Ladies and gentlemen, thank you for standing by, and welcome to the Twist Biosciences Fiscal 2022 Second Quarter Financial Results Conference Call. [Operator Instructions]. I would now like to turn the call over to your host, Angela Bitting, SVP of Corporate Affairs and Chief ESC Officer.

Thank you, operator. Good afternoon, everyone. I would like to thank all of you for joining us today for Twist Biosciences conference call to review our fiscal 2022 second quarter financial results and business progress. We issued our financial results release this afternoon, 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. Emily will come back to discuss our upcoming milestones, and directions, and we will then open the call for questions. [Operator Instructions]. 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 2 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 the press release we issued earlier today as well as those more fully described in our filings with the Securities and Exchange Commission. The forward-looking statements in this presentation are based on information available to us as of the date hereof, and we cannot, at this time, predict the full extent of the ongoing impact of the COVID-19 pandemic and any resulting business or economic impact. 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 Chief Executive Officer and Co-Founder, Dr. Emily Leproust.

Thank you, Angela, and good afternoon, everyone. During the second quarter, we continue to serve a growing list of customers, delivering record revenue of $48.1 million and $55 million in orders. Of note, our revenue for the first half of fiscal 2022 is equal to our revenue in all of fiscal 2020 at $90.1 million, illustrating our rapid growth and continued commitment to executing quarter-over-quarter. We have increased our revenue and customer base in the face of macro supply chain description and market uncertainty and have extended our employee base with our lowest turnover rate even in the midst of the great resignation. We have been successful to date, and we believe we will be successful moving forward because of our employee and unique culture where we use our grit to make an impact each day in service and trust of our customers and each other. During the quarter, we added to our balance sheet in the midst of a difficult market where growth stocks are out of favor. We see a robust opportunity and potential ROI that can result from investing in vertical market segments. At the same time, we are already keeping resources in a fiscally responsible manner. We are working diligently to balance the drive to profitability with significant upside from new products and new markets, including data storage. We remain committed to achieving adjusted EBITDA breakeven for the core business at $300 million in revenue with the core business being defined as Symbio and MDS. When we reach that point, we expect to have options for data storage specifically that could further mitigate our spend. We understand that particularly in this market environment, it is critical to both execute quarter-on-quarter to drive revenue growth and manage expenses to have a demonstratable path to profitability. We are…

All right. Thank you, Emily. We have another good quarter at Twist. Revenue was $48.1 million, sequential growth of 15% and year-over-year growth of 54%. Orders were $55 million, a sequential increase of 11% and 32% year-over-year. And our gross margin for the second quarter was 38.3%. We shipped to approximately 2,000 customers for the quarter, growing from approximately 1,800 in the first quarter of fiscal '22, and we ended the quarter with cash and investments of approximately $604 million. Now I'll provide more color on orders. NGS orders for the second quarter were $23.6 million, which is an increase of 27% year-over-year and up sequentially from $21.8 million. And during the quarter, we received orders from approximately 750 NGS customers. And the top 10 accounts placed orders of approximately $8 million, confirming that we're seeing continued diversification of our customer footprint. Our pipeline for larger opportunities continues to scale. We are now tracking 231 accounts, up from 225 noted in our last earnings call, and 104 have adopted Twist an increase from 96% last quarter. Now turning to synbio. We saw robust growth in our Synbio orders, which includes genes, DNA preps, IgG, libraries and oligo pools, which rose to $23.6 million in the second quarter. That is sequential growth of approximately 6% and year-over-year growth of 16%. The major contributors to growth this quarter include health care and industrial chemicals. Now to biopharma. We continue to scale our biopharma business as orders rose to $7.8 million for the second quarter, and that includes Twist Boston, and up from $5.6 million in quarter 1 and $2.6 million in the second quarter of last year. As Emily mentioned, for our Twist Biopharma antibody platform, we have 47 partners with 47 active programs and 52 milestone and royalty programs. Before moving…

Thank you, Jim. As we move through the second half of our fiscal year, we intend to continue to focus on execution and revenue generation while pursuing opportunities to disrupt markets. We will also focus on contrary expenses and driving through our profitability for the core business. In July, we expect to begin our production qualification in the Factory of the Future, an exciting and important step to serve our customers as well as tap into the DNA makers market, and we remain focused on reducing overall turnaround time, especially for genes, while exploring new product offerings. For NGS, we expect a strong second half driven by continued customer growth and commercial execution. We expect to add more tools that enable our customers to perform groundbreaking research while we leverage our sales team to expand our market share and on the market between the sample and the sequencer, particularly in the area of liquids, MRB and RNA. In biopharma, we will continue to add partnerships and programs and move up the value chain, both for our service offerings and for our internally generated antibodies. In addition, we are planning an integrated portfolio of antibody discovery and optimization offerings as we integrate the Twist Boston team with our biopharma group. The combined solution truly differentiates Twist from the rest of the pack, and we look forward to cross-selling as well as broadening our reach as soon as the earnout is achieved. In data storage, we have a road map to reach terabyte scale. We have our first fully integrated CMOS chip with electronic control in-house and are actively developing the system to achieve synthesis up to 1 gigabyte of data in a single run. We believe we will be able to generate initial revenue from these [indiscernible] fully optimized through a central archive solution. In parallel, we are working on the Alpha chip and increasing the density per square centimeter to drive down the cost significantly with an eye to have an accessible archive solution. With that, let's open the call for questions. Operator?

[Operator Instructions]. Our first question comes from Matthew Sykes with Goldman Sachs.

Maybe the first one just on SynBio and a bit longer term, but how should we think about the fact of the future coming online next year in terms of accelerating that SynBio growth? Are there certain capacity constraints that you're dealing with right now that can be alleviated or the speed of the turnaround time, either one of those factors could help accelerate that SymBio growth as we look into '23.

Very much, Matt. That's a great question. So we do not have today capacity issues. We have extended a little bit of capacity in [indiscernible]. So when the first demand we're able to catch it. And we -- the Factory of the Future will have even more capacity. So as we are successful in grabbing market share, we'll continue to, whenever the others are there, be able to test them and produce them. In addition to that, I'd like to suggest in your question, the fact that we have -- we will have a faster turn on time will give us an opportunity to really expand into new markets where we don't really serve today and at a market that is very time sensitive. And especially in the makers market, we believe there is a significant portion of that maker market, at least times that we'll be able to convert. So again, 2 objectives for the Factory of the Future in Synbio. One is, as we are more successful, take more market share, continue to make sure we have the capacity, and two, expand into the rapid engine market. I will add, in addition to that, we have a robust road map of products we want to launch around GMP DNA, around protein, around RNA. They all start from making DNA. And so the fact of the future will also be a great foundation for us to expand into those additional markets.

Great. And then just a second question on biopharma. Assuming you're generating gross margin on the upfront fees and the fee for service. Therefore, should we really look at in terms of initial success of this program, adding just more and more programs. Obviously, the larger economic work comes with the commercial success of the drug and the royalties. But how should we think about sort of your building of the initial programs and the potential revenue growth rate of those programs as they add?

Yes. So we are very much focused on the upfront first. As you mentioned, there is some good margin there, and that enables us to pay the bill. So we're definitely not subsidizing anybody else's drug discovery. And so if we just get upfront tenant, it's great, and we've guided a significant revenue growth this year just on the upfront. But in addition to that, indeed, we are accumulating stacking up a bunch of masons or royalties, which should provide some significant economic return in the future. However, because those are difficult to anticipate in terms of exact timing and amount. At this point, we are not guiding on those. And so any masonry we would get above and beyond upfront payments would be upside.

Next question comes from Luke Sergott with Barclays.

Can you just update us on what your cash burn was on an organic basis ex the raise? Just trying to get a sense there of how you guys are thinking about that through the rest of the year.

Yes. So for the total year, you to step back and look at the loss we're projecting. Loss is about $260 million. That does include approximately $84 million for stock-based comp. It does include about $13 million for depreciation. And then for amortizations is $5 million for amortization. In terms of CapEx, we're projecting approximately $90 million to $100 million for CapEx. So that should help you frame the cash burn. So if you step back and look at that, it's approximately around about $260 million for the year. I mean, obviously, a good chunk of that is being invested in ramping up R&D for biopharma, reinvesting in the core business. We're investing about $40 million into storage. And obviously, for overall CapEx, the bulk of the CapEx investment, approximately $75 million of the $100 million this year is for Factory of the Future.

All right. That's great. That's helpful. On the Factory of the Future, you're talking about the breakeven for your base business at $300 million. Can you give us the assumptions by segment from a revenue and margin perspective?

Yes. I mean overall, we're forecasting approximately 50-50 split between NGS and Bio, and we're targeting gross margin about 50% to 52%.

Okay. All right. And then last one for me on the Twist high-throughput antibody production or the swap program. How integrated is that with the TAO. And on the new customers into that program, how many are new to Twist customers versus just coming from the TAO program?

Yes. Thanks, Luke, for the question. So it's two different products than -- so what you're describing, one is TAO, where someone comes to us where they have an antibody. And using TAO, we'll design more sequences, make more sequence and make those variants in-house, screen them in-house, and then give them an answer for better [indiscernible] whichever, improvement they want could be improvement in expression, improvement in binding, whatever. And so that is basically a service. The new products we've launched, which is an antibody synthesis offering, customers go on the website, they choose which variant and they want, then they upload those in. We just synthesize them, and then the customer will do all the work of screening out for the function they want. So in -- basically itself very similar purpose. It is very complementary. But in one case, with TAO, Twist does all the work. And with the case of synthesis from the website and the customer does all the work. So in the end, it's all the same customers that we are reaching out, but we're trying to offer them a broad [indiscernible] as possible. If you want to do the work yourself, go on the website, help yourself. No problem. If you don't have enough capacity, we think we have an advantage in being faster. Let us do TAO and we'll do the work thing for you as a service.

Our next question comes from Rachel Vatnsdal with JPMorgan.

This is Casey Woodring on for Rachel. First one, how should we model the cadence of gross margins following the opening of the factory, the future understanding that there's going to be some underutilized capacity at the open? How long will it take to ramp to those gross margins that you just called out the 52%? And then again, when do you think you can get to 60% gross margin for the total company?

Yes. So in terms of modeling our gross margins for this year, gross margin guidance we give is 37%. We will give updated guidance for next year as we continue to ramp the Factory of the Future. I mean overall, we're targeting for a factory future $300 million revenue, about 50%, 52% gross margin, adjusted EBITDA breakeven. And that's for the core business, and that's for NGS and synbio. As we continue to scale towards $500 million, we're projecting gross margins in the range of 55% to 60%. And that's based on a 50-50 split in terms of revenue between synbio and NGS.

Okay. And then you've previously mentioned for enzymatic that the error rates there will be equal or lower to that of the standard chemical approach. So I'm just wondering what are the technical milestones that you'll need to hit to achieve that? And then what is ultimately giving you confidence that you can meet or beat those error rates?

That's a great question. There's a few things that we're trying to optimize. Error rate is definitely one of them and [indiscernible] rate is the length of the DNA. Another parameter that we want to optimize as well is the speed of the different reaction steps. And then last but not least, and probably most important is the overall cost of the reactions to synthesize and oligo. So it's a multivariable optimization. In terms of the milestones, we have to optimize the enzymes. We have to optimize the linkers and the buffer for the chemistry and the debulking. Today, there's a lot of factors and to really help us in optimizing all of those factors, we've developed an NGS-based platform. And so that NGS-based platform is greatly accelerating the speed at which we can try all of those different conditions. So instead of testing one commission, one return at the same time, we're able to test thousands or even hundreds of thousands of different mutants. And so right now, we are cranking the -- cranking through all those through all the experiments to optimize the commission. So absolutely, you're correct that the error rate and length is important, but so to the speed of the reactions as well as the overall cost. And we are quite encouraged with our progress so far. And of note, a few weeks ago, our first patent that published. And it's that bananas the one of the avenues that we're following to get a very innovative link that provides a scarless DNA at a very low cost.

Our next question comes from Puneet Souda with SVB Securities.

Have Michael on for Puneet. I just wanted to ask one quick question regarding pricing. So obviously, it's an important lever for Twist. But with the inflationary environment, we were wondering if you could get any thoughts on how you're thinking about potential price list.

That's a great question. [indiscernible] topic that we spend a lot of time on. We -- at this -- historically, we have been the high-quality price leader, and that has been selling us really well in making sure that we are growing faster than the market. And so we are looking at all the opportunities to differentiate ourselves. So one is the price. There is a throughput that we have -- is the user experience that we provide. At the same time, we are seeing price increases all around. Fortunately, our variable contribution -- variable cost is where -- it's quite small, as you know. That's one of the advantages that we have. So when our own supplier increased prices the effect is mitigated, but we also understand that a great way to boost revenue and boost margin is to raise prices. So we are definitely still in the market looking at what we can do. And our goal is definitely to deliver continued revenue growth, margin growth, market share growth, and pricing is a key element of that. So I can assure you that we're spending a lot of time on it.

Got it. And then when it comes to liquid biopsy, I was wondering if you could provide any updates on the number of customers you're serving and how much you see liquid biopsy contributing to the overall NGS guide?

Yes. So overall, as a highlight in the pipeline of our overall larger NGS customers continues to scale, number of adults that increase in terms of liquid biopsy. Approximately, we're tracking about 20 key liquid biopsy customers. And I mean we've obviously been adopted in a number of their tests. So as their test volume increases, our volume increase. But what's exciting for us is just a huge opportunity we see in NGS based on the value of our product. And in terms of guidance for this year, we've always said the second half is a bit stronger, and we feel good about we're positioned for the $94 million to $96 million for -- and you saw our bookings increase sequentially this last quarter. So the pipeline increased sequentially. And the number of liquid biopsy customers we're tracking, as I said earlier, about 20.

Our next question comes from Catherine Schulte with Baird.

This is Tom on for Catherine. Maybe I wanted to touch on academic markets. Jim, I think you touched on in your prepared remarks, but any impact from Omicron in the quarter? And how are research activities -- activity levels trending? And kind of what are your expectations here for the remainder of the year?

It's a good question. The quarter was interesting. It started off actually from an ordering point of view, January was very -- was low. However, as we saw the quarter proceed activity picked up in February, and we had a really strong March. Overall, from an academic point of view, we continue to add a number of customers overall to the business, but also academic has held up extremely well. And in terms of outlook, as we expand our portfolio and as we continue to expand the customer base, we believe that we're well positioned to continue growing aggressively in this space, particularly when the Factory of the Future comes on, we'll be able to offer a much faster turnaround time. And that really addresses the long to of the market, the $1.4 billion opportunity, and we will start seeing revenue from Factory of the Future in January next year.

Okay. Great. That's helpful. And then switching over to biopharma, are you still expecting Revlar to submit an IND for its COVID antibody in the first half of this calendar year?

Yes. Thank you for the question. We -- Revlar is an independent company. So we let them make their own announcement. But the objective of submitting for IND in the first half of this year is still the objective.

Our next question comes from Matt Larew with William Blair.

Just from the time that the fact the future sort of opens in July when you start shipping in January of '23. So what are the key steps and hurdles that you need to clear from a validation, quality control standpoint?

Great question. So we're following the classic and the industrial steps of IQ, OQ, PQ. So IQ is an inpatient qualification. So you can think of it is the instrument plugged. OQ is operational clarification. And so that is, is the robot moving the way you expect it to move. And then PQ is performing -- performance qualification, do you get the DNA that you expect out of it. So that's the broad framework that we follow. It's a lot more complicated because it's a system. And so there are multiple pieces equipment with very sophisticated software to track all the orders and direct the flow of orders through the different instrument. But basically, that's the framework. We are very experienced in doing it. We have moved the fab within the Bay Area multiple times. So that's something that we've done. Most of time there is an additional complication of one. It's in a different state, but it's only the triple way for engineers. And then two, we also are bringing on board a number of new employees that we have to train, and to help that way today. We've had a number of twisted in San Francisco that have volunteer to be located and with the initial nucleus of employees in Portland. So those are the metrics, IQ, OQ, QQ, and then hiring of people. And then once we've done that, the next step is ramping. Ramping up of capacity, ramping down of turnaround time and the number of practice rent increase. And then at some point, it will be ready, and we'll flip a switch on the software that will do load balancing between the different fabs. And so some others will come in and some of them will be treated in first [indiscernible] will be treated in Portland and then we'll be off to the races.

Okay. That's great. And on biopharma, you've talked about sort of the conversation with customers becoming easier sort of building a brand. I think in the past you've sort of referenced being the drug discovery of last resort. I'm just curious if given funding dynamics, market dynamics, if that "last resort" or might be happening a little earlier in the process. And given the focus on cash for some small biotechs, how open are you to discussions around the balance between the fee-for-service rate and the downstream economics?

That's a great question. So the [indiscernible] of last result is still a great opener for us. And so we're definitely maintaining our leveraging that brand as much as we can. And then as you know and as we've discussed in the past, once people try to is once they've had experience with the speed and quality of the antibodies that they get at the end. The next project, we get the easy stuff and people are willing to pay more. In terms of our ability or our willingness to be flexible on economic terms, we are very flexible. But there's definitely a red line where any deal has to pay for our cost, so the bare minimum. We are not going to do a deal that's not a gross margin positive. We're not in the business of subsidizing our customers' research. However, order now, pay later, if we -- if there's an opportunity to be flexible and maybe get more of the downstream economy instead of all upfront. I think we will definitely be flexible and open to negotiation.

Our next question comes from Vijay Kumar with Evercore ISI.

This is Alexandra on for Vijay. I just wanted to start on R&D expense. You guys broke out that $40 million for DNA data storage. And I was wondering if we could expect to see revenue contribution this year?

For DNA data storage, no, we're still in development in DNA-based story as Emily highlighted. So this year and next year is development. We are seeing a lot of interest in the product. The alliance continues to scale. Technology developments going well. The more research we do in the market, particularly archival, we announced the 100-year archival product solution. So we feel good to [indiscernible] from a development point of view. And over the next few years or next year, we'll be able to give you updates in terms of how we're progressing. But our goal is to monetize data storage as quickly as we can.

Okay. And if I could just follow up on the alpha chip, could you give some color around that and the cost metric on it as well as when we can expect further generation chip.

That's a great question. So we are single that we're in the design of the alpha shift. So that's the first part of the design, production and then debulk cycle. In terms of cost, I think you referred to the cost of storing data. The ultimate goal of the alpha chip would be to be in the terabyte scale. So we'll be able to sell terabytes of storage to our customers. And we are in the process of doing market discovery in terms of the price that we'll be able to achieve. So I don't want to signal too soon what the price would be. Although what we can say is that we'll definitely be competitive when looking at the total cost of ownership versus technology that are available today. So today, we are competing for, again, tape, hard drive and flash memory. And when you store that for 100 years, the total cost of ownership increases substantially over time because data needs to be migrated, maintained and energy needs to be spent over that 100-year period. And so with DNA, we have an opportunity to be very competitive against that total cost of ownership. So that is the ZIP code in which we will be for the price of storage terabytes of data.

And I'm not showing any further questions at this time. I'd like to turn the call back to Emily for any closing remarks.

Thank you, operator. And thanks for joining us today. We look forward to seeing you -- or at least seeing some of you in person at the UBS conference in New York and the William Blair conference in Chicago and the Goldman Sachs conference in Southern California. Until then, thank you so much for attending today.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.