Q4 2022 Twist Bioscience Corp Earnings Call
The.
Good day, and thank you for standing by and welcome to the choice.
2022 fourth quarter and year end financial results conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone you will then hear an automated message advising your hands. Please be advised that today's conference.
It's being recorded.
I would now like to turn the call over to your speaker today Andrew.
Senior Vice President of corporate Affairs, and Chief ESG Officer.
Please begin.
Thank you operator, good morning, everyone I would like to thank all of you for joining us today for the twist Bioscience Conference call to review, our fiscal 2022 fourth quarter and year end.
Actual results and business progress.
We issued our financial results. We released this morning, which is available on our website at www Dot twist Bioscience Dot com.
With me on today's call are Dr. Emily approves 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 direction and then we'll open the call for questions. We would ask that you limit your questions to a maximum of two 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 Investor Relations section of our website and will be available for two weeks.
During today's presentation, we will make forward looking statements within the meaning of the U S. Federal Securities laws forward looking statements generally relate to future events or future financial or operating performance, our expectations and beliefs regarding these matters may not materialize and actual results in financial periods are subject to risks and uncertainties.
That could cause actual results to differ materially from those projected.
These risks include those set forth in the press release, we issued earlier today as well as those more fully described in our filings with the Securities and Exchange Commission.
The forward looking statements in this presentation are based on information available to us as of the date hereof, and we disclaim any obligation to update any forward looking statement, except as required by law.
With that I'll now turn the call over to our Chief Executive Officer, and co founder Dr. Emily Looker.
Thank you Angela and good morning, everyone. This morning, we won't be the record revenue of $203 6 million for fiscal 2022.
And she kept 10 point screaming at all.
And they're also the fourth quarter.
Continue to take market share in Boston.
Sending out customer base, delivering differentiated I agree with your products and I'm speaking market each year.
Our Biopharma business continues to sign an increasing of those partnerships with biotechnology and pharmaceutical companies to conduct discovery and optimization projects.
Just one point to my two I wonder if macroeconomic construction could be shutdowns geopolitical instability enbrel and yet we could we did about 54% revenue growth year over year, and we grew up gets up to about three topics.
In the slide deck for this dental school. We have included at least that similar pulse system knows with published conducted with me now.
So these notes using twist trucks.
<unk> broad and deep and just a small fraction of our total customer base.
Our twist, even continues to demonstrate exceptional with young newspaper challenges silicon platform for the unexpected this enables us to compete in multiple markets that each experienced different market dynamics.
Reducing risk through that dose is probably ruben you're empty store base.
Taking a minute to highlight the old technology.
Those of you who may not have had you put into a fab miniaturize the purpose of making using traditional units chemistry.
By making DNA using our proprietary silicon chip level, we have been able to reduce the amount of free agents used by 19, 98% compared to a plastic pellet flake platform.
These reagents.
Drydock Cogs so leveraging this dramatic reaction enables us to achieve the lower cogs than our competition.
The way it works on each ship, we make show pieces of DNA called oligonucleotide the Oracle the illegals.
They buy days like stocking legal blocked on top of Manhattan.
It can go up to 300 babies inland.
As a reminder, each day as being one of the four building blocks of Q&A AC cheat Archie.
What are you guys talking to your computer and chip is calling on for all of our trucks, we call. It the front end and it is where our house of the magic happens.
I mean, we're the technological differentiation originates.
The vast majority of them.
So products, meaning the sequences of DNA I'll be fine, but just enough.
However, we have designed our technology such that each ship on every chip we can group all deaths for many guests the milk and multiple projects.
The only go for all of these are the secret sauce in parallel on the chip and because it's a chip can synthesize 1 million vehicles, we can't leverage the secant platform to achieve differentiated skill.
Once these might be illegal we extract them from the silicon chip and I'll, then send to the appropriate backend workflow.
B engine production.
Sure Paul So he can prove.
Sure can.
And so on each of these back end processes is unique based on the Skus and flavor unit produced but typically operate those web twinkles that into rent batch processes for multiple orders on commercial automation.
Because the front end.
Scale low cost equation, the backend processes are remarkable.
A remarkable deal.
The second half of the Magic lies in the overall complex highly automated processes of capturing and Aldo of designing the illegals sympathizing vertebral audio so when you purchased the mills on a single chip of sending them to the correct back in lab for processing quality control packaging and shipping. This in house developed software we used to.
On direct these complex virtual processes.
No no enabled us to rapidly go from order placement to shipping a scale and low cost, which is a true differentiator.
It works with speed and efficiency continues to provide the foundation for revenue growth specifically talking about <unk>, we reported revenue of eight.
Well 22, an increase of more than 50%.
At 21, 6% for the fourth quarter.
The strength in <unk> came in across the board with genes and oligo pools experiencing significant growth.
An important point to make is adult products that generates revenue seems like it does he calls I used to be called biotech industrial chemicals and agricultural companies as well as the academic labs.
We shipped approximately five.
158000 genes in fiscal 'twenty compared to 372000 in fiscal 'twenty one.
To support our continued growth we're ramping effect of the future in Portland, Oregon, with a twinkle southern manufacturing team currently trending and producing test products. Today, we have about 40 employees from cellphones is good at that moved to Portland, bringing wisdom experience and all manufacturing processes.
And intricate knowledge of the tweet culture.
These employees are now trending out normally.
With 177 up go you can book them as of today, we remain on track to begin shipping product out of Portland in January 2023.
Thanks, sure manufacturing partner with <unk>, just trying to let the annuity piece.
Turnaround time of approximately 10 to 12 days for the.
The same is that correct.
Rich all the time.
And petsmart and Petco.
As you ramp production partner, we expect to introduce genes, which we believe we don't feel it gently first open on time and in pants to tap into the Indian market with premium pricing, while maintaining our position as the most cost effective June statistics provide them.
It's based on who decides genes in the fall of 'twenty three.
I'd like to personally invite you to.
Manufacturing facility on Tuesday November 29, we will be arranging tools for investors and analysts who wish to visit please contact in July like skipping a tool.
Turning to Ns, Yes, we continued our strong back half of the year with 29 continues in that auction revenue for the quarter, bringing our MTS revenue for fiscal 2022 to just shy of 100 and you ended up being above.
Our guidance for the year and just revenue grew approximately 7%.
Then the market is growing.
Giving at 28 four for the quarter and we expect this could translate to again be culturally excuse me out to 'twenty two.
I'd like to point out that recently, we have shifted the incentive structure to our club business sales force.
As we built our business, we moved from equal compensation for all of US in revenue to one where sales Commission is now 90% tied to revenue. Both all doesn't revenue continue to be important metrics for us to track, but the incentive full sales team shifted and along with it the significance of all those numbers.
Going forward.
For the remainder of the organization our bonus structure is based on both revenue and gross margin.
On the market side. Many of you are aware that the sequencing landscape continues to evolve with less expensive whole genome sequencing options that are available and several new and exciting player introducing solutions for longer media offerings.
Twist.
Technical advances.
Indeed, we have a sequencer agnostic and an enabler across platforms.
We announced an agreement with Illumina.
Whereby we will show and they will set a new target enrichment kit, we believe that by leveraging that Robert <unk> false and integrity.
Installed base, we will reach a differentiated customer addition, we're working with Pac bio on a robust solution for them.
Yes.
So like Don sequencing today, we offer a complete workflow solution, including target enrichment upgrade.
So we'd be looking at that.
Et cetera.
As the cost of sequencing comes down we expect that overtime some applications and groups will move from the sequencing towards genome sequencing when that happens when you win applications like Germline sequencing.
Government funded initiatives to sequence populations move from a go to Walt genome sequencing, we will have an opportunity to continue participating through our library of clinical offering.
Very large market opportunities like cancer screening the dynamic will be different.
Indeed, they will still require deep sequencing and panel at Needham sequencing will continue to be the mainstay for instance.
And especially in liquid biopsy or minimal residual disease.
Deep coverage.
Genetic sequences, sometimes 5000 X coverage on more.
<unk> captured the driving mutation at Luke and electric Lindsey with high sensitivity.
For these applications, we expect it to be cost prohibitive to contact all genome sequencing, even is because of sequencing decreases significantly beyond what we see today.
Additionally, we believe that the reduction in sequencing costs will encourage adoption of liquid biopsy about the asset as overall.
With decrease.
We decreased and make them increasingly palatable for reimbursement and routine adoption by customers.
Of note indeed applications twist product pricing is expected to remain constant is even is because of sequencing drop.
Why don't I introduce Andreas offering in 2018, we anticipated this sequencing price reduction.
Product portfolio evolved over time.
'twenty, one and 2022 we introduced several new products engage in Gi space with the vast majority targeting cancer, we have nausea medication solution. The human talent panel C. It controls for liquid biopsy tests, and a rapid Pacific to patient specific and multi panel targeting up to 500 patients.
And we've added oncology.
Sure.
Panel developed by key opinion leaders at leading institutions like the broad umbrella.
These products support to enable our customers and we need to walk through between the sample and the sequencing.
Let me pull up we see growth in Ngls coming from Pinnacle investment, obviously could biopsy testing as well as taking market share and research applications. We call. It is a long term focused and that's where the target enrichment panels as the need to undergo pilot testing verification validation.
Regards to the clearance and clinical testing before broad based commercialization.
One for Anthony.
That reaches the market. It is very sticky as they will need to be made it through the regulatory agencies for any changes.
Today, we have about 60% market share for enrichment in that we.
We have a lot of market share to gain so in addition to mitigating circumstance till the commercial phase, we continue to win pilots, which bodes well for future growth.
In Biopharma, we reported $24 $2 million in revenue for the fiscal year tremendous growth.
'twenty one.
It still just short of line items, if any for 'twenty two fourth quarter was $6 5 million at all.
All of which came in September .
Potently, although for the fourth quarter remained strong at $9 4 million and we fully expect strengthened by so much greater in fiscal 'twenty three even that in the conversations we're having our positioning as the highway you look with Kita resonates with our partners now more than ever.
Plus with both our team based on customer Cisco. We currently at 69, nothing Biopharma with 83 completed at Yankee programs 59 of the 160 program milestones and royalties.
Thanks.
Twist, Boston team 62 active programs ongoing.
So by 'twenty two.
As we look ahead, we expect continued growth across the portfolio as we're moving throughout the combined product and service offering to get though.
Thank you.
For launch in the second quarter of 2023.
Working together for the lethal ago here, we have incredible synergies that we believe will enable us to expand our reach and market share in the Biopharma segment.
With reference to rebel we do not see the outcome and we're hoping for we invested a small amount of capital to take a long shot.
She's alchemy Orajel commitment actually it quickly went to your voting.
These illustrate our discipline when it comes to investment decisions.
Moving to get the storage, we now have 37 employees.
Including 31 inch.
We continue to bring it all proof of concept chip, which we expect will enable us to move forward I think one megabit.
One gigabyte of data two one gigabyte of data in a single Assembly district.
We're also working to integrate the chip into a prototype electrochemistry ranked US system. This system will enable us to launch a country pilot two early exits giftedness importantly with century.
You've spent up for all kinds of data retention GBT.
In late October we announced the appointment of tied it into our newly created position of President and CEO .
He has been with Adobe for atheists, taking greater standard controls.
And as we've demonstrated success.
We conducted an external sales for the physician pay with the right person to lead our next phase of growth and fiscal responsibility.
I look forward to partnering with Patty.
To achieve.
With that I'd like to turn the call to Jim who took us through our financials Jim Alright.
Alright. Thank you Emily we had another great quarter and terrific year across a twist, despite a volatile market macroeconomic environment.
Revenue for quarter, four was $57 3 million, which brings our revenue for fiscal 2000 to $203 $6 million with a year over year growth of 54% orders were $62 1 million for the quarter, which brings auditors for the fiscal year to approximately $226 million and that's an increase from $160 million last fiscal year.
Year, and 42% growth year over year.
Gross margin for the quarter was 44, 9% and gross margin for the year was 41% and that's up from 39% last fiscal year, reflecting improved leverage.
Ship to approximately 3300 customers unless another retrofit twist and we closed the year with cash and investments of approximately $505 million.
Our NGL business had another strong year.
Revenue was $99 3 million, which is 37% growth year over year.
Fourth quarter revenue was $29 2 million and that's an increase of 36% year over year.
This growth reflects the strength of our product portfolio.
10 customers accounting for approximately one startup brands, yes revenue.
Approximately 1200 mgs customers in fiscal 'twenty two.
Our pipeline for larger opportunities continues to scale. We are now tracking 257 accounts up from 200. Unfortunately I noted on our last earnings call.
121 have adopted twist and increased from 114 last quarter.
Now turning to send vial, which includes genes DNA, perhaps ITG libraries and all of the polls.
<unk> revenue for the year rose to 18 million compared to $52 7 million in fiscal 'twenty one.
Increase of 52%.
Some of the highlights include shipping to approximately 23 hundreds in bio customers.
This includes a diverse customer base, including biotech and large pharma companies.
James revenue increased to $61 5 million and that's up from $79 million and was shipped approximately 558000 genes in fiscal 'twenty two.
<unk> increased from 372000 in the previous fiscal year.
All of the polls.
I had a strong year with revenue of $12 4 million up from 8 million in fiscal 'twenty, one with increased demand primarily from the health care segments.
And continuing to scale, our antibody discovery business and revenue fiscal 'twenty. Two it was $24 2 million up from $7 million in fiscal 'twenty. One errors was below the low end of our range of 26.
As I noted earlier orders of $9 4 million were backend loaded in the quarter and consequently, our quarter four revenue was $6 5 million, which is flat with third quarter.
Twist.
Biopharma antibody platform, we're now 59 partners up sequentially from 53 under <unk>.
50 active programs with HSV programs completed and back to the hands of our customers.
Our total programs 59 included milestone and royalty agreements.
Various a twist Boston business is doing well with 62 customer service in the quarter, including 36 projects on the <unk> platform.
I'll now quickly cover our regional progress EMEA revenue rose to 62 million $63 1 million in fiscal 'twenty, two versus $44 1 million in fiscal 'twenty one.
APAC continues to deliver robust growth with revenue increasing to $19 million in fiscal 'twenty two from $10 3 million in fiscal 'twenty one.
U S revenue was $122 5 million in fiscal <unk> versus $77 9 million in fiscal 'twenty one.
Moving down the P&L, our gross margin for the quarter was 44, 9% and this brings our overall gross margin to 41, 4% for fiscal two for fiscal 'twenty two.
Margin includes stock based comp $4 5 million depreciation and $6 5 million.
Our operating expenses for the fiscal year, including R&D and SG&A change in fair value and Mark to market adjustments of acquisitions was approximately 319 as compared to 204 4 million in fiscal 'twenty one.
To break it down R&D for the fiscal year, it was $120 million.
An increase from 69 million in fiscal 'twenty one.
Core business R&D for fiscal 'twenty to introduce 256 million compared to $37 million as we continued to invest in new products and process development.
R&D was $25 million fiscal 'twenty, two up from $15 million, reflecting our continued investments in our antibody discovery business.
<unk> spend was $14 million in fiscal 'twenty two.
Data storage spend was $25 million up from $16 million.
Previous year we.
We had previously given guidance that the original data storage Spanish based parts of million, whereas the year unfold.
But we manage that spend myostatin Barnum data storage.
G&A for the fiscal year was 212.
$9 million, an increase of $135 9 million in fiscal 'twenty, one and this includes compensation costs of $136 million, which includes stock based comp of $55 million.
Startup costs and SG&A for Portland were $16 million in fiscal 'twenty, two including approximately $6 million in compensation costs.
Change in fair value of contingent considerations indemnity holdback for the fiscal year resulted in a gain of $14 million versus <unk> 5 million in fiscal 'twenty one.
Stock based compensation for the year was approximately $18 million as compared to $37 million.
Fiscal 'twenty one.
Our net loss before taxes of $274 8 million for fiscal 'twenty, two as compared to $162 7 million for fiscal 'twenty, one primarily due to higher opex costs highlights Taylor.
For the fiscal year was $102 million.
Portland, Capex for fiscal 'twenty, one and fiscal 'twenty to.
Cumulative total average is $7 million, which includes $46 million with tenants improvements.
$54 million for lab equipment, and $7 million of capitalized software.
We exited the fiscal year with 39 million of inventory and cash and investments of approximately $505 million as of September . This actually is trying to chip I'd like to note that we report in conformance with accounting standards established under U S. GAAP and there have been no material adjustments caused by our independent auditors.
I will now provide guidance for fiscal 2003.
We enjoy strong bookings quarter for another record year of growth.
Due to the macroeconomic environment and as more South Korea to various continues to March along.
With seasonal vacations this quarter, we're projecting Q1 revenue to be approximately $54 million.
And our fiscal 'twenty three guidance for the year is in the range of 261 change of $6 million to $9 million.
We estimate Q1 by our revenue to be approximately $21 million.
The year to be $104 million to $106 million, we estimate Q1 Ngls to be approximately <unk> 75 and.
And for the year of $120 million to $123 million.
She asked if that sequentially. The reason there's a couple of our large customers are taking shipments in the first quarter due to the seasonal impact of fabrications.
<unk> antibody discovery revenue for the first quarter will be approximately $8 million for the year sets a surge of $14 million.
Our fiscal 2000, <unk> gross margin is projected to be 39% to 40% and are operating them as fast as projected to be approximately $365 million for the year.
There is a $138 million R&D and $227 million SG&A.
Our net loss guidance before taxes for the year is expected to be approximately $260 million, which includes stock based comp of approximately $83 million depreciation and amortization of approximately $26 million and data storage expense at approximately $46 million.
Capex for fiscal 'twenty three.
Projected to be approximately $50 million with another 20 million expected to be supplied in wilsonville and cash balance projected year end fiscal 'twenty three.
I expect to be at $300 million.
For fiscal 'twenty, four we're projecting revenue to be approximately $350 million and that was $50 million for antibody discovery.
<unk> margin of approximately 49% opex to be approximately $386 million.
The operating loss to be approximately $215 million, which includes stock based comp.
So $19 million depreciation and amortization of approximately $75 million and data storage opex of approximately $57 million capex were anticipating a $40 million and a year end cash balance and a pleasure for us to be a $170 million.
Marie we had a record year and continued to build our capabilities and expanding our position as a provider of choice of high quality affordable synthetic DNA.
G&A shared customers across multiple industries.
Our leading supplier of lgs sample prep and we have scaled our antibody discovery capabilities and continuing to deliver on our DNA data storage structure.
Although there is macroeconomic volatility we're excited about the opportunities ahead, and our focus on executing on the financial projections at lands end todays call with that I'll turn the call back to Emily.
Thank you Jim as fiscal 2023 is now well underway I'll focus remains on driving towards profitability in our core business. We've laid out the three year guidance through the path to adjusted EBITDA breakeven for the core business and we are targeting $8 million revenue to reach adjusted EBITDA breakeven for Biopharma.
We expect to generate initial revenue out of the bank.
Outside of Portland, Oregon in January 2023.
We quantify our production plus the new facility will begin to our new product sourcing value that benefits from the larger square footage of site, including strategy long term and <unk> and R&D based products.
Yes, we expect another good year with larger producing liquid biopsy test as the continue to run that commercial results with sequencing costs coming down we remain focused on expanding our reach in cancer and owning that work move because it's not the sequencer.
This summer we are planning an integrated portfolio of antibody discovery and optimization offering capitalizing on efficiencies between now and the pigment we approached.
And with easier discovery from Albert.
Complemented by our machine learning and AI collaborations.
We have our first fully integrated Cmos chip with HMA controls in house, and making good progress to bring of the chip.
Our new pilot production.
That's the rate rider, we plan to launch our centrally archive solution early exits occurring in late calendar 2023.
In parallel we will continue to partner with Needham said this digital commercial success across the century and I can see bolt archive solutions, while preparing the market for DNA data storage.
Raul I'm reminded of Pizza I gave when we went public a little over four years ago, a twist it hasn't always been eating in fact, it has never been easy, but we always consider to overcome the challenges. We face we are embodies the resilience and financial discipline throughout the organization to report another strong year of growth in each day.
We have the opportunity to grow again at conflict with that let's open up the call for questions.
Bill.
Thank you.
As a reminder to ask a question you will need to press star one on your telephone. Please wait for your name to be announced please standby, while we compile the Q&A roster.
One moment for your first question.
Our first question comes from Steven Mah with Cowen. Your line is now open.
Oh, Great can you guys hear me.
Yes, yes, okay, alright, great. Thanks for taking my questions. A question on the gross margin another dropping in fiscal year 2023 is factored into future scales and then.
Jim you mentioned that grows to 49% in fiscal year 'twenty four.
What do you expect the utilization.
Percentage of the factory of the future in fiscal year 2024 to achieve that 49% gross margin guide and then also are you reiterating the 50% to 52%.
Gross margins at $300 million in core revenues.
Yeah. So.
In terms of factory of the future utilization or we haven't disclosed what the utilization rate looks like.
A 49% gross margin reflects the.
The growth in topline revenue and does reflect improved utilization.
And in terms of as we continue to scale the business.
So we still see line of sight in terms of achieving the the longer term.
<unk> margin of 55% to 60% for the business.
Okay, great. Thanks for that and then.
My second question on M. D. MLR you noted that the business is doing well.
People are validating.
The MRV assays did you mean that the users are validating.
Lab developed.
For lab developed tests and then second part of that is could you give us a sense of your mix of your <unk> customers or are these reference labs academic hospitals or basic R&D.
Yeah, that's a great question and thank you Steve So as a reminder, we provide the regions to enable a guest amounts to run MLB test so.
They're not sitting out all of them.
Just to be clear.
And so therefore the majority of.
Paul.
<unk>.
Our diagnostic companies that are there.
Developing the developing and validating the August .
Okay. That's helpful I'll hop back into the queue.
Thank you one moment for our next question.
And our next question comes from Catherine Chelsea with RW Baird. Your line is open.
Alright, thanks for the questions.
Guess first maybe the step down in Mds orders sequentially can you just talk to the drivers there that were going on.
Yes, I think couple of issues we had.
Some some large orders come in the previous quarter.
And as we noted in the call a couple of our customers are Ashley.
Seeing seeing asking us to ship in the first quarter of the calendar year. So that's just step down in orders.
It's just a onetime event as this these customers pushing orders out into Q1.
We've got very strong.
Backlog in terms of the number of customers that pipeline continues to grow.
So we're feeling good about where we're at.
Just dealing with it.
Year end vacations.
We see some impact.
Lockdown in China.
At the same time, our customers are signaling strong strong outlook for us on our NGL products.
We anticipate that.
The quarter one of fiscal next year is going to be strong.
Okay got it and then I think probably you know given the events of this week you highlighted that no material adjustments have been proposed by your auditors.
Yes.
Can you you've had a material weakness thats been highlighted in your filings for a while now can you just talk to how those remediation efforts are progressing and any other comments you can make regarding the short report from earlier this week.
Yeah. So.
Thanks, Catherine so essentially three material weaknesses, along on order entry and other and journal entries and the other in it.
<unk>.
We have remediated the order entry.
Weakness remedies and journal entry a weakness on the <unk>.
ITG C issue that remains.
That's purely due to user access issues.
There is no impact on our financials.
And in terms of the the short report a couple of things.
Brought up in the short report.
We ran the business, mainly we've worked with both Pwc and absent young Pwc's, great firmly moved to Alison young because if you looked at our business, we've significantly grown our healthcare business.
ASEAN Yamana has a strong health care practices.
We collaborate well with our auditors and as highlights so we can know material weaknesses.
And in terms of some of the personal references against me I actually.
Helped out in Oregon organization.
230000, ladies in prison in this country.
And build careers helped they get trained they get them.
Element and a lot of them moved onto the executives in companies and I think as.
That's a great social impact.
I had actually no share ownership.
Offered shares, but I've decided to decline naturally.
Sure.
Statements and the reports are totally wrong.
Okay.
And Catherine just so you know we won't come in sell through on the short report were.
We're very happy to take questions on the.
On the business, but I'll I'll state metal Mondays and the great transparency that we strive to always provide is the management team.
Speaks for itself.
Alright, thank you.
Thank you.
One moment for our next question.
And our next question comes from Matthew <unk> with Goldman Sachs. Your line is now open.
Hi, Good morning, Thanks for taking my question, maybe the first one for you just on.
The gene maker market.
As it relates to factory of the future capacity.
You've mentioned the past that's like a $1 $4 billion market and what characteristic that's important to them is turnaround time.
Could you, maybe just talk a little bit more about the improvement in turnaround time that factor the future will bring and just kind of talk a little bit more about.
Because I think originally you thought the price was going to be a defining factor for that market, but it's really turnaround time could you just talk about what that market.
Is it really looking for I'm sure its turnaround time, but in addition, what else and how you can unlock that market to solve for the capacity that you're building with fact that if you were to make sure that there's a significant enough market out there for what you're building.
And then if there's many thanks for the question Matt.
We have been.
In the marketplace for both years we.
We shipped a modern has the union.
<unk> engine this year alone.
And so we have a real good grasp of what customers want and what we see in the makeup market.
The two groups, Dave that the big companies that ensues.
The work.
As well as academic labs.
<unk>.
Uh huh.
So congrats on that.
That need.
DNA, what we find from those groups is very important for them and even if the DNA with free that they would not.
Get it from us.
At the speed that we have now which is the industry average.
So that's why we even may then they spoke to.
<unk> plan to fulfill them.
Gene synthesis that is December faster than if they did it themselves.
And.
The reason why we can do that is when we analyze.
The proceeds that we used in person with some south San Francisco.
When you step back and process.
The gene synthesis.
Yes.
Is not a linear prediction process today.
It's 20 steps that we have 10 machines and so basically.
The same.
Although I have to go to a machine twice that create conflict and when we analyzed the data everything is locked in our databases. We found that DNA spending half of its time in pre those waiting for the next mentioned to be available.
So we know that intrinsically decided the process can be has the SaaS.
If we can remove those those production bottlenecks.
<unk> is waiting for the next nickel machine and so that's what we've done in person in the in the Portland facility. We now have 20 machines are such that is a true linear production chain and place go into one machine and when it's finished it goes out to the next one to the next one and there is no wait time and so that's the way.
We think it's a we feel it's a it's a low risk on the process side, because we're not changing the chemistry.
In the instrument is the same process it just.
There's no wait times between between steps.
The combination of that debt market understanding.
Is.
The different lay out of the Bakken production.
Portland will enable us to offer five genes and that's will unlock.
That will unlock the market is a slow in addition.
Our commercialization strategy to leverage E Commerce and digital.
Marketing and so we've been making great effort.
I'll now equal amounts in our <unk> solutions.
To make sure that when we have sales teams.
The the trends that ability.
That the customers are asked to go through to work with US is is.
Intuitive frictionless and beautifully.
Got it thanks, Emily and then Jim one for you just looking at the fiscal 'twenty for guidance on the Opex of 386, I know that there is $57 million of that is DNA storage can you talk a little bit about your expectations for R&D versus SG&A split within that 386 and where the.
<unk> is within those two segments, the SG&A versus R&D for that 386 to maybe come down a little bit as you start moving closer to that time period.
Yes, so in terms of the.
Thanks.
<unk> broken out the R&D.
Portion.
Flexibility, we see is in terms of SG&A as we plan to continue to grow and leverage our investment in infrastructure.
We've been fairly as you can see the slowdown in the rate of growth of Opex, we've been investing heavily over the last few years building out our it.
<unk>.
Structure.
And as.
As we continue to scale the top line with highlights.
<unk> calls.
Next we'll grow it.
The slower rate on topline growth.
And as we continue to manage our tailings storage investment continued to manage our SG&A in particular, our backend office infrastructure.
Continuing to see to manage that cost base going forward.
Sport is getting to adjusted EBIT breakeven.
And getting to positive income.
So we're very close to that.
End of 'twenty four.
As you can see we've got plenty of cash runway as we get closer to that adjusted EBITDA breakeven and we have the opportunity to manage our data storage spend.
Got it thank you.
Okay.
Thank you one moment for our next question.
And our next question comes from Luca <unk> with Barclays. Your line is open.
Great Good morning, everybody.
A couple of cleanup one cleanup here so.
Can you give us the FX assumption for next year.
And kind of give us a sense of how that trended throughout this year as well.
Yes.
Look as Jim.
Good morning.
So in terms of FX most of our business is actually in dollars.
And most of our costs are actually in dollars. So although there was a.
Maybe 10% impact is not as a huge impacts on our business so far.
We are in terms of the pricing on our on a go forward basis.
We're actually was a lot of our Ngls, particularly some of our larger customers already locked in the prices.
So sometimes a FX gasoline when we see some impacts around the fringes, but.
It's.
Not a significant headwind for us.
Alright cool thank you.
Fine so dominant excuse me on the rest of the business.
So you talked about the NGL push outs.
So what are customers, saying on why are they pushing those orders out to <unk> and is this related anything to all the new technologies out there.
I'm not aware of it.
Not aware new technologies.
Just in terms of timing.
The couple of customers.
I'm aware of is just a matter of timing of Tyler stay again in December .
It's going to be shipped in January .
And that's based on their end customer demand so.
I haven't I haven't heard of anything on the technology side Emily Okay.
Yes.
I think it's truly create a timing of the of their business.
Hello.
We have experienced in the last week of December was always Oakwell shipping in.
It is the.
Especially.
Especially <unk>. So we think that most of the book as soon as we'd be shut down the last week of December and so what we're planning for that.
Alright, and then one last one for me is.
You gave the 24 guide and.
The growth assumption here of roughly flat.
30% is very impressive and itself. So just wondering why what's the <unk>, what's the assumption here no acceleration from our factory of the future coming online is it something like that your that the growth is really satisfying the printers coming online and then you guys are going to bring more on 24 as you can.
The scale of the business and then any of the mixed dynamics as it goes to sym bio or NGF as the factory of the future ramps because theres a margin implication here.
Yes, so in terms of a factory in future ramp.
We're seeing roughly.
Early days, yet the same roughly 50%, 50% in terms of the send vial and just mix.
In terms of outlook.
Macroeconomic environment still volatile. So we're we're protecting a couple of years here. So.
We're always prudent in terms of our forecasting.
In terms of capacity.
Yes.
We've made the investments.
You know I think in terms of our overall in terms of factory of the future.
But 70.
$87 million investment in Gabon, our $20 million to go.
And thats consistent with the the.
Previous guidance, we've given and that's going to be ample capacity to support us getting to at least $3 50 and beyond so we don't see any headwinds from a capacity point of view.
It's all down to as analysts highlights is that execution and then executing on the makers market.
Great. Thanks.
Okay. Thank you.
One moment for our next question.
Yes.
And our next question comes from Vijay Kumar with Evercore ISI. Your line is now open.
Hey, guys. Thanks for taking my question.
Jim I had one on <unk>.
Accounting here.
I think one of the points raised by by the shortfall at <unk>.
Cogs being classified as <unk>.
Capex.
Can you comment on that and when I looked at the last.
The third quarter 10-Q.
Some of the costs the operating lease cost associated with factory of the future wherein the opex is.
That a change from how expenses were being recorded in the past for or is this because you're moving to a lease facility and it is just how the accounting works maybe address those two issues.
Yeah, so in terms of our.
Cogs.
Being moved and onto the balance sheet.
Yeah.
That is that's an interesting observation I have no idea where that comes from if.
If you look at the the Cros and the or the investment in Capex, we laid out on one of those flights a day.
For Portland.
We have invested about $46 million in tenant improvements we took over.
Essentially building, a new 100000 square feet.
Tenant improvement.
Yeah, Ami is interesting and show you the invoices.
It's all building out of the structure for the labs.
Stalling only offices, all the piping et cetera.
So the items that are associated with.
The investments in Portland.
Sitting on our balance sheet.
Hum.
In terms of what was the other parts of your question P. J.
The operating expense some of lease expenses related to factory for future. That's going on your Opex is that a change versus prior.
Right now the lease expense as it relates to the fact in future as part of the startup.
And thats that prior to factory qualification.
That is sitting in SG&A and it was $16 million for this year and we call that out every quarter. So there's been no change in.
How do we.
Thanks for that.
Thank you and maybe one on <unk>.
Gross margin not cadence here.
Why.
What's the confidence here that the gross margins have gone up by 900 basis points from.
Fiscal 'twenty three 'twenty four it seems like a very steep ramp Jim.
When I look at Q1 is there any first half versus second half cadence issues here.
On gross margins when I look at fiscal 'twenty three.
Yeah. So if you look at last quarter, our gross margin was 45%.
As we scale through the factory of the future and improve our utilization and we are.
First of all in terms of growing in the maintenance market.
We've got a number of levers there the.
The impact of reduced.
Great.
You've got the impact of.
Reducing underutilized capacity second is terrorism maker's Mark as Emily highlighted the faster genes, we get higher price and get good leverage there.
<unk> of investments here in terms of R&D.
We look at our R&D that is another point made in the short report but.
And our R&D.
The increase from $70 million to $120 million, we increased the investment in sandbox, Ngls and 57 million to 56 million a slight unless just to give transparency.
So we had additional science science scientists were increasing our investment NPS on Syn <unk>, what does that mean, we could keep refining our processes.
Keep refining to keep launching new products, so you're going to have a combination of scaling factor in the future.
<unk> growth.
Revenue.
Proving that position.
The makers market in terms of growth, we'll make those market.
Launching new products all of those elements contribute to improving our gross margin.
And just while I'm on the comment.
Overall, R&D increase from $70 million, roughly $70 million 2000 $120 million.
DNA storage was up by $9 million.
Rebel or is this a one time.
Vance.
We spent $14 million and and Revlon <unk> and 'twenty two that will not happen in 'twenty three and then in terms of antibodies. We've stepped up our investment antibodies. So we'll actually see growth in biopharma business as well.
That contributed to.
Our gross margin improvement.
Understood and if I may one last one revenues are up I think when I look at that 24 guide versus 22 initial expectations for revenues up 30%. The Opex up I think 6% I think of cash opex.
SPC is low singles.
Is that level of SG&A spend.
R&D spend is that enough to sustain the growth here.
Yes.
If you look back over the last couple of years, we have we have increased back to my point there in terms of R&D and <unk>.
For sandbox and yes, we upped our spend from $37 million in R&D <unk> and <unk>.
$21 million to $56 million.
So what's that about 50% growth.
Uh huh.
So the advantage of the factory in future as fast turnaround time.
And fast genes, which allows us access to make those markets. So it's a combination of historical investments.
And the impact of the factory in future.
And our investments are 90 bodies that allows us to deliver the growth that we're projecting.
Thanks, guys.
Okay.
Thank you one moment for our next question.
And our next question comes from Puneet <unk> with SBB Securities. Your line is open.
Yeah, Hi, guys. Thanks for taking the question so the first one.
What are you hearing from European customers in terms of the order book and wondering if there was any.
GFS order book impact from that could you just elaborate just given the market conditions in Europe .
<unk> been getting questions on that.
So I can.
So in terms of order book.
The Ah <unk>.
Q3, Q4 sequential step down or what we are hearing from our customers.
It's kind of selective.
The outlook looks good.
Just sort of being pushed out from <unk> per share from Q Q4 into Q1.
The conversation on the liquid biopsy, our hard goods conversation with Emaar the air goods.
Europe , we actually had a strong quarter in Europe , which kind of surprised us September we anticipated that.
Yeah, It would have been a little bit weaker.
And yes.
September was strong.
And.
We're encouraged by what we're hearing.
On the China side, we have seen a little bit of impact of Lockdowns.
So that will impact sequentially from Q4 to Q1 I'm talking.
Talking about our fiscal Q4 so.
September to December quarter, we'll see.
China Asia, being down, but thats impact of Lockdowns and in China.
Overall, the feedback from our customer base is strong.
It's because of the quality of the products we have.
<unk> low cost policy provider.
This environment fits to us.
Okay.
Thats helpful.
If I could ask on.
The liquid biopsy customers.
If you provided that number.
I think you had about 20 or so liquid biopsy customers in past.
Could you quantify just given all the questions lately being asked could you quantify how large of a book of business is liquid biopsy today and you know.
Are these early validation versus any commercial products, where youre probes are being utilized.
And what are your expectations for contribution in 2023 from these liquid biopsy customers because that's obviously an important driver.
Even with the <unk> launch, which is targeted more towards whole genome shift.
Yeah, maybe I'll start and Jim can can fill in.
Yes.
<unk>.
I'm starting to see revenue from customers.
<unk> likely in the commercial phase.
We ship.
Wave.
Sure.
Easy to know.
Oh they are used.
We kept some of it is in validation of pilot.
But.
In the past most of our revenue.
Hum.
Paul.
R&D the development of a desk, but as we signed <unk>.
Contracts and get bigger order.
Nowhere where thing to see.
Orders in the commercialization phase.
Okay.
If not we can save.
No. There's nothing more I can really add but needs are larger tenants continued to grow.
We feel well positioned with liquid biopsy and the other applications.
And we.
We discuss some of the feedback from customers.
Some of it was timing.
<unk> continues to make inroads in the market.
It's all about execution.
Over the next year.
We have a great organization, we've got great product.
Anything you can elaborate in terms of sort of how should we think about and in your guide for 2023 and 224, obviously about 20% of course this would be a larger customers. So just wondering in terms of overall contribution that you could see from liquid biopsy.
No we don't break that out.
And the reason for that is.
We have agreements with our customers so they only.
The only customer anything that's gone public is Israel.
Okay.
One thing we can come up with we showed the chipotle is equally with LTE is a big strategy be part of our strategy for revenue growth.
And.
It's why we.
We have.
Good confidence in.
Our ability to deliver this.
Yes.
I'd say go commercial.
Okay. That's helpful.
If I could ask a more broader question.
Just given the sort of the questions have been asked lately in terms of pricing.
What is your philosophy here in terms of pricing versus the market.
Obviously, you have been competitive in past and as we as you scale into factory of future could you sort of elaborate about your pricing expectations. Because I think the question is this is a higher inflationary environment and you are getting some benefits from the Cogs at the factory factory future, but just could you elaborate a little bit on.
Or are you thinking about pricing in 'twenty three and within the.
Guide that you have laid out.
Yes.
So I think we are.
In pressure environment can be useful for Thanksgiving and production because since we use sort Muslims region than anybody else.
If the reagents go up 510, 20%.
The impact to us.
Look this significant than on the competition.
So who are quite small.
<unk>.
When we signed the lease in Portland, and its a very long term lease and when we basically cap.
The.
The rate of increase on the rent for a long time and so basically we have.
Rent at lower than inflation. So that's the end of the <unk>.
Grid benefit to us so that's on the Coke side and then on the.
On the price side, obviously that needs to be value priced and so.
When we launched shop fast genes.
We expect that the.
ASP for <unk> is going to be higher however, though it would be the exact same.
Production facilities and so therefore, we anticipate that.
Margins.
We will increase.
Similarly when.
We've launched the <unk> product line.
The opportunity for us.
I recall, you owe two genes to make one that Eugene and ESP somewhere between 5% to $800 depending on the.
The flavors of that.
And so again, there's clinical Trinity falls to boost.
Amounts and so we're always looking.
For both communities and as we grow the.
The value chain.
Celgene alone gene in possible gene so I'd seen R&D product you can see that those are.
More differentiated Hollywood product is still all.
Hum.
Help us dominate because of the city can chip they come from the city can chip.
But because although in high value product, we'd be able to charge a premium for it and improve on our margins.
Got it okay. Thanks, guys.
Thank you one moment for our next question.
And our next question comes from Rachel <unk> with JMP Chase Your line is open.
Hi, Thanks for taking the questions.
And so first up on DNA data storage, you mentioned that you're launching that offering for early access customers late next calendar year. So can you just talk about how much of a contributor you expect that data right.
Towards the $350 million revenue guide in fiscal year 'twenty four and then can you remind us what is the gross margin profile for that do you mean to destroy to operating and expect it to be.
So we don't breakout.
Data storage revenue contribution.
Yes, $3 15.
Long term gross margins for data storage could be quite compelling initial models indicate.
Kind of a 60% to 65% gross margins.
Why is that.
One is because of the technology.
We did have a leading position marketplace.
And.
Expectations is where we're going.
To leverage our investment on their IP.
And that'll be reflected in our gross margins.
And then as a follow up.
Yes.
Sorry, Rachel.
Yes, yes.
And then just as a follow up on that you had previously mentioned that we're developing medical approach to support a full commercial launch by that data storage.
Give us the latest update.
<unk>.
One milestone.
Or you can call that enterprise checkpoint.
Thanks.
Anthony that's a great question.
We're not giving an update at this point.
And then what's the extent this is except to say that.
Hum.
Incorporating the chip the seamless tube that we have.
We used the enzymatic synthesis.
To help drive.
Or do you need the storage process so well.
Well re emphasizing that.
Enzymatic synthesis is going to be a key.
<unk> of our file.
Storage products offering.
But we are not giving any technical.
Update at this point however.
We're looking for is developed.
They were being the process and to be able to add basis to do it at <unk>.
To do it at high speed and more importantly yesterday.
At low Cogs.
Jim just mentioned our margin profile.
It cannot be done with standout those analytics synthesis, where where the MTBE is not tethered to the enzyme.
Anyway to get low Cogs and high margin is heather that that that NTP.
So I think we think our approach is the winning approach will peak the most.
Appropriate time for us the biggest bang for Buck in terms of technical detail, we like what.
What's happening in.
We like our progress, but we'll.
We do.
Details for another day.
It sounds great. That's it for me thank you.
Thank you one moment for our next question.
And then <unk>.
Next question comes from Matt <unk> with William Blair. Your line is now open.
Hi. Thank you this is actually modeling moment on for Matt Larew.
One quick one from us within Biopharma, you've talked about it taking between 18 and 24 months for partners to go from working with you had a filing.
And application since you've now been.
This program for over two years could you talk a little about that about when you start are expecting to start to see some downstream milestones and royalties.
Yeah. Thank you so much.
We are.
Our robust exalt until they need to.
To track the progress of <unk>.
Those assets and we have.
One model on our views of.
The value and.
At this point.
Quite pretty too.
Announce any of those medicines are royalty, but as we've said in the past.
Those would be upside to our plan so.
<unk>, it's definitely something that.
We track.
With our partners because I'm.
I'm looking for it to both the.
The code.
Physician as well as the.
The sensitive validation.
One last month, they'll make that being said.
Again, we're not in the business of subsidies that subsidizing.
Our partners and so as.
As a reminder.
We do make up about 50% to 60% gross margin on the upfront fee that we jumped so.
The Muslims oriented we get would be upside and additional amortization on top of the gross margin that we made on the work that we did.
Great. Thank you.
Thank you.
Thank you for your questions at this time I would like to hand, the conference back over to Emily.
For closing comments.
Thank you very much forging joining us today.
I'd like to wish you all a wonderful Thanksgiving holiday next week and hopefully we see some of you alive at 12 months following the early days.
Others, it's really at the Evercore healthcare conference in December with that thank you very much.
This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.
The conference will begin shortly.
As Johan during Q&A, you can dial star one one.
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Yeah.
Okay.
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