Twist Bioscience Corp Q3 FY2024 Earnings Call

Good day, and thank you for standing by. Welcome to Twist Bioscience Fiscal 2024 Third Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. Please note that today's conference is being recorded. I would now like to turn the conference call over to Angela Bitting, SVP of Corporate Affairs. Please go ahead.

Thank you, operator. Good morning, everyone. I would like to thank all of you for joining us today for Twist Bioscience's conference call to review our fiscal 2024 third quarter financial results and business progress. We issued our financial results release before the market, and the release is available on 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. Dr. Patrick Finn, President and COO of Twist will join us for the Q&A. Today we will discuss our business progress, financial and operational performance, as well as growth opportunities. We will open up the call for questions. We ask that you limit your questions to only one and then re-queue as a courtesy to others on the call. This call is being recorded, and 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 more fully described in our filings with the Securities and Exchange Commission. The forward-looking statements in this presentation are based on information available to us as of the date hereof, and we disclaim any obligation to update any forward-looking statements except as required by law. We'll also discuss adjusted EBITDA, which is a financial measure that does not conform to generally accepted accounting principles. Information may be calculated differently than similar non-GAAP data presented by other companies. When reported, a reconciliation between GAAP and non-GAAP financial measures will be included in our earnings documents, which can be found on our investor relations website at www.twistbioscience.com. With that, I'll now turn the call over to our Chief Executive Officer and Co-Founder, Dr. Emily Leproust.

Thank you, Angela, and good morning, everyone. I am pleased to report another record-breaking quarter of revenue growth for Twist. This quarter we surpassed our revenue, margin, and cash burn targets by employing disciplined execution and operational excellence. We have been diligent in our pursuit to serve our customers, introducing differentiated products that build on our proprietary technology and leveraging our unique competitive advantage to position the company for profitable growth. For the third quarter, we increased revenue 28% year-over-year to $81.5 million, with orders coming in at $85.3 million. The strong quarter was driven by growth in our synthetic biology product line, including Express Genes, along with robust growth in NGS. We reported a 43.3% gross margin for the quarter, an increase of approximately 900 basis points versus 34.4% for the same period last year. For SynBio, revenue increased to $33 million, with orders of $33.8 million. SynBio revenue grew 27% year-over-year and 11% sequentially. We see growing interest and engagement for our Express Genes product line, which, together with our expanding portfolio of high-quality differentiated products, builds on our Express infrastructure and continues to drive new customer growth and new accounts. Our Express Genes provide a differentiated and important offering for our customers and potential customers. With this offering, we ship clonal genes in five days at a reasonable cost. And we manufacture and ship all Express Genes from our site just outside of Portland, Oregon, in the US, where we make all of our SynBio products, except for DNA libraries, which are produced in our South San Francisco site. Importantly, we continue to launch new products that build off of our Express Genes portfolio and infrastructure. In May, we launched Multiplexed Gene Fragments with direct synthesis of DNA up to 500 base pairs. This direct synthesis length, along with pooling of fragments, enables our customers to pursue myriad applications. Some examples include encoding entire viable regions for antibody discovery and encoding entire functional domains of proteins for enzyme engineering, both of which are very useful for parallel screening of AI or ML-generated sequences. In addition, two important applications of this 500 base pairs length enable customers to encode mRNA sequences for personalized therapy or encode multiple guide RNA sequences within a single framework for complex CRISPR screens. These are just four examples of diverse applications for this innovative product that showcase how we augment our processes continuously to drive innovation and develop new products while expanding our infrastructure capacity. Also building onto the Express workflow, in July, we introduced Express Antibodies, both for CHO and HEK293, the two most commonly used cell lines for the antibody discovery and optimization cycle. Multiplexed Gene Fragments and Express Antibodies illustrate the benefit of making all of our DNA on the Express timeline as we do not need to cut in line for particular customers. In addition to growth from our existing portfolio of products, including Express Genes, we will continue to add products that leverage our rapid manufacturing. These products will target areas of the life science market that we do not serve today and have the potential to expand our share of wallet with existing customers as well as open up new market opportunities. Express Genes continues to perform well, showing ongoing sequential growth that contributes not only to revenue and growth margin expansion, but also serves as a key driver for our continually increasing net new customers. As we indicated at the time of launch, our long-term intent is to convert gene makers into gene buyers as well as convert customers from competitors. We expect our market share and the category as a whole to continue to grow as we expand our Express offerings. Moving forward, because we continue to add more and more products building on the Express infrastructure, we will report all express product revenue in our overall SynBio numbers, primarily for competitive reasons. Moving to NGS, we posted another very strong quarter as revenue grew to $43.4 million, an increase of 31% year-over-year and $46.7 million in orders. Strength in the quarter came primarily from clinical customers, many of whom are in the liquid biopsy and rare disease spaces. Moving forward, we see continued strength in these areas, as well as several additional avenues of growth. Starting with Minimal Residual Disease or MRD, our products generate minimal revenue today. However, we expect revenue to expand a bit in 2025 with more substantial growth beyond 2025, similar to what we have seen with growth coming from liquid biopsy customers in the last year. In MRD, we provide three workflow offerings for customers with the ability to adapt to three distinct types of customer assays. When our customers pursue low-pathogen sequencing for the assay, we offer a unique cfDNA library prep kit that extracts more rare mutations, and we also library prep, a competitive advantage for this application. Second, customers developing tumor-agnostic assays use Twist to build a customized target enrichment panel of genes and variants related to a particular type of cancer that applies to all samples. This is similar to the custom target enrichment panels we provide for liquid biopsy customers. Third, customers developing tumor-informed workflows or assays for individualized mutations can leverage Twist's MRD 500 panels, where we incorporate up to 500 different mutations for an individualized assay at the same speed and cost as a handful of probes produced by our competitors. In fact, some customers want many more than 500 mutations and we have the ability to scale into multiple thousands of variants to meet their needs. Importantly, this third avenue highlights Twist's ability to partner with our customers to deliver personalized and customized panels rapidly and at scale. Additionally, we foresee growth coming from our RNASeq workflow. We differentiate our RNA products on key benefits, including the elimination of bias through whole RNA transcription and effective results from degraded samples. Our simplified and efficient workflows allow customers to save time and run more samples on the sequencer in a cost-effective manner. We also see customers expanding beyond our original flagship NGS offering of target enrichment to include our differentiated library prep kits, both on UDI, UMI barcodes, and more when placing orders, expanding our share of wallet while supporting better results for our customers. For biopharma, revenue increased to $5.1 million with orders of $4.9 million. We continue to deliver on programs for our partners across a spectrum of offerings. A few weeks ago, we announced that the first patient has been dosed in Pure Biologics' clinical study of PBA-0405, a fully human IgG1 antibody discovered using Twist Biopharma solutions and synthetic antibody phage display libraries. This advancement of PBA-0405 into human studies validates the potential of our synthetic antibody libraries to be used to discover antibiotic candidates for cancer treatment. We expect at least one of their partners to initiate human studies within the next year. Additionally, during the quarter, we announced a key publication detailing data for adenosine A2A antibody which is available for out-licensing. We continue to work diligently to increase revenue and orders for biopharma, and in this fragmented market, we know our offering resonates. In addition, the Biopharma Solutions Group provides a spectrum of products and services that strategically fit with our SynBio product line. We believe the revenue ramp will take time, and we will continue to analyze and manage the overall business to ensure this group continues to provide value. For Data Storage, we remain focused on technology development and enablement of the Terabyte Century Archive workflow for early access before the end of calendar 2025. Progress continues, and we see this area of our business as a valuable asset with optionality at multiple points of development. Turning to operations, we reported a gross margin of 43.3%, exceeding our guidance, and a significant increase of approximately 900 basis points over the same quarter last year increased revenue growth, the majority of margin growth, and included contributions from Express Genes as well as NGS mix. I'd like to note that while we expect fluctuation in any given quarter due to mix and other adjustments, over 75% of the revenue growth year-over-year dropped to gross profit for the third quarter of fiscal 2024. On average, we expect to continue to see 75% to 80% of revenue growth drop to gross profit moving forward. Looking ahead, we will continue to focus on margin improvement initiatives, including continuous process improvements, supply chain optimization, operational excellence, and insourcing. We remain on track to improve our margin by several percentage points, with a path to a gross margin north of 50% by the end of fiscal 2025. With that, I'll turn it over to Adam to discuss our financials.

Thank you, Emily. Revenue for the second quarter increased to $81.5 million, growth of 28% year over year and approximately 8% sequentially. Orders were $85.3 million, an increase of 34% year over year. While we received blanket purchase orders, as we do every quarter, we saw our order patterns in line with historical trends. As Emily said, gross margin came in higher than expected at 43.3% for the third quarter of fiscal 2024. During the third quarter, we shipped to approximately 2,300 customers. We ended the quarter with cash, cash equivalents, and short-term investments of approximately $289.4 million, a reduction of $4 million versus the $293.3 million balance as of March 31, 2024. Taking a deeper dive into revenue, SynBio revenue increased to $33 million, growing 27% year over year, with orders increasing to $33.8 million. We shipped 212,000 genes in the quarter. Synthetic Genes revenue, which includes both clonal genes, gene fragments, and IgG, increased to approximately $24.9 million, growth of approximately 29% year-over-year. Within the SynBio umbrella, oligo pool revenue increased to $4.2 million, and DNA libraries revenue increased to $3.8 million — year-over-year growth of 12% and 34%, respectively. NGS revenue for the third quarter grew approximately to $43.4 million, compared to $33.2 million in the third quarter of fiscal 2023, an increase of 31% year-over-year. For the quarter, revenue from our top 10 NGS customers accounted for approximately 39% of NGS revenue. Orders increased to $46.7 million, which sets the stage for further NGS growth. We served 570 NGS customers in the quarter, with 141 having adopted our products. For biopharma, revenue was $5.1 million with orders of $4.9 million. We had 61 active programs as of the end of June 2024 and we started 43 new programs during the quarter. In the third quarter, we took an impairment charge of approximately $45 million as we revisited the long-term growth forecast for biopharma, and we believe the outlook shifted from our original view. We continue to mature the business development team and just as our commercial teams for SynBio and NGS took time to accelerate, we are finding that the biopharma team is taking time to perform at the expected level. Looking at revenue by industry, healthcare revenue rose 26% to $42.8 million for the third quarter of 2024, compared to $34 million in the same period of fiscal 2023, reflecting the increased uptake of our products by pharma, biotech, and diagnostic companies. Industrial chemical revenue rose 38% to $23.2 million in the third quarter, up from $16.8 million in the same period of fiscal 2023, strong growth year over year. Academic revenue rose 20% to $14.9 million for the third quarter of 2024, up from $12.4 million in the same period of fiscal 2023. Looking geographically, America's revenue increased to approximately $51.4 million in the third quarter compared to $39 million in the same period of fiscal 2023, growth of 32% year over year. EMEA revenue rose to $23.6 million in the third quarter versus $19.1 million in the same period of fiscal 2023, growth of 24% year over year. APAC revenue increased to $6.5 million in the third quarter compared to $5.7 million in the same period of fiscal 2023, growth of 15% year over year. China revenue was $1.8 million, a small percentage of our total revenue for the quarter. Our gross margin for the third quarter increased to 43.3%. We saw strength from Express Genes revenue lifting margins, offset by a contracted SynBio customer who received a large order with their discounted terms in Q3. Of note, we expect this customer to take a step back in the fiscal 2024 fourth quarter, and we have factored this into our SynBio guidance. Our NGS offerings continue to have strong gross margin performance, and as we said last quarter, we expect to continue to see fluctuations in our gross margin based on contracted customer mix. Our margin fluctuates based on the individual customer orders in a given quarter. While we expect quarterly volatility, on average, we expect 75% to 80% of revenue to drop to gross profit for the foreseeable future as we continue our margin initiatives, the primary focus across the Executive team and throughout the company. In total, operating expenses for the third quarter were $170.4 million, which includes the $45 million non-cash impairment charge, compared with $124.5 million in the same period of 2023. On a non-GAAP basis, excluding stock-based compensation and the Q3 FY 2024 impairment charge, operating expenses were $111.7 million, compared with $110.3 million in the same period of 2023. Breaking this down, cost of revenues increased to $46.2 million in the third quarter of 2024, compared with $41.8 million in the same period of fiscal 2023, primarily due to higher product volume and increased depreciation and amortization expenses mostly due to prior year capital investments for the new manufacturing facility in Wilsonville, Oregon. R&D decreased to $22.5 million, compared with $24.5 million in the same period of fiscal 2023, primarily due to the reduction in headcount as well as a decrease in outside services and lab supply. SG&A was $56.8 million for the third quarter, compared with $46.1 million in the same period of fiscal 2023. The increase was driven largely by stock-based compensation and bonus accruals as the business is performing above forecast this time. Non-cash impairment charges on biopharma, intangibles, and other assets were $45 million in the third quarter of fiscal 2024. Operating expenses included approximately $6 million for data storage. Stock-based compensation for the quarter was approximately $13.7 million. Depreciation and amortization was $8.3 million for the quarter. For the third quarter of fiscal 2024, adjusted EBITDA was a loss of approximately $22 million, an improvement of $8 million versus the third quarter of fiscal 2023 and an improvement of $5 million versus the second quarter of fiscal 2024. We ended the quarter with cash, cash equivalents, and short-term investments of approximately $289.4 million, a reduction of $4 million versus the $293 million balance as of March 31. Our strong cash position was driven by continued strong operational performance as well as one-time gains from improvements in accounts receivable collection and other working capital improvements, as we continue to evolve our G&A capabilities. Cash flow from operating activities continues to improve, and we are driving towards break-even. For the nine months ended June 30, 2024, net cash used in operating activities was $48.8 million, compared to $121.8 million through the equivalent nine-month period in 2023. Turning to guidance, for fiscal 2024, we now expect total revenue to increase by $8.5 million at the midpoint of the range to approximately $310 million to $311 million, with anticipated growth of approximately 27% year-over-year. Increased SynBio revenue of approximately $121 million, up from previous guidance of $118 million to $120 million with anticipated year-over-year growth of 23%. NGS revenue of $169 million to $170 million, an increase of $6 million to $7 million across the range, and anticipated growth of 36% to 37% year-over-year. Biopharma revenue of approximately $20 million, consistent with prior guidance. We expect the gross margin to be at the high end of the range and approximately 42% for the year. Our expected loss from operations before taxes is in the range of $227 million to $230 million, including the $45 million impairment charge. Excluding the impairment charge, loss from operations before taxes is anticipated to be in the range of $182 million to $185 million on a non-GAAP basis, a slight decrease from our previous guidance of $183 million to $188 million. CapEx is projected to be approximately $13 million for fiscal 2024, a decrease of $2 million from prior guidance. We project ending cash of more than $255 million at the end of fiscal 2024. For the fourth quarter, we expect overall revenue of approximately $82 million to $83 million, an increase from previous guidance of $77 million to $80 million. Gross margin for the fourth quarter is projected to be approximately 44%, at the high end of the previous guidance of 43% to 44%. Adjusted EBITDA loss of $20 million is expected, and we anticipate gross margin for the fourth quarter of fiscal 2025 to be 50%. We have been working on capacity planning and believe that between the manufacturing facilities we have today, the revenue capacity of these facilities can go significantly above the previous estimate of $500 million in revenue. With sustained levels of capital investment, we believe the capacity for our sites in Oregon and California can deliver over $700 million of revenue per year in the future. This is a very exciting time to be a part of the company's growth. We will continue to march toward adjusted EBITDA breakeven while serving our customers every single day. With that, I'll turn the call back to Emily.

Thank you, Adam. As we are now in the final quarter of our fiscal year, the momentum continues to grow. We are often asked by investors why our SynBio and NGS groups continue to outperform when others in the space show little to no growth. It begins with our unique platform for writing DNA on the silicon chip. Our team leverages this platform to generate innovative products that meet customer needs. Our platform and products pair very well with our customer prowess, bringing pricing and quality along with the expanding portfolio of products and services. While these are key to our success, it's truly our Twisters who turn our vision to improve health and sustainability into a reality. Our strong financial performance quarter after quarter, coupled with our expanding portfolio of products and services, positions us well for sustained growth and value creation. Looking ahead, we're excited about the vast potential of our proprietary technology and the transformative impact it is already having across multiple industries. We will continue to drive towards adjusted EBITDA breakeven, pursuing profitable growth fast to capitalize on the immense opportunities presented by our proprietary silicon-based synthesis capability. With that, let's open up the call for questions.

Thank you. And our first question comes from the line of Matthew Sykes with Goldman Sachs. Your line is open.

Hi, this is Evia on for Matt. Congrats on the strong quarter. For my first question, what are you seeing in the NGS market overall? We've seen from peers, they've noted weakness in the market, but given your strength, are you taking share? And then what's the feedback from customers been?

Yes, thank you. It's a great question. Like you noted, it's a great quarter. We are definitely taking share. I think we've been very focused on our technology development to focus first on application before moving to others. A big bet that we made around the time of the IPO was our focus on methylation and liquid biopsy. Right now, we're seeing the fruits of that investment, where in some ways it's a little bit overexposed in a good way to liquid biopsy. As we have a dominant technology and the market is growing, we are benefiting from that, and we're very excited that we're trying to do the same thing in other markets. We've launched an RNASeq portfolio that is also ramping. We mentioned our MRD focus, and while we don’t expect MRD to be a big revenue contributor this year, as we gain customers now, we gain pilots, and as they ramp, we see it as future opportunities for growth. So, we’re very excited about NGS. I think, again, it's a combination of the commercial strategy we've chosen, as well as a very strong technology that really brings value to our customers, and we're being rewarded for it.

Great. And then given your strong growth in Express Genes, have you been able to unlock the gene makers market at this point, or is it still mostly growth stemming from market share gains among players that we're already outsourcing?

Yes, right now it's still mostly buyers that we're converting. However, we're seeing the beginning of the conversion. The product does what it says it would do. There's excitement with customers, and we are seeing consecutive growth. And so at the same time, we said it will take some time. It's a very long tail, but we are very pleased with the performance of Express Gene and the Express infrastructure, which enables us to launch new products simultaneously.

Great, thank you.

Thank you.

Thank you. And our next question comes from the line of Steven Mah with TD Cowen. Your line is open.

Great, thanks. Congrats on the quarter and thanks for the questions. So, a couple questions on Express Genes. So now that you have another quarter of market data, can you give us a sense of the customer acceptance of the dynamic pricing model and how close you are to optimizing the pricing algorithm to maximize margins? And then the second part of the question, can you give us a sense of the push by larger accounts wanting to trade this — trade at fixed pricing in a subscription-like manner versus this dynamic pricing?

Adam, do you want to take that question?

Yes, absolutely. Steve, thanks for the question. The team continues to execute well. So the product is doing exactly what it says on the label, which gives us tremendous confidence moving forward. The value proposition resonates across all segments, leading to good adoption, captured by sequential growth in the organization. We do continue to see the trade of volume for committed price. It's still very early since launching the product, and this platform will require quarter-by-quarter execution. We continue to see it with sequential growth, and that will continue as we execute into the opportunity. Customers are adopting more shots on goal at the price point we have with the scale that we have, which is very compelling.

Thank you. And our next question coming from the line of Matt Larew with William Blair. Your line is open.

Hi, good morning. Obviously a couple quarters index for Express Gene, but Emily, you alluded to some newer express products as well, including most recently Express Antibodies on CHO lines. I understand it would be early days there, but in terms of what you're hearing from customers on an Express type offering for other, obviously more complex products, I would just be kind of curious to get your early take and any metrics you're tracking around successful launches.

Yes, thank you for the question. For us, the Express product has always been an infrastructure play. We make clonal genes in five days. We always ask customers what they do with the genes. Some use it as CRISPR tools, while others use it to express IgG — since they use it to make mRNA for personalized therapy. We're always looking for ways to add value. We’ve had an IgG product line for a while, which has been well received, and it was relatively slow compared to what customers could do themselves. We knew that we would shortly, thereafter, launch an express IgG because that is what our customers will do. We've heard from many of them that they prefer outsourcing that work to us, freeing up their resources for testing IgG. It's a great opportunity for customers, which allows us to leverage our infrastructure to gain more market share and grow our revenue. In addition to launching the Express IgG, we also launched a CHO expression. Up until now, all our expression was done in HEK cells. Many of our customers were telling us that CHO would be well received. We're continuously increasing the variety of DNA or protein that we sell, which is key to reaching more applications happening in life science and enabling customers to offload more work to us to focus on testing.

Thank you. And our next question comes from the line of Luke Sergott with Barclays. Your line is open.

Great, thanks. I just wanted to touch on the blanket orders and how those kind of progressed in the quarter, if you guys can quantify how many you had? And then it's kind of a more long-term or medium-term question. As you progress on these blanket orders, can you give us an idea of what the conversion rate from your legacy order book is? And the fear is that you could have the conversion of the absolute dollar come in faster than the overall order book growing, and this could lead to an air pocket. So just kind of walk us through the different dynamics that you're seeing on the blankets.

Hey, Luke, this is Adam. Thank you for the question. I'm happy to go through it. To take a step back, I mean, obviously, we're extremely excited. We've always had blanket purchase orders in the business, and we're thrilled to see that continue to evolve. In Q2 fiscal, I’ll refer to it as the January effect. We did see a step-up in blanket purchase orders, with an extra $10 million in blanket purchase orders versus the normal run rate for the business. What we saw in fiscal Q3 was a return to the historical trend for blanket purchase orders. So there was a step back from the January effect, and I expect that the January effect will continue in the years forward as it shows that customers are committing to Twist long-term. In terms of conversion orders, it's more about timing than seeing conversion rates, which are extremely high. What we want to do is get the first blanket purchase order completed and move on to the next one. It's really more of a signal of long-term commitment. We don't see any risk of a revenue air pocket, as we've seen sequential growth every quarter in 2024, and we expect that to continue.

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

Hey, guys. Congratulations on the nice print here. Just one on the Q4 and sort of jumping off into fiscal 2025 kind of questions. Adam, you mentioned blanket orders for normal trend levels in the third quarter. Does that imply we need to be a little bit more prudent on Q4? And sort of related to that, the street's modeling about 20% revenue growth for fiscal 2025. Your comps get harder. Some of your peers have spoken about the macro being a little bit tougher and markets being below trend. Any preliminary thoughts on whether the street needs to be a little bit more prudent about the 20% growth for fiscal 2025? Thank you.

Vijay, thanks for the question. It's definitely something we're talking a lot about right now internally, as we're building our plans for 2025. But let's talk about 2024. I know we just provided the full-year and Q4 guidance. We have a step up across the range in terms of our guidance for the quarter. We expect sequential growth across the business from Q3 to Q4. The strength and momentum continue as we end our fiscal year. While I’m not providing a lot of color on 2025, we’re feeling very confident about the business and expect to see continued sequential growth. What it ultimately comes down to is as Emily mentioned, the dynamic of taking share from the industry, while we may see low to mid-single-digit category growth in certain areas and significantly exceed that. We don't expect to see a decrease in our sequential growth, and we'll provide more color as we approach fiscal 2025 during discussions in November.

Thank you. And our next question comes from the line of Sung-Ji Nam with Scotiabank. Your line is open.

Hi. Thanks for taking the question and congrats on the quarter. Just following up on an earlier question for your next-generation sequencing, or NGS business, obviously doing well there. But given that there have been kind of capital spending constraints across the NGS players, delays in some large-scale projects, et cetera, I was just kind of curious if you're starting to see any funnel at all. And then just a quick follow-up after that. In terms of your — for the liquid biopsy-based business, are you continuing to see a lot of smaller early-stage players targeting? Or do you feel the market has kind of stabilized to the large players?

Thanks for the question. It's Patty here. I think what we're seeing is really the power of our platform in the market segment. I think when budgets are tight, Twist's value resonates even stronger than others. We truly enable maximizing the use of sequencing platforms, allowing us to execute well into the opportunity. Regarding scale and the opportunity to work with new customers, it’s often a feature that’s overlooked in our platform. It scales in many directions, enabling R&D scientists to quickly develop new products and panels, and we'll be there with customers as their new panel or product scales up towards their manufacturing or future goals. We like our position. Yes, the market is tough, but there are always opportunities to execute into. When you combine that with excellence in commercial execution for every customer touchpoint, we remain optimistic and confident moving forward.

Thank you. And our next question comes from the line of Subbu Nambi with Guggenheim Securities. Your line is open.

Hey, guys, thank you for taking my question. Realizing book to bill is an intra-quarter metric, if I have this right, SynBio book to bill decreased from 1.5 to 1.0. Is this just seasonality, something else, or is the large order you mentioned related to China softness? And which segment is China revenue most concentrated in? Thank you.

Adam?

Yes, and Subbu, thank you for the question. In terms of book to bill, we did see some seasonality in orders, particularly on the SynBio side of the business, due to the January effect. We expect this seasonality to continue every year moving forward. Regarding the China business, you'll see it in Q from last quarter and again when we print this quarter. It's less than $2 million of revenue a quarter for us in China. It's relatively stable, and although many are experiencing headwinds, with it being low to mid-single digits of our overall business, it’s not a significant concern for us. We do see long-term opportunities but are not seeing noticeable effects from headwinds. I'll clarify that most of our business in China, it’s spread across both SynBio and NGS, but there's certainly a stronger emphasis on NGS.

Thank you. And our next question comes from the line of Puneet Souda with Leerink Partners. Your line is open.

Yes, hi, Emily and team. Thanks for taking my questions. I appreciate the comments you have on the overall growth with Express Genes, that’s in SynBio. You're building more products on top of that in your guide. But when we look at your guide, it does imply a step down in the fourth quarter for SynBio. You talked about blanket purchase orders last quarter in SynBio, and there was a significant pickup in those orders last quarter. So, I’m trying to understand, given that backdrop, why are these blanket purchase orders or the order momentum stepping down so quickly in the quarter? Is there a different pattern you're seeing from the customers or a competitive response in the market?

No, Puneet, this is Adam. I'm happy to take the question here. I think we mentioned it on the pre-record, but really the dynamic we're seeing in this quarter, particularly as we go into Q4, is one contracted customer had a significant set of order volume in Q2 and Q3. That customer is taking a step back in Q4, and we've factored this into my guidance. We're seeing sequential growth across the business from customers, a step up in the total number of customers ordering each quarter, and another step up in the SynBio business in terms of revenue — excluding for that one customer. So we're feeling pretty good about it. But obviously, given our base, there will always be customers who face challenges, and we're here to support them. Still, it's not going to affect the overall growth.

Thank you. And our next question comes from the line of Tom Peterson with Baird. Your line is open.

Hi, everyone, congrats on a solid print, and thanks for taking my questions. Given the guide for the adjusted EBITDA loss of about $20 million here in the fiscal fourth quarter, can you just give us some sense of how we should think about the adjusted EBITDA loss in fiscal 2025? Would you expect quarterly improvements off that $20 million figure? And just help us think about pacing on the adjusted EBITDA trajectory.

This is Adam and thanks for the question. Yes, we're laser-focused on our north star of the path to profitability. It's been about six months in the chair now, and it's vital for the organization to prioritize our three key goals: driving growth, enhancing gross margin, and ensuring that we have that path to profitability without needing future equity raises. We see the $20 million adjusted EBITDA loss as an important marker in Q4 and not a stopping point, but a jumping-off point for continued sequential improvements as we move forward. As mentioned earlier in the call, we'll provide more clarity on the 2025 guidance, but we expect that path to profit focus and organizational energy to continue moving forward. So more to come as we regroup at the end of the year. Thanks.

Thank you. And our next question comes from the line of Tom DeBourcy from Nephron Research. Your line is open.

Hi. Thanks for taking the question. I’d like to combine two questions here. The first one is on BioSecure, and we’ve heard from academic and pharma customers that there is concern about moving proprietary products for synthesis into China. Is this a tailwind for you being based in the United States? The second question is just on CapEx of $13 million — is this approximately the maintenance CapEx level that you would expect moving forward? That’s it for me. Thanks.

Thank you. I'll take the first question and let Adam answer the CapEx question. With BioSecure, we’ve expressed in the past that it likely creates geopolitical headwinds for our competitors who aren't building DNA in the US. However, it’s difficult to predict an act of Congress, so our view is that we will win on the merits of our products for speed, scale, quality, and price. There’s strong user experience among clients, and we anticipate this will lead to market share gains. Adam, do you want to take the CapEx question?

Absolutely, Tom, thanks for the question. We are experiencing a light year in CapEx so far — we've run just over $3 million year-to-date. I do see a potential step-up beyond the $13 million in 2025 and beyond, but we've guided at the beginning of this year to closer to $20 million. Those numbers wouldn’t surprise me. That said, we currently have about $30 million to $35 million a year in depreciation today. I don’t expect that to increase but to remain roughly flat or decrease over the long term.

Thank you, Adam. And to clarify my previous answer, BioSecure focuses on genetic analysis and bioprocessing. There was a letter from the Select Committee in China asking the FBI to investigate some of our Chinese competitors. So while there are geopolitical headwinds, to be clear, DNA synthesis itself is not part of BioSecure at this point.

Thank you. I'm showing no further questions in the queue at this time. I will now turn the call back over to Dr. Emily Leproust for any closing remarks.

In closing, we are very confident in the continued impact and growth opportunities generated from our proprietary DNA synthesis platform. Our growing customer base, increasing revenue profile, defining product portfolio, and, of course, our exceptional employees, all positively impact our customers across various industries. Thank you.

Ladies and gentlemen, that concludes our conference for today. Thank you for your participation. You may now disconnect.