Twist Bioscience (NASDAQ:TWST) Corporation (NASDAQ: TWST) reported a strong fiscal 2024 second quarter with a 25% increase in revenue year-over-year, reaching $75.3 million. The company's synthetic biology product line and Next-Generation Sequencing (NGS) segment drove significant growth, with gross margin exceeding expectations at 41%.
Twist Bioscience anticipates a gross margin above 50% by the end of fiscal 2025. The quarter concluded with the company holding approximately $292 million in cash, cash equivalents, and short-term investments. Looking ahead, Twist Bioscience expects total revenue for fiscal 2024 to be in the range of $300 million to $304 million, with a gross margin between 41.5% and 42%.
Key Takeaways
- Twist Bioscience's Q2 revenue rose to $75.3 million, a 25% increase year-over-year.
- Significant growth in synthetic biology and NGS segments, with a 40% increase in NGS revenue.
- Gross margin for the quarter stood at 41%, with expectations to surpass 50% by fiscal 2025 end.
- Express Gene offering contributed to 15% of clonal genes revenue in Q2.
- The company ended the quarter with $292 million in cash and investments.
- Fiscal 2024 revenue is projected to be between $300 million and $304 million, with a gross margin of 41.5% to 42%.
Company Outlook
- Twist Bioscience forecasts continued revenue growth with a target of approximately $300 million to $304 million for fiscal 2024.
- Gross margin is expected to improve sequentially, reaching above 50% by the end of fiscal 2025.
- The company is optimistic about capturing a significant share of the liquid biopsy market and sees the AgBio market as a $500 million opportunity.
Bearish Highlights
- The company reported a net loss of $45.5 million for the quarter.
- Some customers have expressed the desire for a fixed pricing model for predictability.
Bullish Highlights
- Revenue from synthetic biology and NGS segments showed strong year-over-year growth.
- Express Genes offering is gaining traction, with no negative feedback on premium pricing.
- Twist Bioscience is confident in its market position and product differentiation, particularly in the biopharma sector.
Misses
- The exact volume data for Express Genes was not provided during the earnings call.
Q&A Highlights
- CEO Emily Leproust discussed the positive impact of new FDA regulations on the diagnostics market, favoring larger players.
- Leproust highlighted the launch of CE-MAT products in Europe and the company's readiness for US regulatory changes.
- Twist Bioscience sees an uptick in biopharma funding and is confident in its ability to increase market share.
In summary, Twist Bioscience is experiencing a period of robust growth and market expansion, with positive outlooks for its synthetic biology and NGS segments. The company's strategic initiatives, such as the Express Gene offering and anticipation of new regulatory benefits, position it well for future profitability and market share gains. Despite a net loss this quarter, the company's strong cash position and revenue projections indicate a confident stride toward its financial targets.
InvestingPro Insights
Twist Bioscience Corporation 's (NASDAQ: TWST) fiscal 2024 second-quarter performance reflects a company on the move, with a solid 25% year-over-year increase in revenue and a robust gross margin. To further understand the financial health and future prospects of the company, let's delve into some key metrics and insights from InvestingPro.
InvestingPro Data shows a market capitalization of $1.85 billion, which underscores the company's significant presence in the biotechnology sector. The revenue for the last twelve months as of Q2 2024 stands at $277.49 million, with a notable growth rate of 21.79%. This aligns with the company's reported increase in revenue and suggests a sustained upward trajectory. Additionally, the gross profit margin for the same period is at 38.29%, which is slightly lower than the reported 41% for Q2 but still demonstrates the company's ability to maintain profitability in its operations.
One of the InvestingPro Tips worth mentioning is that Twist Bioscience holds more cash than debt on its balance sheet, which is reflected in the $292 million in cash and investments reported at the end of Q2. This positions the company well for future investments and operational flexibility. Another tip reveals that analysts do not anticipate the company will be profitable this year, which may temper expectations despite the positive revenue trends.
Moreover, Twist Bioscience has experienced a large price uptick over the last six months, with a 71.54% total return, indicating strong investor confidence and market performance. However, it's important to note that the company does not pay a dividend to shareholders, which could influence investment decisions for those seeking regular income.
For readers interested in a deeper analysis and more InvestingPro Tips for Twist Bioscience, including insights on the company's liquidity and profitability, visit https://www.investing.com/pro/TWST. Additionally, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are 6 additional InvestingPro Tips available for Twist Bioscience on InvestingPro, offering valuable perspectives for investors and industry watchers alike.
Full transcript - Twist Bioscience Corporation (TWST) Q2 2024:
Operator: Welcome to Twist Bioscience's Fiscal 2024 Second Quarter Financial Results Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please hereby, so todays conference is being recorded. I would like to turn the conference over to Angela Bitting, SVP of Corporate Affairs. Please go ahead.
Angela Bitting: Thank you, operator. Good afternoon, everyone. I'd like to thank all of you for joining us today for Twist Biosciences conference call to review our fiscal 2024 second quarter financial results and business progress. We issued our financial results release after the market and the release is available at our website at www.twistbioscience.com. With me on today's call are Dr. Emily Leproust, CEO and Co-Founder of Twist; and Adam Laponis, CFO of Twist. Emily will begin with a review of our recent progress on Twist businesses. Adam will report on our financial and operational performance. Emily will come back to discuss our upcoming milestones and direction. We will then open the call for questions. We would ask that you limit your questions to only one and then re-queue as a courtesy to others on the call. As a reminder, this call is being recorded. The audio portion will be archived in the Investors section of our website and will be available for two weeks. During today's presentation, we will make forward-looking statements within the meaning of the US federal securities laws. Forward-looking statements generally relate to future events or future financial or operating performance. Our expectations and beliefs regarding these matters may not materialize and actual results and financial periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks include those set forth in our press release we issued earlier today, as well as those partially described in our filings with the SEC. 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 statements except as required by law. We'll also discuss adjusted EBITDA, which is a financial measure that does not reform with Generally Accepted Accounting Principles. Information may be calculated differently than similar non-GAAP data presented by other companies. When reported, the reconciliation between GAAP and non-GAAP financial measures will be included in our earnings estimates, which can be found at our Investor Relations website at www.twistbioscience.com. With that, I will now turn the call over to our Chief Executive Officer and Co-Founder, Dr. Emily Leproust.
Emily Leproust: Thank you, Angela, and good afternoon, everyone. I'm thrilled to be here today to share the remarkable achievements and outstanding performance our company has delivered over the past quarter. Our strong results validate the hard work, dedication and innovative spirit that defines our team at Twist. We've made significant strides in exhibiting our growth strategy, increasing our customer base and driving towards profitability for the business. Our proprietary platform for making synthetic DNA remains at the core of our product portfolio, defines our competitive advantage in all markets, and enables our flywheel for growth and the strong financials we’ll share today. Now looking for the second quarter, we continued our robust growth trajectory, increasing revenue 25% year-over-year to $75.3 million while the third quarter reached a record level of over $93 million. The strong quarter was driven by growth in our synthetic biology product line, including Express Gene and bolstered by consistent strength in NGS. We recorded the full guidance [ph] on gross margin for the quarter, an increase of 10 margin points versus the same period last year. We do see good uptakes in the margin quarter-to-quarter which Adam will discuss in his remarks. That said, over the next several periods, we expect initiatives we are thinking will drive us to a gross margin above 50% by the end fiscal 2025. To dive deeper for SynBio; revenue increased to $29.8 million with base from orders of $44.9 million. SynBio revenue grew 24% year-over-year and 11% sequentially. Other than SynBio included significant blanket purchase order where Twist will now place the single blanket order for large amounts and then all those against those PO over the course of the next several quarters. Twist receives blanket POs routinely, primarily in the first quarter of the calendar year as budget resets. That said, this level of blanket PO exceeds prior year significantly. We believe this increase is due to our diversified product line including Express Gene and consistent rapid turnaround time, both of which give our customers confidence to committed with OBEDIA [ph]. As you know, in late January, we extended our Express Gene offering from a limited launch including about half of our clonal gene volumes to include all clonal genes. At the time, we began a marketing campaign and outreach to potential customers buying from competitors or making their own genes. So theoretically early days for Express Gene, we are pleased with the progress to date. Keeping in mind that our current quarter, our fiscal third quarter will be the first full quarter that includes all Express Gene offerings. We want to provide a bit more color around the success today. Approximately 15% of clonal genes revenue for the second quarter came from Express Gene. As of March 31, we have received more than 1500 orders for Express Gene since launched in November, with more than 700 accounts purchasing as Express Genes today. This includes more than 100 net new accounts visiting to Express Gene. We define lending accounts as a new customer organization entirely, or it can be a new shipping address at an existing institution [ph]; both count as net new account. Customers receive Express Gene in about 5 to 7 days. Since [indiscernible] getting clonal genes turnaround time. For this speed, that’s up into a premium price. We vary this premium based on capacity within our large Western Oregon facility. The site custom built for this product line and the site has allowed for expansion into other synthetic products. Because we make all clonal genes on the Express timeline, the increase in price premium fully drops to gross margin. At the end of February, we began differentiating the premium between academic and industry customers. Within these two groups we’re receiving a higher premium, a current practice in the industry. Moving to NGS, we posted another very strong quarter as revenue grew to $40.8 million, an increase of 40% year-over-year, with $42.5 million in orders. This quarter strength for NGS portfolio came from customers who have advanced their assets into clinical studies and became commercial, as well as go into smaller NGS customers who are earlier in the development processes. Several clinical customers include Twist in the assets, and we applaud the incredible progress Twist is making for patients in rare disease, cancer detection, early cancer detection and monitoring of minimal residual disease. Our panels are incorporated into a number of different, sometimes competitive [ph] tests and where we see other times is that providers are adopting these tests. The volume of commercial tests increases with patient adoption, as each test that is when required [indiscernible]. We have customers who are doing very well leveraging the Twist advantage and others, we need additional funding to continue scaling. The benefit of our business model is that we have diversified our revenue across many customers applications with no single customer accounting for more than 10% of our revenue. In addition, we continue to add small accounts that have the potential to grow significantly as the volume of their application of tests ramps. Up until this year, our NGS product portfolio has been focused primarily on target enrichment for the analysis of DNA, RNA and mutations [ph]. As we've said before, we want to offer our customers a complete workflow solution from the sample to the sequencer, and we are confident that our latest products solidify our leading position in the liquid biopsy NMR [ph], while extending our differentiation within other areas of the workflow. Importantly, we introduced differentiated products within science and clinical capabilities. In February, we added an incredibly powerful cell free DNA library that captures many molecules that may otherwise be missed in these assets. Because the sensitivity of the liquid biopsy research assay begins with every prep, capturing more molecule can improve the signal-to-noise ratio, and the sensitivity of the tests. We believe our innovative cDNA library prep provides an advantage here and the initial commercial performance is very encouraged. During the quarter, in the US, this technology has early access for truly differentiated delivery prep, the ultra-high throughput [indiscernible]. We believe this is the highly differentiated product, we need to conduct tests with customers using microarray to NGS panels plus sequencing with applications in ag bio and genotyping. We believe this is a very large market opportunity, and we expect that these products will grab NGS roughly in the medium to long-term as it requires a change in workflow for the customer from acquiring readers to sequences. Separately, for our customers in Europe, we launched a CE mark portfolio of precision EX products to support the evolving regulatory landscape in that geography. This is a first foray into the regulated market and we look forward to continued evolution in markets beyond Europe. We believe our extensively regulated products will inform any future product developments driven by FDAs move to regulate liberate developers, or entities in the US. For Biopharma, revenue was $4.7 million with other increasing to $5.8 million. We continue to deliver on programs for our partners across a spectrum of offerings. Importantly, we expect at least one partner to initiate human studies with an antibody discovery in Twist platform within the next year. For Data Storage, we remain focused on technology development and enablement of the Gigabyte Century Archive workflow for early access in Canada 2025. Progress continues, and we see this area of our businesses as a valuable asset with optionality at multiple points of development. As we look at margins, in fiscal Q1 we reported a strong gross margin driven primarily by mix and significant NGS revenue. We maintain our margin in the second quarter, beating our guidance by 2 points with continued strength in our NGS business, as well as Express Gene contribution. As we look over the next 18 months, in addition to driving revenue goals which is the primary driver of margin, we intend to continue to focus on margin improvement initiatives including product investments, operational excellence in sourcing and process optimization. In addition, we're in the process of negotiating contracts with suppliers and in some cases, with customers willing to provide volume commitments of fixed premium pricing in Express Gene. We believe these initiative, as well as further volume leverage of our fixed costs enable our ability to improve our margins by several points, and we see our path to gross margin north of 50% by the end of fiscal 2025. With that, I turn over the call to Adam to discuss our financials.
Adam Laponis: Thank you, Emily. Revenue for the second quarter increased $75.3 million, growth at 25% year-over-year and approximately 5% sequentially. Orders increased substantially to $93.2 million with strong orders driven by a significant Blanket Purchase Orders expected to be used over the next three quarters. This includes approximately $21 million for SynBio, and $9 million for NGS. As Emily said, gross margin came in higher than expected at 41% in the second quarter of fiscal 2024. During the second quarter, we shipped to 2253 customers. We ended the quarter with cash, cash equivalents and short-term investments of approximately $292 million. Taking a deeper dive into revenue. SynBio revenue increased to $29.8 million, growth at 24% year-over-year, with orders increasing to $44.9 million. We shipped 193,000 genes in the quarter. Synthetic genes revenue, which includes both clonal genes, gene fragments and IgG increased to approximately $22.4 million, growth of approximately 24% year-over-year. Approximately $15.6 million or 52% of our SynBio revenue was from clonal genes, with $2.2 million in revenue coming from Express Genes. Within the SynBio umbrella, Oligo Pool (NASDAQ:POOL) revenue increased to $3.9 million and DNA libraries revenue increased to $2.5 million; year-over-year growth of 19% and 25% respectively. NGS revenue for the second quarter grew to approximately $40.8 million, compared to $29 million in the second quarter of fiscal 2023, an increase of 40% year-over-year. For the quarter, revenue from our Top 10 NGS customers accounted for approximately 36% [ph]. Orders increased to $42.5 million, which we anticipate sets the stage for further NGS growth. We served 558 NGS customers in the quarter, with 138 having adopted our products. For Biopharma revenue was $4.7 million, with orders increasing to $5.8 million. We had 67 active programs at the end of March 2024, and we started 34 new programs during the quarter. Looking at revenue by industry. Healthcare revenue rose to $40.9 million for the second quarter of 2024 compared to $33.8 million for the same period of fiscal 2023, reflecting the increased uptake of our products by pharma, biotech and diagnostic companies. Industrial chemical revenue rose to $20.3 million in the second quarter, up from $14.4 million in the same period of fiscal 2023, strong growth year-over-year. Academic revenue was $13.7 million for the second quarter of 2024, up from $11.1 million in the same period of fiscal 2023; with growth coming from both, SynBio and NGS customers. Looking geographically, America's revenue increased to approximately $45.9 million in the second quarter, compared to $34.9 million in the same period of fiscal 2023, growth of 32% year-over-year. EMEA revenue rose to $22.3 million in the second quarter versus $18.8 million in the same period of fiscal 2023, growth of 19% year-over-year. APAC revenue increased to $7.2 million in the second quarter compared to $6.5 million in the same period of fiscal 2023, growth of 11% year-over-year. China revenue was $1.4 million, a small percent of our total revenue for the quarter. Our gross margin for the second quarter increased to 41.0%. We saw strength in Express Genes revenue lifting margins offset by a contracted SynBio customer who placed and received a large order within a discount terms in Q2. Our NGS offerings continue to have strong gross margin performance. However, we did see and expect to continue to see puts and takes in their gross margin based on contracted customer mix where margin fluctuates based on the individual customer orders in a given quarter. Finally, I am encouraged by the enterprise-wide focus on gross margin improvement initiatives. And I also expect these initiatives will take multiple quarters to result in a material impact. In total, operating expenses for the second quarter were $124.2 million compared with $121.8 million in the same period of 2023. Breaking this down; cost to revenue has increased to $44.4 million in the second quarter of 2024 compared with $41.7 million in the same period of fiscal 2023, primarily due to higher product volume, as well as increased depreciation and amortization expense, mostly due to the buildout of our new manufacturing facility in Wilsonville, Oregon [ph]. R&D decreased to $24.1 million compared with $27.4 million in the same period of fiscal 2023, primarily due to the reduction in headcount, as well as lab supplies. SG&A was $55.6 million for the second quarter compared with $54 million. The increase was driven largely by stock-based compensation and bonus accrual catch up as the business is performing above forecasts at this time. Our operating expenses included approximately $7 million for data storage. Stock-based compensation for the quarter was approximately $13.8 million. Depreciation and amortization were $8.3 million for the quarter. Net loss attributable to common stockholders was $45.5 million or $0.79 per share for the second quarter of 2024 compared to a net loss of $59.2 million or $1.04 per share for the same period of fiscal 2023. Cash flow from operating activities continues to improve and we're driving the breakeven. For the six months ended March 31, 2024 net cash used in operating activities was $42.4 million compared to $98.4 million for the equivalent six months period in 2023. Moving forward, we will also provide adjusted EBITDA and non-GAAP measure. The reconciliation between the GAAP and non-GAAP financial measures will be included in earnings documents which can be found on our Investor Relations website. Looking back in time, the second quarter of fiscal 2023 adjusted EBITDA loss was approximately $46 million. In the second quarter of fiscal 2024 adjusted EBITDA loss was approximately $27 million. For the fourth quarter of fiscal 2024, we see a path for adjusted EBITDA loss of less than $20 million. Turning to guidance. For fiscal 2024, we now expect total revenue to increase by $12 million across the range to approximately $300 million to $304 million, anticipated growth at 22% to 24% year-over-year. Increased SynBio revenue of $118 million to $120 million, an increase across the range with a year-over-year growth anticipated to be 20% to 22%. NGS revenue of $152 million to $164 million, an increase of $12 million across the range, an anticipated growth of 31% to 33% year-over-year. Biopharma revenue of approximately $20 million, a decrease of $4 million in prior guidance, and 13% year-over-year. We're increasing our expected gross margin for approximately 41.5% to 42% for the year. We're reducing our expected loss from operations before taxes to approximately $183 million to $188 million, a decrease compared with prior guidance of $189 million to $194 million. CapEx is still projected to be approximately $15 million for fiscal 2024, unchanged from prior guidance. We project ending cash with more than $245 million at the end of fiscal 2024. For the third quarter of fiscal 2024, we expect overall revenue of approximately $77 million. SynBio revenue increasing to approximately $31 million with the full launch of Express Genes portfolio. NGS revenue of approximately $41 million was on-track with our increase in annual guidance. Biopharma revenue was approximately $5 million. Gross margin for the third quarter was 41% to 42%. For the fourth quarter, we expect overall revenue in the range of $77 million to $80 million. Gross margin for the fourth quarter of 43% to 44%. In summary, I'm encouraged by the progress in an enterprise-wide focus on financial discipline that I've seen during my first quarter at Twist. We will continue to maintain financial discipline throughout the organization and make progress on the path to profitability. With that, I'll turn the call back to Emily.
Emily Leproust: Thank you, Adam. In closing, we are very confident in the continued impact and growth opportunities generated from our preparatory DNA synthesis platform. Our growing customer base, our increasing revenue profile, our defining portfolio [ph], and of course, our exceptional entry progressively moving the needle for our customers across multiple industry. I also had the privilege of talking to our customers, listening to how they drive ground-breaking scientific advancements in wide ranging fields from healthcare to chemicals to academia, add value, and more. I'm very proud that Twist plays an important role in facilitating this work, and we are only getting started. We're enabling our customers to produce probing into the target and destroy cancer cells, to create new diagnostic tools that detect disease early and accurately, to make compounds that are more sustainable and also less expensive, to name only a few applications. We manufacture our DNA in two locations; one in California, and one in Oregon, with a global commercial booking to deliver superior service to all of our customers. As we look ahead, we are more excited than ever with the vast potential that lies before us. With cutting edge technology, world class team and laser focused strategy, we are poised to capitalize on the immense opportunities that we have in Synthetic Biology, NGS, Biopharma and Data Storage. I'm incredibly proud of what's been accomplished, and I am confident that our best days are yet to come. Let's open up the call for questions. Operator?
Operator: Thank you. [Operator Instructions] Our first question today is coming from Matt Sykes of Goldman Sachs (NYSE:GS). Your line is open.
Matt Sykes: Hi, good afternoon, Emily, Adam and Angela. Congrats on the quarter. Maybe I could just start out on margins. I mean, obviously be gross margins this quarter looks like on the back of NGS, but a small contribution from Express Genes of like $2.2 million. So to expect most of that beat was from NGS. But as the year progresses, and Express Genes continue to grow, could you just give us a sense for the contribution of margin expansion from Express Genes, maybe either providing some expectations for Express Gene revenue growth or volumes for the balance of the year? And what contribution to margin expansion is already in the guide from Express Gene specifically?
Adam Laponis: Hey Matt, thanks for the question. This is Adam. I'm happy to give you some the quantitative on this and we can jump in with color as well. First, we are very excited about the Express Gene launch this quarter. And then remember when we launched it here in late January, with a full offering when it was still only a partial quarter; so we expect in Q3 year that we're currently in the end of June will be our first quarter of full Express Gene. We have not broken out the exact data; Express Genes volume in the guide. We do see that contributing to the gross margin sequential improvements we have in our guide, and it did help with the movement we saw this quarter. But we're still in early days and we continue to use the -- some of the testing we're doing day to day in terms of pricing. And what we're -- we're monitoring and watching it, but we have not broken that out at this time [ph].
Matt Sykes: Got it. And then just on the NGS tools business, just hearing from some of your competitors in that space that are having some challenges; it seems as if given your results, you're continuing to take a share there. Could you maybe just help us understand for context, sort of what the market share opportunity is in the NGS tools business for you? And what is sort of the runway that you have for accelerating growth, either given the market structure, your current penetration and share, and what it could be? Thanks.
Emily Leproust: Thank you, Matt. This is Emily. You're correct that we are usually taking market share. And it's not an accident, it's based on the innovation that we've built into the product from the quality of our panel that reduces the cost of sequencing, and extending to other applications to RNA and activation [ph]. For the fact that we now have a full workflow solution from the sample to the sequencer. And finally, and very importantly, the -- us being a supply chain partner to our customers as they grow; so far the vast majority of our -- the majority of our revenue come from liquid biopsy applications. And in terms of the market potential for liquid biopsy, it's really big; we are only at the beginning of liquid biopsy adoption. And as the adoption of those tests rams, as liquid biopsy -- the minute we are seeing market as a whole growth, our goal is to be able to capture 10% of the COGS of our customer. So we believe there's a lot of room to grow in liquid biopsy. For the other markets, mRNA, where we're -- it's very early days, the pilots and the initial test are encouraging. And then for us, for the capture of the AgBio market, that is currently being done on microarrays, and where we want to move it to Twist plus sequencing; we think that that market alone could be $500 million. So a lot of opportunity for us. And again, it's not an accidental space with the differentiation of the products and the commercial balance that we deploy.
Operator: Thank you. One moment for our next question. And our next question will be coming from Vijay Kumar of Evercore. Your line is open.
Vijay Kumar: Emily, maybe my first one here on the orders here. That's a big, big number, up 45%. Were there any one-timers? Was there any pull-forward? Or maybe you just characterize the order trends to other as the quarter progress?
Emily Leproust: Great question. Thank you. So I'll put out two types of orders, although that are actionable. Today, meaning the PO comes with the sequence, and in SynBio it gets made in five days; in NGS it gets made in a few weeks, get shipped, we book the revenue. And one thing that was a bit particular this quarter is, we’ve got bigger number of the second kind of orders which are blanket pure orders. So those are -- they come from customers where they kind of have a budget, and they decide -- at the beginning of the year they decide where they're going to spend that budget with which company. And so the blanket PO gets provided, gives us a sense of volume that's coming. And then as the researcher design the sequence that they want, they send us a sequence, the others are already there, we produce, again ship and we book revenue. And so what happened this quarter is, we had more blanket PO -- orders that we typically have had in the first quarter of the calendar year. And I think that's a reflection of the fact that in our first quarters, so in calendar Q4, some customers have tested Express Gene in our Q2, calendar Q1; more customers have tested the Express Gene. And as they have received those genes on time; basically our Express Genes do what it says on the label. I think we have earned the confidence of those companies and they have been willing to give us their blanket PO; other meaning, they are confident that they will order from us in the rest of the year. So I think that's the big dynamic that we say -- that we see. It's a reflection of the strength of our offering.
Vijay Kumar: Yes, that's fantastic. And then Adam, maybe just back to the question. So you don't think there was anything one-off, these are underlying trends. And is that what’s driving the sequential gross margins in the 3Q and 4Q, that's a pretty meaningful step up on gross margins for Q4?
Adam Laponis: It's a great question. And I think the -- it's fair to say that this is -- it was not a one time but it also did break from our historical behavior that often times, some of our larger customers do put in Blanket Purchase Orders at the beginning of the year, we're seeing a larger volume of that this year. So I think there's -- it's a vote of confidence, but not something I'd expect sequentially to occur every quarter, because the nature of the calendar year, with folks put those up. In terms of us moving forward, both in terms of the growth in the business; the increase in the guide of about $12 million in the midpoint from where we were before for the year, as well as the expansion on gross margin both, full year and sequentially; this does play as a tailwind. I think we talk a lot about Express Genes, and we talk a lot about our NGS mix driving the margin, but the number one driver for margin for us that continued growth and volume revenue.
Vijay Kumar: Fantastic guys. Thank you.
Operator: Thank you. One moment for the next question. And our next question will be coming from Steve Mah of TD (TSX:TD) Cowen.
Steven Mah: Great. Congrats on the quarter and thanks for the questions. I've got a 3-part question on Express Genes. So first, so -- you know, now that you have another quarter of experience, can you give us a sense for the customer feedback on the dynamic pricing? I know in the last call, you also talked about there was a push by larger accounts wanting to trade the dynamic pricing for sort of like a fixed subscription like pricing model? And then second, can you give us a sense on how the increased marketing effort on Express Genes; how that's going? And then third, on the 100 net new accounts for ordering Express Gene; what's the profile of that customer? Is that academia, pharma or biotech or mix? Thank you.
Emily Leproust: Thank you, Steve. Great question. In terms of the customer feedback, we haven't had any negative feedback from the premium pricing, I think people understand that we've made a significant investment. The product differentiation is very, very strong. Again, the performance is such that it does what it says on the label, so that's all positive. And at the same time, customers -- several customers would like to have predictability. And so they've been very willing to provide a volume commitment in exchange for a fixed premium pricing, and some of that was reflected in the strong blanket POs that we have gotten. So I think that’s certainly the first question. Second question sends on the margin. So we're not -- as I mentioned earlier, we're not breaking out margin for Express Gene at this time. The one thing that we reiterate is, whatever is that average premium pricing increase, a part of a sense of that increase drops to the gross margin line. So we anticipate that it will be a component of gross margin improvement overtime. And then last question on the 100 net new accounts; it's a mix which is was really great to see. It’s a very good mix of -- of course, big pharma customers, as well as smaller pharma customers, and -- not surprising, but very good to see. So a lot of academic group have been testing and ordering and reordering. And obviously, when we look at the average size of an order from a pharma company, it is bigger than from an academic group. But the thing I'd say that that the majority of the net new accounts were academic groups, and so it's great to see that we're penetrating not only the industrial companies which would have been more predict [ph] but also academic groups.
Steven Mah: Okay, great. And maybe just a quick follow-up on that. Did you mention that you had a different pricing structure for academic versus industry?
Emily Leproust: So yes, in the middle of the quarter, -- at the beginning, it was the same premium pricing for academic and industry. And then, in the middle of the quarter, we’ve started to have a bifurcation where the premium for academic was not as strong as well for industry, which is a standard practice. So I'll say that we are more now in the standard practice than we used to be.
Steven Mah: Okay. Great. Thank you.
Operator: Thank you. One moment while we prepare for the next question. And the next question will be coming from Matt Larew of William Blair. Your line is open.
Unidentified Analyst: Hi, this is Madeline Millman [ph] on Matt Larew. And I wanted to touch a little bit on biopharma. I noticed like the biopharma is still was an area that the guide came down, and I know you mentioned previously that you were in the process of onboarding your new BD hires, it takes them about six months to get fully ramped. Can you talk a little bit about where the BD hires are in the process? And how much is that ramping contributed to the change in biopharma guidance?
Emily Leproust: Thank you for the question. We have a full team at this point, in terms of headcounts, maybe not fully ramped yet. But we have a full team, I travel quite a bit with that team, and it's very clear that the market is there, there is no market headwinds at all. The technology, the product and service offering that we have is extremely strong with in vivo, in vitro, in silico. So in my mind, victory is certain, but timing, we're still working on it. So we were just doing all the right thing, now we're focusing on activity, building the funnels. The orders for this quarter at $5.8 million we're encouraging; and so now we just have to do it again and grow this this business. It is the smallest business of the company, it is right now the business that has the lowest growth; but it has all the characteristic of a very strong business, very strong Twist business which is high differentiation of the services. And as we connect with more customers, convert more customer, I am very confident that we can do really well.
Unidentified Analyst: Great, thank you. And then I think you said that Express Genes were 15% of clonal genes revenue for the quarter. Can you give any color on sort of on a monthly basis how Express Gene as a proportion of clonal genes has trended? And that includes if you can, into this quarter, it’s current quarter as well?
Adam Laponis: Sure, this is Adam. And I'm happy to talk about it. I think we're seeing since launch, as we've seen sequential increases in the Express Gene business, pretty much consistently month over month, partly due to the fact that we did the full commercial launch in late January this year; so you expect that natural step-up. There is also the behavior, as Emily mentioned earlier in the call; some of the larger institutional customers when they order there were high volume. So a couple of orders can have an impact, especially early on, but we are seeing that sequential step-up from a different [indiscernible].
Unidentified Analyst: Great. Thank you so much.
Operator: Thank you. One moment for the next question. And our next question will be coming from Tom Peterson of Baird. Your line is open.
Tom Peterson: Hey everyone, congrats on the quarter and thanks for taking my questions. I just want to first start on Express Genes and some of the metrics that you provided here, you know, whether it be percentage of clonal genes or some of these customer conversions or new account wins. How are you defining what medium-term success looks like for the Express Gene offering? And if you could share any sort of targets that you're looking for over the medium-term, it could be helpful?
Emily Leproust: I think in general, for us, success is the three numbers of revenue gross margin. And so, we do have internal targets for all of the product lines. One of the strengths of the [indiscernible] is the fact that we have a very differentiated -- sorry, very diverse type of customers, thousands of them working on very diverse types of applications. And so -- really -- it's all of the above product lines that contribute to the great results. And I can be sure that we are pushing the team to leverage not only Express Genes, but all of the high differentiated product that that we have.
Tom Peterson: Great. That's helpful. And then, maybe just one on the gross margin outlook, specifically, kind of that 50% plus extra rate [ph] by 2025. Given their quarterly guide for fiscal 2024, how should we think about the cadence to get to that target in fiscal 2025 given the 2024 guide?
Adam Laponis: I think that's a great question, and it's one where we internally are absolutely excited about the progress we've seen. I think we go back and you look at four quarters ago, we were at a 31% gross margin; to see that grow to 41% over the last four quarters is impressive. And you'll notice it did happen overtime but it's not always perfectly linear. But I think the idea here is, we do expect to see the sequential gains continue as we go into 2025. And we do expect also there will be some -- it won't be perfectly linear with revenue growth every quarter because some of the initiatives -- and I'll use the example, some of the things we're doing are process improvements; you spend the energy to make the process improvement in a given period but then you may have inventory you need to burn through before you get the advantage of the cost savings and the impact on the P&L. So some of these things will take time but we are encouraged by both, the continued growth in the business, as well as the progress on the process improvements that we see across the business so that we expect the sequential increases throughout 2025.
Tom Peterson: Thanks, again. Appreciate it.
Operator: Thank you. One moment for the next questions. And our next question will be coming from Puneet Souda of Leerink Partners. Your line is open.
Unidentified Analyst: Hi, good afternoon. We’ve got Michael [ph] on for Puneet. My first question has to do with the regulated diagnostics products you are launching. We saw the FDA publish their final rules for LDTs [ph]. I am kind of curious if any of the changes are affecting their plans for how Twist is approaching their diagnostic products, if anything incremental needs to be done?
Emily Leproust: Thank you. That's a great question. We are great students of those rules. I mean, we in general, we are quite encouraged with the new rules, they grand-fathered [ph] in a number of LDTs. Regulation, in general, I think we will probably benefit larger players maybe reduced fragmentation in the market. And to the extent that we are very well penetrated into [indiscernible] player but that's good for us. The new test or we are required to validate the test, we’ll probably require more validation, and so that will probably be a tailwind for us. Then finally, over time as diagnostic tests needs to be modified, just -- it will be a little bit harder to modify. And one of the things we provide is, we make it easier to do modification; and so all in all, I think that's probably -- those rules have probably benefit -- in the grand scheme of things, probably beneficial to us. And as you mentioned, we've launched CE-MAT [ph] products in Europe in the recent past. And while those exact products cannot be imported into the US, going through the exercise of launching those products helped us build a muscle inside the company that we'll be able to use and leverage in the US with the new regulation.
Unidentified Analyst: Great, thanks. And then my second question has to do with biopharma funding. So we've seen a bit of an uptick in the first quarter. I was curious if you have any views on where that might flow through, maybe some lag time? And if you've seen differences in buying activity between large and small pharma?
Emily Leproust: I'm not sure we're seeing big differences. I think for us, we're very focused on gaining market shares. And the last few years, I've been kind of caught out customers broadly; I have been in the mode of tightness around funding and budget. And because of the high differentiation of our products, we've been able to gain more than our fair share in market shares. So, as we see now that -- yes, the budgets get a little bit easier. Will we be able to keep doing this, taking more of our fair share; I think I'm encouraged by the performance of the Express Genes in particular, where -- again, it's -- it does what it says on the label, and it's highly differentiated. And we still have another products that we are planning on launching in the near-term which will enable us to take more of those budgets. And I think the order volume that we had in Q2, which is calendar Q1, with those large blanket orders; it's a good first step in making sure that as the biopharma budget loosen up, that we’ll be in pole [ph] positions to take advantage of them.
Unidentified Analyst: Great. Thank you.
Operator: Thank you. This does conclude the Q&A session for today. And I would now like to turn the floor over to Emily Leproust for closing remarks. Please go ahead.
Emily Leproust: Thank you for your time and attention today. Our unwavering commitment pushing the boundaries of innovation has allowed us to unlock new opportunities and drive value for customers, shareholders and the broader scientific community, and we will continue on our path towards profitability. We look forward to keeping you apprised of our progress. Thank you.
Operator: This concludes today's conference call. You may all disconnect.
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