Q2 2021 Alpha Teknova Inc Earnings Call
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Ladies and gentlemen, thank you for attending by and welcome to detect movement second quarter 2021 financial results call.
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I would now like to hand, the conference over to your speaker today Karen.
Mitchell more for Macdougall. Thank you. Please go ahead Madam yes.
Yes, Thank you Susanne.
And welcome everyone to Tech Nova's second quarter 2021 earnings conference call.
On today's call Steven Gulfstream Tech Novus, Chief Executive Officer will provide business highlights and updates followed by Matt Lowell Tech Novus, Chief Financial Officer, who will review financial results. After we conclude the prepared remarks, we will be happy to take your questions.
As a reminder, the forward looking statements that we make during this call, including those regarding business goals and expectations for the financial performance of the company are subject to risks and uncertainties that may cause actual events or results to differ additional information concerning these risk factors is included in the press release the company issued earlier today.
And are more fully described in the company's various filings with the SEC today's comments reflect the companys current views, which could change as a result of new information future events or other factors and the company does not obligate or commit itself to update these forward looking statements except as required by law. The Companys management believes that in addition to.
Two GAAP results non-GAAP financial measures can provide meaningful insight when evaluating the company's financial performance and the effectiveness of its business strategies.
During this call the company will therefore use non-GAAP financial measures of certain of its results reconciliations of GAAP to non-GAAP financial measures are included in the press release that was issued this afternoon, which is posted to tech Novus website and also available on the SEC website non-GAAP financial measures should also be considered.
Only as a supplement to and not a substitute for financial measures prepared in accordance with GAAP. The non-GAAP financial measures. In this presentation may differ from similarly named non-GAAP financial measures used by other companies.
Please also be advised that the company has made available a supplemental slide deck to accompany today's prepared remarks, which can be viewed on this current webcast and accessed on the Investor Relations section of Tech Novus website, and with that I'll turn the call over to Steven.
Thank you Sir.
Good afternoon, and thank you everyone for joining us for technology. Its first ever earnings call I'd like to extend a warm welcome to our analysts and new investors who participated in our recent initial public offering.
And Jim.
We have technology are a leading provider of critical reagents that support the discovery development and production of drug therapies novel vaccines in molecular diagnostics.
We have a strong competitive position in the marketplace and our differentiated by our ability to manufacture high quality customer agents with short turnaround times.
And to scale with our customers from discovery to commercialization.
This is best exemplified in cell and gene therapy, whether it's a significant need for custom made reagents and volumes less than 1000 liters, a rapid delivery of custom clinical grade bio processing solutions enables our cell and gene therapy customers to reduce the time from from drug discovery to clinical impact.
We have the infrastructure in place today to support our near term growth outlook and are positioning the company for long term success by investing in capacity expansion marketing sales and R&D the <unk>.
Strength of our existing business and the success of our recent financing efforts, including of course, our IPO will both support those investments and the pursuit of our growth strategy.
Lastly, we have the team in place to execute on our vision I want to thank all of our 200, plus associates, whose dedication has been and will continue to be critical to our success.
Okay.
Moving to our business update I am pleased to report that in the second quarter, we performed well commercially and made meaningful progress on our investment priorities.
Matt will provide the details of our second quarter financial results, but first I'd like to highlight some notable accomplishments.
Our total Q2 revenue excluding sample trips transport media was $8.3 million up 41% as compared to $5.9 million in the same period of the prior year.
We completed our initial public offering raising $99.1 million in proceeds after deducting for underwriting discounts and commissions and other operating expenses.
We strengthened the company's board of directors with the appointments of life Science veteran Bob Mcnamara, Brett Robertson and Alex Bach of independent directors.
We began construction on a new state of the art GMP manufacturing facility in Hollister, California, which when operational at the end of 2022 will increase production capacity by fivefold.
And finally, we established our scientific affairs team, which will drive engagement with scientists developing novel cell and gene therapies.
Overall, we are encouraged by our second quarter performance and are excited with the progress we've made executing on our strategic plan I will now hand, the call over to Matt for a discussion of the financials.
Thanks, Steven and good afternoon, everyone. We delivered strong results in the second quarter of 2021.
Let's start with revenue total revenue for the second quarter of 2021 was $8.3 million or 38% increase from 6.0 million in the second quarter of 2020.
As Stephen mentioned, excluding sample transport media revenue for the second quarter of 2021 was $8.3 million or 41% increase from $5.9 million in the second quarter of 2020.
Our way of reminder, Tech Nova launched the transport media products in the latter part of the second quarter of 2020 to address the urgent need for COVID-19 tests.
We consider revenue from transport media sales to be nonrecurring and the product is not part of the Companys ongoing strategy.
First lab essentials products are targeted at the research use only or <unk> market and include both catalog and custom products.
Essentials revenue was $6.5 million or 46% increase from $4.4 million in the second quarter of 2020, driven by an increase in the number of customers and higher average revenue per customer.
Bear in mind, however, that the COVID-19 pandemic dampening lab essentials product revenue in the second quarter of 2020.
More meaningful we believe is that comparing the 12 months trailing each of June 32020 in 2021 shows that lab essentials product revenue grew by 33% over that period.
Next clinical solutions.
Medical solutions products are made under good manufacturing practices or GMP quality standards and our targeted for use by customers and the clinical and commercial phases of our products were therapies development.
Our clinical solutions revenue was $1.6 million or 32% increase from $1.2 million in the second quarter of 2020.
Over the 12 months prior to the periods and we are pleased to report we grew our clinical solutions revenue by adding new active customers.
We expect revenue attributable to these new clinical solutions customers will grow over time, even as their initial buying activity contributed to lower average revenue per customer in the same period.
Just as a reminder, due to the larger average orders in clinical solutions, there can be quarter to quarter revenue Lumpiness in this category.
Gross profit for the second quarter of 2021 was $3.4 million compared to $3.5 million in the second quarter of 2020.
Gross profit in the second quarter of 2021 included the adverse impact of 0.7 million onetime reserve related to excess sample transport media inventory.
The company built up stock in the fourth quarter of 2020 to serve grow it growing COVID-19 testing needs, but demand subsequently decreased due to the successful rollout of vaccines, while market supply also increased resulting in this excess inventory.
Gross margin, excluding the onetime reserve was 48, 7%, which is down from 57, 4% in the second quarter of 2020, reflecting higher costs associated with planned investments that the company is making in its current manufacturing capacity and capabilities.
Operating expenses for the second quarter of 2021 were $5.9 million compared to $2.8 million in the second quarter of 2020 the increase.
It was driven by the growth of the Companys corporate commercial and R&D teams. We're pleased with the progress on our internal initiatives to increased operational capabilities and with our success in attracting talent as we expand our commercial and R&D teams.
Of note aside from our CEO almost the entire executive management team joined <unk> after the second quarter of 2020.
As of June 32021, the company had over 200 associates up over 50% from June 32020.
The net loss for the second quarter, 2021 was $2.3 million or <unk> 52 per diluted share.
Compared to net income of <unk> 6 million or <unk> <unk> per diluted share for the second quarter of 2020.
Lastly, adjusted EBITDA, a non-GAAP measure was negative $1.5 million for the second quarter 2021, compared to $1.2 million for the second quarter of 2020.
Capital expenditure in the quarter was $4.7 million compared to zero point $6 million in the prior year. The majority of spend in the second quarter of 2021 was towards our new GMP manufacturing facility.
We also continue to make investments in our current production facilities and R&D lab. We are committed to building capacity ahead of the demand curve to ensure our customers are able to receive their custom products.
In weeks instead of months.
Adjusted free cash flow a non-GAAP measure was negative $6.2 million for the second quarter 2021, compared to positive <unk> 6 million for the second quarter of 2020.
This decrease compared to the prior year period was due to lower adjusted EBITDA and a significant increase in capital expenditures.
Turning to the balance sheet as of June 32021, we had $108 million in cash and cash equivalents and $12 million in gross debt.
We realized net proceeds of $99.1 million from our IPO in the second quarter of 2021.
Our net cash position of $96 million as of June 32021 puts us in a strong position as we continue to invest for the long term growth of our business.
In addition, we continue to see strong customer interest in our products and have had good order flow since the end of last quarter to.
To serve these customers as their order volume scales, we are aggressively investing in the expansion of our current capacity and building a new state of the art GMP facility, which we believe will further solidify our competitive advantage and short turnaround time on custom products.
With that I'll turn the call back to Steven.
Thanks, Matt.
We are absolutely delighted with the progress we have made so far this year in executing on all phases of our strategic plan, we have a strong competitive position in the marketplace and the infrastructure in place today to support our near term growth outlook. We are positioning the company for long term success by investing in capacity expansion marketing sales and R&D.
Lastly, we have a team in place to execute on our strategic vision and enable our customers to develop and commercialize novel vaccines and therapies.
I will now open up the call for questions Suzanne.
As a reminder to ask a question you will need to press Star. One is Kal said can we get your question. Please press <unk>.
Again to ask a question. Please press star one on your telephone keypad, Andrew <unk>. Your question. Please press the warranty.
Lisa <unk> will be compile the Q&A roster.
Okay.
Okay.
Our first question comes from the line of snacks Masucci from Cowen and company.
Your line is now open.
Hi, Stephen and Matt Congrats on a strong quarter of the gate.
Thanks.
To start can you just break out some of the ordering trends you've been seeing for different customer types, whether it be cell and gene therapy developers versus vaccine developers or molecular diagnostics companies.
Sure I can start.
Thanks, Matt.
Max.
From a breakdown perspective looks like I can say that we're happy with the order volume that we're achieving.
I will say that it is across the board, where we're seeing particular growth in those areas of cell and gene therapy, the biopharma and the CMO side of things.
As you know that space is growing quite quickly.
And so.
As Matt mentioned in the.
In the call just now we have seen an increase in total number of GMP customers right, which we believe is a testament to what we've been doing and the things we've been putting in place.
That's great.
Segway into the next question.
IPO conserve and marketing event for companies technology can be put on the radar of other public companies.
Could be prospective customers.
Separately, there continues to be a steady pace of M&A.
And I know I know you're still in the early stages of building out.
Your sales force.
But with all of this in mind can you just give us a sense for.
How your pipeline for new customer wins is looking.
Sure.
So.
From a new customer perspective.
The pipeline looks really strong as Matt mentioned, we're not going to give details on exactly what that looks like but I can tell you that theres a lot of new order potential order volume headed our way the new team that we've put in place we're already starting to see some progress there and then.
Some of the things that we've been working on over the past six months.
Starting to come fruition, you'll probably start to happen in the back half of this year into next year. There are other benefits obviously of being a public company like you've mentioned right we are getting more.
Our recognition, but we're also attracting more talent.
We feel like obviously this combined with all of the financing we have available allows us to execute on our plan.
Great.
If I could sneak one more in your business.
Great job weathering the initial impacts of the pandemic in Q2 of 2020.
Is the Delta variant continues to flare up in certain regions of the U S are you seeing any any impact.
In terms of customer ordering and separately do you feel like your customers are better prepared to handle any disruption we may see in the fall I guess this time around.
Yes, I would say that.
First we're not seeing any impact yet alright, and in fact, you could see the research lab central business growth.
Year on year.
Significant part of that is last year's dip.
A dip from the pandemic and so we have not yet seen an impact and I do think everyone is much better prepared if you think about where we were last year at this time of getting everyone remote and how to operate that way. We're in a completely different situation and of course, there's a number of people now with vaccines that are able to COVID-19 work. So to date, we're not.
That in fact.
The.
The variance is obviously showing the.
The promise of all of these new medicines in technology. So there's a potential uplift for the business over time as that goes forward.
Absolutely makes sense. Thank you for taking the questions.
Our next question comes from the line of Matthew <unk> from William Blair.
Your line is now open.
Hi, good afternoon.
You, obviously alluded to the new facility coming online by end of 'twenty, two but I think you've talked about adding capacity through things like additional shifts and days and just curious.
Where you're at in terms of your current capacity and confidence in being able to maintain.
Turnaround times.
Before the new facility comes online.
Yes, Thanks, Matt.
This is thats exactly why we continue to add capacity so as we as we.
Spoke before.
We've shifted from a five day work week for a seven day work week, we still have.
Ample capacity there to deliver for our customers in short turnaround times.
And then we're adding additional infrastructure and automation to increase that even more and so at this point, we're very comfortable with where we sit in our growth trajectory over the next year and a half as we build out this new facility.
And then over the last month or so I guess, that's the IPO theres been quite a bit of news flow on.
Mrna as a platform for vaccines and therapies a number of a large company is making.
Our investments both organic and inorganic in the space can you talk about how you are positioned to serve that market and how much of opportunity that is for the company.
Sure.
So from an M&A perspective, obviously, we've all seen the benefits of these new therapies are products are some of the core reagents that go into manufacturing those.
New vaccines or potential.
Drug therapies.
And.
The fact that we can deliver our product is made to order products in weeks instead of months allows us to keep up with that demand as those companies scale. The volumes that many of them are requesting are in that 1000 liter or less right. So.
We're pretty well suited to help them get to their scale that they are hoping for right now I think many of much of the money going in right now is in that infrastructure stage.
And so as that goes forward and these come up.
Go from building out a facility to fully operational I think we'll see some benefit in the future.
Okay. Thank you.
Yeah.
Our next question comes from the line of sung Jean Young from BP.
Your line is now open.
Hi, Thanks for taking my questions and congrats on the quarter.
Maybe starting out with your expansion plans, specifically for sales and marketing would you would you be able to elaborate on kind of the plan there over the next 12 months or so.
If you could talk about what the current head count is.
And then where you could see that go you know over that period, you talked about obviously, the scientific affairs team the establishment of that.
Kind of curious about the strategy there is and if there are certain.
If you are tied to prioritize certain channels.
And the near term with your strategy.
Sure no problem so as.
As we stated in the <unk>.
Our release here, we've now established the scientific affairs team, we're really in the early stages, there, but the idea is to.
Bring an expertise in cell and gene therapy particular, Phd scientific experts to engage our selling gene therapy customers to develop custom solutions for them and really help them accelerate the time to clinic and so we've now brought that on we also have a number of other individuals that will help move those customers that are.
Catalog products from us towards those custom product and onto the GMP products.
From our outlet perspective, I think we're just in we're in the very early stages here and establishing the foundation and the operational efficiency.
<unk> really drive this forward so I would think that I'm not going to give exact numbers, but.
A significant expansion over the next year.
<unk> is in our plans right now.
Great. Thank you and then I know youre not providing guidance for the rest of the year, but could you help us think about what what what are the key drivers for.
The growth in the second half.
In terms of revenue cadence I realize there is eat out theres necessarily seasonality in the business, but.
What can we expect in terms of.
The potential outlook for the second half of the year.
Yes, I think we are.
Now seeing strong growth across the two main product categories that we have the lot of essentials and the clinical solutions.
As we have said before we would see very steady growth in the research side of the business, where 15% to 20% type normalized growth over the long term needs.
We're continuing to see that and perhaps better at timeshare and then the clinical solutions business is <unk>.
Also growing quite quite nicely here with the addition of some new customers, we expect that to be able to add to our future base of business. Although as we've said in the past I mean there is.
A certain lumpiness there because of the size of those orders and the proportion of that business to our total business. So I think basically we are seeing great growth across both of those product categories and.
We are looking to continue to deliver against targets there.
Great and then if I may be able to squeak one more in Matt maybe just on gross margin for the second quarter, you talked about the one time inventory they start their affecting it and could you kind of walk us through the puts and takes for the second half in terms of what we should take into consideration as we're modeling.
For the balance of the year.
Yeah.
Yes.
The reserve that we took here in Q2 was a onetime event obviously.
With respect to sample transport and the drop in demand. So I think it's consistent with what we've said there thats not really.
Part of our forecast going forward, but.
In general from a higher level with respect to the gross margin outlook going forward.
We are continuing to make aggressive investments in capacity as Stephen mentioned about the.
New automation, we're adding to the to the workforce there to be able to expand the number of shifts that we have and are doing other investments, including tools and things that will help us.
<unk> customers in the future. So I do expect there to be.
Continued pressure on gross margins for the rest of the year as we as we.
Take these moves for the future.
So I think that.
We should expect that the margins will continue to be.
Under pressure there for the rest of the year for sure.
Yeah, and I'll, just add we're committed to making sure that we keep our delivery times in the weeks.
Instead of the months right. So we can help agent and building all of this new infrastructure and capacity and resolve some of the capacity constraints in this space.
Great. Thank you so much.
Yeah.
Our next question comes from the line of Jacob Johnson from Stephens.
Your line is now open.
Hey, Thanks, good afternoon, and I'll add my congrats on nice quarter, maybe Matt just one piece of housekeeping volume following up on that last question that 700000 charge related to the sample transport media you didn't back that out of adjusted EBITDA is that correct.
We did not adjust it we do not back it out of adjusted EBITDA. That's correct. It is not a non-GAAP adjustment okay perfect. Thanks for that and then maybe for Steven.
<unk> been talking about sales and R&D investments that obviously I think.
Think requires hiring people.
A tough labor environment right now so can you just maybe talk about how those efforts are going and maybe it sounds like youre, having success in attracting new talent to the organization and maybe why that is.
Yes.
It certainly is a very competitive environment right.
Right now, but we have had success in bringing the right people in and at the pace. We wanted to bring them in so that's one of the key parts of obviously to execute on our strategy we have to have the people.
And from wider that link.
<unk>.
It's a pretty exciting space to plan for us.
Many of our new individuals joining us are excited to build something that they think will be very unique overtime and.
And with a great team so.
The more of the.
We attract the more the easier it is for us to attract more talent. So I feel like we've done a great job, so far and will continue to be able to do that going forward.
Got it that's helpful and maybe last one from me.
We talked some about the sales and marketing investments that Steven could you maybe just talk about on the R&D side.
The key areas, you're investing in there I would think some of that's develop new products and maybe further differentiate your offering but would be interested in your take on that.
Absolutely. So one of the key things we did this last quarter.
Get that R&D lab operational fully staffed which is a huge accomplishment to pull off in three to four months.
And we have a phenomenal team already working in developing products and Youre absolutely right. We have this great manufacturing capability that we're investing to scale over the next couple of years, but in addition, now we have a team that can develop proprietary reagents to drive efficiency for its LNG.
LNG and therapy bio processing and so we are using this team to figure out what reagents can we drive that efficiency up and then of course, we can order essentially from ourselves and put it in soft until the customers with much more proprietary formulations. There are some more futuristic things that we also are building out I'm not going to comment too much on those now, but we see we see it.
Pipeline of products coming out.
Over the coming quarters that can really make an impact to the space.
Got it thanks for taking the questions.
Thanks, Jacob Thanks Jacob.
There are no further questions at this time. This now concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Yeah.
Okay.
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