Twist Bioscience | SEC Filing

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twst-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-38720

Twist Bioscience Corporation

(Exact Name of Registrant as Specified in its Charter)


Delaware			46-2058888
(State or other jurisdiction of			(I.R.S. Employer
incorporation or organization)			Identification No.)

681 Gateway Blvd, South San Francisco, CA 94080

(Address of principal executive offices and zip code)

(800) 719-0671

(Registrant’s telephone number, including area code)

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

TWST

The Nasdaq Global Select Market

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

The number of shares of the Registrant’s common stock outstanding as of May 4, 2022, was 56,264,039.

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TWIST BIOSCIENCE CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2022

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Forward-looking statements		2
PART I. Financial information		4
Item 1.	Financial statements	4
	Condensed Consolidated Balance Sheets (Unaudited)	4
	Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)	5
	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows (Unaudited)	8
	Notes to Unaudited Condensed Consolidated Financial Statements	9
Item 2.	Management’s discussion and analysis of financial condition and results of operations	25
Item 3.	Quantitative and qualitative disclosures about market risk	35
Item 4.	Controls and procedures	35
PART II. Other information		36
Item 1.	Legal proceedings	36
Item 1A.	Risk factors	37
Item 2.	Unregistered sales of equity securities and use of proceeds	63
Item 3.	Defaults upon senior securities	63
Item 4.	Mine safety disclosures	63
Item 5.	Other information	63
Item 6.	Exhibits	64
Signatures		65

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Forward-looking statements

This Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, or Form 10-Q, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements relate to, among other matters, plans for product development and licensing to third parties, plans and timeframe for the commercial development of DNA data storage capabilities, expectations regarding market penetration, anticipated customer conversions to our products, plans to expand in the international markets, identification and development of potential antibody candidates for the treatment of COVID-19 and other diseases, and the anticipated timeframe for remediating the material weakness in internal control over financial reporting. Forward-looking statements are also identified by the words “believe,” “will,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “could,” “potentially” and variations of such words and similar expressions. You should not rely upon forward-looking statements as predictions of future events. Such statements are based on management’s expectations as of the date of this filing and involve many risks and uncertainties that could cause our actual results, events or circumstances to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include:

•our ability to increase our revenue and our revenue growth rate;

•our ability to accurately estimate capital requirements and our needs for additional financing; our estimates of the size of our market opportunities;

•our ability to increase DNA production, reduce turnaround times and drive cost reductions for our customers;

•our ability to effectively manage our growth;

•our ability to successfully enter new markets and manage our international expansion;

•our ability to protect our intellectual property, including our proprietary DNA synthesis platform;

•costs associated with defending intellectual property infringement and other claims;

•the effects of increased competition in our business;

•our ability to keep pace with changes in technology and our competitors;

•our ability to successfully identify, evaluate and manage any future acquisitions of businesses, solutions or technologies;

•the success of our marketing efforts;

•a significant disruption in, or breach in security of our information technology systems and resultant interruptions in service and any related impact on our reputation;

•our ability to attract and retain qualified employees and key personnel;

•the effects of natural or man-made catastrophic events including those resulting from the novel strain of coronavirus that causes coronavirus disease 2019, or COVID-19, that was first identified in Wuhan, China;

•the effectiveness of our internal controls;

•changes in government regulation affecting our business;

•uncertainty as to economic and market conditions and the impact of adverse economic conditions; and

•other risk factors included under the section titled “Risk Factors.”

You should not rely upon forward-looking statements as predictions of future events. Such statements are based on management’s expectations as of the date of this filing and involve many risks and uncertainties that could cause our actual results, events or circumstances to differ materially from those expressed or implied in our forward-looking statements.

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Readers are urged to carefully review and consider all of the information in this Form 10-Q and in other documents we file from time to time with the Securities and Exchange Commission, or SEC. We undertake no obligation to update any forward-looking statements made in this Form 10-Q to reflect events or circumstances after the date of this filing or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

When we use the terms “Twist,” “Twist Bioscience,” the “Company,” “we,” “us” or “our” in this report, we are referring to Twist Bioscience Corporation and its consolidated subsidiaries unless the context requires otherwise. Sequence space and the Twist logo are trademarks of Twist Bioscience Corporation. All other company and product names may be trademarks of the respective companies with which they are associated.

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PART I. Financial information

Item 1. Financial statements

Twist Bioscience Corporation

Condensed Consolidated Balance Sheets (unaudited)


(In thousands)	March 31, 2022		September 30, 2021
Assets
Current assets:
Cash and cash equivalents	$	407,627	$	465,829
Short-term investments	166,231		12,034
Accounts receivable, net	34,877		28,549
Inventories	44,591		31,800
Prepaid expenses and other current assets	11,049		8,283
Total current assets	$	664,375	$	546,495
Long term investments	30,587		—
Property and equipment, net	91,814		44,122
Operating lease right-of-use assets	78,215		61,580
Goodwill	85,678		22,434
Intangible assets, net	62,493		18,262
Restricted cash, non-current	1,572		1,530
Other non-current assets	6,902		7,674
Total assets	$	1,021,636	$	702,097
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	16,815	$	14,900
Accrued expenses	15,942		6,437
Accrued compensation	21,686		22,327
Current portion of operating lease liability	14,166		8,213
Current portion of long-term debt	—		1,552
Other current liabilities	16,023		9,623
Total current liabilities	$	84,632	$	63,052
Operating lease liability, net of current portion	65,496		53,156
Other non-current liabilities	8,147		5,068
Total liabilities	$	158,275	$	121,276
Commitments and contingencies (Note 6)
Stockholders’ equity
Common stock, $0.00001 par value—100,000 and 100,000 shares authorized at March 31, 2022 and September 30, 2021, respectively; 56,234 and 49,499 shares issued and outstanding at March 31, 2022 and September 30, 2021, respectively	$	—	$	—
Additional paid-in capital	1,580,620		1,190,828
Accumulated other comprehensive income	(475)		546
Accumulated deficit	(716,784)		(610,553)
Total stockholders’ equity	$	863,361	$	580,821
Total liabilities and stockholders’ equity	$	1,021,636	$	702,097

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Twist Bioscience Corporation

Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited)


	Three months ended March 31,				Six months ended March 31,
(In thousands, except per share data)	2022		2021		2022		2021
Revenues	$	48,127	$	31,204	$	90,145	$	59,364
Operating expenses:
Cost of revenues	$	29,714	$	19,028	$	56,770	$	37,190
Research and development	31,231		15,791		53,861		29,791
Selling, general and administrative	53,998		34,389		105,096		63,181
Change in fair value of contingent considerations and holdbacks	(6,014)		—		(8,840)		—
Total operating expenses	$	108,929	$	69,208	$	206,887	$	130,162
Loss from operations	$	(60,802)	$	(38,004)	$	(116,742)	$	(70,798)
Interest income	259		157		412		291
Interest expense	(29)		(95)		(54)		(213)
Other income (expense), net	(245)		84		(401)		8
Loss before income taxes	$	(60,817)	$	(37,858)	$	(116,785)	$	(70,712)
Benefit from (provision for) income taxes	149		(61)		10,554		(107)
Net loss attributable to common stockholders	$	(60,668)	$	(37,919)	$	(106,231)	$	(70,819)
Other comprehensive loss:
Change in unrealized gain (loss) on investments	$	(1,113)	10		$	(1,389)	1
Foreign currency translation adjustment	275		38		368		102
Comprehensive loss	(61,506)		(37,871)		(107,252)		(70,716)
Net loss per share attributable to common stockholders—basic and diluted	$	(1.13)	$	(0.78)	$	(2.06)	$	(1.50)
Weighted average shares used in computing net loss per share attributable to common stockholders—basic and diluted	53,472		48,709		51,673		47,340

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Twist Bioscience Corporation

Condensed Consolidated Statements of Stockholders’ Equity (unaudited)


	Common stock			Additional paid-in capital		Accumulated Other comprehensive income		Accumulated deficit		Total stockholders' equity
(In thousands)	Shares	Amount
Balances as of December 31, 2021	50,735	$	—	$	1,281,931	$	363	$	(656,116)	$	626,178
Issuance of common stock in public offering, net of underwriting discounts and commissions and offering expenses of $17,682	5,227	—		269,818		—		—		269,818
Vesting of restricted stock units	100	—		—		—		—		—
Exercise of stock options	100	—		896		—		—		896
Issuance of shares under the employee stock purchase plan	50	—		2,395		—		—		2,395
Repurchases of common stock for income tax withholding	(38)	—		(1,493)		—		—		(1,493)
Issuance of shares from business acquisition	60	—		4,608		—		—		4,608
Stock-based compensation	—	—		22,465		—		—		22,465
Other comprehensive income	—	—		—		(838)		—		(838)
Net loss	—	—		—		—		(60,668)		(60,668)
Balances as of March 31, 2022	56,234	$	—	$	1,580,620	$	(475)	$	(716,784)	$	863,361


	Common stock			Additional paid-in capital		Accumulated Other comprehensive income		Accumulated deficit		Total stockholders' equity
(In thousands)	Shares	Amount
Balances as of December 31, 2020	48,616	$	—	$	1,129,165	$	142	$	(491,355)	$	637,952
Public offering expense adjustment	—	—		36		—		—		36
Vesting of restricted stock units	67	—		—		—		—		—
Exercise of stock options	152	—		3,066		—		—		3,066
Issuance of shares under the employee stock purchase plan	49	—		2,787		—		—		2,787
Repurchases of early exercised stock options	(2)	—		—		—		—		—
Repurchases of common stock for income tax withholding	(22)	—		(3,341)		—		—		(3,341)
Stock-based compensation	—	—		11,552		—		—		11,552
Other comprehensive income	—	—		—		48		—		48
Net loss	—	—		—		—		(37,919)		(37,919)
Balances as of March 31, 2021	48,860	$	—	$	1,143,265	$	190	$	(529,274)	$	614,181

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Twist Bioscience Corporation

Condensed Consolidated Statements of Stockholders’ Equity (unaudited)


	Common stock			Additional paid-in capital		Accumulated Other comprehensive income		Accumulated deficit		Total stockholders' equity
(In thousands)	Shares	Amount
Balances as of September 30, 2021	49,499	$	—	$	1,190,828	$	546	$	(610,553)	$	580,821
Issuance of common stock in public offering, net of underwriting discounts and commissions and offering expenses of $17,682	5,227	—		269,818		—		—		269,818
Vesting of restricted stock units	163	—		—		—		—		—
Exercise of stock options	368	—		3,934		—		—		3,934
Issuance of shares under the employee stock purchase plan	50	—		2,395		—		—		2,395
Repurchases of common stock for income tax withholding	(62)	—		(4,050)		—		—		(4,050)
Issuance of shares from business acquisition	989	—		77,122		—		—		77,122
Stock-based compensation	—	—		40,573		—		—		40,573
Other comprehensive income	—	—		—		(1,021)		—		(1,021)
Net loss	—	—		—		—		(106,231)		(106,231)
Balances as of March 31, 2022	56,234	$	—	$	1,580,620	$	(475)	$	(716,784)	$	863,361


	Common stock			Additional paid-in capital		Accumulated Other comprehensive income		Accumulated deficit		Total stockholders' equity
(In thousands)	Shares	Amount
Balances as of September 30, 2020	45,083	$	—	$	794,630	$	87	$	(458,455)	$	336,262
Issuance of common stock in public offering, net of underwriting discounts and commissions and offering expenses of $21,113	3,136	—		323,887		—		—		323,887
Net exercise of stock warrants	22	—		—		—		—		—
Vesting of restricted stock units	121	—		—		—		—		—
Exercise of stock options	497	—		9,137		—		—		9,137
Issuance of shares under the employee stock purchase plan	49	—		2,787		—		—		2,787
Repurchases of early exercised stock options	(2)	—		—		—		—		—
Repurchases of common stock for income tax withholding	(46)	—		(5,751)		—		—		(5,751)
Stock-based compensation	—	—		18,575		—		—		18,575
Other comprehensive income	—	—		—		103		—		103
Net loss	—	—		—		—		(70,819)		(70,819)
Balances as of March 31, 2021	48,860	$	—	$	1,143,265	$	190	$	(529,274)	$	614,181

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Twist Bioscience Corporation

Condensed Consolidated Statements of Cash Flows (unaudited)


	Six months ended March 31,
(in thousands)	2022		2021
Cash flows from operating activities
Net loss	$	(106,231)	$	(70,819)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization	7,118		4,575
Deferred tax liability	(11,045)		—
Loss on disposal of property and equipment	—		2
Non-cash lease expense	1,609		214
Stock-based compensation	40,573		18,575
Discount accretion on investment securities	790		314
Realized gain on investments	—		(4)
Non-cash interest expense	3		44
Bad debt expense	(180)		417
Amortization of debt discount	4		53
Contingent consideration and holdbacks	(8,840)		—
Write off property and equipment	70		—
Changes in assets and liabilities:
Accounts receivable, net	(3,845)		(1,331)
Inventories	(12,787)		(3,544)
Prepaid expenses and other current assets	(1,407)		(2,731)
Other non-current assets	3,873		(87)
Accounts payable	(762)		3,798
Accrued expenses	1,885		(45)
Accrued compensation	(653)		(38)
Other liabilities	832		1,126
Net cash used in operating activities	$	(88,993)	$	(49,481)
Cash flows from investing activities
Purchases of property and equipment	$	(44,753)	$	(12,030)
Business acquisition, net of cash acquired	(8,160)		—
Purchases of investments	(217,639)		(58,795)
Proceeds from maturity of investments	30,676		98,494
Net cash (used in) provided by investing activities	$	(239,876)	$	27,669
Cash flows from financing activities
Proceeds from exercise of stock options	$	4,000	$	9,116
Proceeds from public offerings, net of underwriting discounts, commissions and offering expenses	269,818		323,887
Proceeds from issuance of common stock under employee stock purchase plan	2,395		2,787
Repayments of long-term debt	(1,558)		(1,667)
Repurchases of common stock for income tax withholding	(4,050)		(5,751)
Net cash provided by financing activities	$	270,605	$	328,372
Effect of exchange rates on cash, cash equivalents and restricted cash	$	104	$	53
Net increase (decrease) in cash, cash equivalents, and restricted cash	(58,160)		306,613
Cash, cash equivalents, and restricted cash at beginning of period	467,359		94,246
Cash, cash equivalents, and restricted cash at end of period	$	409,199	$	400,859
Supplemental disclosure of cash flow information
Interest paid	$	9	$	109
Income taxes paid, net of refunds	130		1
Non-cash investing and financing activities
Property and equipment additions included in accounts payable and accrued expenses	$	8,737	$	197
Operating lease right-of-use assets obtained in exchange for operating lease liabilities	19,494		63
Issuance of common stock in connection with the business acquisition	77,122		—

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Twist Bioscience Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

1. The Company

Twist Bioscience Corporation (the Company) was incorporated in the state of Delaware on February 4, 2013. The Company is a synthetic biology company that has developed a disruptive DNA synthesis platform. DNA is used in many applications across different industries: industrial chemicals/materials, academic, healthcare and food/agriculture. The Company’s fiscal year ends on September 30.

The Company has generated net losses in all periods since its inception. As of March 31, 2022, the Company had an accumulated deficit of $716.8 million and has not generated positive cash flows from operations since inception. Losses are expected to continue as the Company continues to invest in product development, manufacturing, and sales and marketing.

Since its inception, the Company has received an aggregate of $1,333.7 million in net proceeds from the issuance of equity securities and an aggregate of $13.8 million from debt. Management believes that these proceeds combined with existing cash balances on hand will be sufficient to fund operations for at least one year from the issuance of these consolidated financial statements. However, if the Company needs to obtain additional financing to fund operations beyond this period, there can be no assurance that it will be successful in raising additional financing on terms which are acceptable to the Company.

If the Company requires but is unable to obtain additional funding, the Company could be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect its business prospects, or the Company may be unable to continue operations.

During the three and six months ended March 31, 2022, financial results of the Company were not significantly affected by the COVID-19 pandemic, which continues to have global impact. The Company has considered all information available as of the date of issuance of these financial statements and the Company is not aware of any specific events or circumstances that would require an update to its estimates or judgments, or a revision to the carrying value of its assets or liabilities. These estimates may change as new events occur and additional information becomes available. The extent to which the COVID-19 outbreak affects the Company’s future financial results and operations will depend on future developments which continue to evolve and are difficult to predict, including new information concerning mutations in the SARS-CoV-2 virus, which may make it more contagious, and current or future domestic and international actions to contain it and treat it.

2. Summary of significant accounting policies

Basis of presentation and use of estimates

The accompanying unaudited condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information. Certain information and disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes included in the Annual Report on Form 10-K for the fiscal year ended September 30, 2021 (the Annual Report on Form 10-K) filed with the Securities and Exchange Commission on November 23, 2021. The condensed consolidated financial statements are unaudited and have been prepared on a basis consistent with that used to prepare the audited annual consolidated financial statements and include, in the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair statement of the condensed consolidated financial statements. The condensed consolidated balance sheet at September 30, 2021 is derived from audited consolidated financial statements but does not include all disclosures required by GAAP. The operating results for the three and six months ended March 31, 2022 are not necessarily indicative of the results expected for the full year ending September 30, 2022 or any interim period.

The presentation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The Company’s unaudited condensed consolidated financial statements include its wholly owned subsidiaries. The Company consolidates Revelar Biotherapeutics, Inc. (“Revelar”) as a variable interest entity (“VIE”) for which it is the primary beneficiary (see Note 15 “Investment in variable interest entity” for further information). All intercompany balances and accounts are eliminated in consolidation.

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The following table provides a reconciliation of the Company’s cash and cash equivalents and non-current portion of restricted cash reported within the unaudited condensed consolidated balance sheets that sum to the total cash, cash equivalents and restricted cash shown in the Company’s condensed consolidated statements of cash flows:


(in thousands)	March 31, 2022		September 30, 2021
Cash and cash equivalents	$	407,627	$	465,829
Restricted cash, non-current	1,572		1,530
Total cash, cash equivalents and restricted cash	$	409,199	$	467,359

Significant accounting policies

There have been no material changes in the accounting policies from those disclosed in the audited consolidated financial statements and the related notes included in the Annual Report on Form 10-K other than the following variable interest entities policy.

Variable interest entities

The Company consolidates a VIE in which the Company is deemed to be the primary beneficiary. An entity is generally a VIE if it meets any of the following criteria: (i) the entity has insufficient equity to finance its activities without additional subordinated financial support from other parties, (ii) the equity investors cannot make significant decisions about the entity’s operations or (iii) the voting rights of some investors are not proportional to their obligations to absorb the expected losses of the entity or receive the expected returns of the entity and substantially all of the entity’s activities involve or are conducted on behalf of the investor with disproportionately few voting rights. The Company periodically makes judgments in determining whether its investees are VIEs and, for each reporting period, the Company assesses whether it is the primary beneficiary of its VIE. As of March 31, 2022, the Company was deemed the primary beneficiary of Revelar. See Note 15 “Investment in variable interest entity.”

Recent accounting pronouncements

Changes to GAAP are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates (“ASUs”) to the FASB’s Accounting Standards Codification (“ASC”). The Company considered the applicability and impact of all recent ASUs. ASUs not listed below were assessed and determined to be not applicable to the Company’s consolidated financial position and results of operations.

Recent accounting pronouncements adopted

In December 2019, the FASB issued ASU 2019 12, Simplifying the Accounting for Income Taxes. The ASU simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740, Income Taxes, related to the approach for allocating income tax expense or benefit for the year to continuing operations, discontinued operations, other comprehensive income, and other charges or credits recorded directly to shareholders’ equity; the methodology for calculating income taxes in an interim period; and the recognition of deferred tax liabilities for outside basis differences. The Company adopted this standard effective October 1, 2021. The adoption of ASU 2019 12 did not have an impact on the Company’s consolidated financial statements for either period presented.

Recently issued accounting pronouncement not yet adopted

In November 2021, the FASB issued ASU 2021 10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. The amendments in this update require the following annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model. The amendments in this update are effective for all entities within their scope for financial statements issued for annual periods beginning after December 15, 2021. Early application is permitted. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016 13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The new standard requires entities to use the new “expected credit loss” impairment model for most financial assets measured at amortized cost, including trade and other receivables and held-to-maturity debt securities, and modifies the impairment model for available-for-sale debt securities. The standard is effective for the Company for the fiscal year ending September 30, 2024, including interim periods within that fiscal year. Early application

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is permitted. The Company is currently evaluating the impact that the adoption of this standard will have on its consolidated financial statements.

3. Fair value measurement

The Company assesses the fair value of financial instruments based on the provisions of ASC 820, Fair Value Measurements. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. The Company short-term and long-term investments primarily utilize broker quotes in a non-active market for valuation of its investments.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considers counterparty credit risk in its assessment of fair value.

As of March 31, 2022, financial assets and liabilities measured and recognized at fair value are as follows:


(in thousands)	Level 1		Level 2		Level 3		Fair value
Assets
Money market funds	$	349,277	$	—	$	—	$	349,277
Corporate bonds	—		29,817		—		29,817
Commercial paper	—		54,945		—		54,945
U.S. government treasury bills	112,056		—		—		112,056
Total financial assets	$	461,333	$	84,762	$	—	$	546,095

Liabilities
Contingent consideration and holdbacks	$	—	$	11,398	$	5,700	$	17,098
Total financial liabilities	$	—	$	11,398	$	5,700	$	17,098

As of September 30, 2021, financial assets and liabilities measured and recognized at fair value are as follows:


(in thousands)	Level 1		Level 2		Level 3		Fair value
Assets
Money market funds	$	430,438	$	—	$	—	$	430,438
U.S. government treasury bills	12,034		—		—		12,034
Total financial assets	$	442,472	$	—	$	—	$	442,472

Liabilities
Contingent consideration and indemnity holdback	$	—	$	9,856	$	—	$	9,856
Total financial liabilities	$	—	$	9,856	$	—	$	9,856

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As of March 31, 2022 gross unrealized losses for cash equivalents and investments was $1.4 million. As of September 30, 2021, gross unrealized gains and unrealized losses for cash equivalents and investments were not material. As of March 31, 2022, the value of marketable securities with a contractual maturity of less than one year was $166.2 million and the value of marketable securities with a contractual maturity of more than year but less than two years was $30.6 million. As of September 30, 2021, all marketable securities had a contractual maturity of less than one year.

The following table provides a reconciliation of beginning and ending balances of the Level 3 financial liabilities during the three months ended March 31, 2022:


(in thousands)	Total
Balance as of September 30, 2021	$	—
Contingent consideration – additions	8,500
Change in fair value	(2,800)
Balance as of March 31, 2022	$	5,700

4. Balance sheet components

The Company’s accounts receivable, net balance consists of the following:


(in thousands)	March 31, 2022		September 30, 2021
Trade receivables	$	28,674	$	26,549
Other receivables	6,356		2,337
Allowance for doubtful accounts	(153)		(337)
Accounts receivable, net	$	34,877	$	28,549

Inventories consist of the following:


(in thousands)	March 31, 2022		September 30, 2021
Raw materials	$	31,975	$	18,778
Work-in-process	3,048		4,837
Finished goods	9,568		8,185
	$	44,591	$	31,800

The work-in-process inventory included gross consigned inventory of $1.2 million and $1.9 million as of March 31, 2022 and September 30, 2021, respectively.

Other non-current assets

The other non-current assets consist of the following:


(in thousands)	March 31, 2022		September 30, 2021
Convertible note receivable	$	3,081	$	3,021
Other non-current assets	3,821		4,653
	$	6,902	$	7,674

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Accrued expenses

The accrued expenses consist of the following:


(in thousands)	March 31, 2022		September 30, 2021
Professional services fees payable	$	6,163	$	5,057
Other accrued expenses	9,779		1,380
	$	15,942	$	6,437

Accrued compensation

The accrued compensation consists of the following:


(in thousands)	March 31, 2022		September 30, 2021
Accrued vacation	$	5,880	$	4,643
Accrued bonus	5,838		8,584
Accrued commissions	3,853		3,330
Accrued payroll and related taxes	4,952		4,676
Other accrued compensation	1,163		1,094
	$	21,686	$	22,327

Other current liabilities

The other current liabilities consist of the following:


(in thousands)	March 31, 2022		September 30, 2021
Contingent consideration and holdbacks	$	10,004	$	5,186
Income and sales taxes payable	3,588		2,440
Other current liabilities	2,431		1,997
	$	16,023	$	9,623

Other non-current liabilities

The other non-current liabilities consist of the following:


(in thousands)	March 31, 2022		September 30, 2021
Holdback	$	7,093	$	4,671
Other non current liabilities	1,054		397
	$	8,147	$	5,068

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5. Goodwill and intangible assets

During the six months ended March 31, 2022, goodwill and intangible assets increased by $63.2 million and $46.5 million, respectively, as a result of a business acquisition. See Note 14, “Business acquisition”. Total amortization expense related to intangible assets was $1.4 million for the three months ended March 31, 2022 and less than $0.1 million for the three months ended March 31, 2021. Total amortization expense related to intangible assets was $2.3 million and $0.1 million for the six months ended March 31, 2022 and 2021, respectively.

The intangible assets balances are presented below:


	March 31, 2022
(in thousands, except for years)	Weighted average Amortization period in years	Gross carrying amount		Accumulated amortization		Net book value
Developed Technology	15	$	50,020	$	(2,745)	$	47,275
Customer Relationships	10	15,210		(792)		14,418
Tradenames & Trademarks	3	900		(100)		800
Total indefinite-lived intangible assets		$	66,130	$	(3,637)	$	62,493


	September 30, 2021
(in thousands, except for years)	Weighted average Amortization period in years	Gross carrying amount		Accumulated amortization		Net book value
Developed Technology	16	$	19,120	$	(1,361)	$	17,759
Customer Relationships	2	510		(7)		503
Total indefinite-lived intangible assets		$	19,630	$	(1,368)	$	18,262

6. Commitments and contingencies

The Company may be subject to litigation, claims and disputes in the ordinary course of business. There is an inherent risk in any litigation or dispute and no assurance can be given as to the outcome of any claims.

Indemnifications

In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. Pursuant to such agreements, the Company may indemnify, hold harmless and defend the indemnified parties for losses suffered or incurred by the indemnified party. Some of the provisions will limit losses to those arising from third-party actions. In some cases, the indemnification will continue after the termination of the agreement. The maximum potential amount of future payments the Company could be required to make under these provisions is not determinable. To date, the Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. The Company has also entered into indemnification agreements with its directors and officers that may require it to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers to the fullest extent permitted by corporate law. The Company also has directors’ and officers’ insurance.

Leases

The Company leases certain of its facilities under non-cancellable operating leases expiring at various dates through 2044. The Company is also responsible for utilities, maintenance, insurance, and property taxes under these leases.

Certain leases include options to renew or terminate at the Company’s discretion. The lease terms include periods covered by these options if it is reasonably certain the Company will renew or not terminate. The Company’s lease agreements do not contain any material residual value guarantees or restrictive covenants.

Supplemental balance sheet information related to the Company’s operating leases as of March 31, 2022 was the following:

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(in thousands)	March 31, 2022
Assets:
Operating lease right-of-use asset	$	78,215
Current liabilities:
Current portion of operating lease liabilities	$	14,166
Noncurrent liabilities:
Operating lease liabilities, net of current portion	$	65,496

Future minimum lease payments under all non-cancelable operating leases that have commenced as of March 31, 2022 are as follows:


(in thousands)	Operating leases
Years ending September 30:
Remainder of 2022	$	7,140
2023	13,987
2024	13,372
2025	13,706
2026	12,280
Thereafter	96,817
Total minimum lease payments	$	157,302
Less: imputed interest	(60,012)
Less: tenant improvement allowance (receipt anticipated in 2022)	(17,628)
Total operating lease liabilities	$	79,662
Less: current portion	(14,166)
Operating lease liabilities, net of current portion	$	65,496

For the remainder of 2022, future minimum lease payments are comprised of the anticipated receipt of tenant improvement allowances totaling $17.6 million anticipated to be received in 2022, partially offset by non-cancelable operating lease payments of $7.1 million. The statement of cash flows for the six months ended March 31, 2022, include changes in right-of-use assets and operating lease liabilities of $16.6 million and $18.2 million, respectively. For the six months ended March 31, 2021, changes in right-of-use assets and operating lease liabilities were $2.7 million and $2.5 million, respectively.

During the three and six months ended March 31, 2022, operating lease expense was $3.9 million and $7.4 million, respectively. Cash payments for amounts included in the measurement of operating lease liabilities were $3.2 million and $6.0 million for the three and six months ended March 31, 2022, respectively. As of March 31, 2022, the weighted-average remaining lease term was 15.5 years and the weighted-average discount rate was 6.45%.

On July 28, 2021, the Company entered into a 7-year operating lease for approximately 21,000 square-feet of office space located in South San Francisco, California, to further expand the Company operations. Upon execution of the lease agreement, the Company provided the landlord an approximate $0.2 million security deposit. The Company will pay an initial annual base rent of approximately $1.7 million, which is subject to scheduled 3% annual increases, plus certain operating expenses. The Company has the right to sublease the facility, subject to landlord consent. The lease commenced on October 1, 2021. As of lease commencement date, the total future minimum lease payments under the agreement were $13.1 million.

On August 6, 2021, Abveris, which was subsequently acquired by the Company, entered into a 10-year, 5-month operating lease for approximately 22,000 square-feet of office space located in Canton, Massachusetts, to further expand operations. Upon execution of the lease agreement, the Company provided the landlord an approximate $0.6 million irrevocable letter of credit as a security deposit. The Company will pay an initial annual base rent of approximately $1.2 million, which is subject to scheduled 2% annual increases, plus certain operating expenses. The Company has the right to sublease the

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facility, subject to landlord consent. The lease commenced on March 3, 2022. As of lease commencement date, the total future minimum lease payments under the agreement were $13.2 million.

7. Related party transactions

During the three months ended March 31, 2022 and 2021, the Company purchased raw materials from a related party investor in the amount of $1.7 million and $1.2 million, respectively. During the six months ended March 31, 2022 and 2021, the Company purchased raw materials from a related party investor in the amount of $3.4 million and $2.3 million, respectively. Payable balances and receivable balances with the related party were immaterial as of March 31, 2022 and September 30, 2021.

8. Income taxes

In determining quarterly provisions for income taxes, the Company uses the annual estimated effective tax rate applied to the actual year-to-date profit or loss, adjusted for discrete items arising in that quarter. The Company’s annual estimated effective tax rate differs from the U.S. federal statutory rate primarily as a result of state taxes, foreign taxes, and changes in the Company’s valuation allowance against its deferred tax assets. For the three and six months ended March 31, 2022, the Company recorded $0.1 million and $10.6 million income tax benefit due to the deferred tax liability assumed as part of the business acquisition (see Note 14, “Business acquisition”). For the three and six months ended March 31, 2021, the Company recorded an immaterial provision for income taxes.

9. Warrants

In connection with its long-term debt agreements, the Company issued 18,854 and 7,531 warrants for its common stock on December 22, 2015 and March 28, 2016, respectively. As of September 30, 2020, there were 26,385 warrants outstanding. In October 2020, a total of 18,854 warrants with an exercise price of $14.85 per common share were exercised for a net 16,051 common shares issued by the Company. In November 2020, a total of 7,531 warrants with an exercise price of $21.24 per common share were exercised for a net 6,041 common shares issued by the Company. There are no outstanding warrants for the Company’s common stock as of March 31, 2022.

10. Common stock

In December 2020, the Company completed an underwritten public offering of 3,136,362 shares of its common stock at a price to the public of $110.00 per share, including the full exercise of underwriters’ option to purchase an additional 409,090 shares of common stock. The Company received total net proceeds from the offering of $323.9 million, net of estimated underwriting discounts and commissions and offering expenses.

In February 2022, the Company completed an underwritten public offering of 5,227,272 shares of its common stock at a price to the public of $55.00 per share, including the full exercise of underwriters’ option to purchase an additional 681,818 shares of common stock. The Company received total net proceeds from the offering of $269.8 million, net of estimated underwriting discounts and commissions and offering expenses.

11. Stock-based compensation

2018 Equity Incentive Plan

On September 1, 2020, the board of directors approved the implementation of a revised annual equity award program for executive officers and senior level employees to be granted as performance-based stock options (PSOs) under the 2018 Plan. The number of PSOs ultimately earned under these awards is calculated based on the achievement of certain total revenue threshold during the fiscal year ending September 30, 2022. The percentage of performance stock options that vest will depend on the board of directors’ determination of total revenue at the end of the performance period and can range from 0% to 150% of the number of options granted. The provisions of the PSO are considered a performance condition, and the effects of that performance condition are not reflected in the grant date fair value of the awards. The Company used the Black-Scholes method to calculate the fair value at the grant date without regard to the vesting condition and will recognize compensation cost for the options that are expected to vest. As of March 31, 2022, the Company determined that 256,665 shares are expected to vest based on the probability of the performance condition that will be achieved under this equity award program. The Company reassesses the probability of the performance condition at each reporting period and adjusts the compensation cost based on the probability assessment. The weighted-average grant date fair value was determined to be $45.18 per share. As of March 31, 2022, the unrecognized compensation costs related to these awards was $2.8 million. The Company expects to recognize those costs over a weighted average period of 0.5 years.

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Any shares subject to outstanding awards under the 2013 Plan that are canceled or repurchased subsequent to the 2018 Plan’s effective date are returned to the pool of shares reserved for issuance under the 2018 Plan. Awards granted under the 2018 Plan may be non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, and performance units.

Activity under the equity incentive plans during the six months ended March 31, 2022 is summarized below:


(In thousands, except per share data)	Shares available	Options outstanding	Weighted average exercise price per share		Weighted average remaining contractual term (years)	Aggregate intrinsic value
Outstanding at September 30, 2021	1,728	3,132	$	27.15	7.3	$	251,343
Additional shares authorized	1,000
Stock options granted	(214)	214	26.14		—	—
Stock options exercised	—	(368)	13.05		—	—
Stock options forfeited	89	(89)	31.96