Twist Bioscience Corp Q3 FY2021 Earnings Call

Welcome to Twist Biosciences, Fiscal 2021, Third Quarter Financial results conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a Q&A session. As a reminder, today's conference call is being recorded. I would now like to turn the conference over to Angela Bitting, SVP of Corporate Affairs.

Thank you, Valerie. Good morning, everyone. I would like to thank all of you for joining us today for Twist Biosciences Conference call to review our Fiscal 2021 Third Quarter financial results and business progress. We did issue our financial results released this morning, which is available at our website at www.twistbioscience.com. With me on today's call are Dr. Emily Leproust, CEO and Co-Founder of Twist, and Jim Thorburn, CFO of Twist. Emily will begin with a review of our recent progress on Twist Business. Jim will report on our financial and operational performance, and Emily will come back to discuss our upcoming milestones and direction. We'll then open the call for questions. 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 be making 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 our press release we issued earlier today as well as those more fully described in our financials and our filings with the Securities and Exchange Commission. The forward-looking statements in this presentation are based on information available to us as of the date hereof and we cannot at this time predict the full extent of the impact of the COVID-19 pandemic and any resulting business or economic impact. We disclaim any obligations to update any forward-looking statements except as required by law. With that, I will now turn the call over to Chief Executive Officer and Co-Founder, Emily Leproust.

Thank you, Angela, and good morning, everyone. We continued our momentum in the Third Quarter of Fiscal 2021, reporting increased revenue across our businesses and solid growth moving into our final Quarter of the year. We remain focused on expanding our customer base and driving increased revenue day by day across these businesses, while advancing our DNA Data Storage commercialization plans. We reported record revenue of $35 million for the Quarter, an increase of 65% year-over-year. For the second Quarter in a row, we have no single customer accounting for a significant percentage of our revenue. This again indicates broad and diversified strength across our businesses, and we recorded $39.1 million in orders. This is an increase of 58% over the Third Quarter of Fiscal 2020, a strong signal for the remainder of Fiscal 2021, particularly as the first quarter can be slower for European business. Zooming out a bit to put into context both our current results and our future opportunities, we continue to remain in the promise of synthetic biology. The ecosystem of companies working on the diversification of synthetic biology provide not only validation of the industry today but incredible opportunity for the future. There will be setbacks within the industry and not every application of synthetic biology will work or resonate with customers. However, wherever the science and the commercial application go, Twist provides a solution for research discovery and development, as well as production. Essentially, we provide the tools that enable our customers' success. There will always be a market for these tools. Specifically for healthcare, we see rich opportunities. At every stage of the healthcare system, from diagnosis to treatment to surveillance and prevention, synthetic biology has a role to play. New tests are available for a wide range of inherited diseases. We can use Gene Drive to eliminate mosquito-borne illnesses like Malaria and Dengue, and Gene Editing can be used to treat specific diseases. Comprehensively, we can use Synthetic DNA to address cancer mutations and deliver personalized treatment. This is just the tip of the iceberg of what is possible by combining synthetic biology and gene technology to improve healthcare. In addition to healthcare, we see our growing customer base pursuing unique applications in a wide variety of industries, including materials, chemicals, food, farming, and more. With a vision 8 years ago when we founded the Company that synthetic DNA would change the world, driving industries and disrupting existing markets, we are delivering on the promise by building a robust and dynamic business with solid revenue growth quarter-over-quarter. Now, to drive into our results for the Third Quarter, starting with synthetic biology, we reported record revenue of $14.3 million, with orders coming in at $15.7 million. We shipped 107,000 genes in the Quarter as we continue to expand our customer base. We are actively preparing for the opening of our Factory of the Future with early production expected in mid-2022. As the Factory of the Future comes online next year, we believe it will allow us to tap into new customer products very quickly, an important avenue to convert DNA makers into DNA buyers. Turning to Genomics and targeted NGS, we reported $18.7 million in revenue. Orders were $18.6 million for the Quarter. We closed our acquisition of iGenomX, bringing multiplex library preparation tools for NGS workflow into our full offering. We believe this acquisition will accelerate the conversion from other markets to Twist's sequencing. We're working to integrate the product and expect to relaunch it before the end of the calendar year. In addition, we launched a panel, the Regeneron design product that leverages Twist's platform to cover over a million targets, which can be used alongside our larger exam panel. This is an important panel for Twist as it provides researchers an ethnicity-neutral gold standard, rather than a typical bias of 80% Western European coverage. We have taken multiple steps to mitigate the challenges we discussed last quarter, including the introduction of our all-in-one solution designed to maximize accuracy and efficiency in library construction and amplification. We launched 4 new controls for new variants of COVID, including Delta and Kappa. We continuously evolve this product line, and we see sales of the controls introduced early in the pandemic have been replaced by the new controls for the latest variants. Importantly, the rising COVID cases worldwide remind us that COVID remains a public health crisis, and it is likely to be the case for quite some time. We need to learn to live with COVID, which requires both diagnostic tools and effective therapeutics that address a wide range of variants. The lack of worldwide vaccination and the school-age population that is not eligible for vaccines makes surveillance a very important tool to monitor the spread and evolution of the virus. For Biopharma, we reported $4.8 million in orders and $2 million in revenue. This was a great Quarter for Biopharma. We saw a continuous increase in repeat business with many of our longstanding partners. As a reminder, our Biopharma revenue includes a portion of the upfront license fee associated with our partnerships as we recognize revenue over the course of each project. In addition, all orders convert one-to-one into revenue most often in the following few quarters, depending on the timeline of the project. Milestones and royalties represent additional potential financial upside and are not calculated in orders of revenue. During the quarter, we signed several new partnerships for our Twist optimization solution that utilizes fully human antibody sequences. This collaboration showcases our capabilities to improve the quality of a particular molecule. As we expand our data package with additional examples of our successful partners, we see increased interest in this particular platform for humanization and affinity maturation. We do not typically receive milestones or royalties for these collaborations, but we believe they are critically important as an entry point to larger partnerships with key pharma and biotech companies. I'm very glad to report that we now have 31 partners and 43 active programs, 26 of which have milestones and royalties associated with them. In addition, 19 programs are complete and are now in the hands of our partners. Alongside these partner programs, we are continuing to develop our internal compounds, generating additional preclinical data. Concurrently, we continue to pursue other paths to expedite our Twist antibodies to reach the clinic. Moving to data storage, we continue to make solid progress toward commercialization, working with our proof-of-concept chip at one-micron pitch. We're building an integrated chip that includes both the CMOS and MEMS components needed to commercialize the product for data storage. Once the integrated chip is working, our next step is to create an integrated chip while miniaturizing the feature size even further. We expect that our first early access commercial offering will support our customers in media and entertainment organizations. The DNA storage alliance is now three to four months strong. There is an active website, and the group released its first white paper on the status of the DNA storage engine. They meet monthly and are making great progress educating the larger storage community on the benefit of DNA as a storage medium. At this time, I'd like to turn the call over to Jim to review our financial results for the quarter.

All right. Thank you, Emily. As noted, our results continued to demonstrate the advances we're making in executing our business strategy and investing in our platform. Revenue for the third quarter is $35 million, a new record for Twist and up sequentially 12%, and year-over-year 65%. Orders were $39.1 million for the quarter, a sequential decline of 6% and year-over-year increase of 58%. Gross margin for the Third Quarter was 40%. We shipped to approximately 1,800 customers in the Quarter and approximately 2,600 customers year-to-date. And we ended the quarter with cash and short-term investments of approximately $519 million. Now, I will provide more details on orders for our Third Quarter. NGS orders for the Third Quarter were $18.6 million, comparable to the Second Fiscal Quarter and a 113% higher year-on-year. This reflects a larger customer base, increasing adoption, and increasing NGS applications, including liquid biopsy, diagnostics, RNA controls, and other clinical applications. During the quarter, we received orders from approximately 700 NGS customers, and the top 10 accounts placed orders of approximately $7 million as compared to approximately $8 million for the top 10 in the previous Quarter. This highlights the continued diversification of our customer footprint in Quarter 3. Our pipeline for larger opportunities continues to scale, and we're now tracking 182 accounts, up from 170 noted in our last earnings call. Additionally, 79 of these accounts have adopted Twist, which is an increase from 65 the last Quarter. Now, turning to synthetic biology: Our synthetic biology orders, which included Ginkgo, genes, DNA preps, IgG libraries, and Oligo Pool were $15.7 million in the Third Quarter, up from $14.9 million in June 2020 and down sequentially, primarily due to declines in industrial biotech orders. Now, for biopharma: Biopharma orders in Quarter 3 reached a record $4.8 million, as we continue to build our pipeline of customers, projects, and opportunities. As noted earlier, we now have 31 partners with 43 active programs, and 26 of those have milestones and/or royalties. Please note that we provide orders not to directly translate into revenue but to provide a trend line for each product group. Now moving from orders to revenue. As noted earlier, revenue for the Quarter was $35 million, bringing our cumulative revenue for our 3 quarters to $94.4 million, which compares to $57.7 million for the same period in FY '20. That's approximately 64% year-over-year growth. NGS products continue to scale and incline to $18.7 million for the quarter as compared to $9.1 million for the same quarter in the prior year. Year-over-year growth has more than doubled, with sequential growth of 10%, reflecting the expansion of our pipeline and increasing number of applications such as liquid biopsy scaling up. Our synthetic biology product revenue for the Quarter was $14.3 million, which is up sequentially from $12.9 million last quarter and an increase from $11.8 million in Quarter 3 FY '20. Some highlights include shipping to approximately 1,707 Bio customers in Quarter 3, which is up from 1,300 in the previous Quarter. Our Q3 gene revenue was $11.2 million, sequentially up from $9.2 million and up from $9.6 million in Quarter 3 FY '20. We shipped a record number of genes in the Quarter of approximately 107,000, an increase from 90,000 genes shipped in Quarter 2. Please note as Ginkgo is now less than 10% of our revenue, we're no longer breaking out Ginkgo activity, which also highlights our growth and continued success in expanding our customer base. Biopharma revenue for the Quarter was approximately $2 million, including our upfront services associated with our antibody projects. Now, I will briefly cover our regional progress. Our investment in building out our international commercial organization capabilities is reflected in strong international growth this Quarter. IMEA had another terrific Quarter with Q3 revenue of $12.7 million versus $6.4 million in the same period last year, trending for 36% of our worldwide business. APAC had a strong Quarter as well, with Q3 revenue of $3.1 million versus $1.2 million for the same period last year, and U.S. revenue was $19.2 million versus $13.6 million for the same period last year. I will now quickly give an update on our segment revenue. All segments showed strong growth. Healthcare is now our largest segment and accounts for approximately 50% of our business with revenue of $17.4 million in Q3 versus $8.5 million in Q3, Fiscal '20. That reflects strength in our NGS. Industrial chemicals revenue was $9.4 million in Quarter 3, as compared to $7.5 million in Q3, FY '20. Academic revenue in Q3 '20 was $7.7 million versus $4.6 million in Q3 FY '20. We noted in the call of last Quarter that our academic segment was continuing to recover. Our increased agriculture revenue was $0.5 million. Now moving down to P&L, our Gross margin for the Quarter is approximately $14 million or 40% of revenue, up from 39% in the prior Quarter and up from 22% in Quarter 3 of Fiscal '20. Our operating expenses for the Quarter, including R&D and SG&A, was $54.2 million. R&D for the Quarter was $19.8 million as compared to $10.4 million in the Third Quarter of FY '20 and $15.8 million in Quarter 2 of FY '21. Over the last year, we have invested in our R&D resources and capabilities, and our headcount has increased to 189 from 125 in Quarter 3 of Fiscal '20. We're seeing the benefit of this investment in our product launches and our innovation. Consequently, the major increase in spend was due to compensation and outside services, primarily related to our data storage technology development activities. It's worth highlighting that in Q3 FY '20, this included $1.4 million of drug reimbursement as compared to $0.3 million in Q3 FY '21, both of which are netted against our R&D expenses. Just quickly on the sequential growth, the increase in spend was primarily due to compensation and an increase in outside services of $2.3 million related to our data storage technology development activities. Our SG&A in Quarter 3 was $34.5 million as compared to $34.3 million in Quarter 2 and $22.5 million in Quarter 3, FY '20. Year-over-year SG&A expense increased by approximately $12 million due to higher compensation of approximately $7 million, including stock-based compensation of approximately $2.7 million, primarily associated with increased investments to build that commercial organization. Our headcount has increased in the commercial organization to 195, up from 161 in Quarter 3 FY '20. In addition, during the Quarter we incurred higher outside professional services of approximately $3 million due to audit and SOX fees, as we've been continuing to invest in enhancing our control environment. During the third quarter, we hired Kevin Yankton as our Chief Accounting Officer. Kevin brings significant industry experience and depth of knowledge of technical accounting matters, and I am thrilled to have him as part of our finance team. Our loss from operations before interest and taxes for the Quarter was $40.2 million, which includes stock-based compensation of $9.2 million and $2.7 million in depreciation. Capex for the Quarter was approximately $7 million, bringing total year-to-date Capex to approximately $19 million. We concluded the quarter with cash and short-term investments, posting $519 million. As Emily highlighted, we closed our acquisition of iGenomX in June, and this will be reflected in our balance sheet with an additional intangible assets of approximately $17 million, with the balance being goodwill offset by a deferred tax liability. In April of this year, we extended the lease of our Portland Facility and started to record the amortization lease payments, totaling $0.7 million in the Quarter with future quarterly expenses of approximately $1 million for lease payments. I will provide an update to our financial guidance for Fiscal 2021. As Emily noted, we're seeing strong growth in our customer base, strong market growth, and there are also inceptions associated with the pandemic. We are approaching a time of year where we have seasonality in Europe. As noted earlier, Europe is now a larger part of our revenue. However, we are increasing our revenue guidance for the year and now expect revenue in the range of $129 to $132 million, up from our prior guidance of $121 to $129 million. We are estimating Quarter 4 revenue within the range of $35 million to $37.5 million. Synthetic biology is estimated to be in the range of $54 million to $56 million and includes Ginkgo revenue. NGS revenue is estimated to be in the range of $69 million to $70 million, and biopharma revenue is estimated to be approximately $6 million. Our gross margin range for the year is expected to be between 38% and 40%, as compared to 36% to 38% in our last statements. Operating expenses, including R&D and SG&A, are expected to be approximately $200 million for the year, as compared to $192 million in our prior guidance. This reflects higher stock-based compensation charges, rental expenses for the Factory of the Future, and investments in R&D and sales and marketing organizations to support growth in FY 22 and beyond. R&D investments for the year are approximately $70 million, up from $66 million, due to outside services primarily associated with data storage technology investments. Our net loss guidance for the year is expected to be approximately $150 million, as compared to $144 million to $150 million in the previous guidance. Stock-based compensation is expected to be approximately $37 million, and depreciation is expected to be $10 million. We anticipate CapEx to be approximately $40 million for the year. In summary, we'd like to thank all Twisters for delivering another Quarter of record growth, for executing our strategy, and for generating broad demand from our customer base. Our new products are being well received, and we're investing in our platform as we continue to tap into new revenue streams. With that, I will now turn the call back over to Emily.

Thank you, Jim. In conclusion, we continue to build our business, our customer base, and revenue streams. This quarter, we have accomplished a lot, even more than envisioned at the beginning of the year in the midst of COVID-19. As we move into the final quarter of our fiscal year, we expect to continue to take market share in synthetic biology, growing more appealing in the markets while we prepare our Factory of the Future for production in 2022 to position us to accelerate our business. For our NGS tools, we will continue to grow revenue and increase adoption, as well as in the goal of large accounts, we funnel into the pipeline. Additionally, we plan to relaunch our prep kit to drive conversions moving into 2022. For Biopharma, we intend to sign additional partnerships in our programs as well as pursue opportunities to participate in greater and rapid clinical advancements. For DNA data storage, we will drive towards our Alpha commercial product offering, execute on our contract, and actively advance market adoption of this new storage medium. With that, let's return the call for questions. Operator?

Thank you. Please stand by while we compile the Q&A roster. Our first question comes from the line of Doug Schenkel with Cowen. Your line is now open.

Good morning, everybody. Thank you for taking my question. On Alumina's call last night and in talking to them, I think a little bit after the call, they talked about a lot of progress they're seeing with asset development in the industry combined with the fact that guidelines and the reimbursement environment coming out of the pandemic, at least we hope coming out of the pandemic, is driving increased demand for sequencing consumables within the clinical-end market, especially in oncology. Based on your results in the quarter and what you talk about in terms of backlog, it sure sounds like you're seeing the same thing in your business. I just want to make sure that's the case. And if so, as we think about the implied fiscal Q4 guidance, when you say the bias, especially when it comes to this part of the clinical business, is to the upside, how should we be thinking about momentum as we start to look ahead to Fiscal '22?

Thanks, Doug. Maybe I'll start and Jim can continue. First of all, I agree with what you say. We see something similar. But as a reminder, there are two stages when we work with customers in the clinical space. The first stage is in the development of the assay. In that stage, customers want many different panels to try different content, and that's where we excel because we can make a panel very quickly and cost-effectively. Once the customer has finalized the content that we need, then we move into more of a scale-up phase, where the revenues can run. Depending on where they are in their asset development and validation, some customers are still early in trying different content and some are further along in the scale-up process. We are seeing strength in both areas. Jim, is there anything else you'd like to add?

Yeah. Doug, it’s definitely an area where we see strength. If you look at the backlog of the large NGS customers that we're tracking, we are now looking at 182 accounts. That's twice the number we were tracking approximately this time last year. The number of adopted accounts has increased to 79, up from about 50 this time last year. All the signs are that we're going to have very strong momentum building in this area. If you take a look at our guidance for the year for NGS, we've increased our projections again, so we should continue to deliver strong growth.

Yep. Thank you. No, that's really helpful. Thanks to both of you for all that. I mean, I think importantly right there. When you run through all those metrics, Jim, I mean, there's not a single thing trending in the wrong direction. And I say that not to be a cheerleader; I say that because as I'm thinking about the outlook for Fiscal '22, there's nothing you're seeing that would suggest the building momentum is going to slow.

And what's interesting is if you look at the breadth of coverage or the breadth of adoption, it tends to increase. It has been somewhat lumpy as we've scaled over the last two quarters; the top 10 accounts accounted for roughly about 40% of our orders, which is a really good sign. That shows that the number of customers is increasing and the volumes we're placing are also rising.

Okay, that's great. If I could just ask about the Biopharma side, specifically on cell lines and antibodies. Libraries of libraries are a great capability, but there does seem to be a movement towards increasingly sophisticated cell engineering efforts for antibody development and targeting. Is there any change in how you feel about your positioning in this context? If so, how does that impact existing and future partnership development efforts and, of course, embedded in this question is a question about how you're thinking about your efforts to increasingly advance internal sophistication in this context? It'd be great to hear your thoughts on the competitive environment and your efforts.

Thank you, Doug. I definitely agree with your assessment of the market. With the advancements in cell engineering, there's a high demand for custom DNA, especially as we move towards individualized medicine where every patient may require different engineered cells. Our position is strong in that we can support not just research and development but also production, as each patient would require specific payloads. Our biopharma team is at the forefront of this innovation, growing and developing tools that solve customer problems, which then can transition into broader applications. We aim to strengthen our core platforms while expanding our capabilities to meet the needs of this evolving industry.

Okay, thanks again. Have a great weekend.

Thank you.

Thank you. Our next question comes from the line of Matt Sykes with Goldman Sachs. Your line is now open.

Hi, good morning, Emily and Jim. Angela, thanks for taking my questions. Similar to Doug's questions about the NGS business mentioned, 182 customers you are tracking and 79 adopted customers. I was wondering if we can get any more color on the mix between existing versus new customers, and what you're seeing in NGS, and maybe the frequency and quantity at which they're ordering.

Yeah. The mix in terms of new customers over the last few years has certainly expanded in terms of volume. What’s encouraging is the pipeline keeps increasing alongside broad customer ordering. A year ago, our top 10 accounts accounted for about 60% of orders, but now it has decreased to about 40%. More customers are adopting our solutions, and we’ve seen a notable increase in customers working with us on new applications like liquid biopsies.

Great. Thanks for that color, Jim. And just on EMEA, you had a good quarter; it sounds like momentum is building there. Can you elaborate on drivers for growth in that region for IMEA?

We saw strong performance in Synbio. The genes business is doing well. For IMEA, we're observing solid NGS growth, and Synbio orders, particularly from large pharma customers, have driven up our revenue quite effectively. The trend of high gene shipments shines through for this Quarter, reinforcing an encouraging sign as we head into the summer period.

Great. Thanks, I appreciate the color.

Okay.

Thank you. Our next question comes from the line of Catherine Schulte with Baird. Your line is now open.

Hi. Congrats on the quarter, and thanks for the questions. Last quarter you mentioned you were experiencing some headwinds as a key supplier for NGS. Have those issues been resolved, or are they still a bit of a constraint?

Thank you, Catherine, for the question. We've made good progress on that front. We have launched an additional improved kit that enables us to move new customers onto it with very few constraints. For existing customers, we've transitioned a few to the new kit, alleviating some pressure. While we're not completely out of the woods yet, we anticipate being able to accommodate more growth from existing customers and are cautiously optimistic, keeping a close watch on this.

Great. And how do you feel about your synthetic biology pricing as we stand here today? Is there a tendency to lower prices to unlock incremental demand or potential for dynamic pricing based on expedited turnaround times?

We foresee opportunities for dynamic pricing as we now make significant investments in our Factory of the Future in Portland. This will not only provide more capacity but allow us to add attractive features to our products, including faster turnaround times. We believe we will be able to improve margins and introduce more dynamic pricing where we can offer premium speed.

Thank you. Our next question comes from the line of Vijay Kumar with Evercore ISI. Your line is now open.

Hey guys, thanks for taking my question. Maybe first one on the order trends here. It looks like Synbio orders were down sequentially. Is that just a timing issue? Was NGS orders flattish? I was curious to know if there were any timing elements that impacted this Quarter?

Absolutely, Vijay. Your point on Synbio orders is valid. Last Quarter, we had some large orders from one of our industrial biotech customers that pushed significantly on timing. Those large orders didn't materialize in June, so it's largely a timing issue. As to NGS, we remain optimistic and we've observed our revenue forecast leading into a solid conclusion for both Synbio and NGS, with record shipments driving good demand.

Understood. And Jim, on your updated guidance for Q4 revenues, it looks like a 10% growth year-on-year, but adjusting for any one-off orders from last year, it appears to be in the mid-30s growth for Q4. Is there any concern for a potential slowdown?

The revenue trends reflect significant momentum that we have become familiar with—Europe is a larger segment of our business now. We have this expectation allowing for better growth potential. If you refer to our revenue last year, our revenue in Q4 was $32.4 million. If you take out the $9 million for the Regeneron order, you will see a significant increase versus our forecast. We're assessing the potential seasonality impacts as well, so we feel assured there is adequate momentum.

Just to clarify, Jim, was the Regeneron order at 6 or at 9?

The overall Regeneron order was indeed $9 million in the Quarter. My clarification was mainly on how this affects last year's number, yielding a clearer frame of reference.

Understood. Thanks, guys.

Okay.

Thank you. Our next question comes from the line of Matt Larew with William Blair. Your line is now open.

Hi. Good morning. On the Synbio side, the number of customers is up about 30%. Can you talk about where you're seeing the most interest from your customers and any impact from the recent product launches?

Yes, it was a strong Quarter for us. The gene business performed very well, with record shipments of 107,000 genes. We're encouraged by our Synbio demand. We are seeing strong performance in healthcare and academia as well as consistent demand from several pharma clients. Overall, our strategy of expanding the customer base and targeting larger pharma is increasingly effective.

Okay. And then in terms of Biopharma partners, there is a significant step-up—31 partners now. Are you seeing a network effect or change in how products are being received?

Thanks for asking. With more paid projects reaching completion, we can share more anonymized data, showcasing proof points to attract new business. We’ve also grown our commercial team, placing more representatives in U.S. and APAC regions, enabling wider reach. Consequently, we are seeing repeat business that compounds with the onboarding of new customers.

Great. The last question concerns the white paper released in June on DNA data storage. What reactions or feedback have you received from potential partners?

The number of participating companies in our alliances continues to grow beyond our expectations. While we believe we can stand independently, alliances will certainly help accelerate our opportunities. More partners are becoming aware of DNA data storage, and it's becoming a valuable topic for them to consider, further validating our approach.

That's all. Thanks, Emily.

Thank you. Our last question comes from the line of Tycho Peterson with JP Morgan. Your line is now open.

Hey, thanks. I want to start with maybe a higher-level question just around the competitive environment. There's a wave of companies emerging, some leveraging semiconductors, others leveraging informatics with decentralized bench-top approaches. As you evaluate competitive dynamics, how are you thinking about pricing moving forward, and to what extent are you assessing these new technologies?

We maintain a position of healthy skepticism towards competitors and keep an eye on market shifts. We view ourselves as a tech company at the forefront, and we consider ourselves students of the industry. We find that there will always be a demand for high throughput solutions, which is what our offerings are focused on. Client interest remains strong in our offerings overall, and we feel confident about maintaining our pricing strategy based on our innovations. Investments in the Factory of the Future are pivotal to our growth.

That’s helpful. Regarding COVID opportunities, I know you're launching RNA referenced controls. How do you size that opportunity in the near term?

While currently non-material—less than 10% of our revenues—it remains significant for us as it has high margins. We will continue to push RNA controls as they serve critical healthcare needs. Although early revenues for older controls have declined, we expect continued momentum from newer offerings amid the ongoing pandemic, which will require ongoing diagnostic and therapeutic measures. Thank you. On the iGenomics deal, it supports our intent to convert a steep macro market into sequencing and offers an easier automated workflow that aligns with our sequencing goals. Regarding preselling Factory of the Future capacity, there won't be much pre-selling due to strong demand for immediate products, but we are confident that our demand will match our supply once capacity is available.

Okay. Thank you. That's helpful.

Thank you.

Thank you. There are no further questions at this time. I will now return the call back to Dr. Emily Leproust for closing remarks.

Thank you very much. As you know, at Twist, we are bridging the promise of synthetic biology and genomics with the reality of building an exciting business. We maintain our momentum moving into the remainder of the year. We have the team in place to foster innovation, and we are comfortable executing aggressively. We look forward to sharing our progress with you in the months ahead, and with that, this concludes today's call. Thank you very much.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.