Welcome to Twist Bioscience's Fiscal 2024 First 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. Instructions will be given at that time. I would like to turn the conference over to Angela Bitting, Senior Vice President of Corporate Affairs.

Thank you, operator. Good morning, everyone. I'd like to thank all of you for joining us today for Twist Biosciences conference call to review our fiscal 2024 first quarter financial results and business progress. We issued our financial results release 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 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 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 the press release we issued earlier today as well as those partially described in our filings with the Securities and Exchange Commission. 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. With that, I'll now turn the call over to our CEO and Co-Founder, Dr. Emily Leproust.

Thank you, Angela, and good morning everyone. It is a very exciting time for Twist. Twist's revenue, margin and market share are increasing, with new products introduced recently and more to come, and a growing market for products that enable a diversified customer base. Today as we report our financial results for the first quarter of fiscal 2024, we will focus on three important items that drive our business: revenue growth, margin expansion, and financial discipline to track our path to profitability. Our entire team at Twist is laser-focused on these initiatives while simultaneously bringing exceptional products to our customers. We continue to deliver record revenue and consistent robust growth year-over-year. We expanded market share in both SynBio and NGS with strong commercial and operational execution across our team. We are building a resilient and diversified business with a portfolio of solutions that stem from our innovative DNA synthesis platform. This allows us to pursue multiple market opportunities simultaneously while mitigating risks. Several years ago, we established a plan to achieve profitability for the business. We continue to execute against the plan we laid out for ourselves and we are firing on all cylinders. Diving into the specifics, revenue for the first quarter increased significantly to $71.5 million, with orders growing to more than $77 million and margin increasing to 40.5%. Moving to the product area, revenue for SynBio increased to $26.8 million, with strong orders of $29.2 million. SynBio revenue grew 25% year-over-year, excluding in both periods, gap revenues from a key account that was affected by timing of the quarter and extended to return in the current quarter. In November, we began a limited launch of our Express Gene product, which consists of our clonal genes that are developed faster in five to seven days. I'm pleased to report that for Q1, 98% of Express Genes ordered have been delivered in the quoted timeframe. Delivering clonally perfect genes within this timeline at scale is an exceptional feat. This performance is driven by our platform, our site in Oregon, and our operations team that implements orders successfully. We are the only Express offering that can deliver at scale. If you need one gene or thousands of genes, we can deliver clonally perfect genes in as few as five days. Importantly, our differentiated Express offering allows us to charge a premium price over our standard clonal genes in exchange for this speed. Customers can choose between standard genes with a turnaround time of 10 days or Express genes with a turnaround time beginning at five days. The premium price for the Express offering varies daily and by the capacity available in our manufacturing facility in Wilsonville, Oregon. To date, we have tested premiums from 20% to as high as 200%. As a reminder, we use the same FX streamline for both Express and standard genes. So all increased pricing applies directly to margin expansion, because the manufacturing line is the same. It also means that our capacity has increased whether we sell standard or Express genes. When we launched in November, there were small clonal gene volumes qualified for Express service. This week, we announced that all clonal genes at all prep scales now qualify for Express service. With this extension, we began a full marketing launch around the Express portfolio, largely using digital marketing tactics to keep the cost of customer acquisition low. We are pleased with the early days of the launch, particularly the balance of uptake between pharma, industrial chemical, and academic customers. Early feedback indicates that this product resonates. We monitor orders daily and we are seeing the early stages of revenue. We consistently observe varying degrees of customer willingness to pay a premium, and daily we gain valuable insight into pricing sensitivity, geographic nuances, industry-specific trends, and account-level patterns. Moving forward, this allows the sales team the potential to proactively secure contract pricing for key accounts, such as volume commitments and fixed premiums, which enable expanding margins as well as creativity for manufacturing. As of January 30, we have received confirmed interest from several pharma companies, reflecting a positive trajectory. Until we turned on our marketing machine last week, our focus was on existing customers. Today, we are targeting new customers. We use other providers and plan to use our differentiated Express product portfolio to take share from incumbent suppliers, targeting customers who currently make their own DNA because they need it quickly. We categorize a group of potential customers as DNA makers, and we know that converting DNA makers to DNA buyers will take time to change behavior. We assume that we have the product, the channel, and the operational capacity to drive a generational change where ordering genes rather than making genes becomes the standard operating procedure across the globe. Moving to NGS, our revenue increased to $39.4 million for the quarter, which included several large customers' reorders, primarily from domestic customers running clinical trials and ramping commercial volumes. For these larger customers, we invested time and energy into the relationship, and we are now being included in their workflow. While the sales cycle for NGS is quite long, we are now seeing the benefit of this long-term investment as their tests advance to the clinical and commercial stages. As a reminder, existing customers, including those pursuing or selling liquid biopsy and minimal residual disease assays choose Twist for our target enrichment solution meeting their testing workflow, as we save our customers about half of their downstream sequencing costs in each center run by customers using some Twist DNA. The larger the volume, the more they buy from Twist. In a constrained macroeconomic environment, our offering provides margin extension for our customers, and in some cases, our workflow makes a substantive difference in our customers' business viability. Over the last two quarters, we have seen customers streamlining tests, selecting the tests within their portfolio that include the Twist workflow to save on downstream sequencing costs and improve their overall costs. In addition to larger customers in advanced stages of development and commercial scale-up, we see NGS workflow competence as an increasing percentage of our NGS revenue. For example, customers who previously ordered the custom target enrichment panel may now also order library prep vessels, local media, EMIs, and more from Twist as their supplier, expanding our share of wallet within existing accounts. Our customers appreciate choosing another supplier and benefit from our exceptional and responsive customer service and supply chain teams, allowing them to focus on expanding their business. We focus on enabling the workflow between the sample and the sequencer, and will continue next week during the AGBT conference when we will introduce several products bringing truly differentiated solutions for key workflows within specific applications. Moving forward, we expect revenue growth in NGS to come from increasing commercial adoption of our customers' assets, workflow expansion in existing customer accounts, and the acquisition of smaller accounts, as well as the attrition of the research market through RNASeq. Moving to biopharma, revenue increased to $5.2 million, with orders coming in at $4.9 million. We were fully staffed on our commercial team as of November, and we do see green shoots for this business including 41 new program starts in the quarter. We noted that the process of ramping up sales representatives to full capacity typically takes about six months, and we are cautiously optimistic that revenue from biopharma services will increase steadily in the back half of the year. In addition to providing antibody discovery services for our partners, this area of our business builds off our silicon platform, which enables the ability to create antibody discovery libraries, which we can then pair with our in vivo and AI capabilities. There is a strategic fit here as we saw pharma and biotech customers through both offerings and biopharma solutions, providing a full and complete antibody offering to our customers and partners. For Data Storage, we've completed the end-to-end demonstration of the Gigabyte Century Archive workflow. This was an internal demonstration designed to refine and validate our workflow, and we succeeded. We are encouraged by our engineering advancements, and we remain on track to deliver on early-access Terabyte Century Archive Solutions in 2025. We continue to believe that the market for Data Storage provides a large opportunity and we see this area of our business as a valuable asset with optionality at multiple points of development. In early January, we welcomed Adam Laponis to the team as our CFO. Adam brings a wide range of experience in finance and operations from large and smaller companies and is ideally positioned to support our next phase of growth. With that introduction, I'll turn it over to Adam to discuss our financials.

Thank you, Emily. Revenue for the first quarter increased to $71.5 million, growth of 32% year-over-year and approximately 7% sequentially. Orders increased to $77.5 million and gross margin was 40.5% for the first quarter of fiscal 2024. We served a total of 2,140 customers during the first quarter and ended the quarter with cash, cash equivalents, and short-term investments of approximately $311.1 million. When we talk about cash moving forward, we will be talking about cash, cash equivalents, and short-term investments. Taking a deeper dive into revenue, SynBio revenue increased to $26.8 million, growth of 24% year-over-year, with orders increasing to $29.2 million. Synthetic genes revenue, a primary growth driver for Synbio, increased to $19.7 million, growth of 22% year-over-year. We shipped approximately 171,000 genes during the quarter. Within the Synbio umbrella, Oligo Pools revenue increased to $4.2 million, and libraries revenue increased to $2.9 million, year-over-year growth of 13% and 60%, respectively. Growth in Synbio across all product lines was driven primarily by healthcare customers. NGS revenue for the first quarter grew to approximately $39.4 million compared to $24.4 million in the first quarter of fiscal 2023, an increase of 62% year-over-year. For the quarter, revenue from our top 10 customers accounted for approximately 44% of revenue. Orders increased to $43.3 million, setting the stage for further NGS growth. We served 538 NGS customers in the quarter, with 135 having adopted our products. For biopharma, revenue increased to $5.2 million, with orders coming in at $4.9 million. We had 69 active programs as of the end of December 2023 and we started 41 new programs during the quarter. The total number of completed programs as of December 31 was 843, with 69 including milestones and/or royalties. Looking at revenue for health care, revenue rose to $40.9 million for the first quarter of 2024, compared to $30 million for the same period in fiscal 2023, reflecting the increased uptake of our products by pharma, biotech, and diagnostic companies. Industrial Chemical revenue rose to $16.3 million in the first quarter, up from $15.3 million in the same period of fiscal 2023, steady growth year-over-year. Academic revenue was $13.8 million for the first quarter of 2024, up from $10 million in fiscal 2023, with growth coming from both Synbio and NGS customers. Looking geographically, Americas revenue increased to approximately $44 million in the first quarter, compared to $33.6 million in the same period in fiscal 2023, growth of 31% year-over-year. EMEA revenue rose to $21.2 million in the first quarter versus $16.3 million in the same period of 2023, growth of 30% year-over-year. APAC revenue increased to $6.3 million in the first quarter compared to $4.3 million in the same period for fiscal 2023, growth of 48% year-over-year. Our gross margin for the first quarter increased to 40.5%, driven by large NGS orders in the quarter, a higher mix of NGS, and some pricing lift for SynBio from Express Genes. In total, operating expenses for the first quarter were $118.5 million compared with $98.9 million in the same period for 2023. Breaking that down, cost of revenues increased to $42.5 million in the first quarter of 2024 compared with $29.4 million in the same period of fiscal 2023, primarily due to higher product volume and personnel costs, as well as increased depreciation and amortization. R&D decreased to $23.1 million compared with $31.2 million in fiscal 2023, primarily due to the reduction in headcount. SG&A was $52.8 million for the first quarter compared with $42.3 million. The increase was largely driven by the increase in stock-based compensation, as the cost for Q1 FY 2023 included a significant reversal of stock-based compensation resulting from employee stock forfeitures related to various acquisitions, offset by pre-commercialization costs included in the Q1 fiscal 2023 but not in Q1 fiscal 2024, as we launched the Oregon manufacturing site. Operating expenses included approximately $8 million for data storage. Stock-based compensation for the quarter was approximately $11 million. Depreciation and amortization were $8.2 million for the quarter compared with $5.3 million for the same period of 2023. Net loss attributable to stockholders was $43 million or $0.75 per share for the first quarter of 2024, compared to a net loss of $41.8 million or $0.74 per share for the same period of fiscal 2023. Turning to guidance, we are updating specific metrics that we intend to use moving forward. For fiscal 2024, we now expect total revenue to increase by $3 million across the range to approximately $288 million to $293 million, with anticipated growth of 18% to 20% year-over-year. SynBio revenue is guided at $114 million to $117 million, an increase of $1 million across the entire range, with year-over-year growth anticipated to be 16% to 19%. NGS revenue is projected at $150 million to $152 million, an increase of $3 million in the range, with anticipated growth of 21% to 23% year-over-year. Biopharma revenue is expected to be approximately $24 million, a decrease of $1 million from the prior guidance, with growth of approximately 3% year-over-year. We are increasing our expected gross margin to approximately 40% to 41% for the year. Our loss from operations guidance before taxes is approximately $189 million to $194 million, compared to prior guidance of $180 million to $188 million, as we invest in G&A capabilities to continue to scale our business. CapEx is projected to decrease by $5 million to approximately $15 million for fiscal 2024. There is no change in our projected ending cash of approximately $245 million at the end of fiscal 2024. For the second quarter of fiscal 2024, we expect overall revenue of approximately $70 million to $71 million, with SynBio revenue increasing to approximately $28.5 million with the full launch of the Express Genes portfolio; NGS revenue forecasted at $37 million to $38 million as we see larger accounts reordering in the second half of the year, on track with our increased annual guidance; Biopharma revenue is expected to be $4.5 million; with a gross margin at 39%, primarily due to a mix shift. In summary, we continue to maintain financial discipline throughout the organization and make progress on our path to profitability. I joined Twist about a month ago, and I couldn't be more excited about where we are going. This is a talented and determined mission-driven team that understands the value we bring to our customers. Our focus on driving revenue growth, margin expansion, and maintaining financial discipline will continue as we leverage our capabilities, supply chain management, manufacturing excellence, and, of course, delighting our customers. With that, I'll turn the call back to Emily.

Thank you, Adam. When closing our fiscal year, we continue to see momentum in our SynBio and NGS groups with a diversified customer base, a reverse flow portfolio that provides significant differentiation from competitors, growing market opportunities, and committed employees. We are executing on the plan we laid out to drive profitability for the business. Coming back to the three initiatives at Twist: First, we expect to grow revenue through Express Genes in SynBio and grow revenue in NGS with customer expansion as well as new product introductions. Keep your eye out for launches next week during the AGBT Conference. For biopharma solutions, we will focus on increasing the number of active programs and program staff as well as signing new and repeat customers. Second, to expand our margin, we plan to continue dynamic pricing for Express Genes in SynBio. As we increase the number of genes, our margin increases given the factory is fully functional and staffed. We will also focus on leveraging our increased volume with our supply chain to drive efficiencies at scale. On the corporate side, in addition to driving revenue growth and increasing contribution margin for our products, we will pursue key initiatives over the course of the next 18 months that we believe will meaningfully impact COGS. This includes in-sourcing opportunities, products and packaging, alternative workflows, and many more. We are excited about the opportunities to increase our gross margin further. And third, we remain diligent in our commitment to financial discipline, renewing our commitment to end fiscal 2024 with $245 million in cash, cash equivalents, and short-term investments. Overall, we are executing on an aggressive objective to become a profitable company. We continue to effectively execute on our path to profitability and look forward to keeping you apprised of our progress. With that, let's open the call for questions. Operator?

Thank you. Our first question comes from Matt Sykes with Goldman Sachs. Your line is open.

Good morning and thanks for taking my questions. Congrats on the quarter. Could you talk about the volume and mix of Express Genes in the quarter just given the mid-November launch and limited marketing for a period during the quarter? How do you see Express Genes contributing to margin expansion for the full year?

Thank you, Matt. Maybe I will start. So, there's really two stages. The first stage is the mid-November launch until the last week. And then the second phase is now. So, in the first phase, the volume was basically fully focused on existing customers, and we've seen really good traction as we've onboarded both biopharma and other sectors. So, that's quite exciting to see that both of our target markets have been testing the products and experiencing great performance while reordering. So that was the mix then. It's a bit too soon to say, but the second phase, as you know, the goal is to continue having existing customers utilize the product, which delivers great value for them and improves gross margin costs. But the big drive for us now is to bring net new customers onto the platform to deliver revenue growth and margin growth. So, Q3 will be the first clean quarter where we'll have the full marketing launch for the entire quarter. We are already in Q2. Therefore, Q3 will be the first clean quarter where we'll have the full quarter of expenses expected. As the year progresses, we expect to penetrate more into those new net new customers and start to see the benefit of Express Genes on gross margin.

Got it. And then just two quick follow-ups. Could you just talk about the split in the quarter of gene buyers versus gene makers for Express Genes? And then, do you think that digital marketing will be enough to drive growth? Or do you plan on augmenting that with additional marketing efforts over the course of the year? Thank you.

Yeah. So I think we basically have one when we can try to convert finance might make you. So I will say that right now for all intents and purposes some of the volume so far has been DNA buyers. And so it's very early innings. So the engine makers, we now have added to them. In terms of digital marketing, it's our strategy to reach smaller customers, so Tier 3 and Tier 4 captive customers. However, in addition to that, we have our sales team that has been engaged for many years. We top accounts that are still working on converting large accounts to our services. As I've mentioned in my remarks, we've had some initial success in getting them to show interest in converting to expansions from these large accounts. So it's going to be all hands on deck, and we want to see growth in both the Tier 2 and Tier 3 customers as well as more prominent accounts.

Thank you. Our next question comes from Steven Mah with Cowen. Your line is open.

Great. Thanks for taking the questions, and congrats on the quarter. Maybe just a follow-up to Matt's questions on the gross margin in the quarter. It's much higher than we had modeled that. Was there any impact at all from Express Genes in the quarter, or was it driven entirely by the scale-up of the factory in the future? Or if not, what drove the gross margin?

Do you want to take that question, Adam? Those positions are happy to.

Sure. Happy to. So now, Steven, I am very encouraged by the record quarter we had in both growth and the revenue front as well as the progress we saw in gross margin expansion. I'm also encouraged by the alignment we have across the executive team to focus on gross margin expansion as a key priority—not just a business priority, but even our pay-for-performance goals. In terms of where we were in Q1, really the biggest driver for the gross margin expansion was the large orders we had in NGS, particularly at calendar year-end when we saw a significant step-up in those orders. If you look at our guidance, you can see that we're going to see that pull back a bit in Q2, and that drove most of the expansion in the Q1 numbers. You also asked about how we're thinking about the full-year guide. I'm confident in this performance, and we raised the guidance on both the revenue and gross margin side. But I also recognize, I've been in the role now for less than a month. I don't want to get ahead of my skis with overly aggressive guidance. So yes, there's some conservatism in there, but we have included the effects that we're seeing today on the expansion for both SynBio and Express Genes as well as the factory of the future now being fully operational.

Okay, great. That's helpful. And sorry, if I can just sneak one more in. Can you tell us what the average premium you guys are getting? I know Emily threw out a range of 20% to 200%, but I'm just wondering if you could give us a sense of the average you're getting right now? Thank you.

So we are not able to give a specific average on a range. The day-to-day pricing is strongly based on the capacity in the fab at the time of the day. And the benefits vary widely. The one thing that you can check is that the pricing daily is public, so it's on the website, and anyone can look at what the pricing is right now based on the capacity.

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

Hey, guys. Thanks for taking my question and congratulations on a nice print here. Maybe my first one here is on the guidance. You guys built revenues by $3 million, the annual was raised by $2 million and it looks like more of that came from NGS, but also SynBio was raised. I'm just curious, the bit which is carried through and why, despite comps getting easier, perhaps we should see more robust growth in 2Q and back half?

Vijay, great question, and I'm happy to give a bit more color on it. In terms of where we are right now, we had a great quarter. So I think I mentioned that in a previous question; we expect that NGS to pull back, particularly in Q2. When you look at the early phases of the SynBio and Express Genes, it is going positively, but it's really early days. Again, being brand new in the job, I don't want to get ahead of my skis on that in the full year guide. We'll keep you posted on progress as the year continues on both fronts. But yes, I feel good about the full-year guidance raised on both the top and margin side.

Okay, fantastic. And then my follow-up is on the gross margin guidance here. When I look at the sequential ramp, what is the primary driver from the Q1 to the Q2 step down of 39%? And I think the annual guidance implies your back half will step back to 41% from 2Q. Is there anything specific that's going on in 2Q? Maybe just walk us through the cadence.

No, it's a great question. So it's really more of a fact in Q1. We got a pretty substantial sequential lift from the higher NGS mix. We are actually expecting that to pull back slightly in Q2 as the mix shifts more towards SynBio. We'll see that. But I think as the year progresses and we see more customers switching to the full quarter of Express Genes and the NGS business continue to expand, we feel confident in the back half guide as well.

Thank you. Our next question comes from Luke Sergott with Barclays. Your line is open.

Can you start talking about the increase in the OpEx spend? I know that you've always talked about growing at a slower rate than your revenue growth, but just incremental step-up throughout the year, like where is that investment going? Is it just to fill more commercialization on Express Genes? Can you just give us some color?

I'm happy to step in on that one. Actually, in the G&A line specifically, it's not the incremental increase on infrastructure, particularly around some of our IT and financial capabilities. We are really focused on building out those capabilities right now. We've made some choices around how we're going to invest in that scale for the current year and future years.

Okay, that's helpful. And then you talked about learning's from the elasticity that dynamic pricing. Can you talk about any trends you’re seeing there, from types of orders or customers or how that's pacing out? Where the dynamic pricing is really starting to contribute to the margin, if it's going to create any lumpiness or anything throughout the year?

Thank you. That's a good question. Now that we have a good number of debt assets, we have been deeply looking into the price sensitivity response care. So, looking at the access, what is the capacity of the day, and what is the premium of the day, and on the way access, what is the percentage of customers that chose to purchase Express. We actually see quite a—what you would expect—as a response curve. So, at a very low percentage of a premium you see saturation. Then you see kind of no response. It’s an incredible view into the price elasticity that our customers have. We will refine our model over time, but it's quite encouraging to see that the outcome is as expected. We will get from there.

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

Hi. Good morning. First question is for Adam and just going back to Luke's question on the SG&A investments you referenced on the IT and financial capability side. Are these what you view as kind of the only meaningful investments? Or are there multiple layers over the course of a couple of years? And sort of within that context, how do these investments or future investments affect the goal of getting to adjusted EBITDA breakeven on the core business by the end of fiscal 2024?

That's a great question. A couple of comments here: The priority is around revenue growth, margin expansion, and cash management, ensuring we're never in a place where we need to go back to the markets for an equity raise in the future. The path to profitability is very much a key part of everything we're doing. I haven’t provided the exact timing for profitability. I will say that we won’t be coming back to the market. In terms of the investments, I'm still getting my bearings. I don't want to make any major changes in investment strategy at this point. I want to ensure we continue to see progress. Areas like supply chain are key, as the teams focus on driving out costs throughout the system while balancing any investments with the savings we drive in other areas of the business.

Yeah, that's helpful. Emily, you referenced some potential new products being launched next week. The question is, you obviously have quite a bit of knowledge about what purchasers of DNA want and increasingly sort of what they're willing to pay for. As you think about moving into areas like RNA Synthesis, Express RNA, what do you know about what RNA customers might value differently than DNA customers? How are you assessing the key attributes of what those products would need to look like relative to DNA?

Thank you, Matt. I spent a lot of time with customers, and I think those are the two primary questions and then a bunch of secondary ones. The primary questions with customers are: when will they get it and how much will it cost? After that, there are a number of secondary questions around liquidity, support, and packaging. For instance, quality is essential, but assuming those are met, it's always about speed and cost. Twist has been good at cost, which comes from the silicon chip that gives us a lower cost base. Historically, I’d say we weren’t great on speed until late 2022, but we’ve now invested in speed, becoming a second strength. Our key selling point is fast delivery, ensuring high-quality products, and great customer experience while enabling our customers to have more shots on goal.

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

Hi. Thanks for the questions. Maybe first on NGS, what's driving the sequential decline in your second-quarter guidance? Are there any one-timers in the first quarter? I think you mentioned some large orders, so is there any way to quantify those?

Maybe I'll add something for you. One of the numbers we report is the percentage of revenue NGS that comes from 10 customers. This is a very meaningful number. When you have several large customers, it can be a bit lumpy quarter-over-quarter. Last year in Q1, we had some large customers that delayed shipments. So, the solution for us is to find more labs. We are pushing on adding more and more of those top accounts over time to see smoother revenue. We have great confidence in our view for the year, and we will accommodate any needs from customers to ensure satisfaction.

Okay. And then maybe on CapEx, there's a decent step down versus your prior guidance on a percentage basis. Can you discuss what projects are either being pushed out or where savings are coming from?

This is Adam, and I'll be happy to take that one. After the first quarter, we were seeing some favorable stability in our budget. We haven't stopped on the projects we were initiating. It's just a reality of refining the numbers. We're seeing a lower need for CapEx now. Wilsonville came online fully for the first time in Q1, so there will be a step-up as we enter Q2. We're excited about the capacity it brings and will continue to minorly expand capabilities and efficiency of the site, but we're focused on optimizing where we are this year.

Thank you. Our next question comes from Puneet Souda with Leerink Partners. Your line is open.

Sorry if I missed that; this is Puneet from Leerink. First question maybe for Adam, your orders increased by almost $6.5 million sequentially, but your guidance is only up by the beat. Can you discuss where these orders are coming from in terms of customer type, NGS, SynBio, etc.? And then the level of conservatism you shared, can you help us understand that versus the step down we're seeing in NGS in the second half?

Definitely! I'm happy to help clarify that. For the first part, orders don't always translate to revenue in the same period. There’s a natural delay, particularly on large NGS customers who have put in large POs for multi-periods, as well as biopharma customers with multi-period POs. I don't expect all of Q1 orders to translate to revenue in Q2 but expect them to convert throughout the year, potentially into '25 given the major deal-type orders. About the guidance: I'm confident in the progress we're seeing, and you don't come out of a record quarter without confidence.

Thank you. Our next question comes from Sung-Ji Nam with Scotiabank. Your line is open.

Hi. Thank you and congrats on the quarter. Just one question on the NGS segment. It's great to see continued strength, especially from the top customers. But as you look at the sales funnel, is it pretty much the usual suspects, or are you seeing more new diversified customer leads, especially with product launches like RNA-seq?

Yes. Thank you for your question. Definitely, that's been the focus of our new product introduction. We launched RNA-seq and the purpose is to expand into the research market. At AGBT next week, we're launching products to strengthen our position in liquid biopsy and more. We're very interested in converting the microarray market to NGS and it has not progressed as fast, so we will introduce additional products focused on that market. Our success in NGS is largely tied to enabling the liquid biopsy market. However, we’re quite focused on expanding our market share at BIO and in academia.

Thank you. Our next question comes from Rachel Vatnsdal with JPMorgan. Your line is open.

Thanks. Good morning and thank you for taking the questions. So first, I just want to ask on biopharma. You mentioned that you're in discussions for any licensing. Can you discuss that opportunity and how meaningful these licensing deals can potentially be? Also, what's the timeline for when we expect to see any headlines related to those deals?

Yes, thank you, Rachel. It’s a good question. For context, our primary effort in our biopharma business is to sell a service where customers provide us a target, and we use our AI in vivo and in vitro tools to deliver a quick clinical asset for them. In the past, we spent some internal R&D dollars on our own assays. We have about a dozen assays that we think are valuable, but we stopped spending money to advance them and are in discussions to license them out. As you know, biopharma licensing deals can be lengthy, and while it would represent nice upside when they happen, we don’t have them currently in our forecast.

Great point Adam. I just wanted to add, we’re not expanding significant cash to pursue those licensing deals. So it’s important to keep that in mind as we discuss timelines.

Great, thank you! And as my follow-up, you mentioned some actions to impact COGS over the next 18 months. Can you discuss the levers you're pulling from a cost action perspective and how much of that is already contemplated within guidance?

Thank you! We are leveraging the management team we’ve enhanced over the last few quarters. We have an excellent new SVP of Ops and a great VP of Supply Chain. As we grow in a market that is stabilizing, we have an opportunity to leverage our suppliers and explore in-sourcing some products. We also aim to consolidate vendors to get the best target costing over time that benefits our gross margin. With the launch of our Express Gene, we examined processes and found avenues to swap out reagents and shorten workflows. These actions take time to realize but we are focused on those cost initiatives now.

Thank you. Our next question comes from Puneet Souda with Leerink Partners. Your line is open.

Yes, thanks again, Emily. I just want to follow up on a broader question around Express Genes. What's your expectation for competitor response on Express Genes? It’s a great strategy to manufacture it all at once and deliver it right away. How do you think about the competitive response from the industry overall for oligos? What’s the defensibility you have against that competitive response? Appreciate that. Thank you.

Thank you. The way I think about it is that our competitors have been in business much longer than we have, so they've optimized their processes using next fiscal plates. There's not much more they can do. What we have is the advantage of the silicon chip, which gives us a tremendous edge. We've built the backend around it to manufacture at scale Express genes. At this point, we are the only company that can make all of our genes fast, and I think it would be very difficult for competitors to try to match that. We believe we have great quality, customer experience, speed, and great pricing offer substantial value to our customers. We look forward to seeing how the competitors respond, and we are prepared.

Thank you. There are no further questions. I'd like to turn the call back over to Emily for any closing remarks.

Thank you very much. In closing, we reported a record quarter, and our first quarter continues to resonate with our customers. We introduced the full Express Genes portfolio last week, and we have more product launches planned for next week at AGBT. As we move forward, we'll continue focusing on revenue growth, margin expansion, and financial discipline to drive our path to profitability. We look forward to seeing some of you at AGBT and all conferences in March. Thank you very much.

Thank you for participating in today's conference. This does conclude the program, and you may now disconnect. Everyone have a great day.