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Welcome to the Twist Bioscience’s Fiscal 2023 Fourth Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Please be advised that this call is being recorded. I would now like to turn the conference call over to Angela Bitting, Senior Vice President of Corporate Affairs and Chief ESG Officer.

Thank you, operator. Good morning, everyone. I’d like to thank all of you for joining us today for Twist Bioscience’s conference call to review our fiscal 2023 fourth quarter and full year financial results and business progress. We issued our financial results release this morning, which is available at our website at www.twistbioscience.com. With me on today’s call are Dr. Emily Leproust, CEO and Co-Founder of Twist; and Jim Thorburn, acting CFO of Twist. Emily will begin with a review of our recent progress and Jim will report on our financial and operational performance. Emily will come back to discuss our upcoming milestones and directions. We will then open the call for questions. We would ask that you limit your questions to only one and then re-queue as a courtesy to others on the call. As a reminder, this call is being recorded. The audio portion will be archived in the Investors 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 the future events or future financial or operating performance. Our expectations and beliefs regarding these matters may not materialize and actual results in financial periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include those set forth in the press release we issued earlier today as well as those more fully described in our filings with the Securities and Exchange Commission. The forward-looking statements in this presentation are based on information available to us as of the date hereof, and we disclaim any obligation to update any forward-looking statements except as required by law. With that, I will now turn the call over to our Chief Executive Officer, Dr. Emily Leproust.

Thank you, Angela, and good morning, everyone. Fiscal 2023 was a year of growth and strong execution for Twist. We grew our business with revenues increasing 20% year-over-year. We completed internal integration of our Biopharma group and we implemented strategic action to align our cost structure aimed at optimizing our operations with a clear focus on increasing gross margin along our accelerated path to profitability. We invested in our best-in-class innovation to set the stage for near- and long-term success. And now, we are focused on profitable and stable growth moving into fiscal 2024 and beyond. Getting into the specifics for the fourth quarter. We grew revenue to in $66.9 million and $245.1 million for the full year, exceeding our updated guidance for the quarter and the year. Our gross margin was approximately 37% for both the quarter and the year. And we ended the year with approximately $336 million of cash, cash equivalents and investments. Across the business, our efforts over the last 24 months in building the Wilsonville facility, expanding our production line and streamlining workflows are now benefiting both our SynBio and NGS product lines to allow us to deliver what our customers need. Within our factory in Wilsonville, we have analyzed each process in the SynBio workflow to remove excess time, and our production data shows that we are able to turn genes around in six business days, consistently. This is an incredible feat and one that requires all hands on deck to optimize every process and procedure. This robust workflow now allows us to make more SynBio products in less than half the time we could even one year ago. On Tuesday, we launched Express Genes, which we previously called Fast Genes. This is the first product that will directly benefit from and has been made possible by the time and infrastructure investments in our Wilsonville facility. With Express Genes, we have the opportunity to increase contribution margin for the SynBio product group as well as our overarching gross margin. I’d like to note four important things about how the launch of Express Genes impacts our business. First, this is -- our clonal gene services are bread and butter of the SynBio products. About half of our clonal gene orders qualify for this Express Genes service today with an eye towards expanding to the majority of clonal genes orders moving forward. Genes that do not qualify for Express service will continue to be order of standard speed and will be priced starting at $0.09 per base pair. For Express Genes, it is the same great product delivered faster, and so we charge a premium price for that speed. The price will be dynamic based on how full the fab is. Second, all genes whether standout or Express will be manufactured on the same manufacturing line. This is a streamlined highly automated process where all genes go through the same steps. Standard genes will either wait before or after synthesis, as we will use standard genes to maximize chip utilization. This is similar to our airlines use standby passengers to run planes that are as full as possible. Third, with higher revenues through premium pricing for Express Genes, we expect to see margin improve. Our objective with pricing is to expand our market opportunity significantly into the makers’ market as well as capturing additional customers within the buyers’ market. This means that our offering must resonate as a cost effective alternative to customers making and cloning the genes themselves. Working with pricing experts, our initial dynamic price range is designed to optimize our pricing in a way that will not alienate existing customers. At the same time, we expect to increase our margin from this differentiated product line while serving a large unmet need for our current and future customers. Fourth, because we are making all genes at extra speed, our genes capacity for our Wilsonville site is now close to double compared to the 10 days turnaround time production time line. That’s a strategic and key point that allows us to continue to scale. A further note that we have implemented the improvement in turnaround time throughout the SynBio product line, so our gene fragments can now be delivered in ex-U.S. two business days and oligo pools in as ex-U.S. three business days. For fragments and oligo pools, we are pleased to offer this product at competitive pricing without the premium. The enhanced speed and efficiency of our operations has allowed us to gain a stronger foothold in the market while maintaining healthy contribution margins for this product line. With the successful launch of Express Genes, our aim is twofold, to scale up our genes volume with existing customers and to attract new customers, thereby expanding our market reach. In the initial phase of launch, we are directing our efforts towards our current customer base. Once we know the workflow is tried and true, we will amp up our marketing efforts, targeting customers’ convergence from competitors as well as new customers who have not yet used Twist for their clonal gene needs. As we run Express Genes, we expect the book-to-bill ratio will essentially approach 1, as there are so few days between order and delivery. As such, orders of SynBio become less informative. The trend to watch will be revenue growth in SynBio. Importantly, the speed of Express Genes unlocks additional applications including long genes, complex genes, additional IgG antibodies as well as mRNA production. So not only are Express Genes an opportunity to increase margin and take market share, but they also laid a foundation for growth into the future. Moving to NGS, over the course of the year and particularly in the fourth quarter, we saw the work we have done with customers to optimize their workflow over time begin to pay off. Several key customers are now scaling production for validation and commercialization. In addition, we see strength driving into the middle of the market. We see an increasing number of customers using our RNA-seq workflow and several customers are implementing our minimal residual disease or our MRD workflow. We believe both of these product groups validate our innovative approach to develop and commercialize products that our customers need. At a high level, our Life Sciences, Bio and NGS products grew at more than 23% year-over-year. Production is reaping. As we think about our trajectory towards profitability, we believe we have set our efforts up for success. We have momentum going into fiscal year with the launch of Express Genes and the ability to unlock future product lines. We have NGS tractions with the top and middle of the market as well as initial RNA-seq and MRD uptake and an energized team that is committed to driving the business forward towards profitability and scalable growth. As a management team, we have a strong track record for executing against our strategy, growing our customer base and driving best in class product innovation. We are now laser-focused on increasing our gross margin and driving towards profitability. Turning to Biopharma, we have effectively addressed our internal integration challenges and as of early October, our commercial team was fully staffed with all territories covered. We’ve shared that it typically takes about six months for a new representative to come up to speed and orders for Biopharma directly translate into revenue in the three to six months time frame. For the fourth quarter, orders increased quarter-over-quarter for the first time this fiscal year. We see this uptick as a positive sign of health for the overarching Biopharma services business. Of note, the majority of our orders came from large pharma. The last few months, we announced agreements with Ono Pharmaceutical, Bayer and more. And we are cautiously optimistic that the fourth quarter of 2023 will represent the low point for Biopharma revenue as the spectrum for SynBio all the way through Biopharma services is gaining traction. The Biopharma group continues to provide a strategic advantage, allowing us to utilize our SynBio products including genes, fragments, oligo pools laboratories and IgG antibodies, all the way through to antibody discovery optimization and humanization services, differentiating us from our competition and providing upside through potential milestones and royalties. Our acquisition of Abveris broadened our offering beyond synthetic libraries and enabled in vivo discovery through animal models. This has been integral in extending our comprehensive offering. Now fully integrated, Biopharma provides a full menu of in vivo, in vitro and in silico services to our customers. This means that we have a powerful comprehensive offering that is able to meet varying customer needs under one roof. For example, our large pharma and biotech customers often pick and choose from a broad menu based on their needs, whereas smaller companies often benefit from a full end to end offering. Finally, our in silico services enable us to provide more sequences and hits for our customers in vivo and in vitro projects, which maximizes their chances of success. For data storage, we have made progress in our approach to enzymatic synthesis for this application. We are working to implement an industrial-grade codec, the encoding and decoding algorithm, with a large industry partner. We remain on track with our plan to demonstrate an end to end gigabyte Century Archive workflow by the end of December with the early access launch of a terabyte Century Archive solution expected in calendar 2025. On the corporate side, we added a key operational leader in Mark Buck as our SVP of Operations. He brings a military background as well as deep expertise in supply chain, quality and production. At his prior company, he was responsible for 21 production facilities, and we look forward to the perspective he brings with respect to optimizing our operations further for scale and improving gross margin. With that, I’ll turn it over to Jim.

All right. Thank you, Emily. We’re happy to report we hit another record in orders and revenue for our fourth quarter and full fiscal year 2023. I want to thank all our Twisters, customers and partners who made this possible. Revenue for quarter four grew to $66.9 million, which brings our revenue for fiscal year ending September 30th to $245.1 million as compared to $203.6 million in fiscal ‘22, and that’s year-over-year growth of approximately 20%. Orders increased to $71.1 million for the quarter, bringing orders for the year to approximately $264 million and that’s year-over-year growth of 17%. And gross margin for the quarter increased 36.6% and was 36.6% for the year. We also increased our customer base to approximately 3,450 and that’s up from 3,300 in fiscal ‘22. And we ended the year with cash investments of approximately $336.4 million. Now, I’ll provide a deeper dive starting with NGS. NGS revenue for the fourth quarter grew to approximately $37.1 million compared to $29.2 million in the fourth quarter of fiscal ‘22, and that’s an increase of 27% year-over-year. And for the full year, revenue increased to $123.7 million for fiscal ‘23 as compared to $99.3 million in fiscal ‘22, and that’s year-over-year growth of 25%. The record revenue for fiscal ‘23 was due primarily to an increase in revenue from our top 10 customers, which accounted for approximately 37% of revenue for the year. We served approximately 1,020 NGS customers in fiscal ‘23 and we believe our NGS products have a compelling competitive advantage and save our customers’ downstream sequencing costs. And this advantage reflected in our orders for the fourth quarter of $39.1 million and $131.5 million for the year, and that’s 26% year-over-year growth. As we’ve noted in our previous calls, we track the larger account opportunities that is accounts we believe have potential to be larger than $250,000 per year. And overall account remains at 279 with 131 adopted same as last quarter. At this stage, we believe we identified the vast majority of players in this market, and we’ll be focused on landing and expanding these accounts. Now turning to SynBio products, which includes genes, DNA preps, IgG, G&A libraries and oligo pools. We had another strong year and excited about leveraging our investments in our Wilsonville facility. SynBio revenue for the quarter was $26.5 million, bringing revenue for fiscal ‘23 to $98.2 million, up from $80 million in fiscal ‘22 as we continue to expand our customer base and product offering. SynBio orders for quarter four were $26.2 million, which brings our fiscal ‘23 orders to $110.9 million, up from $90.7 million in fiscal ‘22, and that’s 22% year-over-year growth. Some of the highlights include growing our customer base to approximately 2,700 SynBio customers in fiscal ‘23 as compared to 2,300 in fiscal ‘22. We increased our genes revenue to $73.5 million versus $61.5 million, which is year-over-year growth of approximately 20%. And we shipped 634,000 genes in fiscal ‘23 as compared to 558,000 in fiscal ‘22. Oligo pools revenue grew to $14.5 million and that’s up from $12.4 million in fiscal ‘22, mainly due to strong growth in academic and large pharma customers. And libraries revenue was $10.2 million, and that’s up from $6.1 million, predominantly due to growth in large pharma and industrial biotech. For Biopharma, revenue for the fourth quarter, it was $3.4 million, bringing the total revenue from Biopharma to $23.2 million in fiscal ‘23, and that’s a decline from $24.2 million in fiscal ‘22. Importantly, orders for the quarter rose sequentially to $5.8 million from $3.5 million in quarter three, and the number of active programs declined from 82 to 69. However, new projects started in the quarter increased from 34 in quarter three to 44 in fourth quarter, and that’s associated with the recovery in orders. And the total number of completed programs as of September 30th was 806, with 68 [ph] including milestones and/or royalties. I’ll now briefly cover our revenue breakdown by industry and give you -- provide a regional update. Healthcare revenue rose to $137.1 million for fiscal ‘23, compared to $106.4 million in fiscal ‘22. Industrial chemical revenue rose to $59.3 million and that’s up from $57.9 million in fiscal ‘22. And academic revenue was $45.8 million and that’s up from $37.1 million in fiscal ‘22. On a regional basis, EMEA revenue rose to $71.4 million versus $62.1 million in fiscal ‘22. APAC increased to $22.5 million, compared to $19.1 million in fiscal ‘22, including China revenue of $7 million, which is flat with the previous fiscal year. The U.S., including Americas revenue increased to $151.3 million in fiscal ‘23 versus $122.5 million for fiscal ‘22. Now moving down to P&L. Our gross margin for the fourth quarter increased to 36.6%, bringing our overall gross margin to 36.6% for the year. Cost of revenues increased from $119.3 million in the prior year to $155.4 million in the year ended September 30, 2023. The major factors contributing to the increase in cost of sales were a $14.7 million increase in material costs due to higher volume, $9.9 million payroll and approximately $12 million depreciation and amortization costs. Our operating expenses for fiscal 2023, which includes R&D, SG&A and change in fair value and mark-to-market adjustments of acquisitions, decreased to approximately $306.8 million as compared to approximately $319 million in fiscal ‘22. To break it down, R&D for the year was $106.9 million, a decline from $120.3 million in the previous fiscal year, primarily due to the conclusion of Revelar. Depreciation included in R&D was $4 million for fiscal ‘23. SG&A for the year was $190 million and that’s a decline from $212.9 million which includes a $43 million reduction in stock-based compensation expense, offset by increases in pre-commercialization costs, facilities, payroll and IT-related service costs. OpEx includes approximately $38 million for data storage spend in FY23, change in fair value of contingent considerations and indemnity holdbacks for the year resulted in a gain of $6 million versus a gain of $14 million in fiscal ‘22. For restructuring and other costs, we invested approximately $16.2 million for the strategic initiatives we announced in May, with $9.4 million to support our valued employees with severance packages as well as asset impairment charges of $6.8 million. Stock-based compensation for the year was approximately $30.3 million as compared to $80 million in fiscal ‘22. Depreciation and amortization costs were $29 million for fiscal ‘23. And loss from operations was approximately $217.2 million in fiscal ‘23 as compared to $234.8 million in fiscal ‘22. Other income and expense was a gain of $14.3 million associated with interest income. CapEx for the year declined significantly to approximately $28 million from $101.9 million in fiscal ‘22, and we exited the year with $32.1 million inventory down from $39 million at the end of fiscal ‘22 and concluded the year with cash and investments of approximately $336 million. I will now provide updated financial guidance for fiscal ‘24. We enjoyed record bookings in quarter four and are excited about the launch of our Express Genes. Our Wilsonville facility is doing well, and we took actions during the year to manage our cost structure as we transitioned SynBio activities to Wilsonville. For fiscal ‘24, we expect total revenues to increase in the range of approximately $285 million to $290 million, SynBio revenue of approximately $113 million to $116 million, NGS revenue of $147 million to $149 million, and Biopharma revenue approximately $25 million, gross margin of approximately 39% to 40%, operating expense of approximately $294 million to $298 million which includes $100 million to $102 million in R&D expenses, $194 million to $196 million in SG&A expenses. Loss from operations guidance before taxes of approximately $180 million to $188 million, which includes stock-based compensation of $58 million to $60 million, depreciation and amortization of approximately $40 million, data storage operating expense of approximately $37 million to $39 million, CapEx for FY24 is projected to be approximately $20 million, ending cash of approximately $245 million. For the first quarter of fiscal 2024, we expect overall revenue of $67 million to $68 million, SynBio revenue of $27 million, NGS revenue of $36 million to $37 million, Biopharma revenue of $4 million, gross margin of 38% to 39%, OpEx of $73 million and loss from operations of $47 million to $48 million. In summary, we continue to maintain financial discipline throughout the organization and make progress in reducing our operating losses. We expect to exit fourth quarter of fiscal ‘24 with $78 million in revenue, and our estimated loss from operations to be $38 million to $40 million, which excludes any one time adjustments includes stock-based compensation of $15 million, depreciation of $10 million and data storage cash operating expense of $8 million. We continue to make decisive and proactive actions to achieve profitable growth. To achieve this we’re focused on scaling Express Genes, offering and leveraging our investment in the Wilsonville facility, managing our costs and then continuing to execute by growing revenue, expanding our gross margin. We’re incredibly excited about the future and confident that the year ahead will bring many exciting milestones and achievements. With that, I’ll turn the call back to Emily.

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

Thank you. [Operator Instructions] Our first question comes from Luke Sergott with Barclays.

I guess, when I look at the guide, can you talk about how much of the guidance implies or bakes in the Fast Genes? You see the margin step up here from 38 in 1Q and ending the year at 39, 40. Kind of give us a sense of the cadence there and how the Fast Genes or how much of your guide bakes in this business in the revenue and margins?

Do you want to take it, Jim?

Yes, I’ll start. Luke, thanks for the question. Yes. So, in terms of Express Genes, excited about the launch this week. As Emily highlighted in the call, we’re going through the price discovery. Factory of the Future is going well. I think we’re excited about the endpoints in terms of exiting this year and margins. Revenue increased sequentially from quarter three to quarter four by roughly $3 million, and our gross margin dollars increased by $3 million. So, that highlights the leverage from Q3 to Q4. As we’re thinking about next year, fiscal year ‘24, which we’re now in, we’ve got some macroeconomic environment issues that we’re taking into account. We’re seeing -- and Emily can talk about the early days of Express Genes. We’re seeing good feedback from the marketplace. And as usual, as we look out into the future, we’re prudent in terms of forecast. NGS is doing well. SynBio is doing well. We get the added boost from Express Genes, and we want to be thoughtful in terms of the guidance we’re giving. You saw Biopharma, last quarter, we saw a pickup in Biopharma. So, we feel that as we look next year, good solid growth in gross margin. As we continue to scale the factory, we’re going to see upside in terms of that gross margin as we execute. We’re very-focused on having a strong cash position and very-focused on operational excellence. And I’ll turn it across to Emily to talk a little bit more about the Express Genes.

Yes. Thank you, Jim. So we’re one week in for Express Genes. We have nice orders. So far, we’ve tested premium pricing of -- starting Monday of 50%, Tuesday 60%, and then we dropped to 40%, went back to 40% and then today we are at 20%. So, we are in that expression of the price range. And it’s great to see that we’re getting orders. And on Monday, we should have the first shipment of Express Genes. So, it’s early days, but quite optimistic in the uptake.

And then can you talk about the feedback you’re getting for Express Genes now, I guess? And where this is coming from? And from the makers’ market, are you getting most interest from pharma or is it pretty broad based? And then, like within that makers’ market, a lot of these companies and businesses had internal teams there. So, talk about like the conversations that you’re having with them and what their plans are, and some of the -- how they’re thinking about ramping on, on the Express Genes platform?

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

Our next question comes from Matt Sykes with Goldman Sachs.

Maybe just to follow up on the Express Genes. Just one point of clarification, Emily, you said that you’re going to do the marketing launch in calendar year ‘25, did you mean ‘24? And then…

Thank you, Matt. Thank you. Yes.

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

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

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

Yes. Matt, I can touch on that. If you look at our Q and you look at the K, you’ll see that, we do cover the gene revenue and gene shipments. And if you look over the last few years, you will see that our gene pricing has in fact increased over the last 2, 3 years. And so, every quarter, you’ll be able to see, right, what’s the gene revenue and how many genes we shipped and what’s the average price per gene. So you’ll be able to track it that way. And we’ll start giving more insight on that in our earnings call as we go forward.

Our next question comes from Vijay Kumar with Evercore ISI.

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

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

And one, Jim, maybe on that operating leverage you brought up. If you look at the cadence here, gross margin, it seems like a more modest ramp, but your Q1 versus Q4 exit rate, I think implied numbers, your OpEx is going to step down, while your revenues are up from Q1 to Q2 -- Q4, I think are up like $10 million, and OpEx is down. So, is there some incremental cost actions coming in? What is driving that OpEx? And why are we assuming a more muted gross margin ramp?

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

Our next question comes from Puneet Souda with Leerink Partners.

So maybe, Emily, I’ll start with a one sort of a high level question for you. I mean, you’re seeing NGS growth here. Your orders are up on NGS. Your top end of your fiscal ‘24 guidance is just sort of slightly shy of where Street was in revenue. And you just delivered 20% growth. You’re expecting what implies as somewhere around 17% to 18% next year, mid-20% for 4Q, December ending quarter. So again, all of this looks like you’re doing better versus what the backdrop is. You’re expecting significant pickup from Express Genes. It seems like you’re production ready. So, I think the question is really the demand in the market, which according to most of the life science tools peers is weak, to put it briefly. So maybe just help us understand how Twist is seeing the market sort of differently versus other NGS oligo peers and overall what we’re hearing from the broader market? Just help us contextualize where you think you’re going to continue to win, and despite the market backdrop.

Yes. No, thank you. That’s a very thoughtful question, and, I think, at the end of the day, it all comes down to the platform. We’ve always said that the success that we have comes from two things. One is the innovation in the silicon technology that we have, and the second is the very violent commercial execution that we have. And, I think you see it in our guide for next year. I can see that -- I agree with you that when you look at our peers, it seems like the demand is weak. However, we just have very, very differentiated product. And I think, in a difficult environment, our platform just shines. If you think about NGS, our big customers in NGS are diagnostic customers. What they need -- as their own funding environment is difficult, as their own reimbursement is difficult, they need really improved margin. And that’s what we sell in NGS is if you switch to Twist, because of the quality of the product that we provide, because we have all the regions from A to

And then, if I can touch on Biopharma, I mean, you’re implying a high-single-digit growth here. Could you maybe outline how much of that is from services or any other sort of milestone payments that you’re expecting here? Because when we look at some of the antibody discovery fears, obviously, the market is pressured by the emerging biotechs pulled back meaningfully. Maybe can you talk a little bit about how much of the mix is large pharma versus those emerging biotechs? And what does that mean for the source of new projects that you expect to receive in Biopharma in 2024 -- I mean, fiscal ‘24?

Maybe I’ll start. So the guide implies no maximum royalties. It’s all a fee for service guide. And I agree with you that if you look year-over-year, the growth looks not very big. However, actually, if you look at the low point of Biopharma in ‘23, compared to the higher point to Q4 2024, we’re going to see some substantial growth. We had a stumble in commercial execution, and so we had a few quarters of Biopharma services going down, but now we’ve rebuilt the commercial team. We had sequential growth in our orders. As we say inside the Company, we’ve done it one quarter in a row, and now we have to just go do it again, and I expect to see some significant growth when you look from the low point to Q4. And that’s the direction we want to see.

And then if I could ask one brief one to Jim. Jim, what are you expecting for to spend on data storage in fiscal 2024? And then, maybe if you can provide how should we think about the cash burn as we go into sort of the next two years?

Yes. So, overall, operating expense for data storage is going to be in the range of $37 million to $39 million for this year. In terms of cash burn -- approximately about $30 million to $32 million in terms of cash burn, for data storage.

Our next question comes from Catherine Schulte with Baird.

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

Yes. So, as we highlighted, I mean, our focus is getting to adjusted EBITDA breakeven for Biopharma, NGS and SynBio as quickly as possible. You look at the guidance we’ve given, loss from operations in Q4 next year, roughly $38 million to $40 million that comprehends stock-based comp $15 million, depreciation of $10 million, and there you get data storage cash cost in Q4 of approximately $8 million. So as you can see from those numbers that we’re within striking points of getting to breakeven from a cash position. And as we continue to scale, I mean, our focus is, as Emily highlighted in the call, is to get profitability as fast as possible and having a very solid balance sheet to support the growth going into ‘25.

And then, Emily, just to your point on the ramp for Biopharma throughout fiscal ‘24, how much visibility do you have in that $25 million number? Maybe how much is already accounted for in current programs versus assumptions around winning new products, because it does imply a pretty steep ramp throughout the year? And is there any way to quantify the impact of the new Bayer partnership?

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

Our next question comes from Steven Mah with TD Cowen.

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

Yes. Thank you, Steve. So, the way the dynamic pricing works, we design our e-commerce to have two characteristics, one is very subtle, but at the same time, which means that as people order the genes the regular way, it’s subtle that there’s an option to get Fast Gene. However, at the point of ordering, it is a very strong, in your face and very clear differentiation in terms of -- for that extra dollar, you can get that extra benefit, and customers have to make a yes or no decision. And so, on the one hand, yes, we’ve done it subtly, but, customers asked to make a decision. And, so as far as the early reaction that you were asking, we can look at 20% of customer chose the Express Genes option as a function of different prices. So, that’s ongoing. In terms of your second question, how long will we be in that early launch phase? It should be until early calendar 2024. Matt won’t have to correct me this time. So early ‘24, that’s when we’ll do the full launch to all the customers. And then, what was your third question? I think, there was a first question that I don’t remember.

Capacity for Factory of the Future given the turnaround times faster for Express Genes?

Yes. In terms of capacity, yes. Because now -- if all the orders were ordered fast, that would be basically double the capacity that we have in our fabs. So, we have not quantified that with the dollar at this point, but we will over time.

Our next question comes from Sung-Ji Nam with Scotiabank.

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

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

Our next question comes from Matthew Larew with William Blair.

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

So, as a point of clarification, what we have something that is actually quite unique because it’s the same production line for Express and standard, meaning that if all our customers decided to pick express genes, we will be able to make them all express. And that is very different from what other companies can do. Maybe they can do a few gene fast by cutting the queue and skipping ahead and managing their backlog. But for us, we don’t have to do that. We’ve built something that is intrinsically fast for 100% of the genes. And so, to go back to your question around optimum pricing, for us, our goal will be to maximize our gross margin dollars. And so, making sure that the fab is fully utilized and find the pricing that maximize the penetration into the DNA makers, and ultimately really delight our customers, enable them to do their science faster, and I think that would be a win-win. They’ll get faster science and we’ll get more orders and we think we’ll be able to take very significant market share. So, the intrinsic technology really enables us to be very flexible on what the ultimate price is going to be. If need be, we can make all of orders express. And that is hugely differentiating.

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

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