Twist Bioscience Corp (TWST) FY 2024 MD&A

Item 7.Management’s discussion and analysis of financial condition and results of operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to promote understanding of the results of operations and financial condition. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes to those statements included elsewhere in this Form 10-K. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Risk factors” and elsewhere in this Form 10-K. The last day of our fiscal year is September 30, and we refer to our fiscal year ended September 30, 2022 as fiscal year 2022 or 2022, September 30, 2023 as fiscal year 2023 or 2023 and our fiscal year ended September 30, 2024 as fiscal year 2024 or 2024.

Overview

We are a leading, rapidly growing synthetic biology company that has developed a disruptive DNA synthesis platform to industrialize the engineering of biology. The core of our platform is a proprietary technology that pioneers a new method of manufacturing synthetic DNA by “writing” DNA on a silicon chip. We have combined our silicon-based DNA writing technology with proprietary software, scalable commercial infrastructure and an e-commerce platform to create an integrated technology platform that enables us to achieve high levels of quality, precision, automation, and manufacturing throughput at a significantly lower cost than our competitors We have applied our unique technology to manufacture a broad range of synthetic DNA-based products, including synthetic genes, tools for next generation sequencing, or NGS, sample preparation, and antibody libraries for drug discovery and development, all designed to enable our customers to conduct research more efficiently and effectively. Leveraging our same technology, we have expanded our footprint beyond DNA synthesis to manufacture synthetic RNA as well as antibody proteins to disrupt and innovate within larger market opportunities, in addition to discovery partnerships for biologic drugs and developing completely new applications for synthetic DNA, such as digital data storage.

We believe our products enable a broad range of applications that may ultimately improve health and the sustainability of the planet across multiple industries including healthcare, chemicals/materials, food/agriculture, academic research, and technology. We sell our synthetic DNA and synthetic DNA-based products to a customer base of approximately 3,562 customers annually across a broad range of industries. In order to address this diverse customer base, we employ a multi-channel strategy comprised of a direct sales force targeting synthetic DNA customers, a direct sales force focusing on the NGS market and an e-commerce platform that serves both commercial channels We employ business development and sales representatives for our biopharma solutions as well. Our easy-to-use e-commerce platform allows customers to design, validate, and place on-demand orders of customized DNA online, and enables them to receive real-time customized quotes for their products and track their order status through the manufacturing and delivery process. This is a critical part of our strategy to address our large markets and diverse customer base, as well as drive commercial productivity, enhance the customer experience, and promote loyalty.

We currently generate revenue through our synthetic biology and NGS tools product lines as well as biopharma services for antibody discovery, optimization and development. We generated revenues of $313.0 million in the year ended September 30, 2024, $245.1 million in the year ended September 30, 2023 and $203.6 million in the year ended September 30, 2022, while incurring net losses of $208.7 million, $204.6 million and $217.9 million in the years ended September 30, 2024, 2023 and 2022, respectively. Since our inception, we have incurred significant operating losses and have accumulated a net deficit of $1,241.9 million. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the success of our existing products and the development and commercialization of additional products in the synthetic biology, biologic drug and data storage industries as well as leveraging our investment in our manufacturing facility in Wilsonville, Oregon.

Highlights from fiscal year 2024 compared with fiscal year 2023 include:

•Revenue growth of 28% to $313.0 million from $245.1 million, primarily due to order growth in NGS tools and synthetic genes;

•Gross margin increased to 42.6% from 36.6%;

•Net cash used in operating activities for the year ended September 30, 2024 decreased to $64.1 million from $142.5 million for the year ended September 30, 2023.

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Financial highlights

The following table summarizes certain selected historical financial results:

See “Results of Operations” below for discussion of our results for the periods presented.

Key business metrics

We regularly review the following key business metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions. We believe that the following metrics are representative of our current business. However, we anticipate these will change or may be substituted for additional or different metrics as our business grows.

Product shipments including synthetic genes

We believe that the number of genes shipped serves as a direct indicator of our operational efficiency and market demand. This metric is crucial for assessing our performance in meeting customer demand and generating revenues. Shipments of number of genes in years ended September 30, 2024, 2023 and 2022 were as follows:

Number of customers

We believe that the number of customers who have purchased from us since inception is representative of our ability to drive adoption of our products. We define a customer as a unique "Bill To" account where a single customer may have many "Ship To" locations and may have many unique points of contact within a single "Bill To" customer. In 2024, 2023 and 2022 the number of customers who purchased products from us were approximately 3,562, 3,450 and 3,300 customers, respectively.

Percentage of revenue from repeat customers

We believe that the percentage of revenue that we generate from both new and repeat customers is an indicator of our ability to drive adoption of our products amongst existing customers while also generating a robust pipeline of new customers. We define a repeat customer as any customer who has purchased products or services from us more than once in the current fiscal year.

Value of orders received

We believe that the value of orders we receive is a leading indicator of our ability to generate revenue in subsequent quarters, although there can be no assurance orders will translate into revenue. We define an order as a contract with a

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customer or purchase order from a customer, which outlines the promised goods at an agreed upon-price. In some cases, we receive a blanket purchase order from our customers, which includes pricing, payment and other terms and conditions, with quantities defined at the time each customer subsequently issues periodic releases against the blanket purchase order. We regularly assess trends relating to the value of orders we receive, including with respect to our customer concentration.

Orders may never convert into actual revenue and the timing of delivery of our orders and recognition of revenue, if any, may vary based on the nature of the order, and there can be no assurance that orders will result in recognized revenue. The following table lists the value of orders received during the periods indicated:

Results of operations

Comparison of the years ended September 30, 2024, 2023 and 2022

Revenues

We generate revenue from sales of synthetic genes, oligo pools, NGS tools, DNA libraries and antibody discovery services. Our ability to increase our revenues will depend on our ability to further penetrate the domestic and international markets, generate sales through our direct sales force, distributors, and over time, from our e-commerce digital platform and the launch of new products.

Revenues by geography

We have one reportable segment from the manufacturing of synthetic DNA products. The following table shows our revenues by geography, based on our customers’ shipping addresses. Americas consists of United States, Canada, Mexico and South America; EMEA consists of Europe, Middle East and Africa; and APAC consists of Japan, China, South Korea, India, Singapore, Malaysia, Australia, New Zealand, Thailand and Taiwan.

Revenues by products

The table below sets forth revenues by products:

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Revenues by industry

The table below sets forth revenues by industry:

Revenues increased 28% to $313.0 million in the year ended September 30, 2024, as compared to $245.1 million in the year ended September 30, 2023. The increase in revenue primarily reflects growth in NGS tools revenue of $45.4 million and growth in synthetic genes revenue of $19.1 million, including the Express Genes offering, which is primarily attributable to increase in revenues from our customers in the healthcare, industrial chemicals/materials and academic research industries and an increase in the number of customers. The number of our genes shipped in the year ended September 30, 2024, increased to approximately 772,000 genes, compared to approximately 634,000 genes in the year ended September 30, 2023, an increase of 22%.

Revenues increased from $203.6 million to $245.1 million in the year ended September 30, 2023, which was an increase of $41.5 million, or 20%, as compared to the same period in 2022. The increase in revenue was primarily due to the increase in revenue from NGS tools, which grew from $99.3 million in 2022 to $123.7 million in 2023, an increase in revenue from synthetic genes, which grew from $61.5 million in 2022 to $73.5 million and an increase in revenue from DNA libraries revenue, which grew from $6.1 million in 2022 to $10.2 million. The growth in NGS tools revenue is primarily attributable to an increase in revenue from our top customers and the adoption of our product by a larger customers base. Our synthetic genes revenue grew mainly from our top customers and growth in the healthcare and academic research industries as well as an improved turnaround time. In the year ended September 30, 2023, we shipped approximately 634,000 genes compared to approximately 558,000 genes in the year ended September 30, 2022, an increase of 14%. Changes in our synthetic gene pricing, while favorable, had a minimal impact on our results of operations period-over-period. Our DNA libraries revenue grew year over year as a result of increased customers, mainly in the healthcare and academic research industries.

A discussion of our revenues for the year ended September 30, 2022 as compared to the year ended September 30, 2021 can be found on page 54 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2023 filed with the SEC on November 21, 2023, or our 2023 Annual Report.

Cost of revenues

Cost of revenues reflects the aggregate cost incurred in the production and delivery of our products and consists of production materials, personnel costs, cost of expensed equipment and consumables, laboratory supplies, consulting costs, depreciation, production overhead costs, information technology (“IT”), maintenance and facility costs. Personnel costs consist of salaries, employee benefit costs, bonuses, and stock-based compensation expenses. In addition, cost of revenue includes royalty costs for licensed technologies included in the Company’s products and provisions for slow-moving and obsolete inventory. We expect that our cost of revenues will vary with changes in our revenues and our revenue mix.

Cost of revenues increased 16% to $179.6 million in the year ended September 30, 2024, as compared to $155.4 million in the year ended September 30, 2023. The increase is primarily attributable to an increase in material costs of $19.0 million, due to higher sales volume, and an increase in depreciation and amortization expense of $3.2 million primarily due to the capital investment to increase manufacturing capacity in prior years. The remaining increase is attributable to an increase in lab supplies and facilities costs of $1.4 million. Gross margin increased 600 basis points to 42.6% for the year ended

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September 30, 2024 as compared to 36.6% for the year ended September 30, 2023 mainly due to increase in revenue and the fixed costs being spread over larger revenue base resulting in an increase in gross margin.

Cost of revenues increased from $119.3 million in the prior year to $155.4 million in the year ended September 30, 2023, an increase of $36.1 million, or 30%. The material costs increase by $14.7 million due to higher volume. Payroll, including stock-based compensation, increased $9.9 million, which included $7.4 million of savings related to the 2023 restructuring plan. Depreciation and amortization increased by $11.9 million associated with the capital investment to increase capacity. The increase in payroll costs and depreciation expenses was primarily due to the build out of the second manufacturing facility located in Wilsonville, Oregon.

A discussion of our cost of revenues for the year ended September 30, 2022 as compared to the year ended September 30, 2021 can be found on page 54 of our 2023 Annual Report.

Research and development expenses

Research and development expenses consist primarily of costs incurred for the development of our products, which include personnel costs, laboratory equipment and supplies, consulting costs, depreciation, rent, IT, maintenance and facility costs. Personnel costs consist of salaries, employee benefit costs, bonuses, and stock-based compensation expenses. We expense our research and development expenses in the period in which they are incurred.

Research and development expenses decreased 15% to $90.9 million for the year ended September 30, 2024, as compared to the $106.9 million for the year ended September 30, 2023. The decrease is primarily due to a decrease in personnel costs of $9.3 million, including stock-based compensation expense of $2.7 million due to the reduction of headcount related to the 2023 restructuring plan. The remaining decrease is attributable to decreases in outside services costs of $2.2 million, depreciation expenses of $1.0 million and lab supplies costs of $6.1 million. These decreases are partially offset by a lack of grant reimbursement in 2024 where we received $2.7 million in 2023, which are netted against the research and development expenses.

Research and development expenses decreased by $13.4 million to $106.9 million for the year ended September 30, 2023, as compared to the same period 2022. The decrease is primarily due to the deconsolidation of Revelar in fiscal year 2022, which contributed to a decrease of $14.1 million. Excluding the impact of Revelar, research and development expenses increased $0.7 million. The increase is primarily due to increases in lab supplies of $1.5 million, outside services of $0.7 million, and depreciation of $0.6 million. Additionally, grant reimbursements, which are netted against our research and development expenses, were $1.6 million lower during the year ended September 30, 2023 than the prior year. The increase was partially offset by a $4.0 million decrease in payroll, which consists of a $1.6 million increase in payroll, offset by a decrease of $5.6 million in stock-based compensation.

A discussion of our research and development expenses for the year ended September 30, 2022 as compared to the year ended September 30, 2021 can be found on page 55 of our 2023 Annual Report.

Selling, general and administrative expenses

Selling expenses consist of personnel costs, customer service expenses, direct marketing expenses, educational and promotional expense, market research and analysis. General and administrative expenses are incurred for executive, finance and accounting, legal and human resources functions and consist of personnel costs, audit and legal expenses, consulting costs, depreciation, insurance costs, travel expenses, rent, IT, maintenance and facility costs. Personnel costs consist of salaries, employee benefit costs, bonuses, commissions and stock-based compensation expenses. We expense all selling, general and administrative expenses as incurred. We expect our selling costs will continue to increase in absolute dollars, primarily driven by our efforts to expand our commercial capability, with an increased presence both within and outside the United States, and to expand our brand awareness and customer base through targeted marketing initiatives.

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Total selling, general and administrative expenses increased 15% to $218.4 million for the year ended September 30, 2024, as compared to $189.7 million for the year ended September 30, 2023. The increase is primarily due to an increase in personnel costs of $37.7 million, including an increase in stock-based compensation expense of $24.2 million. The increase in stock-based compensation expense is primarily due to a reversal of $15.9 million in the first quarter 2023 because of employee stock forfeitures related to an acquisition performance condition not being met and the remaining increase is due to stock-based awards granted to existing and new employees during fiscal year 2024. Further, the increase is attributable to increases in outside service costs of $1.1 million, facilities costs of $2.3 million, marketing costs of $3.4 million, IT services costs of $2.9 million and depreciation and amortization expense of $0.9 million. These increases are partially offset by the decrease in the Wilsonville manufacturing facility pre-commercialization costs of $19.3 million, which was completed when the Wilsonville manufacturing facility began shipping product in January 2023.

For the year ended September 30, 2023, selling, general and administrative expenses decreased by $23.2 million to $189.7 million, compared to the same period for 2022. The decrease is primarily attributable to a decrease in stock-based compensation of $43.0 million due to employee stock forfeitures related to an acquisition performance condition not being met and changes to the probability of achieving future performance conditions. The decrease was partially offset by increases in pre-commercialization Factory of the Future costs of $4.4 million, facility costs of $6.5 million, payroll costs of $5.3 million and IT-related services costs of $5.1 million.

A discussion of our selling, general and administrative expenses for the year ended September 30, 2022 as compared to the year ended September 30, 2021 can be found on page 55 of our 2023 Annual Report.

Restructuring and other costs

We recognized restructuring and other costs of $9.4 million resulting from the 2023 restructuring plan during the year ended September 30, 2023. Refer to Note 16 to the consolidated financial statements for further details.

Change in fair value of contingent considerations and holdbacks

There was no change in fair value of contingent consideration and holdbacks for the year ended September 30, 2024, as the contingent consideration and holdbacks liabilities were settled in the prior year. During the year ended September 30, 2023, we recognized a change in the fair value of contingent consideration and holdbacks of $5.5 million and $0.4 million related to the acquisitions of Abveris and iGenomX, respectively. The changes were the result of not achieving the Abveris revenue target for calendar year 2022 and a change in fair value of our stock price.

A discussion of our change in fair value of contingent considerations and holdbacks for the year ended September 30, 2022 as compared to the year ended September 30, 2021, can be found on page 56 of our 2023 Annual Report.

Impairment of long-lived assets

We recognized impairment of intangible assets and property and equipment of $44.9 million related to the Biopharma asset group during the year ended September 30, 2024 (see discussion in critical accounting policies and estimates — impairment of long-lived assets below), as compared to impairment of property and equipment of $6.8 million during the year ended September 30, 2023, related to write-off of lab equipment and leasehold improvements for decommissioned labs and computer software.

Interest and other income (expense), net

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Other income (expense), net consists of realized foreign exchange gains and losses, loss on disposal of property and equipment and impairment of equity investments.

Interest income increased 7%, to $15.3 million in the year ended September 30, 2024, as compared to $14.4 million for the year ended September 30, 2023, resulting from our cash and cash equivalents and short-term investments balance. Other income (expense) was $2.7 million in fiscal year 2024, as compared to $0.7 million in fiscal year 2023, mainly due to fiscal year 2024 impairment losses on an equity investment.

A discussion of our interest and other income (expense), net for the year ended September 30, 2022 as compared to the year ended September 30, 2021, can be found on page 56 of our 2023 Annual Report.

Gain on deconsolidation of a subsidiary

Gain on deconsolidation of a subsidiary represents the gain associated with the deconsolidation of a variable interest entity, Revelar, on September 30, 2022.

Income tax expense

We recorded income tax provision of $0.6 million and $1.2 million for the year ended September 30, 2024 and 2023, respectively. We recorded income tax benefit of $10.4 million in 2022 mainly as a result of the business acquisition of Abveris.

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Liquidity and capital resources

Sources of liquidity

To date, we have financed our operations principally through public equity raises, private placements of our convertible preferred stock, borrowings from credit facilities and revenue from our commercial operations. As of September 30, 2024, we had a balance of $226.3 million of cash and cash equivalents and $50.1 million in short-term investments.

Capital resources

Our primary cash needs are for operating expenses, working capital and capital expenditures to support the growth in our business. As of September 30, 2024, we had cash, cash equivalents and short-term investments of $276.4 million.

We believe that our existing cash, cash equivalents and short-term investments are sufficient to fund our operating expenses, capital expenditure requirements and debt service payments for the next 12 months. In the future, we may still need to obtain additional financing to fund operations beyond this period, and there can be no assurance that we will be successful in raising additional financing on terms which are acceptable to us. In addition, our operating plans may change as a result of factors currently unknown to us, and we may need to seek additional funds sooner than planned. Such financing may result in dilution to stockholders, imposition of debt covenants and repayment obligations, or other restrictions that may adversely affect our business. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. Our future capital requirements will depend on many factors. See “Risk factors—We will require additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product manufacturing and development and other operations.”

Inflation Risk

While we have experienced increased operating costs in recent periods, which we believe are due in part to the recent

growth in inflation, we do not believe that inflation has had a material effect on our business, financial condition or results

of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset

such higher costs through price increases. Our inability or failure to do so could adversely affect our business, financial

condition and results of operations.

Operating capital requirements

Our primary uses of capital are, and we expect will continue to be for the near future, compensation and related expenses, manufacturing costs, laboratory and related supplies, legal and other regulatory expenses, and general overhead costs and the capital expenditures. We had $1.6 million in commitments for capital expenditures as of September 30, 2024.

Cash flows

The following table summarizes our sources and uses of cash and cash equivalents:

Operating activities

Net cash used in operating activities was $64.1 million in fiscal year 2024 and consisted primarily of a net loss of $208.7 million adjusted for non-cash items including depreciation and amortization expenses of $31.4 million, stock-based compensation expense of $50.9 million, impairment of long-lived assets of $44.9 million, non-cash lease expense of $0.9 million, and a change in operating assets and liabilities of $15.4 million. The change in operating assets and liabilities was mainly due to decreases in accounts receivable of $8.4 million, inventory of $8.0 million, prepaid and other current assets of $0.4 million, other non-current assets of $0.4 million, accounts payable of $11.8 million and other liabilities $2.3 million, offset by increases in accrued expenses of $4.4 million and accrued compensation of $7.9 million.

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Net cash used in operating activities was $142.5 million in fiscal year 2023 and consisted primarily of a net loss of $204.6 million adjusted for non-cash items including depreciation and amortization expenses of $29.3 million, stock-based compensation expense of $30.3 million, impairment of property and equipment and other assets of $6.8 million, non-cash lease expense of $2.6 million, change in fair value of contingent consideration and holdbacks of $5.9 million and a change in operating assets and liabilities of $1.0 million. The change in operating assets and liabilities was mainly due to increases in accounts receivable of $4.3 million, prepaid and other current assets of $4.2 million and accrued expenses of $2.6 million, offset by decreases in inventory of $7.2 million, other non-current assets of $1.4 million, accounts payable of $2.5 million, accrued compensation of $1.1 million and other liabilities $0.1 million.

A discussion of net cash used in operating activities for the fiscal year 2022 can be found on page 58 of our 2023 Annual Report.

Investing activities

In fiscal year 2024, our net cash used in the investing activities was $3.1 million primarily as a result of the net result of purchases and maturity of investments of $2.0 million and purchases of laboratory property, equipment and computers of $5.1 million.

In fiscal year 2023, our net cash used in the investing activities was $50.6 million primarily as a result of the net result of purchases and maturity of investments of $78.4 million and purchases of laboratory property, equipment and computers of $27.8 million.

A discussion of net cash used in investing activities for the fiscal year 2022 can be found on page 59 of our 2023 Annual Report.

Financing activities

Net cash provided by financing activities was $6.9 million in fiscal year 2024, which consisted of $3.8 million from proceeds from issuance of shares under the 2018 ESPP and $7.1 million from the exercise of stock options, offset by $4.0 million in repurchases of common stock for income tax withholdings.

Net cash provided by financing activities was $0.9 million in fiscal year 2023, which consisted of $3.9 million from proceeds from issuance of shares under the 2018 ESPP and $1.4 million from the exercise of stock options, offset by $4.4 million in repurchases of common stock for income tax withholdings.

A discussion of net cash provided by financing activities for the fiscal year 2022 can be found on page 59 of our 2023 Annual Report.

Off-balance sheet arrangements

We do not have any off-balance sheet arrangements other than our indemnification agreements as described in Note 9 of the consolidated financial statements included elsewhere in this Form 10-K.

Contractual obligations and other commitments

As of September 30, 2024, our operating lease obligation was $85.0 million related to various operating lease arrangements for facilities. See Note 8, Leases, of the Notes to the Consolidated Financial Statements for further discussion relating to these lease obligations.

Critical accounting policies and estimates

The discussion and analysis of our financial condition and results of operations are based upon our audited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, management evaluates the reasonableness of its estimates. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.

We believe the following critical accounting policies require that we make significant judgments and estimates in preparing our consolidated financial statements.

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Revenue recognition

Our revenue is generated through the sale of synthetic biology tools, such as synthetic genes, or clonal genes and fragments, oligonucleotide pools, or oligo pools, NGS tools, DNA libraries, and biopharma services for antibody discovery, optimization and development ("Biopharma").

Contracts with customers are in the written form of a purchase order or a quotation, which outline the promised goods and the agreed upon price. Such orders may be accompanied by a Master Supply or Distribution Agreement that establishes the terms and conditions, rights of the parties, delivery terms, and pricing. We assess collectability based on a number of factors, including past transaction history and creditworthiness of the customer.

We recognize revenue for synthetic biology tools, NGS tools, and DNA libraries when control of the products is transferred to the customer and at a transaction price that is determined based on the agreed upon rates in the applicable order or master supply agreement applied to the quantity of synthetic DNA that was manufactured and shipped to the customer. The transaction price is determined based on the agreed upon rates in the purchase order or master supply agreements applied to the quantity of all the products that were manufactured and shipped to the customer. Our contracts may include one or more ordered products, and the shipment of these products comprises the performance obligation(s) under the contract. Accordingly, all of the transaction price, net of any discounts, is allocated to the performance obligation (s). Our sales are primarily subject to Ex Works (as defined in Incoterms 2010) delivery terms and revenue, other than Biopharma revenue, is recorded at the point in time when products are picked up by the customer’s freight forwarder, as we have determined that this is the point in time that product control transfers to the customer. Therefore, upon shipment of the product, there are no remaining performance obligations. Our shipping and handling activities are performed before the customer obtains control of the goods and therefore are considered a fulfillment cost. Shipping and handling fees charged to our customers are recognized as product revenue in the period shipped and the related costs for providing these services are recorded as a cost of revenue. We have elected to exclude all sales and value added taxes from the measurement of the transaction price. We have not adjusted the transaction price for significant financing since the time period between the transfer of goods and payment is less than one year. We have elected the practical expedient of not disclosing the consideration allocated to remaining performance obligations and an explanation of when those amounts are expected to be recognized as revenue since the duration of our contracts is less than one year.

Our Biopharma revenue primarily consists of research and development agreements with third parties that provide for up-front and milestone-based payments. We also enter into research and development agreements that do not include up-front or milestone-based payments and recognize revenue on these types of agreements based on the timing of development activities. Our research and development agreements may include more than one performance obligation. At the inception of the agreement, we assess whether each obligation represents a separate performance obligation or whether such obligations should be combined as a single performance obligation. The transaction price for each agreement is determined based on the amount of consideration we expect to be entitled to for satisfying all performance obligations within the agreement. We assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. In agreements where we satisfy performance obligation(s) over time, we recognize development revenue typically using an input method based on our costs incurred relative to the total expected cost which determines the extent of our progress toward completion. As part of the accounting for these arrangements, we must develop estimates and assumptions that require judgment to determine the transaction price and progress towards completion. We review our estimate of the transaction price and progress toward completion based on the best information available to recognize the cumulative progress toward completion as of the end of each reporting period and make revisions to such estimates as necessary. Also, these research and development agreements may include license payments. We recognize revenue from functional license agreements when the license is transferred to the customer and the customer is able to use and benefit from the license. A functional license has significant standalone functionality because it can be used “as is” for performing a specific task.

We had contract assets of $2.0 million and contract liabilities of $2.1 million as of September 30, 2024. We had contract assets of $2.8 million and contract liabilities of $3.0 million as of September 30, 2023. For the years ended September 30, 2024, 2023 and 2022 the Company recognized revenue of $1.7 million, $2.8 million and $1.1 million, respectively, from the amount that was included in the contract liability balance at the beginning of each year. In addition, for all periods presented, there was no revenue recognized in a reporting period from performance obligations satisfied in previous periods. The aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied as of September 30, 2024 was $8.6 million. We expect to recognize revenue over the next twelve months relating to performance obligations unsatisfied as of September 30, 2024.

Based on the nature of our contracts with customers which are recognized over a term of less than 12 months, we have elected to use the practical expedient whereby costs to obtain a contract are expensed as they are incurred.

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We state our revenues net of any taxes collected from customers that are required to be remitted to various government agencies. The amount of taxes collected from customers and payable to governmental entities is included on the balance sheet as part of “Accrued expenses and other current liabilities.”

Stock-based compensation

We have granted stock-based awards, consisting of restricted stock and stock options, to our employees, certain non-employee consultants and certain members of our board of directors. We measure stock-based compensation expense for restricted stock and stock options granted to our employees and directors on the date of grant and recognize the corresponding compensation expense of those awards over the requisite service period, which is generally the vesting period of the respective award. We measure stock-based compensation expense for restricted stock and stock options granted to non-employee consultants on the date of grant and recognize the corresponding compensation expense of those awards over the period in which the related services are received. We adjust for actual forfeitures as they occur.

We have granted performance-based stock units (PSUs) and performance stock options (PSOs) to executive officers and senior level employees. We value PSUs using a grant date fair value equal to the closing share price of our common stock on the date of grant and the probability of the achievement of the performance condition.

We did not grant any options during the years ended September 30, 2024 and 2023.

Goodwill

Determining when to test for impairment, the reporting unit, the assets and liabilities of the reporting unit, and the fair value of the reporting unit requires significant judgment and involves the use of significant estimates and assumptions. We test goodwill for impairment in our fourth quarter each year, or more frequently if indicators of an impairment exist. Evaluating goodwill for impairment involves the determination of the fair value of our reporting unit in which goodwill is recorded using a qualitative or quantitative analysis. If the fair value of the reporting unit exceeds its carrying value, goodwill is considered not impaired. If the carrying value of the reporting unit exceeds its fair value, we would record an impairment loss up to the difference between the carrying value and implied fair value.

We have an unconditional option to bypass the qualitative assessment in any period and proceed directly to performing the first step of the goodwill impairment test. For 2024, we elected to proceed directly to the step-one assessment which indicated that the fair value of our reporting unit substantially exceeded the carrying value.

Restructuring costs

We recognize restructuring charges related to restructuring plans that have been committed to by management when liabilities have been incurred. In connection with these activities, we record restructuring charges at fair value for (a) contractual employee termination benefits when obligations are associated to services already rendered, rights to such benefits have vested, and payment of benefits is probable and can be reasonably estimated, (b) one-time employee termination benefits when management has committed to a plan of termination, the plan identifies the employees and their expected termination dates, the details of termination benefits are complete, it is unlikely changes to the plan will be made or the plan will be withdrawn and communication to such employees has occurred, and (c) contract termination costs when a contract is terminated before the end of its term.

One-time employee termination benefits are recognized in their entirety when communication has occurred and future services are not required. If future services are required, the costs are recorded ratably over the remaining period of service. Contract termination costs to be incurred over the remaining contract term without economic benefit are recorded in their entirety when the contract is canceled.

Valuation of long-lived assets

We recorded impairment charges totaling $44.9 million related to property and equipment and finite-lived intangible assets which are included in “Impairment of long-lived assets” on our condensed consolidated statements of operations and comprehensive loss for the year ended September 30, 2024.

During the year ended September 30, 2024, we identified an impairment indicator with respect to an asset group associated with our antibody discovery services product line (“Biopharma asset group”) due to lower than forecasted revenues. Therefore, we performed a recoverability test of long-lived assets by comparing the net book value of the Biopharma asset group, to the future undiscounted net cash flows attributable to such assets. We concluded that the carrying value of the

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asset group was not recoverable as it exceeded the future undiscounted cash flows the assets are expected to generate from the use and eventual disposition of the asset group.

To measure the impairment loss, we estimated the fair value of the Biopharma asset group by applying a discounted cash flow method. Calculating the fair value of an asset group involves making certain estimates and assumptions. These estimates and assumptions include, among others, the level and timing of revenues, operating expenses, working capital and discount rates, we believe to be consistent with the inherent risks associated with the Biopharma asset group, which was approximately 14%. Changes in these factors and assumptions used can materially affect the amount of impairment loss recognized in the period the asset group was considered impaired.

The implied allocated impairment loss to any individual asset within the long-lived asset group shall not reduce the carrying amount of that asset below its fair value. We estimated the fair value of the developed technology intangible asset and the customer relationships intangible assets using an excess earnings model (income approach). We estimated the fair value of the trade name intangible asset using a relief from royalty approach. Key assumptions include the level and timing of expected future revenue, conditions and demands specific to each intangible asset over its remaining useful life. The fair value of these intangible assets is primarily affected by the projected revenues, gross margins, operating expenses, and the anticipated timing of the projected income associated with each intangible asset coupled with the discount rates used to derive their estimated present values.

After consideration of the impairment charge recorded in the current quarter, the remaining carrying amount of long-lived assets within the Biopharma asset group is approximately $11.6 million, which primarily comprises of operating lease right-of-use assets.

Recently issued accounting pronouncements

For a description of accounting changes and recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements, see Note 2, “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.