future quarters would be catalyzed by the collaboration with MGI and the co-marketing agreement we have together.

Catherine Schulte -- Robert W. Baird -- Analyst

Okay. And last one, I'll hop back in the queue. But any preview of what we should expect to see from you at AGBT conference later this month?

Emily Leproust -- Chief Executive Officer

So we are still the sponsor. And so, I think the -- it used to be -- the first time went to AGBT, it was Twist standing up saying that we had built a new product line that had substantial advantages in terms of the cost of sequencing the sample in terms of the speed at which we could make custom product and improvements in the workflow, so it used to be me and the Twisters spreading that story. And what happened last year at AGBT, actually our customers took the stage and validated what we had said. And so in a way it was our customers that were spreading the advantages that our platform bring, and so I think the preview for this year would be more of the same of more customer testimonial and not only in the markets we serve today, but in the markets that we want to expand into. We have got a great franchise and we've been taking market share, but we are not yet serving all of the markets, and for instance in the -- in the conversion of the SNP microarray toward NGS we are still in early innings. And so we'd want to showcase how our products can be transformative into other application spaces as well.

Catherine Schulte -- Robert W. Baird -- Analyst

Okay. Great. Thank you.

Operator

Thank you. And our last question comes from the line of Doug Schenkel with Cowen. Your line is now open.

Subbu Nambi -- Cowen & Company -- Analyst

Hi, this is Subbu on for Doug. Congratulations. You continue to have an impressive number of customers in pilot in validating your NGS product. How big could this business get for you over the next two to three years. Could this reach like $100 million in revenue by 2022? And I have a follow-up.

Jim Thorburn -- Chief Financial Officer

That's a good question. We're certainly doing well in NGS. I mean the guidance we've given for this year is between $37 million and $40 million. We are adding more NGS resources in the field to position for ramp-up. We'll get a good strong value proposition in the marketplace and in not giving guidance for the following year, but the market is growing 26% to 30% a year, and we're feeling good about the opportunities BGI, PerkinElmer collaborations are going well. We're seeing good strong positioning in Europe and good growth opportunities in Europe. So, I'm personally excited about it. We got 33 people in the field. Their quarter targets are roughly $2 million a head. And our goal here is to accelerate in that market opportunity and optimistic with the future, I'm not going to give guidance for over the next couple of years.

Subbu Nambi -- Cowen & Company -- Analyst

Got it. That's helpful. And then some really nice momentum in pharma with $700,000 in orders. What does this translate into revenue and have -- what have you baked into guidance?

Emily Leproust -- Chief Executive Officer

So we expect all of the -- all those to transform into revenue over the next few quarter. We've guided revenue for the year of $1 million to $2 million for pharma. And so it's a great start that that in the first quarter we've already booked a substantial portion of that of the guidance.

Subbu Nambi -- Cowen & Company -- Analyst

Got it. Thank you, guys.

Emily Leproust -- Chief Executive Officer

Thank you.

Operator

Thank you. And this concludes today's question-and-answer session. I would now like to turn the call back to Emily Leproust, CEO and Co-Founder of Twist for any closing remarks.

Emily Leproust -- Chief Executive Officer

Thank you, Chris. And thank you everybody for joining us today. It's been a very eventful and positive day for Twist. And we look forward to building on our momentum to drive future growth and business success. Have a great day.

Operator

[Operator Closing Remarks]

Duration: 37 minutes

Call participants:

Jim Thorburn -- Chief Financial Officer

Emily Leproust -- Chief Executive Officer

Mark Daniels -- Chief Legal Officer, Chief Ethics and Compliance Officer, Senior Vice President and Secretary

Luke Sergott -- Evercore ISI -- Analyst

Catherine Schulte -- Robert W. Baird -- Analyst

Subbu Nambi -- Cowen & Company -- Analyst

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