Welcome to Twist Bioscience's Fiscal 2024 First Quarter Financial Results Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Instructions will be given at that time.

I would like to turn the conference over to Angela Bitting, Senior Vice President of Corporate Affairs..

Thank you, operator. Good morning, everyone. I'd like to thank all of you for joining us today for Twist Biosciences conference call to review our fiscal 2024 first 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 Adam Laponis, CFO of Twist. Emily will begin with a review of our recent progress on Twist businesses. Adam will report on our financial and operational performance. Emily will come back to discuss upcoming milestones and direction. 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 US federal securities laws. Forward-looking statements generally relate to future events or future financial or operating performance.

Our expectations and beliefs regarding these matters may not materialize and actual results and 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 partially described in our filings with the Securities and Exchange Commission.

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'll now turn the call over to our CEO and Co-Founder, Dr. Emily Leproust..

Thank you, Angela, and good morning everyone. It is a very exciting time for Twist. Twist's revenue, margin and market share increasing, new products introduced recently with more to come, and growing market for products, which enable a diversified customer base.

Today as we report our financial results for the first quarter of fiscal 2024, we will focus on three important items that drive our business; revenue growth, margin expansion, and financial discipline to track to our path to profitability.

Our entire team at Twist is laser-focused on these initiatives, while simultaneously bringing exceptional products to our customers. We continue to deliver record revenue and consistent robust growth year-over-year. We expanded market share in both SynBio and NGS with strong commercial and operational execution across our team.

We are building a resilient and diversified business with a portfolio of solutions that stem from our innovative DNA synthesis platform. This allows us to pursue multiple market opportunities simultaneously, while mitigating risks. Several years ago, we established a plan to achieve profitability for the business.

We continue to execute against the plan, we laid out for ourselves and we are firing on all cylinders. Diving into the specifics, revenue for first quarter increased significantly to $71.5 million, with orders growing to more than $77 million, and margin increasing to 40.5%. Moving to the product area.

Revenue for SynBio increased to $26.8 million with strong orders of $29.2 million. SynBio revenue grew 25% year-over-year, excluding in both periods, gap revenues from a key account that was affected by timing of the quarter and extended to return in the current quarter.

In November, we began a limited launch of our Express Gene product, which is our clonal genes that developed faster in five to seven days. I'm pleased to report that as for Q1, 98% of Express Genes ordered have been delivered in the quoted timeframe. Delivering clonally perfect genes in this time line at scale is an exceptional feat.

This performance is driven by our platform, our site in Oregon and our operations team that implements order successfully. We are the only Express offering that can deliver at scale. If you need one genes or thousands of genes we can deliver clonally perfect genes in as few as five days.

Importantly, our differentiated Express offering allows us to charge a premium price over our standard clonal genes in exchange for this speed. Customers can choose to other standards genes with a turnaround time of 10 days or Express genes with a turnaround time beginning at five days.

The premium price for the Express offering varies daily and by the capacity available in our manufacturing facility in Wilsonville, Oregon. To date, we have tested premiums from 20% to as high as 200%. As a reminder, we use the same FX streamline for both Express and stellar genes.

So all increased pricing applies directly to margin expansion, because the manufacturing line is the same, it also means that our capacity has increased whether we Celgene stand our or Express. When we launched in November, as the small clonal gene volume qualified for Express service.

This week we announced that all clonal genes at all prep scales, now qualify for Express service. With this extension, we began a full marketing launch around the Express portfolio largely using digital marketing tactics to keep the cost of customer acquisition low.

We are pleased with the early days of the launch, particularly the balance of uptake between pharma, industrial chemical and academic customers. Early feedback indicates that this product resonates. We monitor orders daily and we are seeing the early stage of revenue.

We consistently observe varying degrees of customer willingness to pay a premium and daily we gain valuable insight into pricing sensitivity, geographic nuances, industry-specific trends and account level patterns.

Moving forward this allows the sales team, the potential to proactively secure contract pricing for key accounts in excess short-term such as volume commitments, and fixed premiums which enables expanding margin as well as creativity for manufacturing.

As of January 30, we have received confirmed interest from several pharma companies, reflecting a positive trajectory. Up until we turned on our marketing machine last week, our focus was on existing customers. Today, we are targeting new customers.

We use other providers and we plan to use our differentiated Express product portfolio to take share from incumbent suppliers, were slow targeting customers who currently make their own DNA because they need it quickly.

We called a little group of potential customers DNA makers and we know that to convert DNA makers to DNA buyers it will take time to change behavior.

We assume that we have the product, the channel and the operational capacity to drive a generational change where ordering genes rather than making genes becomes the standard operating procedures across the globe.

Moving to NGS, our revenue increased to $39.4 million of revenue for the quarter included several large customers reorders, primary domestic customers running clinical trials and ramping commercial volumes. For these larger customers, we invested time and energy into the relationship and we are now including into their workflow.

While the sales cycle for NGS is quite long, we are now seeing the benefit of this long-term investment of our time, as their test advanced the clinical and commercial stages.

As a reminder, the existing customers including those pursuing or selling liquid biopsy and the minimal residual disease assays choose Twist for our target enrichment solution meeting their testing workflow as we save our customers about half of their downstream sequencing costs and each center run by customers, using some Twist DNA.

So the larger the volume, the more they buy from Twist. In a constrained macroeconomic environment, our offering provides margin extension for our customers. And in some cases, our workflow makes a substantive difference in our customers' business viability.

Over the last two quarters, we have seen customer streamlining test, selecting the test within their portfolio that includes the Twist workflow to sell downstream sequencing cost and improve their overall costs.

In addition to larger customers in advanced stages of development and commercial scale-up, we see NGS workflow competence as an increasing percentage of our NGS revenue.

For example, the customers who order the custom target enrichment panel previously, may now also order a library prepped vessels these local media and EMIs and more from Twist as their supplier expanding our share of wallet within existing accounts.

Our customers appreciate choosing another supplier and benefit from our exceptional and responsive customer service and supply chain teams allowing them to focus on expanding their business.

We focus on enabling the workflow between the sample and the sequencer, will continue next week during the AGBT conference when we will introduce several products bringing truly differentiated solutions for key workflows within specific applications.

Moving forward, we expect revenue growth in NGS to come from increasing commercial adoption of our customers' assets workflow expansion in existing customer accounts and the acquisition of smaller accounts as well as the attrition of the research market through RNASeq.

Moving to biopharma, revenue increased to $5.2 million with orders coming in at $4.9 million. We were fully staffed on our commercial team as of November, and we do see green shoots for this business including 41 new program starts in the quarter.

We noted the process of ramping up sales representatives to full capacity typically takes about six months and we are cautiously optimistic that revenue from biopharma services will increase steadily in the back half of the year.

In addition, to providing antibody discovery services for our partners, this area of our business builds of our silicon platform, which enables the ability to create antibody discovery libraries, if we can then pair with our in vivo and AI, ML capabilities.

There is a strategic fit here as we saw pharma and biotech customers through both of them by offering and biopharma solutions, providing a full and complete about dairy spectrum of offering to our customers and partners. For Data Storage, we've completed the end-to-end demonstration of the Gigabyte Century Archive workflow.

This was an internal demonstrations designed to refine and validate our workflow and we succeeded. We are encouraged by our engineering advancements and we remain on track to deliver on early-access Terabyte Century Archive Solutions in 2025.

We continue to believe that the market for Data Storage provides a large opportunity and we see this area of our business as a valuable asset with optionality at multiple points of development. In early January, we welcomed Adam Laponis to the team, as our CFO.

Adam brings a wide range of experience in finance and operations from large and smaller companies and is ideally positioned to support our next phase of growth. With that introduction, I'll turn it over to Adam to discuss our financials..

Thank you, Emily. Revenue for the first quarter increased to $71.5 million, growth of 32% year-over-year and approximately 7% sequentially. Orders increased to $77.5 million and gross margin was 40.5% for the first quarter of fiscal 2024.

We served a total of 2,140 customers during the first quarter and ended the quarter with cash, cash equivalents and short-term investments of approximately $311.1 million. When we talk about cash moving forward, we will be talking about cash, cash equivalents and short-term investments.

Taking a deeper dive into revenue, SynBio revenue increased to $26.8 million, growth of 24% year-over-year, with orders increasing to $29.2 million. Synthetic genes revenue, a primary growth driver for Synbio, increased to $19.7 million, growth of 22% year-over-year. We shipped approximately 171,000 genes during the quarter.

Within the Synbio umbrella, Oligo Pools revenue increased to $4.2 million and libraries revenue increased to $2.9 million, year-over-year growth of 13% and 60% respectively. Growth in Synbio across all product lines was driven primarily by healthcare customers.

NGS revenue for the first quarter grew to approximately $39.4 million compared to $24.4 million in the first quarter of fiscal 2023, an increase of 62% year-over-year. For the quarter revenue from our top 10 customers accounted for approximately 44% of revenue. Orders increased to $43.3 million, setting the stage for further NGS growth.

We served 538 NGS customers in the quarter with 135 having adopted our products. For biopharma revenue increased to $5.2 million, with orders coming in at $4.9 million. We had 69 active programs as of the end of December 2023 and we started 41 new programs during the quarter.

The total number of completed programs as of December 31 was 843, with 69 including milestones and or royalties. Looking at revenue for Netherlands.

Healthcare revenue rose to $40.9 million for the first quarter of 2024, compared to $30 million for the same period in fiscal 2023, reflecting the increased uptake of our products by pharma, biotech and diagnostic companies.

Industrial Chemical revenue rose to $16.3 million in the first quarter, up from $15.3 million in the same period of fiscal 2023, steady growth year-over-year. Academic revenue was $13.8 million for the first quarter of 2024, up from $10 million in fiscal 2023, with growth coming from both Synbio and NGS customers.

Looking geographically, Americas revenue increased to approximately $44 million in the first quarter, compared to $33.6 million in the same period in fiscal 2023, growth of 31% year-over-year. EMEA revenue rose to $21.2 million in the first quarter versus $16.3 million in the same period of 2023, growth of 30% year-over-year.

APAC revenue increased to $6.3 million in the first quarter compared to $4.3 million in the same period for fiscal 2023, growth of 48% year-over-year. Our gross margin for the first quarter increased to 40.5%, driven by large NGS orders in the quarter, higher mix of NGS and some pricing lift for SynBio from Express Genes.

In total, operating expenses for the first quarter were $118.5 million compared with $98.9 million in the same period for 2023.

Breaking that down, cost of revenues increased to $42.5 million in the first quarter of 2024 compared with $29.4 million in the same period of fiscal 2023, primarily due to higher product volume and personnel costs as well as increased depreciation and amortization effect.

R&D decreased to $23.1 million compared with $31.2 million in fiscal 2023, primarily due to the reduction in headcount as well as bottom line [ph]. SG&A was $52.8 million for the first quarter compared with 42.3 million.

The increase was driven largely by the increase in stock-based compensation as the cost for Q1 FY 2023 included a significant reversal of stock-based compensation, resulting from employee stock forfeitures related to the out various acquisitions, offset by pre-commercialization costs included in the Q1 fiscal 2023 but not in Q1 fiscal 2024 as we have launched the Oregon manufacturing site.

Operating expenses included approximately $8 million for data storage. Stock-based compensation for the quarter was approximately $11 million. Depreciation and amortization were $8.2 million for the quarter compared with $5.3 million for the same period of 2023.

Net loss attributable to stockholders was $43 million or $0.75 per share for the first quarter of 2024 compared to a net loss of $41.8 million or $0.74 per share for the same period of fiscal 2023. Turning to guidance. We are updating specific metrics that we intend to use moving forward.

For fiscal 2024, we now expect total revenue to increase by $3 million across the range to approximately $288 million to $293 million, anticipated growth of 18% to 20% year-over-year.

SynBio revenue of $114 million to $117 million, an increase of $1 million across the entire range and year-over-year growth anticipated to be 16% to 19%; NGS revenue of $150 million to $152 million, an increase of $3 million in the range and anticipated growth of 21% to 23% year-over-year; Biopharma revenue of approximately $24 million, a decrease of $1 million from the prior guidance and growth of approximately 3% year-over-year.

We are increasing our expected gross margin of approximately 40% to 41% for the year. Loss from operations guidance before taxes of approximately $189 million to $194 million compared to prior guidance of $180 million to $188 million as we invest in G&A capabilities to continue to scale our business.

CapEx is projected to decrease by $5 million to approximately $15 million for fiscal 2024. No change in our projected ending cash of approximately $245 million at the end of fiscal 2024. For the second quarter of fiscal 2024, we expect overall revenue of approximately $70 million to $71 million.

SynBio revenue increasing to approximately $28.5 million with the full launch of Express Genes portfolio; NGS revenue of $37 million to $38 million, as we see larger accounts reordering in the second half of the year, on track with our increased annual guidance; Biopharma revenue of $4.5 million; gross margin at 39% primarily due to mix shift.

In summary, we continue to maintain financial discipline throughout the organization and make progress on our path to profitability. I joined Twist about a month ago. I couldn't be more excited about where we are going. This is a talented and determined mission driven team that understands the value we bring to our customers.

Our focus on driving revenue growth, margin expansion, and maintaining financial discipline will continue as we leverage our capabilities, supply chain management, manufacturing excellence, and of course, delighting our customers. With that, I'll turn the call back to Emily..

Thank you, Adam. When closing [ph] to our fiscal year, we continue to see momentum in our SynBio and NGS groups with a diversified customer base, a reverse flow portfolio that provides significant differentiation from competitors, growing market opportunities, and committed employees.

We are executing on the plan we laid out to drive to profitability for the business. Coming back to the three initiatives at Twist. First, we expect to grow revenue through Express Genes in SynBio and grow revenue in NGS with customers expansion as well as new product introductions. Keep your eye out for launches next week during the AGBT Conference.

For biopharma solutions, we will focus on increasing the number of active programs and program staff as well as signing new and repeat customers. Second, to expand our margin, we plan to continue dynamic pricing for Express Genes in SynBio. As we increase the number of GeneChip our margin increases given the factory is fully functional and staffed.

We will also focus on leveraging our increased volume with our supply chain to drive efficiencies at scale.

On the corporate side, in addition to driving revenue growth and increasing contribution margin for our products, we identified key initiatives that we expect to pursue over the course of the next 18 months that we believe will have a meaningful impact on COGS selling.

This includes in-sourcing opportunities, products and packaging, alternative workflows, and many more. We are excited about the opportunities to increase our gross margin further.

And third, we remain diligent in our commitment to financial discipline, renewing our commitment to end fiscal 2024 with $245 million in cash, cash equivalents, and short-term investments. Overall, we are executing on an aggressive objective to become a profitable company.

We continue to execute effectively on our path to profitability and look forward to keeping you apprised of our progress. With that, let's open the call for questions.

Operator?.

Thank you. [Operator Instructions] Our first question comes from Matt Sykes with Goldman Sachs. Your line is open..

Good morning and thanks for taking my questions. Congrats on the quarter. Could you talk about the volume and mix of Express Genes in the quarter just given the mid-November launch in limited marketing for a period during the quarter.

How do you see Express Genes contribute to margin expansion for the full year?.

Thank you, Matt. Maybe I will start. So, there's really two stages. The first stage is the mid-November launch till the last week. And then the second phase is now. So, in the first phase, the volume was basically fully focused on existing customers and we've seen really good picture by -- as we've both biopharma and [indiscernible].

So, that's quite exciting to see that on both of our target markets have been testing the products and experiencing the great performance of the product and reordering. So that was the mix then.

It's a bit too soon to say, but the second phase, as you know the second phase the goal is to continue having existing customers to use the product, which delivers great value for them and improve gross margin costs. But the big drive for us now is to bring net new customers on to come onto the platform and deliver revenue growth and margin growth.

So, Q2 -- sorry Q3 will be the first clean quarter where we'll have the full marketing launch for the entire quarter. We are already and in Q2. And so therefore Q3 will be the first clean quarter where we'll have the full quarter expense of expecting.

And what we expect is as the year progresses, we'll have more penetration into those new -- net new customers and then we'll start to see the benefit of Express Genes on gross margin..

Got it. And then just two quick follow-ups. Could you just talk about this.

I know you're focused on existing customers, but could you just talk about the split in the quarter of gene buyers versus gene makers for express genes? And then just, do you think that digital marketing will be enough to drive growth? Or do you plan on augmenting that with additional marketing efforts over the course of the year? Thank you..

Yeah. So I think we basically, have one when we do when we can have of trying to convert finance might make you. So I will say that right now for all intents and purposes some of the volume so far has been DNA buyers. And so it's very early innings. So the engine makers, we now have added to them.

And in terms of digital marketing, it's a -- it is our strategy to reach smaller customers so Tier 3, Tier 4 captive customers. And however, in addition to that, we have our sales team that that has been engaged for now years. We top accounts that are still working on converting big accounts to Orbitz bridging.

And as I've mentioned in my remarks, we've had some initial success in getting them is this a level of interest to convert to expansions both of big accounts as well. So it's going to be down. It's all hands on deck and we want to see growth in both and the Tier 3, Tier 2 customers as well as Tier 3, Tier 4..

Thank you..

Thank you. Our next question comes from Steven Mah with Cowen. Your line is open..

Great. Thanks for taking the questions, and congrats on the quarter. Maybe just a follow-up to Matt's questions, on the gross margin in the quarter, it's much higher than we had modeled that.

Was there any impact at all from express trains in the quarter or was it driven entirely by the scale up of the factory the future? Or if not, what kind of what drove the gross margin be? And then could you also then provide your thoughts around the full year guide of 40% to 41% given you're already at 40.5% in Q1? Thanks..

Do you want to take that question Adam? those physicians are happy to..

Sure. Happy to. So now Stephen, I mean I'm very encouraged by the record quarter we had in both the growth and the revenue front as well as the progress we saw in gross margin expansion.

I'm also encouraged by the alignment we have across the executive team to focus on gross margin expansion is a key priority, not just a business priority, but even our pay-for-performance goals. So in terms of where we were in Q1.

Really the biggest driver for the gross margin expansion was the some of the large orders we had in NGS particularly, I guess calendar year end when we saw a big step-up in those orders and we're seeing that.

And if you look at our guidance you can see that we're going to see that pull back a bit in Q2, and that drove some of the expansion of the most of the expansion in the in the Q1 numbers. You'd also asked about kind of how we're thinking about the full year guide.

And I'm like I am confident that this is performance, and we raised the guidance on both the revenue and the gross margin side. But I also recognize, I've been in the role now for less than a month. I don't want to get over my skis with overly aggressive guidance.

So yes, there's some conservatism in there, but we have included the effects that we're seeing already today on the expansion from two of synbio and express genes as well as the factory of the future now being fully operational..

Okay. Great. That's helpful. And sorry, if I can just sneak one more in.

I know you haven't done the full launch of the Express Genes yet, but you know could you tell us what the average premium you guys are getting? I know Emily threw out a range 20% to 200%, but I'm just wondering if you could give us a sense of the average you're getting right now? Thank you..

So we are not -- I mean we are not able to give a on a range. As a reminder, the day pricing is strongly based on the capacity and in the fab, but at the time of the day. And so we get a lot of benefits beyond that.

And the one thing that you can you can check is that that pricing daily is public, so it's on the website and so anybody can look at what is the pricing right now again based on the capacity..

Okay. Thank you..

Thank you. Our next question comes from Vijay Kumar with Evercore ISI. Your line is open..

Hey, guys. Thanks for taking my question and congratulations on a nice print here. Maybe up my first one here is on the guidance. You guys built revenues by $3 million, the annual was raised by $2 million and it looks like more of that came from NGS, but also SynBio was raised.

I'm just curious, the bit which is carried through and why, despite comps getting easier, perhaps we should see a more robust growth in 2Q and back half?.

Vijay, great, great question, and I'm happy to give a bit more color on it. In terms of where we are right now, we had a great quarter. So I think I mentioned that in previous question, so we do expect that NGS pullback, particularly in Q2.

And I think when you look at the early phases of the SynBio and Express Genes, it is going positively, but it's really early days. And again, me being brand new in the job, I don't want to get ahead of my skis on that in the full year guide. We'll keep you posted on progress as the year continues on both fronts.

But yes, I feel pretty good that the full year guidance raised both on the top and the margin side..

Okay. Fantastic. And then my follow-up is on the gross margin guidance here. When I look at the sequential ramp, what is the primary driver from the Q1 to the Q2 step down of 39%? And I think the annual guidance implies your back half leased again, step back to 41% from 2Q.

Is there anything specific that's going on in 2Q? Maybe just walk us through the cadence?.

No, no, it's a great question. So it's really more of a fact in Q1. We got a pretty substantial sequential lift from the higher NGS mix. We are actually expecting that to pull back slightly in Q2, as the mix shifts more towards SynBio. And so we'll see that.

But I think as the year progresses and we see more the customers switching to the full quarter of Express Genes and the NGS business continue to expand, we feel pretty confident in the back half guide as well..

Fantastic. Thanks, guys..

Thank you. Our next question comes from Luke Sergott with Barclays. Your line is open..

Can you -- I want to start talking about first on the increase in the OpEx spend. I know that, you've always talked about growing at slower than your revenue growth, but just incremental step-up through here throughout the year, like where is that investment going? And is it just to fill more commercialization on the Express Genes.

Can you just give us some color?.

I'm happy to step in on that one. And actually, in the G&A line specifically. It's not the incremental ends on infrastructure, particularly around some of our IT and financial capabilities. It is we're really focused on building out those capabilities right now.

So we've made some choices around how we're going to invest in that the scale not only for the current year, but future years depend as well..

Okay. That's helpful. And then you talked about like some of the early learning's from the elasticity that from the dynamic pricing.

Talk about any trends that you're seeing there, from types of orders or customers or how that's kind of pacing out? And where the dynamic pricing is really starting to contribute to the margin if it's going to create any lumpiness or anything throughout the year?.

Yeah. Thank you. That's a good question. So, we have been -- now that we have a good number of debt assets. We've been deeply looking into the price sensitivity response care.

So, looking at the access, what is the capacity of the day ends, what is the premium of the day, and on the way access, what is the percentage of customers that have that chose to purchase Express. And we actually see quite a -- what you will expect as a response curve. So, at a very low of a high percentage of a premium you see saturation.

And then you see kind of no response in between. So it's an incredible view into the price elasticity that our customers have. And we are still able to see by geography and by industry types for instance, Biopharma versus Academic what question they have.

So obviously we are going to refine our model overtime, but yeah, it's quite encouraging to see that the outcome is what you would expect and then we will get from there..

Great. Thanks..

Thank you. Our next question comes from Matt Larew with William Blair. Your line is open..

Hi. Good morning.

First question is for Adam and just going back to Luke's question on the SG&A investments you referenced sort of on the IT and financial capability side, are these what you view as kind of the only set of meaningful investments Adam that need to be made? Or are there multiple layers over the course of a couple of years? And sort of within that context, how do these investments or future investments affect the goal to get to adjusted EBITDA breakeven on the core business by the end of fiscal 2024?.

No Matt. I think a great question. And I think a couple of comments here. In terms of the focus of the business and the priorities, it's very clear to me and it's been clear for them hopefully in our commentary as well. But the priority is around revenue growth margin expansion and cash management.

So we're never in a place where we need to go back to the markets for an equity raise in the future. And so that path to profitability is very much a key part of everything we're doing and how we're thinking about it. I haven't provided the exact timing. I'm not giving guidance on when we'll get to profitability.

But I am saying that, in confidence we won't be coming back to the market. And in terms of the investments, again, I'm going to lean on the factors week three. I'm still getting my bearings. And I think about it pretty carefully right now is I don't want to make any major changes in investment strategy. That's not what we're looking to do here.

I want to make sure, we continue to see progress. And if you think about areas like supply chain for example, we're the teams are laser focused on driving out costs throughout the system, supplier consolidation, in-sourcing, restaurant, inventory optimization. All of these things are getting easier, as we continue to scale. We gain leverage.

So that the focus and momentum on that. And I want to make sure we're balancing that any investment with those savings overtime. So my goal is very much still to keep a tab on any expansion the SG&A investment by making sure, we're pacing and the incremental investments with the savings are driving in other areas of the business.

Hopefully that provides clarity..

Yeah. That's helpful. And then Emily, you referenced some potential new products being launched next week. And so the question is, you obviously have quite a bit of knowledge about what purchasers of DNA want and increasingly sort of what they're willing to pay for as you think about moving into areas like RNA Synthesis, Express RNA.

What do you know about what RNA customers might value differently than DNA customers? How are you sort of assessing the key attributes of what those products would need to look like relative to DNA? And it would you could extend that even things like proteins, IgG et cetera.

Thank you, Matt. And so I spent a lot of time with customers and I think those are the two primary questions and then a bunch of secondary ones.

The primary questions with customers as always and when and how much, but it's always one point when will they get it and how much will it cost? And then, after that there's a number of secondary questions around liquidity and support and packaging.

And so there are some product features that you need to have for instance quality in order to be in business. But assuming that those are met it's always about speed and cost. And that it's really well we do the Twist's brand as well that we are making.

We've always been really good at cost and that comes from the silicon chip that gives us an advantage by using less reagents. We're able to have a lower cost base than our competitors. and so we've always been really good on the cost side. Historically I would say up until now of late 2022 were not great on speed. We are probably on par with others.

But now that we've made the investment in speed is really becoming the second on strengths that we have not done and we'll keep leveraging that that brand. So anything twisted. They are high quality product, very great customer experience and we can customize any packaging deliveries schedule that you want. And that's all great.

But most importantly it's going to be fast. It may be a great price to enable your science. You're going to get more shots on goal and that means that we'll get all your budget because you choose us exclusively..

Okay. Thank you..

Thank you. Our next question comes from Catherine Schulte with Baird. Your line is open..

Hi. Thanks for the questions. Maybe first on NGS is what's driving the sequential decline in your second quarter guidance.

Are there any one-timers in the first quarter? I think you mentioned some large orders so there just any way to quantify those?.

Maybe I add something for you as one of the reports -- one of the number we report is the percentage of revenue NGS that comes from 10 customers. And as you can see it is a very meaningful number.

And so when you have a number of big customers, it can be a little bit lumpy quarter-over-quarter, year-over-year is fine but quarter-to-quarter it can be lumpy. As you remember Q1 of last year was the opposite situation where we have some big customers and they delayed taking shipment. And so the solution for us is let's go find more labs might.

So we are going to -- we are pushing on adding more and more of those top accounts and over time since we see smoother vessel. So we have great confidence for our view for the year.

And at the same time, we are there to serve our customers and if some of those customers want shipment early or later, we always accommodated their needs to make sure that customer satisfactions is as high as possible..

Okay. And then maybe on CapEx there's a pretty decent step down versus your prior guide on a percentage basis.

Can you just talk through what projects that are either being pushed out or just words savings are coming from?.

This is Adam and I'll be happy to take that one. If I look at it, I'm just as we went through after one quarter their budget, we were seeing some favorable stability in that. And we haven't stopped through the projects we were initially starting. It's just purely a reality. Have you refined the numbers we're seeing a lower need for CapEx.

I think the key message here in Wilsonville came online really fully for the first time in Q1 of this fiscal year. So even the depreciation for that, we still have a small step up as we get into Q2 on that. But we're really excited about the capacity that brings.

And I'm sure there will be minor things to continue to expand the capabilities and efficiency of the site. But we're really focused on optimizing where we are this year..

Okay. Thank you..

Thank you. Our next question comes from Puneet Souda with Leerink Partners. Your line is open..

Sorry if I missed that, this is Puneet from Leerink. First question maybe for Adam, I mean your orders increased by almost $6.5 million sequentially, but your guide is only up by the beat.

Maybe just -- could you talk a little bit about where these orders are coming from in terms of customer type, NGS, synbio, maybe just talk to us about that? And then the level of conservatism you have that you talked about, maybe Adam, just help us understand the level of conservatism kind of conservatism that you have versus the you know the step down that we are seeing an NGS in the second half.

And then I have follow up for Emily..

Definitely, I'm happy to help actually to help provide additional color and thank you for the question on. I mean, if I look at the -- for the first part of that you know there's always going to be a dynamic as I'm learning this business. The orders don't always translate in the same period to revenue.

There's a natural delay particularly on both large NGS customers have put in large POs for multi period, as well as we have on the biopharm side customers who have a multi-period POs over many quarters. So typically the revenue impact comes in over the next three to six months after we get the get the order.

From that perspective, I don't expect all the Q1 orders to turn into revenue in Q2, but we do expect them to convert as we progress throughout the year and potentially even into '25 given some of the major deal type orders.

In terms of where we are and what's driving the guide, I will be really clear and I have a lot of confidence in the progress we're seeing. I mean, you don't come out of a record quarter in revenue without confidence.

I see the team firing on all cylinders, whether it'd be from the express genes and SynBio or beyond the progress we're making on the NGS front with new customers. So I'm very confident in the guide we're giving. But I'm also and I said before, it's early days for me, so I don't want to get over my skis in any of it. So hopefully that clarifies..

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

Hi. Thank you and congrats on the quarter. Just one question on the NGS segment, it's great to see obviously continued strength there, especially from the top customers.

But as you look at the sales funnel, just kind of curious, is it pretty much the usual suspects or are you seeing kind of more new diversified customer leads and especially with the product launches like RNA-seq?.

Yes. Thank you for your question. So definitely that has been the focus of our new product introduction. We launched RNA-seq last lesson learned and the purpose is to expand into the research market. You'll see at AGBT next week that we'll have a product focused on strengthening our position in liquid biopsy versus slowdown.

We are very interested in converting the microarray market to NGS and it has not gone as fast as we wanted and so there will be more product introduction squarely focused on going after that market with it's really best in class on tools. So we expect in terms of market expansion a continuation of our efforts around academia and I'd value some home.

I think those are two additional growth opportunity for us. In addition to I think the great performance we've been having in liquid biopsy and MRD. And so the time right now a lot of our success in NGS is riding the -- enabling I'd say the liquid biopsy market. But we're quite focused on expanding towards our market shares at BIO and academia..

Thank you. I’ll get back in the queue..

Thank you. Our next question comes from Rachel Vatnsdal with JPMorgan. Your line is open..

Thanks. Good morning and thank you for taking the questions. So first, I just want to ask on biopharma. You mentioned that you're in discussions for anybody outlicensing.

So can you spend a minute talking about that opportunity and how meaningful these licensing deals can potentially be? And also just what's the time line in terms of where we expect to see any headlines related to those yields?.

Yes. Thank you, Rachel. It’s a good question. So for context just a quick reminder, the main effort of our biopharma business is to sell a service, where customers give us a target. And we use our AI in vivo, in vitro tools to deliver a quick clinical asset for them. So that's the main thrust of our efforts.

In the past, we've also spent some internal R&D dollars to choose -- our own assays. And then we now have a maybe a dozen of assays that we think are valuable. And we've stopped spending internal R& D dollars to advance them. And now we're in discussion with partners to license them those out. As you know biopharma licensing deals can be lengthy.

And so -- and at the same time to -- I think the bottom line for me is we are not expanding significant cash to pursue those licensing deals, and those licensing deals are not in the forecast. So, they will be nice upside when they happen..

Great. Thank you. And just -- oh, yes, sorry go ahead..

No, no, go ahead..

Oh, sorry. I thought one of you were saying something. And then just as my follow-up, you mentioned some of these cost actions to impact COGS over the next 18 months.

So can you just walk us through the levers that you're pulling from a cost action perspective? And then how much of that is already contemplated within guidance right now for those cost actions for the year? Thanks..

Well, thank you. And so great question. So we're really taking advantage of the up-leveling of the management team that we've done over the last few quarters. We have a great new SVP of Ops, a great VP of Supply Chain. And now as a company that is growing in a market that is not we have a nice profile with our results our suppliers.

We have an opportunity to have a choice of in-sourcing some of the products. We have the opportunity to consolidate vendors. And so we're really exercising our muscle with our suppliers to make sure that we get the best target costing over time to benefit our gross margin.

In addition, when we launch our Express Gene, we really turn over a lot of stones in our processes, and we've seen a lot of opportunities where we can swap out reagents. We can shorten or skip steps. And that has given us opportunities in the future to a slow lean on the processes that we have and tweak some of the reagents to take cost out.

So that takes time to realize. And but at the same time, we see the opportunity and we'll do the work to get the best gross margin outcome. And I'd say, it's a natural evolution of our maturation as a company.

The first step was always, let's have the best product possible, and we had a natural advantage with the silicon chip where we always had the cost advantage that now that we have the best products out there, and we can focus maybe a little bit less on new product introduction and a bit more on continuous process improvement to start taking cost out and get better and better at gross margins.

So hopefully, that that helps..

Thank you. Our next question comes from Puneet Souda with Leerink Partners. Your line is open..

Yes. Thanks, again, Emily. I just wanted to follow up on – on a broader question around Express Genes. What's your expectation for a competitor response on Express Genes are these fast genes? I mean it's a great strategy to manufacture it all at once and deliver it right away or later. And modulate your pricing accordingly.

But just thinking about the industry overall for oligo’s, how do you think about the sort of the competitive response would be from the competitors and the sort of the defensibility you have to that competitive response. Appreciate that. Thank you..

Thank you. The way I think about it is our competitors have been in business way longer than MDF, right? And so we've really have optimized all of their processes using their next fiscal plate. And now there's not much more they can do.

What we have is really the advantage of the silicon chip that gives us a tremendous advantage and then we build the back-end around it to – to make at-scale Express Gene and so at this point, we are the only company that can make all of their gene fast and I think that you have a very, very difficult – it would be a very difficult task for competitors to tried to match it, so we will see what the responses, but we are ready.

We think we have an absolute great, great product in terms of its great quality, its customer experience, speed and actually even great pricing. And so we provide tremendous value to our customers and yes, we look forward, we'll see anybody on the playground and if I need anything..

You need a playground. Okay. Thanks, Emily..

Thank you. There are no further question. I'd like to turn the call back over to Emily for any closing remarks..

Thank you very much. So in closing, we reported a record quarter and our first quarter continues to resonate with our customers. We introduced the full Express Genes portfolio last week and we have more product launches planned for the next week at AGBT.

As we will forward, we'll continue to focus on revenue growth, margin expansion and financial disciplines to drive our path to profitability. We look forward to seeing some of you at AGBT, all conferences in the March timeframe. Thank you very much..

Thank you for participating in today's conference. This does conclude the program and you may now disconnect. Everyone have a great day..