Twist Bioscience Corporation (TWST) Earnings Call Transcript & Summary

Good afternoon, everyone. My name is Ryan Rice, and I'm an associate with the JPMorgan Healthcare Investment Banking team. Welcome to the session for Twist Bioscience. Presenting today, we have the Twist Bioscience CEO and Co-Founder, Dr. Emily Leproust; joined by the CFO, Adam Laponis. The presentation today will be about 20 minutes, followed by roughly 20 minutes of Q&A. So we please just ask you to hold your questions until the end. I'll go ahead and turn it over to Emily to get started. Thank you.

Thank you very much for the invitation and the introduction. I'll start by saying that I'll be making some forward-looking statements today. So at Twist, we are an emerging leader in life science tools, we are global, and we outperform in the multibillion-dollar markets that we serve. And the key technology for us is a semiconductor approach to DNA synthesis. Our products are actually very diverse. We serve many applications. One of them is DNA synthesis and protein solutions that you may know formerly as SynBio and Biopharma. The other is NGS application formerly NGS. And the key applications we serve are the therapeutic drug discovery, diagnostics, the chemical production -- the production of chemicals through yeast, algae and E coli in a way that's more sustainable and enabling our customers to make sure that our food security is there through the engineering of traits in plants and animals. We serve the top of the top institutions in multiple markets. We have more than almost 4,000 customers. And the key for us is about innovation. We enable our customers to accelerate discovery to improve their performance, to reduce their supply chain risk at attractive economics. And we -- the way that resonates really well with our customer is that we future-proof their supply chain. I mentioned that the key technologies are silicon chip. From our silicon chip, we derive an unfair advantage in making oligonucleotides. Oligonucleotides are small pieces of DNA. And we have a very simple strategy, and that is to load more on the chip, very similar to an airline that wants to fly full planes, we want full chips. And so therefore, we've developed a wide variety of products that serve many applications, many customers, many markets, but it all comes down to the same chip. And here, I'm showing you -- so the bottom left is the chip. We make oligonucleotides. And I'm showing you the product lineups that we had in 2021. And with the next animation, which we're showing is how that product lineup has evolved over the last 5 years. And so you can see that we have way more products. And so we are an NPI machine that builds on top of that oligo unfair advantage. And now that product lineup is a moat, and I'll discuss in a few slides, it also enables us to expand our SAM. And as you can see here, this is the markets that we serve. DNA synthesis and protein Solutions, more than $4 billion of SAM; NGS application, more than $3 billion of SAM. And as you can see at the bottom, it's quite important messages. In 2020, our SAM was $2 billion. In 2025, it's $7 billion. So what happened was, number one, the market grew. But more importantly, we added new products through our NPI machine that enable us to go into new markets. And we estimate that in 2030, our SAM will be more than $12 billion. Thanks to that product introduction, we have delivered revenue growth. Here, I'm showing some of the bright spots in our product lineups that are growing really fast, and that enabled us to deliver more than 20% year-over-year growth last year. And there are no other life science tools company that do that. And our ambition is to make sure that we have durable top line growth going forward. We do that in 2 ways. Number one, going back to innovation. We enable innovation at scale, both in the solutions we provide to the customers, in the value that we provide and the impact that we enable them to have on their business. So innovation is our first driver. Second innovation is execution. We have a very powerful advantage in the superior solutions that we launch, the exceptional customer service that our customers get from us, the operational excellence that we provide. And what we do is customize biological reagent at scale. We are leveraging automation and that operational excellence is key to our success. And last but not least, is our financial discipline, and we are reiterating today that we will be adjusted EBITDA breakeven in Q4 2026. This is a key milestone for the company, and we're doing the things on the left to do that. And after that, we want to drive durable, profitable growth. In terms of financial perspective -- financial performance. You can see here the revenue growth for the last few years. Since 2023, we've made a key effort in ramping gross margin. Last year, we got gross margin above 50%. We're not going back. But now we'll focus more on revenue growth rather than gross margin growth. You can see that our OpEx has been fairly flat. And so as we ramp revenue, as we ramp gross margin and our discipline on OpEx, our adjusted EBITDA loss is shrinking, and that's why we think that -- we really think that in Q4 this year, we'll be adjusted EBITDA breakeven. Double-clicking on quarter performance now. We preannounced today our Q1 numbers. Q1 ends in December for us. And now we have 12th consecutive quarter of revenue growth at a CAGR of 24% over 12 quarters. So really, really good, very unique in life science tools industry. We are changing the way we are reporting the industry group. And at the bottom, we are showing the new groups. Diagnostics is the biggest group, therapeutics coming second, both more than 25% growth. Academic is small. We are underexposed, but 13% growth is better than our competitors [ in the funding ] environment last year. Industry and applied, if we remove the one customer that we discussed previously, was actually 23% growth. And we're introducing a new category of global supply partners. And those are on the left, 18 companies that are reselling Twist DNA or Twist products under their brand. And then on the right, our network of distributor, it's a great way for us to ramp revenue to load more orders on the chip in a way that's very profitable. And now mixing the 2, our industry mix with our product mix, you can see that the therapeutics is mostly DNA synthesis and protein Solutions, diagnostics is mostly NGS application, and we're showing the numbers for the other industry groups. We're not going to share these numbers every quarter or maybe not every year, but we thought that for the first time, it was a useful addition. So now diving a little bit deeper into the 2 product groups, first, DNA synthesis and protein solutions. On the right, here, you can see the products and the services that we sell. So it's a very extensive menu. We win in products because of our speed, cost, scale, quality and frictionless e-commerce. Usually, you may have to pick 2 out of 5, we deliver 5 out of 5. And then in the antibody service area, we win because we are the one-stop shop. You come to us, you give us a target, we give you a drug. And we can use AI, in vivo, in vitro. We have the full suite. Our strategy in growing there is to expand wallet share once we've landed a customer. On the right, you can see the value chain. Sometimes we land customer with a gene fragment or DNA prep or IgG and then we upsell them, mostly in the area of therapeutics. And to try to help illustrate the dynamics, we are sharing actual revenue number from 2 different customers. Both of them do drug discovery. You can see that the top one, they use gene fragment; the bottom one, they use clonal genes. So different customers do science differently. In Q1 2024, as we launched express gene, you can see the top customers were able to expand our revenue into different part of the organization and the revenue overall grew. And then the bottom customers, you can see that when we launched high-throughput IgG, that's something that was well matched for what they were looking for. So hopefully, it shows the different dynamics that happen with different customers that may be doing the same thing. What we -- the [indiscernible] says that if you put 5 drug discoverers together, you'll get 6 opinions on how to discover drugs, and we meet them where they are. A big growth opportunity for Twist last year has been AI drug discovery. On the left, you have traditional drug companies that need more data to feed and build their model. And on the right, you have AI and tech companies that don't even have a wet lab. They just have a dry lab. And those companies now come to us where instead of selling them DNA, we can now sell them data. And we -- our platform is uniquely positioned for this AI moment because people need a lot of data points. They need them fast, they need them high quality at a great economics. And this will turn into the killer application that really drives massive volume to the Twist platform. In practice, how it works. At the bottom, the customers, they do the engineering principle of design, build, test, learn. They design the sequence, it comes to us. We do the building in days. We do the testing in days, and they get delivered data between 5 to 10 days depending on the details of what they want to do. They can either characterize a few hundred sequence as they used to or they can build large language models with thousands, if not tens of thousands of data points. $25 million of our $66 million order growth in FY 2025 came from selling data and AI. So we believe this is here to stay and very useful to us. Moving to our NGS application. There, the products that we sell are on the right side as well as our services. So we have the full suite of panels, library prep kit, other products as well as services. We win in products because mostly of our quality. When we serve diagnostic customers, quality is paramount and with high quality of our products, what happens is they have to sequence less. And as they sequence less, they get better margins. So it's a great win-win. And then on the service side, we win because we ourselves sequence tens of thousands of samples every day in the previous product group I mentioned. And therefore, we have experience for massive high throughput sequencing of samples. The samples we sequence are small. It's 2 megabases genomes, but it's applicable to other genomes and our service partners benefit from that experience. The growth strategy there is to scale with our customers. And so as we land MRD customer, liquid biopsy customers, rare disease, NIPT, agrigenomics, we either win through a service lab or an R&D pilot. Once they're happy, they go through validation and verification, clinical study, commercial ramp and through those steps, revenue ramps. To help illustrate that trend, we are showing the revenue data from 4 different customers. Starting on the top left, for tumor-informed MRD customers, the revenue is at the beginning in R&D phase. It grows in the validation and verification period and then it keeps growing in the clinical period and the trend is very smooth because when a patient comes in, a panel gets ordered, Twist gets paid. For an oncology customers that has multiple tests on the top right, you can see that quarter to quarter, revenue goes up and down. And it doesn't mean that their volume is not ramping. It is ramping, but R&D projects start and stop and the company may decide the inventory level that they want. And so in some quarters, they may build inventory; in other quarter, they may remove inventory. Another key aspect is we are known for the DNA, and that's in dark blue and light -- sorry, dark green and light green. Those are the panels we sell. And this is a big part of our revenue, but we also get substantial revenue from our kits, reagents, library preps and other. And one thing that's a little bit underappreciated is that Twist powers the continuum of cancer care research. The bottom left, you see all the products that we sell for diagnostics. And then on the right, you see that we also have exposure on the therapeutics part. And so when you think of the continuum of cancer care, the needle to needle, the first needle that is the screening that may find cancer through a blood test to the last needle that provides a personalized therapy, personalized neoantigen therapy, both will come from Twist and everything in between will come from Twist as well. So it's unfortunate that people get cancer. However, as advancement in science is turning cancer into a chronic disease, Twist is powering that full continuum of care. As I wrap up the last few slides, I want to come back on one key aspect of what I discussed, and that is the NPI machine. Remember, the evolution from 2021 to 2026 of our NPI. Those are the NPIs we launched in 2025, very robust, key to our growth. On the left side, in DNA synthesis and protein solution, I won't go through the details, but typically, it's a very rapid uptake. We launched it. We get an immediate boost to our sales. The total market opportunity for each of those launches may not be very big, but they come in quickly. And it's a different dynamic in NGS Solution. In NGS Solution, we launch a kit, it takes a long time. It takes many quarters, sometimes a few years to grow. But once it grows, it grows into really big markets that are very sticky. And so different dynamics, but we benefit from both of them. So looking ahead, we are going to keep that NPI machine going and that will mean more products, more applications that are sold to more customers and serving more markets. I won't go through the details. Happy to answer in Q&A. But again, that feeds into our strategy of loading more on the chip. As we load more on the chip, the financial performance gets better and better. So it's a virtuous circle of more products means more revenue, better margins and profitability for us. So one question that sometimes they get is, as you're successful, do you have the capacity to capture the revenue opportunity? And the answer is yes. We leverage automation. Right now, we have about 50% of our -- a bit less than 50% of our existing capacity that is utilized. And we will continue to ramp revenue and add capacity ahead of demand. And one thing I'll mention is last year, 90% of our revenue growth dropped to the gross margin line. This is fantastic. This is not a long-term trend. We think that the longer-term trend is more towards 75% to 80% of revenue growth that will [ drive ] to the gross margin line. And that is very healthy, and it's a benefit of our semiconductor based technology. Once we have absorbed the fixed cost, the variable cost is very small. So to conclude, before we go into the Q&A, one thing to remember is that we have a differentiated platform to write DNA, it's based on semiconductor technology. We are serving growing market. We are expanding our serviceable market. We are working with the top companies. We're landing more. We are expanding. We have shown that we have durable revenue growth and that now that we have gross margin over 50%, we'll keep focusing on that revenue growth. We have a line of sight for adjusted EBITDA breakeven in Q4 of this fiscal year, which we reiterated. And at the end of the day, we are serving those big markets and what differentiates us from our competition is that we are an NPI machine. We have great operational execution, and we deploy commercial violence. So I think there is a very compelling upside to come from Twist. Thank you very much.

Thank you, Emily. So now we're going to begin the Q&A session, and we have a few questions here to start off. So Twist issued a press release this morning announcing fiscal year Q1 revenue ahead of guidance, including roughly $53 million of NGS application revenue and roughly $52 million of DNA synthesis and protein solutions revenue. Can you walk through the performance in fiscal year Q1 versus expectations?

Yes. Thank you for the question. Yes, it was a great quarter for us. The growth in our DNA synthesis and protein solutions product group was 27%. So it's really good. The growth in our NGS application group was 8%. But you may recall that we had one customer that is transitioning from a clinical study to a commercial. And when you exclude that customer, actually, it was 18% growth for NGS application. It was one risk that was identified during our earnings call. We have very close relationship with that one customer. We knew it was coming. We told our investor base to make sure that there was no surprise. But at the end of the day, you're only as good as the numbers that you are, and we are showing that now that risk has been retired and so all in all, 17% growth for year-over-year. So just overall, a very fantastic quarter, and we keep executing, and this is our 12th quarter of consecutive revenue growth.

Amazing. So kind of building off of that with the NGS application revenue of the roughly $53 million, much of the recent conversation regarding the NGS business has been centered around a large customer transitioning from commercial -- or transitioning to a commercial launch, really creating a near-term air pocket. How does this specific customer trend versus expectations?

I'm happy to take it. Thank you. And great to be here, everyone. No, when we guided, we said we knew we had an air pocket of -- in Q4 fiscal and Q1 fiscal about $5 million each. When we reported the Q4 actuals, it came in a little bit better. And as we're getting here into Q1, it looks like it's going to be the same, similar, but a little bit better than initially expected.

Got it. Okay. And so fiscal year '25 growth in DNA synthesis and protein solutions was very strong relative to peers. What are you seeing the most sustainable share gains in the business are here? And what are the main factors that customers consider when switching to Twist?

Yes. That's a great question. And it's all of the above. The -- what we try to do is leverage our unfair advantage from the silicon technology to, one, offer a very, very broad menu of products. So that's key. And then second is when we offer those products, typically, you have to choose. Do you want fast and cheap or fast and high quality but expensive. And for us, the value that we provide is all of the above. It's fast, it's high quality and it's great value. And what we find is customers have a fixed budget in mind. And by providing this great value, we're able to grab the entire budget and then enable customers to really innovate the way they do things. And so if you're not using Twist, you're using an inferior solution. And then -- so that's kind of like almost the base case. And then on top of that, there is this new AI drug discovery opportunity that is coming that maybe a year ago, we had not anticipated and maybe a big -- a large company will not have been able to capitalize on it, but we saw the opportunity and we launched that data generation product line very quickly, and it met the moment. And so that's the combination of not only a great technology, but the ability as a management team to recognize opportunity and push it through our NPI engine to launch products that makes a difference for our customers. It sounds simple, right, make a difference for our customers, and that's what we are doing.

Amazing. And that's a great way to transition into the AI-enabled drug discovery. So in fiscal year '25, AI-enabled drug discovery contributed to growth, driving roughly $25 million of orders. What has unlocked this market as a future growth driver?

Yes. And so the way we look at it -- so it's a great number, $25 million order growth out of $66 million. At the same time, it's still concentrated into a few opportunities. In general, there's 3 buckets of potential customers. One are the large pharma. Second are AI companies that are very well funded. And then third are the Magnificent 7 that are leaning into AI and drug discovery. And so we have successes in each of those 3 buckets. But we don't have 20 pharma companies yet. But they are top 20. We need all 20. We don't have all Magnificent 7 in -- that our customers yet. And so now that we know that it works, now that we know that it brings value, we know that we have a full menu, our objective is somewhat simple is go get the 20 plus 7 customers plus all the AI companies. So it's a matter of execution. It's a matter of commercial violence, and that's what we've been doing. That's what we are good at and look forward to our future earnings call to update. But really, again, I think this AI is a perfect match for the platform that we have. So it's no accident that there is a significant revenue growth. What those AI models and that AI way of doing drug discovery needs is high throughput, high speed, economics that are affordable and great quality, and we have all 4.

Thank you. So I'd like to open up questions to the room. Would anybody have any questions for Emily or Adam? If not, we can continue with questions from the webcast. All right. Seeing no questions. We'll continue with questions from the webcast here. So Emily, how should investors view the relationship between commercial test volume growth and Twist NGS revenue? Is this a one-to-one relationship?

You probably -- you mean for NGS.

Yes, for NGS.

So just to step back and give context to the question, in NGS, the vast majority of our revenue come from diagnostic companies. Those diagnostic companies, they find a patient, they use reagents from Twist to prepare the sample, sequence it and provide a clinical report. And so if diagnostic company revenue grows 40%, should the Twist percent grow 40%. And I think that's the question. And the answer is, in general, yes, with maybe a couple of caveats. The first caveat is in our contracts, we do have tier pricing. And so it could be that -- I mean we are very clear at Twist, the more you buy, the more you save. If you want to commit to 100 million patients a year, we'll be able to provide it to you for $10 per patient at a great margin to us. So there is tier pricing. And as our customers go from one tier to the next, there is some discount that is applied to them as it should be. So that's the first caveat. The second caveat is that for a test that is tumor naive, it's -- every patient gets the same panel. And so what that means is that our customers, they decide when to add inventory and when to burn inventory. And therefore, there may be up and down from one quarter to the next, depending on how they want to manage their balance sheet. And so that's why sometimes when we report our quarterly results, we share our top 10s who were the top 10 -- the percent value of our revenue that was from the top 10 customers. And from one quarter to the next, top 10s may change because one customer may buy more in a quarter or not. So in some way, it's -- in the short term, it's untied. The volume is untied to our revenue. But in the long term, it is, of course, tied. There's one exception to that, and that exception is in tumor-informed MRD. With tumor-informed MRD because it's tumor informed, our customer does not know what the patient will need. So they have to wait for the patient to come in to know what panel to order. And so there, we see a much tighter tie-in between the volume from our MRD customers and our revenue because it happens very fast. So the patient comes in, the order comes in the next day, 5 days later, the panel is delivered. And at the same time, the invoice is sent. And so as our revenue percentage gets bigger and bigger for our tumor-informed MRD, we should see a tighter tie-in from a time point of view between our customers' volume and our revenue.

Great to hear. How would you direct investors to evaluate price versus volume across the DNA synthesis and Protein Solutions agreement? And is this increase -- is increasing ASP a good metric to use for success?

I'm happy to take that one. No, it's -- so I know there's been a lot of attention over the years looking at the number of genes we ship and then looking at the revenue and trying to do that in the simple division. There's actually 3 or 4 different elements that drive that. And so it can be kind of confusing. I think the #1 element that we talk about is the length of a sequence is the primary basis for what we charge, whether you're buying a -- whatever you're buying 1,000 kb gene or a 5,000 kb gene, it's going to be priced based on the length of the gene. So that length is actually the primary driver. The secondary driver that's becoming more of an influence is whether a customer is buying a gene fragment and that might be at $50 or a clonal gene that might be $100 or an IgG that might be a couple of hundred dollars or a data report that might be a couple hundred dollars more than that is -- that's all counted as one element. So there's the big variability in price depending on what you're buying. And then the third is, of course, the ASP. And so whether it be through the Express or regular or various contracted pricing. But I'd say the sizing of that variability is kind of left to right from the first to the third. And so it's probably not the best metric in terms of how to look at the business, and we laugh about it a lot is we don't study that internally. We're really looking at what is the relative revenue and profitability by each of those lines, and we're confident that, that 75% to 80%, whether you're looking at one element or another that 75% to 80% of revenue growth dropping to the gross profit line is actually what we're targeting across the board.

So what does the typical revenue progression look like as the diagnostics customers progress from verification to clinical validation and eventual commercial launch?

Yes, that's a great question. And in some ways, it depends on the quality of the test. It could be that the test has not the best sensitivity. But in general, what we see is what I shared on the slide deck, where if you remember, I think it was Page 28, where we are sharing the revenue growth from an MRD to more informed customer. You can see that there is a very significant growth. It almost looks like an exponential growth from the R&D to the validation verification to the clinical work. And so we benefit from that. At that point, it's still R&D work. And then sometimes there can be an awkward quarter 2 when the clinical work ends and the commercialization starts. And so they can be -- there could be a gap. But in general, what we find is that our customers are able to develop highly sensitive tests that have great margin. And so it's really a benefit to the patient. It's a benefit to the company without breaking the bang for the insurance. So it's a great overall outcome. But that's what we typically see is it straight up into the right. There can be a gap and then the commercialization comes back. So that gap can be awkward because there is -- in some ways, there's a lump that is missing. And so what we tell our sales team at Twist is that if you have a lump problem, find more lumps. And so we did have an air pocket in Q4 and Q1 from one customer. This was actually quite unusual. It's the first time it happened over -- since we launched in 2017. But in general, we feel very, very confident on the trajectory of that business.

So kind of bringing the conversation back to the NGS applications. What do you think is the most underappreciated aspect of the NGS applications business? And what do you think investors may be missing here?

Yes, I think there's one key aspect is -- there's some question sometimes from the cost of whole genome sequencing. What happens to our business when whole genome sequencing becomes affordable. And the answer depends on the application. So if you think about rare disease, for sure, there's a long-term direction where rare disease is going away from exome on to whole genome sequencing. So that's a long-term trend we can't stop, and we're not even trying to stop. But even there, we still have the opportunity to add the library prep business, which is not negligible. Even there, maybe the U.S. can afford the whole genome sequencing, but maybe that enables exome to be more affordable in other markets like the Middle East or Europe. And so even there, I think in the rare disease space, it's not absolutely the end of the world. And more importantly, for us, our exposure is mostly in cancer care. And in cancer care, lower cost of sequencing is very beneficial because it lowers the cost of the test and it lowers the cost of the test. It makes that test available more broadly. And so we think that all in all, lower cost of sequencing is good for our business. We are very much pro sequencing company who's doing that. And then there is a last dynamic where right now, some tests are just 1 or 2 genes. Some genetic tests has to be $100. And so you will never do it with whole genome sequencing. And right now, you can't do it with the exome either. But as the cost of sequencing goes down, those tests that are looking at a very small number of genomic location, they are not done with us because they are made with amplicon sequencing, which we don't do. And as the cost of sequencing goes down, we have an opportunity to upsell those tests away from maybe 2 biomarkers to 5, 10, 15, 30. And so that creates yet another growth opportunity for us. So I think that's one key misunderstood maybe -- question is the impact of lower sequencing costs to our business. And overall, we are all for it. We are encouraging all the sequencing companies to do so. And we are sequencer agnostic. And we think it's overall a great thing for the industry, a great thing for Twist and a great thing for patients.

That's amazing. So kind of zooming out here and coming to a close, could you provide a "state" of the union for the company as we enter 2026?

Yes. So I think the state of the union is the good -- I'll start with the good. I mean the business is absolutely reaping 20% growth last year, 24% CAGR growth over the last 12 quarters. So that's fantastic. Very happy customers. We're an NPI machine, just launching product after product after product. Our gross margin, we passed the 50% gross margin, which was key to us. The math of getting adjusted EBITDA breakeven did not math without getting 50% gross margin. So we did it. We have adjusted EBITDA breakeven in our line of sight. And again, we are reiterating for Q4 this year. So from that point of view, I think it's all system go, all green, very happy about it. I think, frankly, we are still a little bit disappointed with our multiple. I think when we compare the consistent execution, innovation that we've delivered compared to life science tools competitors, I think we are unmatched. And after 10 years of commercial selling, we are probably about to become an overnight success. And hopefully, we'll see the multiple more in line with what we think we deserve. But at the end of the day, it's very simple, keep launching products, expand our SAM, ramp our revenue, expand our gross margin, load the chip, add happy customers and do it again.

All right. So if nothing further from the audience, I think we can wrap the presentation up, and thank you, everyone, for coming.

Thank you very much.