Q1 2023 Alpha Teknova Inc Earnings Call
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Yeah.
Good day and welcome to the check Nova first quarter 2023 financial result call. At this time all participants are in a listen only mode.
After the speaker presentation, there will be a question and answer session.
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Please be advised that today's conference is being recorded I would now like to hand, the conference over to your Speaker Senior Vice President of marketing at Tech Nova Jennifer Henry Please go ahead.
Thank you operator.
Welcome to <unk> first quarter of 2023 earnings Conference call with me on today's call are Stephen Gulfstream checked a as president and Chief Executive Officer, and that law took notice Chief Financial Officer, who will make prepared remarks, and then take your questions.
As a reminder, the forward looking statements that we make during this call, including those regarding our 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 they are more fully described in the company's various filings with the SEC.
Ray'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 its 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 strategy.
We will therefore use non-GAAP financial measures of certain of our results during this call.
Reconciliations of GAAP to non-GAAP financial measures are included in the press release that we issued this afternoon, which is posted to <unk> website at www 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 or as superior to 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 posted a supplemental slide deck to accompany today's prepared remarks. It can be accessed on the Investor Relations section of <unk> website and on today's webcast and now I will turn the call over to Susan.
Thank you Jen good afternoon, and thank you everyone for joining us for our first quarter of 2023 earnings call.
Technology is a leading producer of critical reagents for the life sciences industry to accelerate the introduction of novel therapies vaccines and molecular diagnostics that will help people live longer healthier lives.
We manufacture high quality customer agents with short turnaround times and are positioned to scale with our customers as they advance their products from discovery to commercialization.
We had a good start to the year our team continued to manage in a dynamic environment by delivering results in line with our plan, including increasing revenue sequentially by 16%.
We are particularly pleased that we are not only tracking well to our expected financial metrics for the year, but we are also executing on our key initiatives.
On or ahead to plan to position the company for sustainable accelerated growth.
First we saw an increase in clinical solutions customers in the first quarter and believe the growth demonstrates the stabilization in overall demand from our customers and we remain optimistic about the long term potential of our target markets.
We also continued to see strength in our commercial funnel and remain confident in our topline guidance for the full year.
Second our new state of the art modular manufacturing facility is on track for GMP grade production by mid 2023.
In addition, we are encouraged by early indications of interest from certain of our customers. We have begun to schedule audits for early in the third quarter.
We believe this new facility plus our existing operating infrastructure will give us the capacity to deliver approximately $200 million in annual product revenue when fully utilized.
Third on the R&D front I am pleased to say our new product pipeline is progressing ahead of schedule in March we announced a collaboration with sartorius via separations to help our customers improve AAV purification processes.
Building on this news last week, we launched our first ever set of proprietary agents, which we believe can save months of development time for gene therapy customers as they develop their AAV bio processing workflows.
As customers incorporate these proprietary reagents into their clinical production processes, we expect to become an even more critical supplier as they advance their therapies towards commercialization.
Lastly, we are tracking well to our cost reduction plans operational expenses were down sequentially when excluding one time costs.
And while cash outflow in the quarter was approximately $12 million. The corresponding expenses were planned and primarily related to the completion and qualification of our new facility.
Thus, we are tracking towards our previously communicated total cash outflow target of approximately $30 million for fiscal 2023.
I will now hand, the call over to Matt for a discussion of the financials.
Thanks, Steven and good afternoon, everyone.
Total revenue was $9 1 million for the first quarter of 2023, an 18% decline from $11 1 million in the first quarter of 2022, reflecting the continued headwinds associated with lower demand from early stage Biopharma customers, which we first observed in the third quarter of 2000.
'twenty two.
Well have essentials products are targeted at the research use only or are you all market.
That includes both catalog and custom products <unk> Essentials revenue was $7 3 million in the first quarter of 2023, 4% increase from 7.0 million in the first quarter of 2022.
Growth for the first quarter was primarily driven by higher average revenue per customer, partially offset by a decreased number of customers.
Clinical solutions products are made according to good manufacturing practices or GMP quality standards, primarily used by our customers as components or inputs and the development and manufacturer of diagnostic and therapeutic products.
Clinical solutions revenue was $1 6 million in the first quarter with 58% decrease from $3 8 million.
First quarter of 2022.
The decrease in clinical solutions revenue was attributable to lower average revenue per customer, partially offset by an increased number of customers.
We expect revenue per customer to increase over time as they ramp up their purchase volumes. However, this metric can be affected by the mix of newer clinical customers, who typically order less.
Just as a reminder, due to the large average order sizes and clinical solutions compared to lab essentials.
There can be quarter to quarter revenue lumpiness in this category.
Yes.
Gross profit for the first quarter of 2023 was $2 4 million compared to $5 3 million in the first quarter of 2022 gross margin was 26, 6% of revenue in the first quarter of 2023, which is down from 48% of revenue in the first.
Quarter of 2022.
The lower gross margin for the first quarter of 2023 compared to the first quarter of 2022 was primarily driven by the.
The decrease in revenue and the <unk>.
Associated lower absorption of fixed manufacturing labor and overhead costs, including depreciation from our new facility.
Operating expenses for the first quarter of 2023 were $11 4 million compared to $11 2 million for the first quarter of 2022.
Excluding the onetime nonrecurring charge related to the reduction in workforce of 0.7 million incurred during the first quarter of 2023.
Operating expenses decreased compared to the first quarter of 2022.
The decrease was driven by reduced spending primarily in professional fees and occupancy costs, partially offset by higher wages and stock based compensation expense.
The reduction in workforce of approximately 40 positions is expected to generate annualized savings of approximately $4 million.
Net loss for the first quarter of 2023 was $8 8 million or <unk> 31 per diluted share compared to a net loss of $5 5 million or <unk> <unk> per diluted share.
For the first quarter of 2020.
To.
The company recorded minimal tax benefit this quarter against its pretax losses as soon as it's currently recording valuation allowances against incremental net operating loss carryforwards.
Adjusted EBITDA, a non-GAAP measure was negative $6 1 million for the first quarter of 2023 compared to negative $4 3 million for the first quarter of 2022.
However, adjusted EBITDA increased by more than $2 million sequentially.
Capital expenditures for the first quarter of 2023 were $4 3 million compared to $5 9 million for the first quarter of 2022.
This marks the third straight quarter of declining capital expenditures most of the spending in the first quarter of 2023 went towards the completion and qualification of our new GMP production facility.
Free cash flow, a non-GAAP measure, which we define as cash provided by or used in operating activities less purchases of property plant and equipment was negative 12.0 million for the first quarter of 2023 compared to negative $11 1 million for the first quarter of 2000.
'twenty two.
This decrease compared to the prior year period was primarily due to higher cash used in operating activities, partially offset by a decrease in capital expenditures.
Turning to the balance sheet as of March 31, 2023, we had $32 million in cash and cash equivalents and $22 $1 million in gross debt.
Now onto our 2023 guidance and outlook. We are reiterating 2023 total revenue guidance of 42 million to $46 million at the midpoint. This assumes revenue growth of approximately 6% compared to 2022.
With respect to product categories. We continue to expect lab essentials revenue to be roughly flat compared to 2022 and clinical solutions revenue to grow between 20% to 50% compared to 2022.
This product category growth guidance includes the assumption that a significant customer shifts from lab essentials to clinical solutions products in 2023.
The company continues to aggressively manage expenses at the end of March The company had 251 associates down from 290 million at the end of 2022.
Excluding nonrecurring charges the company posted operating expenses below $11 million for the first time since 2021.
It's not reflect the full benefit of the reduction in force completed in February .
Similarly, the company saw a reduction in free cash outflow during the first quarter of 2023.
This marks the third straight quarter of lower cash outflow and it's consistent with the company's expectations for the year as we anticipate operating losses and capital expenditures to continue to trend downward over the course of the year.
In addition to cash on hand, we have access to our revolver up to $5 million and ATM facility up to $14 $5 million.
Further we believe we have already made the step up investments needed to execute our growth strategy and can scale without significant additional investment.
With that I will turn the call back to Steven.
Thanks, Matt.
Overall, we are pleased with our performance in the first quarter of 2023, the long term outlook for our end markets remains positive.
Our committed to executing on our strategy to help our customers accelerate the introduction of novel therapies diagnostics and the other products that improve human health.
Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced.
To withdraw your question. Please press star one again.
One moment for our first question.
Yes.
And that will come from the line of Jacob Johnson with Stephens. Your line is open.
Hey, good afternoon, Stephen and Matt Congrats.
Congrats on this quarter.
Maybe just to kick it off with the lazy macro question, just because theres been a lot of mixed commentary this quarter about this LNG and therapy space I'd just be curious kind of if.
If you're seeing any kind of.
<unk> from customers due to the macro certainly doesn't seem like given the result, you put out or at least maybe versus your prior expectations, but in the year seems to be tracking ahead of plan.
Maybe just start there on the macro.
Yeah, great. Thanks Jacob.
Yes.
We have not seen a decrease from what we called out after our Q2 earnings in 2022.
I think that we are a little bit different than some of the other players in the space in that.
Our regions are in stock right, we have a unique ability to custom manufactured these things and get them Theyre quickly.
And so are not prone to some sort of destocking piece, but we are tied obviously to some of the biotech funding. So when we saw the biotech funding shift.
Impacts to out in the back half of the year.
What we saw was what we've reiterated before which is a slowdown in the number of clinical trials happening or reduced in size of those.
Those clinical trials.
And as I said in the last earnings call, we kind.
I believe we're in a kind of a new normal operating environment, where the customers were talking to now have their budget for the year and they are building that up and you can see from what we just said in the script here that we have seen an increase in clinical customers in the first quarter and we see that as a very positive sign that the funnel is building.
Commercial strategy is working and that should be paying off in the back half of this year as we've indicated.
Got it and then I guess the follow up just on.
The AAV Tech launch.
That seems to be kind of the formal commercial launch of that product, but I think <unk> been testing it with customers. So I'm curious about reception, especially given.
Some of the disclosures today about the difficulties of the downstream.
Figure three steps.
Yeah, and I think it is a major pain point from the kind of started here in 2020 or the first time, we talked with some of these AAV gene therapy developers, who is really separating these empty and full capsid and the team has done an awesome job of putting together a complete solution for those customers.
We launched the AAV to stereotype kit couple of weeks ago, and what <unk> really the first time <unk> launched some proprietary products. The customer response has been very favorable really excited.
We're excited the products actually in stock ready to go and.
It's going to help us onboard a lot more of these customers and then get them into our reagents and that they go downstream they become bigger and more reliance on us as they go through commercialization.
Probably most importantly for them and this is this is a lot of work to match that.
To identify which is the right set of buffers to do that last polishing steps and we can save them months of time of work to get them into the clinic faster.
Got it thanks Steven.
Thank you one moment for our next question.
And that will come from the line of Matt Larew with William Blair. Your line is open.
Alright. Thank you so much for taking my question. This is actually Marlin moment on for Matt.
Thinking about the colony Cove solutions.
Down year over year, I know, you said that part of that.
You too.
You have a mix towards newer customers can you talk a little bit of how you see that trending over the year and what is kind of incorporated in your guidance for the year from clinical solutions.
Yeah, I'll start Matt till through the jump in.
We've talked about the changes in the biotech funding space in a particular impact on early and mid stage biotech, particularly.
Particularly for us.
A number of customers in cell and gene therapy.
That were affected by that and they reduced their overall size of clinical trial and the number of clinical trials or the number of different therapies working through the pipeline.
So we pulled that obviously out and it's built into the forecast for the year.
And so not surprising these are right in line with what we'd expect to be if not ahead.
The first quarter.
For the remainder of the year, though we do have a commercial organization up and going and we're excited to see that will increase the number of clinical customers.
On a year on year, yet the average spending down but that is expected and.
And we do think that the back half of this year.
Turning up to be really well as we look at our funnel and then obviously into 2024.
Then you combine that with their new facility opening.
And the facility will allow obviously a lot of capacity expansion, but also allows us to onboard some of these customers that now can look at our facility and realize that we can be with them all the way through commercialization and beyond so I mean, those combination of those two things I think sets us up really well for a strong back half of the year end 2020 for it.
Great. Thank you and so just thinking from a margin perspective.
In the past you said that you were expecting full year margins to be around 30% does it change the clinical solutions piece change anything about how you're thinking about margins for the year.
Yes, I would just say from a margin perspective for the full year, we certainly mentioned about 30% range.
We've certainly considered the amount of clinical revenue contribution for the year on that into the margins.
That's not really changing here again, as we kind of reiterated our our guidance on revenue for the year. So.
I think we will see a time when the revenue from clinical is a bigger contributor in the quarter. It could be could be a help to margins, but generally speaking the biggest help to gross margins as just overall revenue volume so.
We're still seeing this.
The current margins, where they are similar to last quarter at this at this revenue level and with the new facility coming into play but for the full year. We're still looking for the same type of result, you mentioned matti.
Thanks.
You hit it.
Thank you one moment for our next question.
That will come from the line of Steven Mah with TD Cowen Your line is open.
Great. Thanks, Congrats on the quarter and thanks for taking the questions.
Yes.
A couple of follow up ones on the AAV Tech solutions kit.
Did you guys do any voice of customer or their market research to identify this pain point in the AAV bio processing and.
If you did do you guys have a sense on how big the market opportunity is for this product given that it's so new.
Yes, It certainly is a new product and it's a product that solves a problem from.
A number of our customers. So yes, we did do we did do market research, obviously talking to customers directly but also additional market research on the product again.
Value driver of this is really over the long term right instead of coming to us with this very specific formulation after they've done months of work to figure out what the right.
Buffer combination do you use to get there.
Virus purified and polished.
They can come right into our proprietary reagents and find a solution in a couple of weeks and so once they do that then there are kind of using our reagents and they become bigger and larger trials as they moved on the pipeline and ultimately commercialization.
Think that the expansion in that timeframe from beginning to end is about a 30 fold increase and this was this was actually some of the research we did even before we took the company public was in this area.
And feel pretty good about not only the size I mean, if you look at the size of the number of therapies going through AAV. That's one way to look at it but also of the one of the most critical pain points.
I don't think we've yet disclose the size of that market I think it obviously depends on the number of trials that you assume that go through in the amount of spend but maybe that's something we can give you at a later date.
Okay got it and then could.
Could you just give me a sense for the kit like how many assays are run.
It would go through.
Yes.
Health.
Sorry.
I know you're not going to follow on.
<unk> itself is.
<unk> built out of a number of what we call design of experiments.
Done here internally, so we ran hundreds of different buffer combinations to basically.
Down to a size of about seven combination buffers of 14 total and one liter bottles for customers to evaluate so depending on the the serotype for using the.
The resin over the platform using for purification as well as the Trans gene.
They ended up choosing one of these seven buffers. So the idea is you get this whole kidding you try on seven and.
And then identify which of those.
Combinations will work for you and then the customers can do a couple of things obviously, they can continue to order one of those going forward and we sell those individually they can order them in larger scale. They can order them in GMP formats.
It can also come back to us we can do some work with them and find out if there is a combination between a couple of them that will even give them better results, it's really up to them to define which is kind of what makes us unique and that we can get these into production then or eminent scale with them through through clinical trials.
Okay.
And then a question for Matt about the gross margin so.
How should we think about the gross margin impact as your new facility comes online.
Facility scales, and you can spread out overhead and fixed costs. When do you expect gross margins to sort of bottom out and then begin to recover.
Yes, I think.
Overall, the long term story for gross margin is that we're we're targeting 60% to 65% right.
Quite a bit above where we are today, but we expect to see some pretty good acceleration in that gross margin as we.
Grow the top line is we're expecting here over the next several year.
Years so.
So we do have that potential going forward in the short run there is going to be pressure on gross margins as you pointed out with the new facility in particular depreciation is one of the major cost, but we have that are impacting the P&L.
Started some depreciation on a portion of the facility at the very end of last year, we have a full quarter of that in Q1 results and we'll be bringing more parts of the facility online later this year, which will further increase the depreciation.
Load, but.
I think this year FY2023 will be the will be the low point because of these added costs coming in and as we grow the top line will start to see some material improvements going forward.
Okay, Great. That's very helpful. Thank you.
Thank you I'm showing no further questions in the queue at this time.
This concludes today's program. Thank you all for participating you may now disconnect.
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