Q3 2021 Alpha Teknova Inc Earnings Call
Okay.
Good day, and thank you for standing by.
Welcome to the Pik note third quarter 2021 financial results conference call.
At this time all participants are in a listen only mode.
After the speaker presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone if you require any further assistance. Please press star zero.
I would now like to hand, the conference over to your first speaker today, sorry, our Mitchell one. Thank you. Please go ahead.
Thank you operator.
Welcome to Teck Nova's third quarter 2021 earnings conference call on today's call Stephen Dunn stream techno of as Chief Executive Officer will provide business highlights and updates followed by Matt Lowell Technologies', 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.
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 company's management believes that in addition to 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 we will therefore use non-GAAP financial measures of certain of our results reconciliations of GAAP to non-GAAP financial measures are included in the press release that we issued this afternoon, which is posted to tech nova's website and at W. Dot SEC Dot Gov Slash Edgar non-GAAP financials.
Measure should always be considered only as a supplement to and not as a substitute for or financial measures prepared in accordance with GAAP and non-GAAP financial measures. In this presentation may differ from similarly named non-GAAP financial measures used by other companies.
Please be advised the company has posted a supplemental slide deck to accompany todays prepared remark on its website.
And that can be accessed through the Investor relations section of techno of its web site.
And on today's webcast and with that I'll turn the call over to Steven.
Thank you Sarah good afternoon, and thank you everyone for joining us for our third quarter earnings call.
Technology is a leading provider of critical reagents that supports the discovery development and production of drug therapies novel vaccines in molecular diagnostics.
We manufacture high quality customer agents with short turnaround times and are able to scale with our customers from discovery to commercialization.
Give you an example in cell and gene therapy, there is significant need for customer men reagents and volume smaller than 1000 liters or short turnaround of custom clinical grade bio processing solutions enables our cell and gene therapy customers to reduce the time from drug discovery to clinical impact.
Over the last several months I and other members of our team have participated in various industry conferences and events and met with a number of customers and high potential prospects.
I've been energized by these interactions, particularly in a cell and gene therapy space. We believe there is market demand for high quality custom solutions, our discussions have validated our thinking and strongly reinforced to me that our capabilities, including our quick turnaround meets a critical need in the industry supply chain.
We are well positioned to benefit over time, one as our customers advance their products or therapies through their clinical development pipelines and two from growth in the broader market segment.
We have the infrastructure in place today to support our near term outlook. Our balance sheet is strong and we are making good progress on positioning the company for long term growth by investing in capacity expansion commercial excellence and R&D lab.
Lastly, we have the team in place to execute on our vision our COO.
Thank all of our 215, plus associates, whose dedication has been and will continue to be critical to our success.
Moving to our business update I'm pleased to report that in the third quarter, we performed well commercially and made meaningful progress on our investment priorities.
Our total Q3 revenue excluding sample transport media was $9 3 million up 26% as compared to $7 4 million in the third quarter of 2020.
Second we advanced construction on our new state of the art GMP manufacturing facility in Hollister, California, which when operational at the end of 2022 will increase production capacity by five fold. We also made efficiency and capacity improvements at our existing facilities.
Third we continued to invest in talent in areas that are critical to our near and long term success. For example in the third quarter, we expanded our R&D process engineering and automation teams to support the new manufacturing facility build out.
Finally today, we announced that we expanded our leadership team with two key hires in our commercial organization I want to formally welcome Ken Carroll House, who will serve as Chief commercial officer, and Jack Henry who is joining the company as our senior Vice President of marketing.
Ken will lead sales product management, and commercial operations and customer service that technical that Ken has significant experience in the commercial roles at life Science companies. Most recently at Becton Dickinson, where he was responsible for the global clinical solutions business unit of BD Biosciences, Ken and I worked together at BD and his background in building commercial.
<unk> and leading complex businesses makes him an ideal fit for the role.
Jen constant tech Nova from the technology industry with past roles in marketing like ebay, Facebook, Google and Apple hiring outside of life Sciences for this role with intentional on our part we wanted a top marketing talent of course, but also someone who would bring fresh perspective, and creative thinking to our customers.
And as a brand specialist at the highest order has led to some of the biggest launches in the tech industry, including the original iPhone and has proven to be adept at adjusting to new environments and building teams.
I'm thrilled to have both Ken and Jen joined the technology team and I look forward to them contributing to our future success.
Overall, we are encouraged by our third quarter performance and excited with the progress we've made against our strategic plan looking through the remainder of the year our priorities remain consistent and we will continue to be laser focused on execution and laying the foundation to support our long term growth opportunities.
I'll 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 third quarter of 2021.
Let's start with revenue.
Total revenue for the quarter was $9 4 million, a 5% increase from $9.0 million in the third quarter of 2020.
As Stephen mentioned, excluding sample transport media revenue for the third quarter of 2021 was $9 3 million or 26% increase from $7 4 million in the third quarter of 2020.
By way of reminder, techno relaunched a transport media product in the latter part of the second quarter of 2020 to address the urgent need for COVID-19 tests, where.
But we consider revenue from transport media sales to be nonrecurring and the product is not part of our ongoing strategy.
Lab essentials products are targeted at the research use only or are you all market and include both catalog and custom products lab.
<unk> essentials revenue in the quarter was $7 2 million or 24% increase from $5 8 million in the third quarter of 2020.
Revenue growth was driven by higher average revenue per customer and we are seeing that both year over year and sequentially.
Clinical solutions products are made under good manufacturing practices or GMP quality standards and our targeted for use by customers in the clinical and commercial phases of our products where therapies development.
Our clinical solutions revenue in the quarter was $1 7 million, a 25% increase from $1 4 million in the third quarter of 2020.
As a reminder, due to the larger average orders in clinical solutions, there can be quarter to quarter revenue Lumpiness in this category.
We are pleased with our 25% underlying clinical solutions growth performance this quarter, particularly in light of tough comparisons to the prior year quarter, which benefited from tailwind associated with an increase in COVID-19 testing kits and vaccine production.
We are pleased to report that in Q3, we grew our clinical solutions revenue by adding new active customers defined as a customer that ordered within the previous 12 months. We expect revenue attributable to these new clinical solutions customers will grow over time, even as their initial buying.
<unk> contributed to lower average revenue per customer in the same periods.
Turning to the income statement.
Gross profit for the quarter was $4 3 million compared to $5 1 million in the third quarter of 2020 the.
The decrease in gross profit was primarily driven by an increase in manufacturing overhead and higher labor expenses.
Gross margin was 45, 4% in the quarter, which is down from 56, 6% in the third quarter of 2020, reflecting higher costs associated with planned investments that the company is making in its current manufacturing capacity and capabilities to support long term growth.
<unk> expenses for the quarter were $8 2 million compared to $2 9 million in the third quarter 2020.
Operating expenses in the quarter increased as we continued to invest in talent critical to our near and long term success. We are pleased to have added bench strength to the company's corporate commercial and R&D teams. We continue to make good progress on hiring generally and on other internal initiatives to increase.
Our operational capabilities.
Also we have substantial new costs associated with operating as a public company and meeting applicable requirements.
As of quarter end the company had over 215 associates up 33% from the third quarter of 2020.
The net loss attributable to common stockholders for the quarter was $3 3 million or <unk> 12 per share compared to net income attributable to common stockholders of zero point $3 million or <unk> <unk> per share for the third quarter of 2020.
Adjusted EBITDA, a non-GAAP measure was negative $2 7 million for the quarter compared to positive $2 7 million for the third quarter of 2020.
Now a few notes about the balance sheet and cash flow.
Capital expenditure in the quarter was $3 9 million compared to $1.01 million in the same quarter prior year as in previous quarters. The majority of spend in the third quarter of 2021 was investment in our new GMP manufacturing facility, our current production facilities and.
Our R&D lab.
We are committed to building, our manufacturing capacity and related infrastructure in front of anticipated increases in future demand too.
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 6 million for the quarter compared to positive $1 7 million for the third quarter of 2020.
This decrease compared to the prior year period was due to lower adjusted EBITDA and the significant increase in capital expenditures I mentioned previously.
Turning to the balance sheet as of September 32021, we had $98 million in cash and cash equivalents and $12 million and gross debt.
Our net cash balance of $86 million puts us in a strong position as we continue to invest for the long term growth of our business.
I wanted to make a few comments about our revenue outlook through the end of the year.
Given our strong revenue performance in Q3, we are confident in our ability to achieve our core revenue growth target of 25% for fiscal year 2021.
We continue to experience strong customer interest in our products and good order flow and at this point in the quarter. We are comfortable with current consensus revenue expectations for the fourth quarter.
In the fourth quarter, we intend to continue our aggressive investment in capacity expansion marketing sales and R&D. We believe investment is necessary to serve our customers as their order volumes scale and will further solidify our competitive advantage and short turnaround times on.
Custom products.
With that I'll turn the call back to Steven.
Thanks, Matt.
We are very happy with the progress we have made this year and delivering on our commitment to our shareholders.
We are executing on all phases of our strategic plan and are in good position to finish the year strong I am confident that the investments we are making today to support our near and long term growth will strengthen our competitive advantage in the market even further.
Lastly, we have the team we need 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.
Operator.
As a reminder to ask a question you will need to press star one on your telephone.
If you would like to ask a question. Please press Star then the number one on your telephone keypad.
We do have a question please press the pound key.
These standby will compile the Q&A roster.
Our first question comes from the line of Matt <unk> of <unk>.
William Blair. Your line is now open.
Hey, guys, it's actually Matt on for Matt Congrats on another strong quarter and thanks for taking my questions. So I appreciate that you aren't quite ready to give guidance beyond the fourth quarter, just due to the size of your customer base and clinical solutions, but can you give us an update around the number of customers you have in the pipeline. There that you think could potentially be ordering GMP grade products over the next year or two.
And then more broadly at the time of your IPO, you talked about how youre working with 65, leading cell and gene therapy company is 29% of which were ordering custom formulations. Just wondering is it is there any way you can get an update around those figures and then Stephen just based on your comments around the demand youre seeing from cell and gene therapy customers is it fair to assume that the.
Clinical solutions customers that you added in the quarter fall within that bucket.
Okay.
Thanks Max.
Yeah.
So we're not at this point disclosing the number of customers in the pipeline that's something we can consider for future, but at this point in time, but.
I will say that we have.
A very strong trend of growth over the past quarters, and we see a good order flow coming in both as order volume as well as number of new accounts.
And at this point in time.
We can say that of those new accounts, yes, we are seeing additional cell and gene therapy customers, joining our clinical solutions business.
Got it and then maybe just just to follow up on the other question that you had macs around the.
Percentage of our.
Business coming from from.
Customers ordering custom products.
That's also in line generally with the trends that we expected to see.
<unk>.
And as evidence of that we have increase in average revenue per customer in the lab essentials business.
So.
We're very happy with the progress that the lab essentials business is also making.
Yes, certainly don't want that I know the focus is on the clinical solutions business, but I don't want the lab essentials business to go under I. Appreciate it so I appreciate that commentary.
Just as a follow up at a high level I mean supply chains that had been a big theme. This quarter. So just wanted to ask and see if you are experiencing any supply chain pressure and if so what impacted that pressure have on results in the quarter and then I know obviously you have the factory new facility coming online in 2022, and you've talked in the past about some of the levers that you can.
Pulled to increase capacity in the near term, but it seems like most of those levers are directly related to adding more employees and given kind of the tightness in the labor market. I mean is there any concern there in terms of switching to a seven day work week or expanding protection overnight that.
Given the tight labor market that those levers might not be.
T mobile as maybe you thought a couple months ago.
Sure no problem so on the supply chain side. It certainly is a challenge at the moment.
We've been working very closely with both our internal teams as well as our customers to move them to secretary options for some of the raw materials, where there is a challenge.
I think we've been very successful in doing that so I'm happy with our performance, there and managing that a difficult situation.
I don't know exactly from a impact perspective, but I can say that we have managed it very very well and impressed with what we're able to do both with our customers and internally to make sure we can deliver for them.
On the facility piece right. So we will be operational with our new facility by the end of 2022.
But we're also investing in our current facilities.
Labor hours as you mentioned.
We have found benefit from <unk>.
Probably the awareness of us being a public company and able to recruit talent into the organization.
It is of course, a challenge and it's very competitive but given the vision of the company our ability to execute and the culture. We have set up here I think we're making significant progress there.
And then the other part about that from a capacity perspective. It is not just labor hours, we've invested as I said in process engineering as well as automation, both of which will apply to the new facility as well to drive increases in output from a production perspective.
Got it.
Great. Thanks, again, and congrats on the quarter.
Thanks.
Our next question comes from the line of sung <unk> Nam of <unk>. Your line is now open.
Hi, Thanks for taking my question and congrats on the quarter.
A couple of quick ones for me I was just curious about kind of what you were seeing it sounds like Theres a lot of interest a lot of demand coming from.
Both the biopharm market for cell and gene therapy market as well as just your overall end markets and was curious about just given the weak demand environment.
Max asked about supply chain issues.
Also with the with the Delta very and then other thing we're starting to hear kind of maybe even.
The rates going up again in certain regions around the country, and particularly globally and so.
We're just kind of curious of what youre seeing if youre seeing kind of.
Activity levels normalizing.
For your customer base and access to your sales Force Act that took youre customers are also normalizing and just kind of curious what that what the kind of the near term.
Outlook might look like.
So I'll leave the outlook financial outlook to Matt.
I can say that.
The Delta variance some of those supply chain challenges, we do not believe has affected our business in Q3.
And.
<unk>.
We're able to deliver as planned and I see foresee.
Similar outcome in Q4.
And I will also say that some of these supply chain challenges are also we consider some opportunities right, where we're able to adjust our our manufacturing processes are raw materials change in packaging for customers to allow them to get their products sooner.
So I believe that we are actually.
In a great position to deliver during this time.
It's particularly challenging from a supply chain perspective.
And.
Just add to that just from a financial impact perspective, I mean, we're really not seeing any.
No material impact from the Delta variance certainly not like we saw last year when there was a lockdown.
Across the country and.
This this is really already been impacted from the sample transport.
Product line that we have and we've already mentioned that and as you can see in this quarter. There was also fairly low level of revenue for that product line, but other than that in terms of the rest of our business nothing is impacting us at the moment and we hope it stays that way obviously.
Great.
And then just.
My follow up is that format.
Gross margin you saw that decline year over year and you guys mentioned.
It'd be incremental investment that you had talked about before but it actually went up sequentially and I was wondering just in terms of going forward is this the level to kind of carry forward just trying to.
I figure out if there are additional investments that are.
And your plans with you well yeah. Good question <unk>.
Well first of all I would just point out that remind folks that in Q2, we did have a fairly significant impairments inventory reserved rather taken with the.
For the sample transport business. So that did have a significant impact on our reported gross margin. So if you adjust for that in Q2 and compare it to Q3 it was sequentially down.
And we are still making those investments as I as I pointed out in our remarks.
We're very keen on making sure that we have the best capabilities and ample capacity to be able to serve our customers with the fast turnaround time that you've come to expect from us. So.
I would expect gross margin to <unk>.
<unk> to be at these levels.
As we continue to make those investments and.
<unk> build for the future basically.
Great. Thank you so much.
Okay.
Thank you. Our next question comes from the line of Jacob Johnson of Stephens. Your line is now open.
Hey, guys. This is Matt on for Jacob.
I'll add my congrats on the quarter as well, but just a just a quick question from some of your recent presentations at industry conferences, they seem to focus on chromatography stuff in viral vector manufacturing.
Could you talk about the demand for your chromatography buffer in viral vector manufacturing processes.
And how much can you help optimize this process and where can you drive the efficiencies.
Sure.
I'll touch on it.
Generally speaking we are seeing what we believe is significant inefficiencies in viral vector production processes, So and part of that comes from the purification process, which is the chromatography as well as the final formulation process.
And we believe based on our own work internally that there.
Theres a lot of need there for custom reagents for making highly pure AAV.
And it's not.
Similar to maybe a monoclonal antibody therapeutic where youre, having a very similar if not the same process for purification that every one of these viral vector purification does require some optimization and so we see that as an opportunity for us from a custom manufacturing perspective, and are building scientific expertise and that way to help our customers through that process development.
Phase.
But there are multiple steps within that entire bio production process that we're focused on.
And believe that all need.
Fast turnaround time of custom products in that scale of less than 1000 leaders and so our vision. There is really how do we accelerate that process development. So we can get them into clinical trials sooner.
Great. Thank you.
Also on the Chief commercial officer hiring this morning.
So congrats on that news as well can you talk about what Ken will initially be focused on.
Absolutely. So first obviously very excited about.
And Jen joining technology. These are two leaders without a doubt.
And our respective areas and of course, I've worked with Ken that BD.
Ken will continue to execute on the vision that we've laid out.
<unk> outlets commercial team he has done in his past.
Both with Danaher.
Danaher and Becton Dickinson.
And really driving the science first focus on the field and then leveraging our entire customer base to drive.
Same same account revenue growth and so cannot be focused on making sure. We're.
Executing on a commercial perspective, and operating to continue to deliver our customers the highest quality products quickly.
Great. Thanks, guys.
Thank you.
Yes.
There are no further questions at this time and this concludes today's conference call. Thank you for participating you may now disconnect.
Thank you. Thank you.
[music].
Okay.
[music].
[music].
[music].
Good day and thank you for standing by welcome to the Pik note about third quarter 2021 financial results conference call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session. That's good question. During the session you will need to press star one on your telephone if you require any further assistance. Please press star zero.
I would now like to hand, the conference over to your first speaker today, Sam Mitchell more. Thank you. Please go ahead.
Thank you operator.
Welcome to Teck Nova's third quarter 2021 earnings conference call on today's call Stephen Gone stream Technologists, Chief Executive Officer will provide business highlights and updates followed by Matt Lowell Technologies', 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 company's 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 company's management believes that in addition to GAAP results non-GAAP financial measures can provide meaningful insight when evaluating the company's financial performance and the effectiveness of its business strategies.
This call we will therefore use non-GAAP financial measures of certain of our results reconciliations of GAAP to non-GAAP financial measures are included in the press release that we issued this afternoon, which is posted to tech Nova's website.
And at W. Dot SEC Dot Gov Slash Edgar non-GAAP financial measures should always be considered only as a supplement to and not as a substitute for for financial measures prepared in accordance with GAAP and non-GAAP financial measures. In this presentation may differ from similarly named non-GAAP financial measures.
By other companies.
Please be advised the company has posted a supplemental slide deck to accompany todays prepared remark on its website and that can be accessed through the investor Relations section of technical of its web site.
And on today's webcast and with that I'll turn the call over to Steven.
Thank you Sarah good afternoon, and thank you everyone for joining us for our third quarter earnings call.
<unk> is a leading provider of critical reagents that supports the discovery development and production of drug therapies novel vaccines in molecular diagnostics.
We manufacture high quality customer agents with short turnaround times and are able to scale with our customers from discovery to commercialization.
To give you an example in cell and gene therapy, there is significant need for customer and reagents and volume smaller than 1000 liters or short turnaround of custom clinical grade bio processing solutions enables our cell and gene therapy customers to reduce the time from drug discovery to clinical impact.
Over the last several months I and other members of our team have participated in various industry conferences and events and met with a number of customers and high potential prospects.
I've been energized by these interactions, particularly in the cell and gene therapy space. We believe there is market demand for high quality custom solutions, our discussions have validated our thinking strongly reinforced to me that our capabilities, including our quick turnaround.
A critical need in the industry supply chain.
We are well positioned to benefit over time, one as our customers advance their products or therapies through their clinical development pipeline and two from growth in the broader market segment.
We have the infrastructure in place today to support our near term outlook. Our balance sheet is strong and we are making good progress on positioning the company for long term growth by investing in capacity expansion commercial excellence and R&D.
Lastly, we have the team in place to execute on our vision our COO.
Thank all of our 215, plus associates, whose dedication has been and will continue to be critical to our success.
Yeah.
Moving to our business update I'm pleased to report that in the third quarter, we performed well commercially and made meaningful progress on our investment priorities.
Our total Q3 revenue excluding sample transport media was $9 3 million up 26% as compared to $7 4 million in the third quarter of 2020.
Second we advanced construction on our new state of the art GMP manufacturing facility in Hollister, California, which when operational at the end of 2022 will increase production capacity by five fold.
Also made efficiency and capacity improvements at our existing facilities.
Third we continue to invest in talent in areas that are critical to our near and long term success. For example in the third quarter, we expanded our R&D process engineering and automation teams to support the new manufacturing facility build out.
Finally today, we announced that we expanded our leadership team with two key hires in our commercial organization I want to formally welcome Kevin Carroll House, who will serve as Chief commercial officer, and Jack Henry who is joining the company as our senior Vice President of marketing.
Ken will lead sales product management, and commercial operations and customer service that technical that Ken has significant experience in the commercial roles at life Science companies. Most recently at Becton Dickinson, where he was responsible for the global clinical solutions business unit of BD Biosciences, Ken and I worked together at BD and his background in building commercial.
Innovation and leading complex businesses makes him an ideal fit for the role.
Jen constant technicals are from the technology industry with past roles in marketing on E Bay, Facebook, Google and Apple hiring outside of life Sciences for this role was intentional on our part we wanted a top marketing talent of course, but also someone who would bring fresh perspective, and creative thinking to our customers' Jan as a brand.
This is the highest order has led to some of the biggest launches in the tech industry, including the original iPhone and has proven to be adept at adjusting to new environments and building teams.
I'm thrilled to have both Ken and Jen joined the technical the team and I look forward to them contributing to our future success.
Overall, we are encouraged by our third quarter performance and excited with the progress we've made against our strategic plan looking through the remainder of the year our priorities remain consistent and we will continue to be laser focused on execution and laying the foundation to support our long term growth opportunities.
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 third quarter of 2021.
Let's start with revenue.
Total revenue for the quarter was $9 4 million, a 5% increase from $9.01 million in the third quarter of 2020.
As Stephen mentioned, excluding sample transport media revenue for the third quarter of 2021 was $9 3 million or 26% increase from $7 4 million in the third quarter of 2020 a.
Our way of reminder, techno relaunched a transport media product in the latter part of the second quarter of 2020 to address the urgent need for COVID-19 tests.
When we consider revenue from transport media sales to be nonrecurring and the product is not part of our ongoing strategy.
Lab essentials products are targeted at the research use only or are you all market and include both catalog and custom products.
Essentials revenue in the quarter was $7 2 million or 24% increase from $5 8 million in the third quarter of 2020.
Revenue growth was driven by higher average revenue per customer and we are seeing that both year over year and sequentially.
Clinical solutions products are made under good manufacturing practices or GMP quality standards and our targeted for use by customers in the clinical and commercial phases of our products where therapies development.
Our clinical solutions revenue in the quarter was $1 7 million, a 25% increase from $1 4 million in the third quarter of 2020.
As a reminder, due to the larger average orders in clinical solutions, there can be quarter to quarter revenue Lumpiness in this category.
We are pleased with our 25% underlying clinical solutions growth performance this quarter, particularly in light of tough comparisons to the prior year quarter, which benefited from tailwind associated with an increase in COVID-19 testing kits and vaccine production.
We are pleased to report that in Q3, we grew our clinical solutions revenue by adding new active customers defined as a customer that ordered within the previous 12 months. We expect revenue attributable to these new clinical solutions customers will grow over time, even as their initial buying activity.
<unk> contributed to lower average revenue per customer in the same periods.
Turning to the income statement.
Gross profit for the quarter was $4 3 million compared to $5 1 million in the third quarter of 2020.
The decrease in gross profit was primarily driven by an increase in manufacturing overhead and higher labor expenses.
Gross margin was 45, 4% in the quarter, which is down from 56, 6% in the third quarter of 2020, reflecting higher costs associated with planned investments that the company is making in its current manufacturing capacity and capabilities to support long term growth.
Operating.
<unk> expenses for the quarter were $8 2 million compared to $2 9 million in the third quarter 2020.
Operating expenses in the quarter increased as we continued to invest in talent critical to our near and long term success. We are pleased to have added bench strength to the company's corporate commercial and R&D teams. We continue to make good progress on hiring generally and on other internal initiatives to <unk>.
Priest, our operational capabilities also we have substantial new costs associated with operating as a public company and meeting applicable requirements.
As of quarter end the company had over 215 associates up 33% from the third quarter of 2020.
The net loss attributable to common stockholders for the quarter was $3 3 million or <unk> 12 per share compared to net income attributable to common stockholders of zero point $3 million or <unk> <unk> per share for the third quarter of 2020.
Adjusted EBITDA, a non-GAAP measure was negative $2 7 million for the quarter compared to positive $2 7 million for the third quarter of 2020.
Okay.
Now a few notes about the balance sheet and cash flow.
Capital expenditure in the quarter was $3 9 million compared to 1.01 million in the same quarter prior year as in previous quarters. The majority of spend in the third quarter of 2021 was investments in our new GMP manufacturing facility, our current production facilities.
And our R&D lab.
We are committed to building, our manufacturing capacity and related infrastructure in front of anticipated increases in future demand.
To ensure our customers are able to receive their custom products in weeks instead of months.
Uh huh.
Adjusted free cash flow, a non-GAAP measure was negative $6 6 million for the quarter compared to positive $1 7 million for the third quarter of 2020.
This decrease compared to the prior year period was due to lower adjusted EBITDA and the significant increase in capital expenditures I mentioned previously.
Turning to the balance sheet as of September 32021, we had $98 million in cash and cash equivalents and $12 million and gross debt.
Our net cash balance of $86 million puts us in a strong position as we continue to invest for the long term growth of our business.
I wanted to make a few comments about our revenue outlook through the end of the year.
Given our strong revenue performance in Q3, we are confident in our ability to achieve our core revenue growth target of 25% for fiscal year 2021.
We continue to experience strong customer interest in our products and good order flow and at this point in the quarter. We are comfortable with current consensus revenue expectations for the fourth quarter.
In the fourth quarter, we intend to continue our aggressive investments in capacity expansion marketing sales and R&D. We believe investment is necessary to serve our customers as their order volumes scale and will further solidify our competitive advantage and short turnaround times on.
Custom products.
With that I'll turn the call back to Steven.
Thanks, Matt we are very happy with the progress we have made this year in delivering on our commitment to our shareholders. We are executing on all phases of our strategic plan and are in good position to finish the year strong I am confident that the investments we are making today to support our near and long term growth was strengthen our competitive advantage in the market.
Further <unk>.
Lastly, we have the team we need 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.
Operator.
As a reminder to ask a question you will need to press star one on your telephone.
I would like to ask a question. Please press Star then the number one on your telephone keypad.
We do have a question. Please question about key Easter.
<unk> compile the Q&A roster and our first question comes from the line of Matt <unk> of <unk>.
William Blair. Your line is now open.
Hey, guys, it's actually Matt on for Matt Congrats on another strong quarter and thanks for taking my questions. So I appreciate that you aren't quite ready to give guidance beyond the fourth quarter, just due to the size of your customer base and clinical solutions, but can you give us an update around the number of customers you have in the pipeline. There that you think could potentially be ordering GMP grade products over the next year or two.
And then more broadly at the time of your IPO, you talked about how youre working with 65, leading cell and gene therapy company is 29% of which were ordering custom formulations. Just wondering is it is there any way we can get an update around those figures and then Stephen just based on your comments around the demand youre seeing from cell and gene therapy customers is it fair to assume that the.
Clinical solutions customers that you added in the quarter fall within that bucket.
Okay.
Thanks Max.
So we're not at this point disclosing the number of customers in our pipeline that's something we can consider for future, but at this point in time, but.
I will say that we have.
Seeing a very strong trend of growth over the past quarters, and we see good order flow coming in both of order volume as well as number of new accounts.
And at this point in time.
We can say that of those new accounts, yes, we are seeing additional cell and gene therapy customers, joining our clinical solutions business.
Got it and then maybe Jim just to follow up on the other question that you had macs around the.
Percentage of our.
Business coming from from.
Customers ordering custom products I think that's also in line generally with the trends that we expected to see.
<unk>.
And as evidence of that we have increase in average revenue per customer in the lab essentials business.
So well.
We're very happy with the progress that the lab essentials business is also making.
Yes, certainly don't want that.
Focusing on the clinical solutions business, but I don't want the lab essentials business to go under I. Appreciate it so I appreciate that commentary.
Just as a follow up at a high level I mean supply chains that have been a big theme. This quarter. So just wanted to ask and see if you are experiencing any supply chain pressure and if so what impacted that pressure have on results in the quarter and then I know obviously you have the factory new facility coming online in 2022, and you've talked in the past about some of the levers that you can pull.
To increase capacity in the near term, but it seems like most of those levers are directly related to adding more employees and given the tightness in the labor market.
Is there any concern there in terms of switching to a seven day work week or expanding production overnight that.
Just given the tight labor market that those levers might not be as achievable as maybe you thought a couple of months ago.
Sure no problem. So on the supply chain side. It certainly is a challenge at the moment, we've been working very closely with both our internal teams as well as our customers to move them. The secretary options for some of the raw materials, where there is a challenge.
And I think we've been very successful in doing that so I'm happy with our performance, there and managing that a difficult situation.
I don't know exactly from a impact perspective, but I can say that we have managed it very very well and impressed with what we're able to do both with our customers and internally to make sure we can deliver for them.
On the facility piece right. So we will be operational with our new facility by the end of 2022.
While we're also investing in our current facilities.
Labor hours as you mentioned.
We have found benefit from <unk>.
Probably the awareness of us being a public company and able to recruit talent into the organization.
It is of course, a challenge and it's very competitive but given the vision of the company our ability to execute and the culture. We have set up here I think we're making significant progress there.
And then the other part about that from a capacity perspective. It is not just labor hours, we've invested as I said in process engineering as well as automation, both of which will apply to the new facility as well to drive increases in output from a production perspective.
Got it.
Alright, Thanks, again and congrats on the quarter.
Thanks.
Our next question comes from the line of sung <unk> Nam of <unk>. Your line is now open.
Hi, Thanks for taking the question and congrats on the quarter.
Just a couple of quick ones for me I was just curious about kind of what you were seeing it sounds like Theres a lot of interest a lot of demand coming from.
Well, it's the biopharma market for cell and gene therapy market as well as just your overall end markets and was curious about just given the weak environment.
You know, Matt talked about supply chain issues.
Also with the with the Delta very and then other than we're starting to hear kind of maybe even.
The rates going up again in certain regions around the country, and particularly globally and so.
We're just kind of curious of what youre seeing if youre seeing kind of.
Activity levels normalizing.
For your customer base and access to your sales Force Act that took youre customers are also normalizing and just kind of curious what that what the kind of the near term.
Outlook might look like.
So I'll leave the outlook financial outlook to Matt, but I can say that.
The Delta variance some of those supply chain challenges, we do not believe has affected our business in Q3.
And.
<unk>.
We're able to deliver as planned and I see foresee.
Outcome in Q4.
And I will also say that some of these supply chain challenges are also we consider some opportunities right, where we were able to adjust our our manufacturing processes are raw materials change in packaging for customers to allow them to get their products sooner and so I believe that we are actually in a <unk>.
Great position to deliver during this time.
Particularly challenging from a supply chain perspective.
Then I'll just add to that just from a financial impact perspective, I mean, we're really not seeing any.
No material impact from the Delta variance certainly not like we saw last year when there was a lockdown.
Across the country and.
This this is really already been impacted from a sample transport.
<unk> line that we have and we've already mentioned that and as you can see in this quarter. There was also fairly low level of revenue for that.
Product line, but other than that in terms of the rest of our business nothing is impacting us at the moment and we hope it stays that way obviously.
Great.
Then just my.
My follow up is up or Matt in terms of gross margin you saw that decline year over year and you guys mentioned.
It'd be incremental investment that you had talked about before but it actually went up sequentially and I was wondering just in terms of going forward is this the level to kind of carry forward I am just trying to.
Figure out if there are additional investments that are.
And your plans with the O L J.
Good question <unk>.
Well first of all I would just point out that remind folks that in Q2, we did have a fairly significant impairments inventory reserved rather taken with the.
For the sample transport business. So that did have a significant impact on our reported gross margin. So if you adjust for that in Q2 and compare it to Q3 it was sequentially down.
And we are still making those investments as I as I pointed out in our remarks.
We're very keen on making sure that we have the best capabilities and ample capacity to be able to serve our customers with the fast turnaround time that you've come to expect from us. So.
I would expect gross margin to.
Continue to be at these levels.
As we continue to make those investments and.
<unk> built for the future basically.
Great. Thank you so much.
Yes.
Thank you. Our next question comes from the line of Jacob Johnson of Stephens. Your line is now open.
Hey, guys. This is Matt on for Jacob.
I'll add my congrats on the quarter as well, but just just a quick question from some of your recent presentations at industry conferences, they seem to focus on chromatography step in viral vector manufacturing.
Can you talk about the demand for your chromatography buffer in viral vector manufacturing processes.
And how much can you help optimize this process and where can you drive the efficiencies.
Sure.
I'll touch on it.
Generally speaking we are seeing what we believe is significant inefficiencies in viral vector production processes, So and part of that comes from the purification process, which is the chromatography as well as the final formulation process.
And we believe based on our own work internally that there.
There is a lot of need there for custom reagents for making a highly pure AAV.
And it's not.
Similar to maybe a monoclonal antibody therapeutic where youre, having a very similar if not the same process for purification that every one of these viral vector purification does require some optimization and so we see that as an opportunity for us from a custom manufacturing perspective, and are building scientific expertise and that way to help our customers through that process.
This development phase.
But there are multiple steps within that entire bio production process that we're focused on.
And believe that all need.
Fast turnaround time of custom products in that scale of less than 1000 leaders and so our vision. There is really how do we accelerate that process development. So we can get them into clinical trials sooner.
Great. Thank you.
Also on the Chief commercial officer hiring this morning.
So congrats on that news as well can you talk about what Ken will initially be focused on.
Absolutely. So first obviously very excited about Ken and Jen joining technology. These are two leaders without a doubt.
In their respective areas and of course, I've worked with Ken that BD.
Ken will continue to execute on the vision that we've laid out of building out. This commercial team. He has done this in this path.
With Danaher.
Danaher and Becton Dickinson.
And really driving the science first focus on the field and then leveraging our entire customer base to drive.
Same same account revenue growth and so cannot be focused on making sure. We're.
Executing on a commercial perspective, and operating to continue to deliver our customers the highest quality products quickly.
Great. Thanks, guys.
Thank you.
Yes.
Yeah.
There are no further questions at this time and this concludes today's conference call. Thank you for participating you may now disconnect.