All right. Good afternoon, everybody. I'm Luke Sergott, I cover life sciences, tools, and diagnostic here at Barclays. It's my pleasure to have Emily Leproust, the CEO of Twist, and Jim Thorburn, the CFO. We're already kind of 30 seconds over, I say we just start jumping into it. That stock, the shot clock's running. I don't know. I look at where the business is now versus where it was in 2018, and I look at where the stock is now versus where it was in 2018, and there's a massive disconnect here. Kind of walk through how you see. I mean, the business is from, you know, it's 6x the size it was back then.
Talk about the evolution here and really the forward trajectory as you see it from the business as it is today versus where, it's trading.
I mean, in 2018 at the time of the IPO, the business was, you know, $24 million revenue. Last year was 203. NGS was just beginning. It was $2.7 million. You know, last year was $99 plus million.
Ginkgo at the time was 34% of the revenue, there was some customer concentration. Ginkgo has grown, but now it's less than 10%. The number of genes that we ship were 250, 247,000 then. It was 558,000 last year. Number of customers were 700. Now, it's more than 3,300, right? from You're only as good as the numbers say you are, and from the numbers, I think objectively, we've, we have delivered everything we said we would. Now the next focus for us is get to the breakeven point and get to profitability. We've made a significant investment in our production capacity.
We've opened the Factory of the Future. Now it's all about leveraging the investment that we've made in the production tool, to ramp revenue, ramp gross margin, breakeven, and then ramp from there.
I think the thing I would add is back in 2018, there was a lot of skepticism whether we could actually deliver in terms of the growth rates, particularly NGS. We were new in the market then, we were projecting numbers roughly around $20 million, then doubling year after. We managed to execute on that. I think what's also important is we've been investing heavily in R&D and launched a bunch of new products. We got track record of executing in terms of growth, executing in terms of managing the gross margin, in terms of improving gross margin, and actually executing in terms of launching our new products and actually managing the business. You're looking at where we're at now, you know, as Emily Leproust highlighted, we've launched the Factory of the Future. We see new opportunities.
It's like going back in time, except we're a $200 million business. Versus a roughly $20 million business. The question is, can we continue to execute? Can we continue to take share and really charge into the maker-it market and really go after the large pharma opportunity?
It's a great setup here. The argument's always been on the profitability within the business. Whenever you would do teach-ins, they'd say, "Oh, well, it's a commoditized business. You're just buying oligos. There's no real competitive moat there." You've grown throughout that, and your gross margin back then was...
Negative.
Negative.
Yes, it was.
There was.
Now you're guiding to 40%. Talk about right now after you put up, I think it was like 34 in the last quarter, now you're guiding to roughly around 30, 31. Talk about the trajectory here outside of this year, but, you know, the step up throughout the year and then after the Factory of the Future is at capacity.
As you highlighted, Q1, which is a December quarter, the gross margin was 45%.
Or just over 45. This quarter, gross margin does decline to 30%. The question is, you know, what's happening when your revenue is increasing? What's happening is we're bringing on the Factory of the Future that comes with a bunch of fixed costs. Our focus as we bring on the Factory of Future is if you look at our revenue profile for the year, we're guiding in terms of revenue at $261 million to $269 million. Q1 revenue is about $54 million. The guidance this quarter is about $56.5 million. We get strong back half weighted in terms of revenue. As we scale the revenue, we get increased contribution margin. The overall contribution margin for the company we're targeting is 78%.
We have two businesses, NGS and SynBio. NGS contribution margin, which is the difference between price and material costs, is about 80%. The SynBio contribution margin today is about 65% to 70%. As we scale the Factory of the Future and launch the Express Genes, the contribution margin on the Express Genes is higher because we're getting a price premium. What's critical as we see the revenue scale delivering that growth, we see our actual gross margin improve. Next year, we're projecting gross margin around about 49%. That's driven by growth in the top line, increased contribution margin success, particularly on the Express Genes business.
It's all tied. A lot of that's just from the mix on the fast gene. Let's dig in on that and talk about the demand that you're having for those. Really, what is so transformational about the fast gene versus the legacy product that you guys were offering? Does it open up new markets? You know, the pitch there.
With the genes that we have now, we can go after the DNA buyers and in the DNA buyers, there's different subsegments. There are people that want many different genes. If you want 1,000 genes, we probably are the only game in town, because nobody else has the capacity. Then if you want, you know, 50 genes fast, we're probably also very dominant from that point of view. If you want one or two genes, we're about the same speed as everybody else, but our cost is much lower. That's, that's why we've been growing. Then what we are seeing is that, beyond those DNA buyers, the DNA makers and those people, when we talk to them, they are extremely speed sensitive.
They clearly are telling us, "You know, even if it was free, I would not take it, because we just can't wait for those genes to do the next experiment.
In a biotech company can't seem to have, you know, 12 PhD scientists waiting for the IgGs to do some characterization until they, you know. They can't wait until they do the synthesis of those IgG themselves or those genes themselves. That's the opportunity that we have, is, if we can lower the speed beyond what we have today, we'll be able to go to those companies and say, "Well, instead of doing it yourself, we'll do it for you." It's going to be more expensive than a quote-unquote slow gene.
By the way, that's not the marketing name, but, it may be more expensive than a slow gene, but it's going to be as fast as if they do it themselves and probably maybe the same price, maybe a bit cheaper than if they do it. It's an opportunity for us to go after the makers market that we can't touch today, and be able to get a price premium, knowing that the production line to make a slow or a fast gene is the same. The cost of making a slow or fast gene is the same. If we can get any dollar or any cents of the standard price, that is a 100% gross margin contribution.
What's the turnaround time that really unlocks that makers market? Is it 3 days?
It's about 5 days for a clonal gene. Your gene in your vector, maybe your clonal perfect. It's about 2-3 days for a fragment, so not clonal gene.
That's all going to be on the Factory of the Future. Within the Factory of the Future, you have your legacy place, your legacy factory in San Fran with the two big printers, and then the Factory of the Future. How do you segment how much is being made for fast genes, and then is there just a dedicated printer for fast genes in that kind of library? Is it basically still maintaining at the airline shift like you guys talked about?
If you look at Portland right now, Portland has the same performance as San Francisco, meaning that, you know, if we send a gene to one or the other, the customer experience is the same. The customers can't feel, you know, that it was made in one place or the other because it's the same turnaround time. However, we are going to deploy a extra software modules in Portland, frankly, to remove the human decision making, to speed up that process. It's same recipe, same hardware, same people, same building, but a different and additional software that will shrink the time it takes to make genes. When we launch that, again, the cost of making a slow or fast gene would be the same.
If there's a gene order that comes in that goes into Portland, and if it's a slow gene order, it may wait before it goes on the production line, or it may wait after it gets done. If we set it for 10 days and we're ready in five days, you know, it's gonna wait five extra days in the freezer before shipping.
Totally makes sense. Within that market, outside of biotech and pharma, who would else be that makers market?
The other half besides pharma and so pharma, biotech, another big chunk are academic group. Those are the postdocs or the PhDs that are going to go clone in the lab, spend nights and weekends, because they need the data to get the publication, to get to graduate or get their next job. In that case, they'd rather go through the tedious pain of cloning themselves than waiting a few extra days, because speed for them is everything.
Sticking with the SynBio business overall, this is a business that was expected to start to decel as NGS was taking off. It's really been strong. It really hasn't slowed down at all.
What's been driving it? What's been the underlying demand and driver here?
It's just a big market. We don't even h ave beyond 15% of market share. We have extremely competitive, differentiated product from a scale point of view, from a cost point of view, from a user experience, from an e-commerce, you know, that's frictionless, intuitive, and beautiful. Corporate is a very, very finance commercial execution. I think, it's compounding. We are adding more and more customers, we're getting more wallet share and, you know, we work with that over time. We think that, Synbio and NGS can be 50-50. There is a lot of space for growth in those market opportunities and has been by the next kick in SynBio. Beyond that we said we are being driven the RNA market, 'cause now RNA has been seen as a, as a viable modality for drug.
People are asking for RNA fragments to drug discovery. We're being driven to long fragments. We have opportunity in CG and cDNA.
There's a lot of growth opportunity in bio that we can realize.
All right.
if you go back in time, back to 2018 y ou look at the product portfolio and or certainly from a customer point of view, you are sort of driven by Ginkgo, the great partner. We've expanded, we've invested heavily in terms of R&D. You see the benefit of that. We've expanded from 1.8 to 3.2 KB, 5 KB. We've launched IGGs, launched MiTUprep. Over time, we've also seen the turnaround time come down and last quarter was, I mean, it was incredible in terms of turnaround time. As the turnaround time has consistently shrunk, we've seen more and more customers come to Twist, come to the platform.
Remember this has all been through COVID and, so the disruptions in supply chains as well, we managed to ensure that we had a buffer of inventory, supported our customers, supported their growth. Yes, we've seen demand for antibody genes increase as well. So it's back to the product investing, delivering, and executing.
It's clear I've met with Paddy at HBVT.
You don't wanna be on the bad side of that on that guy's bad side. All right. If we could talk a little bit about the NGS side. There's been. Overall within the genomics market's been softer across the board. We've seen some type of destocking. There's been COVID headwind, just give us the lay of the land as you see it from your perspective. You guys haven't been impacted by it at all, so talk about, you know, why you're insulated from the overall headwinds.
Well, I think starting with the product, you know, we give our customers a leg up in terms of reduced sequencing costs and go from sample to sequencer within the day. In terms of the overall, you know, if you look at the order book in Q1, particularly for NGS, it was $31 million, which is a record for us. We had actually one major customer win part of those increase in orders. Why did they come to Twist? Is back to the value of the product. We continue to win in terms of pilots. The pipeline of larger customers continues to scale. In terms of the short-term issues, I know we did have some customers that pushed out from December to January quarter.
In my opinion, that was because they were managing their year-end. What was interesting is this year we're looking at approximately $120 million revenue in NGS up from just $100 million last year. First half is about $50 million, the second half is about $70 million. What's driving that $50 million to $70 million? Well, if you go back over previous years, our second half has always been stronger. This larger customer that came on board in January gave us more insight in terms of when they placed their orders, they were placing their orders for the March quarter and for the September quarter. As we continue to scale customer base, continue to see more applications, we're seeing more and more opportunity in the NGS market.
It may move around quarter to quarter, but overall we're gaining share in that marketplace.
Talk about your, you give out the metric of. You used to talk about the size of the customer, right? You had 26 or I forget the number now, of over 250,000. Talk about how that's grown and really the way you've expanded the strategy and how that's progressed.
Yes. Approximately 250 last quarter. Yeah, it's grown by about 50%. What we also track is adoption. That means that customers have adopted us into their assays. That's about 50% of the 250. So that metric continues to grow. There's a nice pipeline. We define it as customers that potential revenue is $250,000 above per year. So what's exciting in that is we have a top 10. What's interesting is the top 10 is normally about, you know, 30%, 40% of revenue on a quarterly basis, the top 10 keeps changing. It's like the... You watch a Formula One race, they're all moving around. Although we top ten-
It's actually the number of customers keeps changing in that top 10. We get broad customer base and providing meaningful dollars in excess of $250, and a number of them are signed longer term contracts with us, which gives us visibility. We keep asking questions. How can you, how can you predict forward what's gonna happen FY24? The answer is we have a number of customers that have given us indication what this year looks like and what next year looks like. That helps us give a good understanding where the business is going based on those that customer feedback.
On the liquid biopsy front, this is expected to be a significant inflection for the entire space. Your position there, well, as, you know, as they do panels and you bring down cost of sequencing. Talk about how you guys see it playing out. The number of players that you guys are embedded into the workflow and then where would the chop there?
At the time, one of the reasons to go IPO is that we saw a big opportunity in liquid biopsy. Those diagnostic customers, frankly, they needed visibility in our business to make a 10-year bet on using our reagents. At the time of the IPO, we had $2.7 million revenue. That had grown to more than $19 million revenue for NGS. That a lot of that growth was us doing pilots with liquid biopsy companies. Winning those pilots, so those are small R&D spend for them. They go through scale-up, so that's more R&D spend. Goes through validation, that's more R&D spend.
Then finally, when the test gets finalized and goes into production, there that's where for us the number gets significantly bigger. As we are baked into their production, we are on the COGS line of those companies. Over the last 4 years from the IPO, a lot of our revenue growth was on the R&D side. Now we're seeing more and more of tests that have been in the development phase now going to production. That's where we start to see those bigger, chunkier orders as they predict their business. They are buying ahead of time, you know, all the reagents that they need.
In terms of numbers, we're in more than 20 liquid biopsy companies at different stage of development or in production. That's why we think there's a lot of significant future growth in revenue.
As more of those tests go online, as more of those tests, takes volume away from previous tests. We are in a great position to capitalize on that because we've been winning those pilots for the last few years.
In that NGS market, are you seeing any of the headwinds that a lot of the other players are facing from destocking or just a softer demand environment?
certainly, I mean, to go back to the original comment.
Yes.
orders were strong Q1. We did see some pushout into Q2, comprehended that in our forecast. The guidance really based on the conversation with customers that are highlighting the June quarter growth and the September quarter growth. I think it goes back to we've got a fundamental value proposition in this business. I mean we won a large account in a, you know, tough macroeconomic environment. Why do we win? It's back to the value. We see more opportunity in this. It may get noise quarter to quarter, the market's gonna grow, and we're gonna outaccelerate that growth in the market.
All right. The last two and a half minutes here, we'll talk on the biotech piece. The number of active programs here continue to climb. When should we start seeing. Is this part of your. H ow much control do you have after it's out of your hands? Is it just all on the client?
What we do as a quick backdrop, we do drug discovery and optimization. You give us a target, we give you a biomolecule, a VHH, a FAB, antibody bispecific ABC TCR, engineered cell. We give it to you at the preclinical stage, the customer has to do the rest. We get paid upfront a fee, we collect about 60% gross margin. We don't subsidize the R&D of our partners. In 63 cases, we had programs where we are earning milestone and/or royalty. At some point, to your point at some point, we'll get some milestone or royalties then to come to us. It's not in our guidance, so it's on upside.
Unfortunately, we are not at all in control. They get to decide how they push it, at which phase, in which modality. It's considered upside and we're not guiding because we don't necessarily know the timing. However, Jim's team has spent quite a bit of time, you know, talking with the customer and partner to know exactly where those molecules are in the pipeline.
What's interesting there, we get 63 customers obviously get milestones and royalties. The interesting thing for us is to figure out where they are, get more confidence in terms of you know potential for milestones and royalties. We've got large portfolios. How can we creatively monetize that portfolio?
Sure.
I think as they continue to progress, I think there's more opportunity for us perhaps to do something creative on that side.
Like Adimab's done stuff like that. Versus Verily.
All right. Well, that's all the time for today. Thank you.
Thanks a lot. You too. Thank you.
We could keep going here.
All right.
Bye.
Thank you. Thank you.
Bye.
Bye.