Good morning, ladies and gentlemen, and welcome to Twist Bioscience's Fiscal 2023 Second Quarter Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference call over to Angela Bitting, Senior Vice President, Corporate Affairs and EGS Officer. Please go ahead..

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 second quarter 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, CFO of Twist. Emily will begin with a review of our recent progress on Twist businesses. Jim will report on our financial and operational performance and then Emily will come back to discuss our upcoming milestones and direction.

We will then open the call for questions. We would ask that you limit your questions to a maximum of two and then requeue 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 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 our 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. We'll also discuss financial measures that do not conform with generally accepted accounting principles, including adjusted EBITDA.

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 documents which can be found on our Investor Relations website at www.twistbioscience.com.

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

Thank you, Angela. And good morning, everyone. This is a busy time for Twist. I'm very pleased with our performance for the first half of the fiscal year, in Q2 we delivered our first quarter $50 million in revenue. In addition, this morning we announced that we have taken strategic actions to accelerate our path to profitability.

I am happy to share that we expect to achieve a quarterly run rate that is adjusted EBITDA breakeven for both the core and biopharma businesses as we exit the September of 2024 quarter in about 16 months. Today, I will focus on three main things. First, our confidence in our near term revenue growth.

Second, our decisive actions designed to achieve adjusted EBITDA breakeven in the near term. And third the drivers of growth in all businesses moving forward.

Beginning with top line growth for our revenue generating businesses, I am pleased to share very strong result for the second quarter of fiscal 2023, with reported record revenue of $60.2 million exceeding our guidance of $56.5 million.

Strength in the core business particularly NGS drove the beat order, came in at $64.2 million indicating solid growth moving into the second half of our fiscal year.

During the quarter we began commercial shipments at of our Wilsonville Oregon facility the Factory of the Future, which we believe will deliver manufacturing efficiencies, leading to margin improvement going forward.

We continue to see increasing enthusiasm for our Gene Fragments, Oligo Pools and elaborate products with our consistent rapid turnaround time driving that demand. I'd like to note that this is for our standout speed genes. We are not yet taking orders for fast genes, which we expect to launch in the fall with premium pricing.

We continue to take market share from our peers and remain far ahead of emerging players because of our consistent turnaround time together with our perfect way genes as a scale and price unavailable elsewhere, which continues to resonate with our customers.

Our reliable products and exceptional customer service has been key to creating loyalty with our customers, which then facilitates reorders and quarter-over-quarter revenue growth. In addition, our customer surveys continually state that we are their preferred provider because ordering is easy and we overdeliver on turnaround time.

For NGS, we see customers advancing development of their test and also gaining traction within the market. Our NGS revenue significantly lean to the commercial ramp of our customer base. And while there can be quarter-to-quarter lumpiness, we have confidence that revenue will grow year-over-year. The point to remember is our business is sticky.

We grow with our customer and our customer base continues to expand. In Biopharma, we began integrating the Boston team at the end of the calendar year, following the contractual limitations of the acquisition. We continue to see opportunities ahead, particularly as we now have an integrated team and portfolio of services.

What is true that the funding environment for emerging biotech companies has been constrained our share of the buyers' market services market is small and largely untapped by our commercial team. That said, we are facing some internal headwinds as we retouched on system and integrated commercial territories.

We've made changes to address these challenges and expect the revenue lift will come within six months. We continue to sign collaborations and agreements with customers and we're expanding our wallet share with existing partners. As an example, when we had those arguments with Astellas in April, our third collaboration with the pharmaceutical company.

We do expect fewer milestone royalties for corporations as we move forward as we are now prioritizing near-term topline revenue growth. Our commercial team for SynBio NGS and Biopharma is now firing on all cylinders and we are seeing a large opportunities ahead.

I will now move from top line to operating expenses and our significant actions to accelerate our path to profitability. As you know the factors of the future outside of Portland, Oregon is no shipping products with customers. In fact all of our genes, gene fragments and the vast majority of Oligo Pools have been made in Oregon for more than a month.

To accelerate our top line to reach profitability, we conducted a comprehensive review to re-engineer our code base and achieved these goals more quickly.

We have made difficult decisions resizing many teams throughout the organization, which will result in the elimination of approximately 270 positions to operate more efficiently while still continuing to support our high growth for these area.

It is difficult to say goodbye to the many talented and committed Twisters we've been integral in our success to date. We wish them well. We will support them as identify the next opportunity and we look forward to where they will achieve as they bring their experience front Twist to the larger ecosystem.

To provide a bit more color on the shape of the organization moving forward, the sales force will remain largely intact to drive topline growth. We remove the duplication of SynBio production across South San Francisco and Portland, significantly lowering our fixed cost structure.

In addition we resize the Biopharma team's focus on revenue generating partnerships, reprioritizing the majority of our internal assets.

Throughout the organization we streamline teams including R&D to focus on programs where Twist has a clear competitive advantage and to selectively deploy our platform in areas where we see the greatest potential for long-term value creation. In data storage, we remain integrally involved in market development and continue to advance our technology.

We do not see any near-term competitor or close to a commercial launch at this time, and that's significant. It enables us to substantially reduce our operating expenses for data storage, while continuing our effort at the moment it's level yet still remains ahead of the competition.

We will focus our efforts on the storage as a service business model and plan to delay the distributed on-premise approach until after the service business has proven to be a success. We expect to demonstrate an end-to-end gigabytes Century Archive service by calendar 2023.

Following on this in early calendar year of 2025, we expect to launch a terabyte Century Archive solution. With that said, we believe we will deliver on all of this, while reducing the overall cash flow. Moving into our future growth, we've seen many opportunities ahead.

As we look forward, the planned launch of fast genes in SynBio this fall, we will be targeting the $1.4 billion DNA makers market.

These are scientists and researchers and large pharmaceutical companies in academia that currently make their own DNA instead of buying it, as they need it faster and more cost effectively than we believe it can deliver from literally any close today.

This is one area that we are confident will increase our SynBio contribution margin, as we believe we'll be able to command a premium price that leverages dynamic pricing for rapidly delivering this product.

Additionally, we do not expect to add commercial head count to pursue this large market, as we believe our e-commerce portal and digital marketing capabilities enable us to acquire customer cost effectively. For NGS, our customers continues to increase, particularly in the oncology space.

We have several large commercial customers and then growing mid-tier group of development stage customers with the potential for compounding growth. In both instances, Twist is poised to grow with them. We continue to be included in more and more assets and we believe the growth of our NGS opportunity will be sustainable for the foreseeable future.

In the near term, we plan to an RNA workflow tools to our NGS portfolio. Scientists often run RNA assays multiple times for the same sample as RNA translates different time points in different issues in both normal in this state providing a large market opportunity that complements our DNA workflow tools.

RNA workflows are just primarily within the research market, an area where we have a significantly smaller footprint to date, but believe we can grow and extend. We expect almost several RNA tools in the near future.

In Biopharma, we continue to see opportunities for our competitively priced higher value services even also with the integration of the offerings. We are focused on selling services that drive topline revenue, while we digest the resizing of the organization.

The largest shift we'd be aware from R&D on our internal assets until we see some of them zooming out licensing antibody leads, where we have done the most work. For data storage, the very large opportunity remains within our sites, because we're not seeing direct competitors at this time we are slowing our investment.

Therefore, we revised our commercial plans while we advance at a more modest rate with us using our first model best in class competitive advantage. With that, I turn it over to Jim..

All right, thanks, Emily. We had another quarter of robust execution at Twist despite the volatile macroeconomic environment.

Revenue for quarter two was $60.2 million, which is year-over-year growth of approximately 25% and a sequential increase of 11% .Orders were $64.2 million for the quarter, an increase of approximately 17% year-over-year and gross margin for the quarters 7.8%. We shipped approximately 2100 customers as compared to quarter two fiscal '22.

And we ended quarter two with cash and investments of approximately $388 million. Our NGS revenue for quarter two was $29 million which is year-over-year growth of 26%. As we noted in our previous earnings call, we had a couple of larger customers pushed shipments from December quarter into January.

Our second quarter orders were $28 million, a sequential decline of 10% with growth of 19% year-over-year. As Emily stated, revenue growth in NGS is linked to the ramp of our customer tests which can drive some quarter-to-quarter lumpiness in revenues.

The top 10 customers accounted for approximately 38% for NGS revenue and we served approximately 600 NGS customers in fiscal quarter two. Our pipeline for larger opportunities continues to scale and we're now tracking 270 accounts, up from 264 noted in our last earnings call, 131 have adopted Twist as compared to 130 last quarter.

Now turning to SynBio which includes genes, DNA preps, IGG, libraries and Oligo Pools. SynBio revenue for the quarter rose $24.1 million representing sequential growth of 11% and year-over-year increase of approximately 31%. Orders for the quarter were $30.9 million, which represents a 16% sequential increase and a 31% year-over-year growth.

Some of the highlights include shipping to approximately 1600 SynBio customers which has grown from approximately 1400 in the second quarter of fiscal '22. The customer base includes mainly biotech and large pharma companies. Genes revenue increased to $18 million, which is year-over-year growth of approximately 27%.

We shipped approximately 152,000 genes in fiscal quarter two, which is an increase of approximately 23% year-over-year. And Oligo Pools had another strong quarter with revenue of $3.3 million with demand primarily coming from the Healthcare segments.

Now to Biopharma, our Biopharma revenues for the second quarter of fiscal '23 was $7 million, down sequentially from $8.2 million orders for the quarter of $5.3 million, down sequentially from $6.9 million in the first quarter, primarily due to integration challenges Emily described.

That said, we had 93 active programs at the end of the quarter and added three more milestone and royalty agreements which, brings the total to 66 up sequentially from 63. I'll now cover our revenue breakdown by industry and our regional progress.

Healthcare revenues for the second quarter of fiscal '23 was $33.8 million as compared to $24.1 million in the same period of fiscal '22, industrial chemical revenue was $14.4 million in the second quarter of fiscal '23 as compared to $14.1 million in the second quarter of fiscal '22.

Academic revenue was $11.1 million in the second quarter of fiscal '23 as compared to $9.5 million in the same periods of fiscal '22. EMEA revenue rose to $18.8 million in Q2 fiscal '23 versus $15.2 million in Q2 fiscal '22.

APAC continue to see recovery in China with our revenue in China increasing to approximately $2 million, up from $1.4 million in the prior quarter. For APAC overall revenue increased to $6.5 million compared to $4.5 million for the same period of '22. U.S.

which includes Americas revenue increased to $34.9 million in the second quarter versus $28.5 million for the same period of fiscal '22. Now moving down to P&L, our gross margin for quarter two was 30.8% with cost of revenue for the quarter of $41.7 million.

The change in gross margin was expected as the cost of revenue increased sequentially from $29.4 million primarily due to approximately $5 million associated with the commercialization of SynBio Labs and Factory of the Future. In addition, we had approximately 1 million scrap associated with the Factory of the Future in the quarter.

Our operating expenses for the fiscal quarter including R&D, SG&A, change in fair value and mark-to-market adjustments of acquisitions, which crossed the $80.1 million as compared to $79.2 million in Q2 fiscal '22.

To break it down R&D for the fiscal second quarter was $27.4 million, a decline from $31.2 million in the same period of fiscal '22, primarily due to the conclusion of [indiscernible]. This includes DNA storage R&D spend of $5 million and biopharma R&D spend of $4.7 million in the second quarter of fiscal '23.

SG&A in quarter two was approximately $54 million, Factory of the Future pre-commercialization costs included in SG&A were approximately $6 million for the first one for the quarter when the factory was not yet commercial.

In addition, we have a number of labs that are still in pre-commercial phase and we'll transition to COGS as they're qualified in the second half of fiscal '23. Stock-based compensation for the quarter was approximately $10 million.

Depreciation and amortization for the quarter was $7.1 million, an increase from $5.8 million in the previous quarter and associated with the commercialization of the Factory of the Future.

CapEx cash investments in the quarter two was approximately $9 million, which brings total CapEx cash spend for the first six months of fiscal year is $21 million.

As we've highlighted the launch of the Factory of the Future is going very well, we had a strong quarter of operational performance and as noted, we continue to see year-over-year growth in SynBio and NGS businesses. We're focused on achieving adjusted EBITDA to breakeven and then profitability as we scale.

We are resizing the organization by approximately 25%. The reductions aimed at managing our operation cost structure. Lowering our revenue breakeven point and limiting our investment in data storage as we transition to breakeven. Note the reduction first side of the years maybe delayed as we work through the required regulatory processes.

About 60% of the staff reductions effect the cost line and 40% effect our banks.

In particular, we have resized the biopharma group to achieve breakeven at $40 million instead of revenue of $80 million and for the core business, we have streamlined our organization across the board in order to achieve breakeven of $285 million instead of $300 million.

The cash restructuring costs are estimated to be approximately $9 million to $11 million. We anticipate cash savings approximately $9 million to $11 million per quarter on a go forward basis beginning in the first quarter of fiscal '24.

Savings primarily impacting our operations as we exit gene manufacturing South San Francisco and we'll ramp up the Factory of the Future, as well as moderate our investments in R&D for the majority of the spend reductions in biopharma and DNA storage.

Because we have taken actions to address our cost structure, we do believe it is prudent to revise our revenue for fiscal '23, as we digest these changes. We are revising this guidance to approximately $235 million to $238 million versus our prior guidance of $261 million to $269 million.

SynBio revenue range is $96 million to $98 million and that's down from $104 million to $106 million. NGS revenue range is $113 million to $114 million, down from $120 million to $123 million. Biopharma revenue is $26 million and that's down from $37 million to $40 million.

For the second half of fiscal '23, we anticipate revenue of approximately $60 million to $61 million in quarter three, and $62 million to $63 million in quarter four. And gross margin to be approximately 30% in Q3 and 36% in Q4. For the full fiscal year, we're projecting gross margins to approximately 35% to 36%.

We are decreasing operating expense guidance for the year to approximately $313 million to $319 million, as compared to our previous guidance of $330 million. We're now projecting R&D expense of $112 million to $114 million as compared to our previous guidance of $130 million.

We expect SG&A to be $197 million to $200 million and that's a decrease from our previous guidance of $204 million. Mark-to-market is projected to be a credit of $5 million, one-time separation costs from a reduction in force are projected to be $9 million to $11 million.

Depreciation and amortization is projected to be approximately $29 million, our projection for stock-based compensation decline to approximately $43 million from $50 million. Operating expense for DNA storage is expected to be approximately $40 million, compared to the previous guidance of $46 million.

And for fiscal '24, we also expect $40 million operating expense for data storage compared to previous guidance of $57 million. Net operating loss for the year is projected to be approximately $230 million to $234 million, which includes one-time charges of approximately $9 million to $11 million for separation costs.

CapEx for the year is projected to be $40 million a decrease from the previous guidance of $50 million ending cash projected to be $320 million compared to previous guidance of $300 million. In summary, we had record revenue in quarter two we're -- commercially shipping from the Factory of the Future.

We're focused on managing the business and our cost structure as we scale. Importantly, we expect to exit fiscal '24 for the fourth quarter adjusted EBITDA to breakeven for the core and biopharma business. We define adjusted EBITDA as EBITDA plus add back for stock-based compensation.

And we're also projecting ending cash balance of $220 million at September 30, 2024 and that's up from our previous guidance of $170 million. With that, I'll now turn the call back to Emily..

Thank you, Jim. We continue to have aggressive goals, and we have aligned the business because we simplified opportunities. As importantly, we announced decisive and proactive actions to accelerate our past ability preserving cash and mitigating risks, all the while leveraging our outside opportunities in the marketplace.

We always evaluate the business from every lens and we remain laser focused on achieving adjusted EBITDA breakeven for the core and biopharma businesses while maintaining optionality on investments for the incredible upside we see in data storage.

Our core business in SynBio and NGS continue to scale and we have near-term opportunities for each season energized commercial team to be deployed. We are resizing and refocusing the biopharma organizations from an integrated service offering that we believe will drive top-line revenue growth.

And we have moderated our stand for data storage while ensuring we maintain our competitive edge. We revised our guidance to a cautious level with potential for upside.

We have been strategic in our action this quarter positioning us as a leaner, meaner organization specifically focused on disruptive market opportunities for profitable and scalable growth.

With these substantive changes, we believe we are operating from a position of strength in the current environment, accelerating our projecting timeline to adjusted EBITDA breakeven for both the core and biopharma businesses as we exited the September 2024 quarter, about 16 months from now. We remain extremely excited about pricing the future.

And with that, let's open the call for questions.

Operator?.

[Operator Instructions] And now first question coming from the line of Vijay Kumar with Evercore ISI. Your line is open..

Hi, guys, congrats on the revenue beat in the quarter and thanks for taking my question. I guess my first question is on the guidance here. It makes sense for the guidance to be reset given the environment.

The back half here I think implied is high single digits, and it looks like all segments were cut, but perhaps Biopharma little bit more than the others.

Can you just talk about the macro environment, is this - what has changed versus three months ago from a macro perspective, and how much of this is Twist specific versus stuff, the general environment that you're seeing and how comfortable are you in this high single digit growth for the back half?.

Thanks, Vijay. Thanks for the question. So we step back as a number of things going on. One is in terms of Biopharma, we feel very good about where we're at. The challenges we've had in Biopharma is just purely inspirational. So that's an execution issue.

We acquired various last year we had been as important that we supported Abveris to be positioned to achieve that our NIM. And consequently we had this independence between Twist and Abveris. And then as we started to integrate, we realized we had some integration challenges.

We are launching the -- the new offering and we feel good about where we're positioned and because of the internal challenges there, we reduced the revenue outlook for Biopharma. As a large market, we get great service offering. So we feel very well positioned.

In terms of the other two areas, SynBio and NGS we have just reduced the organization by approximately 25%. We believe it's going to take some time to digest that reduction. The overall order growth rate is solid. We continue to see in NGS growth in large customers. We're launching new products.

In the same time 20%, 25% of the organization, we believe we need to be prudent in terms of our outlook in terms of top line. I think the advantages that we're positioned with company to get to adjusted EBITDA breakeven earlier and come out with a stronger balance sheet.

So this is internal, but we really believe that we're well-positioned from the platform. We're seeing large customer growth. So it is more prudent on our part..

Understood. And just, sorry, Jim. On just to clarify that point, what you're saying is 25% headcount reduction and did that come from the commercial side because I think what you're saying is orders and customers, the market seems to be healthy.

But this is more a function of the restructuring actions you've taken and hence the guide cuts here in the back half..

That's correct. Yes, the market is strong. We're up as we highlighted year-over-year. We're growing faster than the market. We're focused on launching new products. So this, this is just about pure internal issue in terms of digesting such a large change.

I mean, we've done a great job in terms of launching Factory of the Future, it's going exceptionally well. Turnaround times are excellent. Customer feedbacks, great. And at the same time, we believe for the next six months, we're going to be prudent in terms of our outlook, due to the reduction of the organization by 25%..

Understood. And then one on the gross margins, Jim. If I look at your third quarter and fourth quarter commentary here, fourth quarter revenues up a couple of million, but I think the implied gross profit dollars were up $4 million.

What drives that gross margin that 36% gross margin strength in Q4, and is that the right jump off point for next year? How should we think about gross margins for FY '24?.

Yes, good question. As we continue to scale, you can imagine, we've adjusted the cost structure. We're going to digest that, continue to grow, launch fast genes, so that 36% is starting off point for next year. And as we continue to scale, we're going to see incremental improvements in gross margin.

I mean, our focus is get to adjusted EBITDA breakeven for the core business by Q4 next year. We want to leverage Factory of the Future. We want to drive in the new products fast genes, we want to drive the new products in NGS and we are very well positioned to see gross margins improve next year..

Thank you. And our next question coming from the line of Matt Sykes with Goldman Sachs. Your line is now open..

Hi, this is Eve on for Matt. Are you feeling any weakness from the biotech funding environment.

And then what is your exposure as a percentage of revenue look like for that?.

So in terms of the biotech funding environment. I mean clearly is having an impact on the overall industry. I mean we see as an opportunity in terms of where we're at with Abveris and the Biopharma integration. We're going to be launching our integrated offering.

We've taken adjustments in terms of the organization and we're very focused on streamlining the business. We anticipate getting to adjusted EBITDA breakeven at 40% for Biopharma and at the same time there is a huge open market, there's huge market for us. As you saw last quarter, the number of customers dealing with us is solid.

We continue to see strong -- strong growth in terms of the number of projects and the number of projects and the outlook with the offering, we're feeling good about that outlook. So I think overall it maybe - there is issues. However ,our issues have been internal. And sorry I missed the second question you asked..

Just what was the like percent exposure as a percentage of overall revenue to the biotech environment?.

We haven't disclosed that overall our healthcare revenue is about 50% odd of our overall business and that's been growing year-over-year. So, I mean it gets back to the strength of our product offering NGS, we provide customers just sequencing cost fast time from sequencer SynBio we made to scale into biotech.

And with the Biopharma business will have an integrated offering. So we see ourselves moving into the large pharma customers that continues to be good trend for us. So overall, if you look at our orders, our orders are up year-over-year, revenue is up year-over-year.

So this is, I mean we focused on execution, we believe that due to the platform, we can provide significant value to customer base..

Okay, great. That's helpful. Thank you. And then, where is the cost reduction, mostly weighted towards.

Is it like towards one specific segment or is it pretty equal across the board?.

Cost reductions are across the board. We're managing our data storage investments where we've adjusted the Biopharma cost structure and for the core business. We've migrated our gene business to Factory of the Future. So, we're leveraging the Factory of the Future investment made there and taking advantage of the fast turnaround time.

So this is across segments, the outcome is for core business i.e. NGS and SynBio and Biopharma the goal is to get to adjusted EBITDA breakeven by Q4 next year, exit next year with a strong cash position..

Great. Thank you..

Thank you. And our next question coming from the line of Matt Larew with William Blair. Your line is open..

Hi, good morning. About data storage, so obviously you mentioned you're moderating expenses there, but you also mentioned that you feel like you have a significant lead just curious why that level of reduction in spend with the right one that you contemplate perhaps more or pausing or maintaining investment just sort of given as a modest reduction.

Just wanted to get a sense for what was contemplated and why it is settling on sort of that level of investment?.

Yes, thank you, Matt. Very, very great question, I think we see a tremendous opportunity in data storage for long-term value creation. At the same time, we have a slot to deliver short-term value creation, so we have to make some way -- sort of full capital allocation decisions.

What we are seeing is that the market for data storage is - the more we sense it, the most certain we are about it. At the same time as I mentioned we are head and shoulders ahead of the competition and so we see our data storage investment as a lever that we have in managing the business.

And so, as we are focusing on adjusted EBITDA breakeven for the core and biopharma business and ending getting there with as much cash in the bank as possible. We're able to lower our investment in data storage without losing our competitive edge. And so what that means is we'll have to do less, so we do a bit less of market development.

We're not going to do the early access with the gigabyte chips. Instead, we will show the end-to-end demonstration, which is important that the systems it's going to show that we can do data-in, data-out, but we don't have to go commercial with that system.

Instead, we're going to focus on growing commercial with the next chip, the terabyte chip which is going to be disruptive, from a total cost of ownership point of view. And for that -- that's a significant change.

The gigabyte chip was more for demonstration and so we're not going to commercialize something that the demonstration extend we're going to focus on commercializing a chip that is service-based, and a chip that is disruptive from the one where we can get revenue growth and really good margin from day one..

Okay, understood. And then if we sort of look at your quarter result I think -- those bear out that in SynBio and NGS you entered this market as disruptors and taking share, growing above market.

It's more challenging on the outside looking in to look at biopharma and assess how that has been going just given the number of acquisitions that you've made there? From that said looking in that market seems to be a bit more crowded and certainly evolving. What's your assessment of kind of, you mentioned sort of the right assets.

We also going through some internal changes. What's your assessment for the offering you have their relative to your assessment of competition and how you think you've been growing perhaps either measured by win rate or pitches or revenue.

What's sort of the right metrics you're looking at internally that gives you confidence that that asset is really a competitive and differentiated?.

Yes, no that's a very, very good question. And so from a technology point of view, our technology - our individual technology from the original Twist, we know that is very strong best-in-class technology. We have scientific data that the amounts that we got from at various is a slow head-to-head with all the amount is best-in-class as well.

And so, the combination together, plus the addition of in silicon that we had it, our belief is that, that is the best set of tools comprehensive goal stand out as you can have for antibody discovery. So from a technology point of view, we're extremely, confidence and from a commercial point of view, it's a different story.

In the change that we made, the decisive action as we did the sales team is untouched basically. However in biopharma we had to completely retool our sales team.

And so, we're in a situation where we have a fantastic technology that we strongly believe in disruptive in the Twist spirit where when we're going, we're going with an advantage and we just now put in place the commercial team that is going to monetize that technology.

So in terms of metric to look at what we reported the street is orders, orders have been done. And so, what we're going to look for is a reversal of orders and orders is the first step to getting into revenues and in biopharma is all the orders are upfront payments. So usually there is a 100% conversion to revenue. So what we're looking at is orders.

And then in terms of from internal metric, it's a classic sales business - metrics, what are the activities and really - how many new customers we get in. We have a secret weapon with our CSO; Aaron Sato is outdoor opener and then we can have the sales team to come up.

And then we are extending the scientific level of our sales team to be able to all that. So at this point we are very confident in the technology we have and it's a sales business development execution from now on..

Okay. Thank you..

Thank you. And our next question coming from the line of Steven Mah with Cowen. Your line is now open..

Okay, great, thanks for the question.

A question for Jim, could you give us some color on the CapEx pullback in 2023 from $50 million to $40 million and then the follow-up on that, is it going to be any impact on the Factory of the Future build out and the fast gene and RNA launches and other launches out of the Factory of the Future because of that?.

Yes, thanks for the question, Steve. In terms of the CapEx pullback is just physically managing our CapEx. We see no impact. The key thing for us over the next four, five months is to execute in terms of - picking in factory reduction in headcount.

So as part of this, we have an ongoing focus in terms of managing with our CapEx, managing our net working capital and continuing to drive growth and at the same time, manage the balance sheet. So, just part of prudent management and we have no impact in terms of the Factory of the Future..

Okay. Thanks for that color. And then a question for Emily on the, enhanced whole genome sequencing and enhance whole exome sequencing early access programs. Can you give us some color on how the response has been and how the traction has been there? And then secondly, I noticed the partial release on Aster Insights.

Could you give us a little bit of color on how the economics and revenue share work with a partner like Aster Insights? Thank you..

Yes, great question. So on eWGS the initial customer feedback has been very positive. We are going to leverage that technology to the agricultural business where cost per sample is extremely tight, internally we say that's where our pricing scheme.

And so, the technologies that we've developed internally is really going to enable those Ag Bio customers to do thousand, hundreds of thousand millions of samples at - at a very low cost with very high resolution on the genotype that we are looking for. And so those are big contract.

When they land, it's going to be big, big lumps, but that means it's going to take a little bit of time but - the initial technology assessment is extremely positive. And I forgot, and what was the second question, I'm sorry I didn't hear..

It was on the economic share with Aster Insights on your kits where you're using some of their content on your platform?.

Yes, what we can't say is that it's built with our engineering expertise with some customer NGS tools and they have a great channel, but we're not sharing the economics..

Okay, all right. Thank you..

Thank you, Steve..

Thank you. Our next question coming from the line of Sung-Ji Nam with Scotiabank. Your line is open..

Hi, thanks for taking the questions.

You just expand on Matt's question earlier, with regards to, just either if you could provide more color around kind of the rationale and your thought process, in terms of the timing and the magnitude of the restructuring? And what gives you confidence that this might not be overly aggressive or I guess not sufficient enough to drive growth in the future.

Just kind of - if you could give us a bit more information there..

Yes, I mean yes - go ahead, Emily..

Maybe I'll start - and with high level, and Jim will fill in the details. So the general principle was that from a company morale point of view, we wanted to do it once and done. And so, we didn't want drip, drip, drip and so we get really, really deep, so that we didn't have to do it.

At the same time, we also know that we have some strategic hires that we have to make, and so we get deep enough to make sure that we'll have room for those strategic hire that has to happen. So that was the high level guiding principle. And then I'll let Jim fill in the details..

Yes. So in terms of timing, we launched the Factory of the Future in the middle of the quarter for commercialization it's going really well. We've invested significantly over the last 18 months. And in terms of the timing right now we're seeing the benefit of our investment and we're seeing the opportunities in the marketplace.

We got a lot of interest in terms of Factory of the Future. We're getting well-positioned to launch fast genes, and what's important to us, also is maintaining a strong balance sheet to support the business as we move from losses to adjusted EBITDA to breakeven by Q4 next year. So this gives us the runway for our core business to get there.

And at the same time, we see opportunity for top line growth and continued opportunity for our R&D organizations anyway. And this restructuring supports the balance sheet, supports the company and supports our focus on innovation and growth..

Okay, got it.

And then in terms of the fast genes, could you remind us kind of where the key remaining steps in terms of from the market development standpoint or manufacturing capability standpoint that are remaining before - your launch?.

Yes, no thank you great question. So, all of the genes as of late March genes fragments and most of Oligo Pools are being made in Wilsonville, Oregon.

And so, we now has stress tested that the factory under high volume and we're very happy with the performance, the turnaround time and the final yields are equivalent to what we were getting in the South San Francisco fab. And the current time right now is blazing fast.

I think our average is about 10 days and 90 percentile of gene shipping in 14 days. So it's really, really great performance. And now in terms of fast gene to your questions there is - two avenues that we're still working on and are both on software.

The first revenue is, we have internally some software tools that we are finalizing to enable fast genes. So, the process is the same, but we're adding more software tools such that there is less human intervention, less human thinking in terms of what has to happen next.

And that means that the genes will spend less time waiting in the freezer, but where do - it has to happen next. So that's the software tools. The software team is doing fantastic, it's on track.

The second piece is just sort of software tool and that is the external tool the e-commerce tool that needs to be updated, we're adding a key feature of dynamic pricing that would be in our view very critical in extracting the most value out of the speed that will be created..

Great, thank you so much..

Thank you. And our next question coming from the line of Luke Sergott with Barclays. Your line is open..

Hi, guys, good morning. Couple of things here so I just wanted to follow up on doc's question about the step up in the margins there in 4Q with minimal step up in revs and you provided some early color there, but I thought that the Factory of the Future and the fast genes coming online.

That was all going to be incremental so talk about kind of the dynamic there about maybe cannibalizing some of your past work with the fast genes and how the Factory of the Future is coming online?.

Yes. Just in terms of the step up in margins from quarter three to quarter four, that's driven by top line revenue growth as we continue to leverage the Factory of the Future.

In terms of the impact to restructuring, we see our cost benefits really coming in Q1, '24 and the step-up you're seeing there is partial impact of the cost benefits due to leverage Factory of the Future in Q4 this year.

But as we move into Q1, we see the full benefit of the cost improvements and then you get the impact of the fast genes, as we launch them in the fall. So the fast genes benefits is all fiscal '24 and you see also the full benefit of the cost reductions in starting Q1 of '24. In the short-term, we see partial benefit from cost reductions.

We see the benefit of leveraging the fixed cost as we scale revenue sequentially. And then as you move into next year, we will anticipate moving towards adjusted EBITDA breakeven by Q4 of fiscal '24..

All right. So I mean, just to follow-up on that.

So if it's - I get that you're recognizing a lot of those cost benefits, but - on the guide down, is it that the fast genes and the Factory of the Future is taking longer to ramp?.

No. So the guide down is, so the two key components. One is, guide down is on the Biopharma business. Why is Biopharma, business guide down is because we've had internal integration issues, more commercial point of view, in terms of both SynBio and NGS.

The only reason we've taken a guide down is we'd see some potential risk of digesting a 25% reduction in our organization. It's not because of any market issues it's because of our own internal prudence in terms of managing such an organizational transition..

All right great. And then last here for Emily on the internal candidates and the decision there. You said that you're going to I think you said you're going to stop the internal development.

So I thought when you guys had those, it was basically and this might be oversimplifying it, but I thought when you have those, it was basically the code that you could just store or like keep on ice. So talk about the incremental spend that those required.

And then just I guess the lack of what was driving, I guess, the lack of interest among partnerships there for those candidates?.

Great question so, yes. We've been developing some internal candidates, those were R&D investments. We're not stringing away the investment that we've done what we are doing is slowing further investments into those assets. And so, we are focusing now on monetizing those assets and as we monetize them as the accretive side.

We'll decide then are we allocate the capital, but that could be the trigger to further develop other assets. But at this point, it's prudent for us to send the biopharma business such that it can be adjusted EBITDA breakeven at $40 million revenue instead of $18 million.

And so there'll be less R&D efforts on our own assets, but we are not stopping the monetization effort of the asset that's - we've been doing. And I wouldn't say that that there is no interest, but we don't have - we only have limited capabilities on outsourcing antibodies.

We've done at least we've NF1, we had out-licensing last year, but we have limited time and resources inside the company to do it. And so, we don't want to get the R&D development ahead of the monetization scheme. And so, that's what we're doing..

Okay. Thanks..

Thank you. And our next question coming from the line of Puneet Souda with SVB Securities. Your line is now open..

Yes hi, Emily and Jim. Thanks for taking the questions. So first one really is, why is this guide cut the last one, just given the situation in the macro the biotech funding and the Dx moderations which I think everyone on this call is aware of. Those things are not necessarily immediately improving in the market.

We have seen guide reductions from a number of companies multiple times? So at this point in time, sort of - workforce reductions are also happening and diagnostic companies and they're cutting spend. So your reduction of 25% is one of the most meaningful in this space.

So given all, that dynamic, I mean, just help us understand what gives you confidence in the guide overall for '23 and for FY '24, there was a $350 million guide before with 49% gross margin. Can you just update us on that FY '24 guide too? Thank you..

All right, Puneet. I can start and Emily can polish off what I say. In terms of what gives us confidence, we highlighted our orders. We're strong in this last quarter. We continue to on the NGS side. Continuing to build our portfolio, continue to build our customer base.

On SynBio side, Factory of Future commercialization in this last quarter has done extremely well as Emily just highlighted on the call. Our turnaround times are excellent. Number of customers continues to increase.

So in terms of the guide outlook for NGS and SynBio, we are looking at the reduction - just purely due to digesting the reduction in headcount and that is very meaningful. It's meaningful, because we've invested significantly in Factory of the Future that's going well.

And we are seeing opportunities in terms of upside in the same time, because there is such a meaningful reduction headcount. We're going to be prudent in terms of right look. In terms of biopharma this purely internal execution issues with the absorption of Abveris and execution in terms of being able to integrate commercial organization.

We could not do that for the last year. We're launching the integrated offering. We feel good in terms of a number of active projects. We're 95 last quarter. We're seeing strong interest from our customer base. And at the same time, because of the meaningful reductions we want to be prudent in terms of our outlook.

In terms where we're going next year as we continue as we see the margin increase from Q3 to Q4, as we continue to leverage the Factory of the Future. We see the benefits of the cost reductions. We'll see the launch of the fast genes and our outlook for next two years to get to adjusted EBITDA breakeven by Q4.

And we will continue to give updates in terms of progress on each of the quarterly earnings call. So, I'm going turn over to, Emily to run that..

I think, Jim, you covered it well..

Okay..

Okay. And then on pricing of the products, can you just update us. Do you expect to raise any pricing on the NGS or SynBio products and overall competition in the market? Just can you sort of give us a sense of what you're seeing from some of the larger competitors, the competitive dynamics changing in the market? Thank you..

Yes, great question. So we did our second annual - price increase on NGS that was well received. In SynBio, we did do a price increase last summer, not planned at this point. Except for launching the fast gene. In SynBio, our strategy is to increase the value of the product.

In addition to the amazing scale and quality and ease of ordering, we're going to add speed and using an approach of dynamic pricing we were confident, we'd be able to get the premium pricing. So that's the price increase coming in SynBio but it's in exchange to providing better value to the customer..

Thank you. And our next question coming from the line of Tom Peterson with Baird. Your line is open..

Yes, thanks for the question. Tom on for Catherine. I was just wondering if you could provide any more color on the revenue expectations by product line for fiscal 3Q and 4Q given the overall reduction in the guide for the year..

Jim, can you take that?.

Yes, sorry, I forgot I was on mute. Tom, thanks for the question. So overall, I mean we've given the guide for SynBio and NGS and also for Biopharma for the year.

So we didn't break it out because of just the quarter transmission overall outlook for Q3 revenues $60 million to $61 million, Q4 $62 million to $63 million, the range and for SynBio the range for the year is $96 million to $98 million, NGS revenue $113 million to $114 million and Biopharma $26 million.

So sometimes of the outlook, we believe it's prudent. Right. Why is it prudent, we've just take 25% reduction in the organization. NGS mean overall business is up 25% year-over-year for total business. The pipeline looks good. We continue to launch new products, we continue to get great feedback from the marketplace.

And at the same time, I mean, we've made a meaningful reduction in our headcount. Really appreciate the contribution of everybody who has supported Twist and the growth. And at the same time as we go forward we're very focused on getting to profitability in the first milestone there is getting to adjusted EBITDA Q4 next year.

And we're positioned to do that. And the overall environment, any comments overall environment is tough. However, we have a great portfolio and we're growing faster than the market. And we leverage our investments and we are going to deliver solid results as we continue to scale and get to adjusted EBITDA to breakeven..

Got it. Thanks. That's helpful. And then maybe just one more for me on the OpEx guidance reduction and obviously appreciate the significance of the headcount reduction, basically look forward towards that adjusted EBITDA target for fiscal 4Q of next year. How should we think about if there's any more room for additional OpEx reductions.

I guess how much flexibility do you still see left within the business. Thanks..

So in terms of business, I mean, nobody can predict the future. However, what we're going to do is manage the business based on environment. So, couple of key metrics, what does the market environment look like. Overall, we're growing significant in that environment.

We -- investments in the Factory of the Future, we will manage our investments and we'll manage our investments get to adjusted EBITDA breakeven and then focus on getting to profitability as Emily has highlighted, we've moderated our investment in DNA storage.

So based on the environment we are then make -- take the decisions to ensure that we're delivering value for our shareholders, our customers, our employees.

And part of that is having a strong balance sheet and other than those part of it is we've got -- we've got to continue strong execution and innovation that Twist culture is known for, and we're focused on supporting that transitioning to the growth opportunities and delivering fast genes in Q4 calendar this year..

Got it. Thanks..

Thank you. And our next question coming from the line of Rachel Vatnsdal with JPMorgan. Your line is open..

Great. Thanks for taking the question. So few questions on Biopharma, it looks like active partnerships between legacy at Biopharma and Abveris was roughly 112 active programs during fiscal 4Q. That's set down to 95 during fiscal 1Q and then it looks like today you have 93 active programs.

So can you just walk us through how much of that step down was really due to programs being cut and do you expect additional declines in program count throughout the year and then as a follow-up to that you've mentioned that challenges from Biopharma are purely just integrational and execution related.

So can you just help us understand what exactly was the breakdown there from the integration issues?.

Yes. Thank you, great question. So in terms of number of active program work is, we get an order for a program. And so we reported as an order probably until the next quarter or the one after that is done. We've provided the answers to the customers. And that gets revenue and then the program goes down, right.

And so it's not that those programs were cut that they may have been very small number of cancellation. But most likely those are programs that have been completed and move to revenue, and that's why revenue is the lagging metric and order is the leading metric. And then in terms of the commercial integrations, we had to led at various run on its own.

And so there were territories conflict.

And there were some technology that had to be learned and that to a bit more time than we wanted and it happened a bit later than they were on it, but at this point the territories have been rationalized, we have re-platformed all the systems, and I'm confident that the BD sales team is having high activities and we have the right cadence of getting in front of new customers and closing them.

Thank you..

Great. And then maybe just a follow-up here and there has been quite a few questions on guidance macro backdrop, maybe I'll just shift gears over to DNA data storage and I appreciate that you're rationalizing some of the spend that operating just given the macro backdrop, but can you just talk about what are your plans for your enzymatic offering.

If I recall, you were planning on getting that fully online to support that DNA data storage offering, which is going to be kind of key to the thesis in terms of the competitive positioning as peers have entered with their own enzymatic products. So can you walk us through, does that timeline has shifted of your asthmatic offering.

And can you give us tech update in terms of how that's trended as well. Thank you..

And it's a great question. So yes, we are delaying the on-premise technology development and we mostly, we 100% needed asthmatic synergies for that on-premise, we had said to that we could use asthmatic in house and that will have the choice of chemical and asthmatic.

And in the current decisive actions that we've made, we have not touched the asthmatic program. We think even though the first product for the test storage, it's going to be an in-house machine. Right now we saw that there is some potential advantage for us to use the asthmatic program that we have been pursuing and so we have optionality.

The first product could be asthmatic or chemicals, we're pursuing both, but I'm optimistic that we may leverage the asthmatic technology for that first data storage launch..

Thank you. And I will now turn the call back over to Emily Leproust for any closing remarks..

Thank you very much for joining us today and appreciate getting a little bit beyond schedule. We look forward to seeing some of you at Goldman Sachs, William Blair and Scotiabank in the next few months ahead. Thank you..

Ladies and gentlemen, that does end our conference for today. Thank you for your participation. You may now disconnect..