Q1 2024 Alpha Teknova Inc Earnings Call
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Operator: Good day, and thank you for standing by. Welcome to Teknova's first quarter 2024 financial results conference call.
Good day and thank you for standing by welcome to <unk> first quarter 2024 financial results Conference call.
Operator: At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Jennifer Henry, senior vice president.
Time, all participants are in a listen only mode.
After the speaker's 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 you will then hear an automated message advising in your hand as race. So sorry, a question. Please press star one again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your first speaker today, Jennifer Henry Senior Vice.
Jennifer Henry: Of marketing. Please go ahead.
Jennifer Henry: Welcome to Teknova's first quarter 2024 earnings conference call. With me on today's call are Steven Gunstream, Teknova's president and chief executive officer, and Matt Lowell, Teknova's chief financial officer, who will make prepared remarks and then take your questions.
Jennifer Henry: Thank you operator.
Welcome to Tech know this first quarter 'twenty 'twenty four earnings conference call.
Jennifer Henry: With me on today's call are Stephen Gods Dream, techno as President and Chief Executive Officer, and that law techno as Chief Financial Officer, who will make prepared remarks, and then take your questions.
Jennifer Henry: 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 they 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 its forward-looking statements, except as required by law.
Jennifer Henry: As a reminder, the forward looking statements that we make during this call, including those regarding business school and expectations for the financial performance of the company are subject to risks and uncertainties that may cause actual events or results to differ.
Speaker Change: 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.
Speaker Change: 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 its forward looking statements, except as required by law.
Jennifer Henry: 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. We will therefore use non-GAAP financial measures for 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 on both Teknova's and the SEC's websites. 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.
Speaker Change: The company's management believes that in addition to GAAP results.
Speaker Change: non-GAAP financial measures can provide meaningful insight when evaluating the company's financial performance and the effectiveness of its business strategy.
Speaker Change: Therefore use non-GAAP financial measure a certain of our results during this call reconcile.
Speaker Change: A reconciliation of GAAP to non-GAAP financial measures are included in the press release that we use it this afternoon, which is posted on both technology and the Sec's website.
Speaker Change: non-GAAP financial measures should always be considered only as a supplement to and not as a substitute for or superior to financial measures prepared in accordance with GAAP.
Jennifer Henry: 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 in the Investor Relations section of Teknova's website and on today's webcast.
Speaker Change: The non-GAAP financial measures in this presentation may differ from similarly, named non-GAAP financial measures used by other.
Speaker Change: 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 Tech Nova's website and on today's webcast.
Speaker Change: And now I will turn the call over to Peter.
Stephen Gunstream: Thank you, Jen. Good afternoon, and thank you, everyone, for joining us for our first quarter 2024 earnings call. Teknova is a leading producer of critical reagents for the life sciences industry that 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 we can scale with our customers as they advance their products from discovery to commercialization.
Peter: Thank you John Good afternoon, and thank you everyone for joining us for our first quarter 2024 earnings call.
Peter: <unk> is a leading producer of critical reagents for the life sciences industry that accelerate the introduction of novel therapies vaccine and molecular diagnostic that will help people live longer healthier lives.
Peter: We manufacture high quality customer agents with short turnaround time.
Peter: Can scale with our customers as they advance their products from discovery to commercialization.
Stephen Gunstream: We had a strong start to 2024 with revenue, adjusted EBITDA, and cash outflow in line with our expectations. From a revenue perspective, we saw sequential improvement of $1.4 million, or 18%, versus fourth quarter 2023, and growth over the prior year of 2% overall, with 7% growth specifically in clinical solutions. We were also encouraged that our first quarter 2024 revenue was driven by a diverse set of customers, with no direct customer representing more than 10% of revenue.
Peter: We had a strong start to 2024 with revenue adjusted EBITDA and cash outflow in line with our expectations.
Peter: From a revenue perspective, with a sequential improvement of $1 4 million or 18% versus fourth quarter of 2023 and growth over prior year up 2% overall with 7% growth specifically in clinical solutions.
Peter: We were also encouraged that our first quarter 2024 revenue was driven by a diverse set of customers with no direct customer representing more than 10% of revenue.
Stephen Gunstream: Our Clinical Solutions customer count continues to increase, providing a positive indicator for the long term as these customers migrate their therapies toward commercialization. All told, we remain confident in our $35 to $38 million full-year revenue guidance for 2020.
Peter: Our clinical solutions customer count continues to increase providing a positive indicator for the long term as these customers migrate their therapies towards commercialization.
All told we remain confident in our $35 million to $38 million full year revenue guidance.
Stephen Gunstream: In addition to the solid performance on our top line, we are executing ahead of plan from a cost management perspective. Matt will provide more details on our operating and capital expenditures, but at a high level, we've already started seeing the benefits from our cost control efforts in the first quarter of 2024. Our first quarter adjusted EBITDA was a $2.3 million improvement over the prior year, a quarter with similar top line revenue, and we expect to meet or beat our cash outflow guidance of $18 million for the full year. Operationally, we are executing well.
Peter: Yeah.
Peter: In addition to the solid performance on our top line. We are executing ahead of plan from a cost management perspective, Matt will provide more details on our operating and capital expenditures, but at a high level. We've already started seeing the benefits from our cost control efforts within the first quarter of 2024.
Peter: Our first quarter adjusted EBITDA was a $2 3 million dollar improvement over prior year quarter with similar topline revenue and we expect to meet or beat our cash outflow guidance of $18 million for the full year.
Stephen Gunstream: Our new facility is now regularly generating revenue, with more than four times the work orders completed in the first quarter compared to the fourth quarter of 2023. The combination of our new state-of-the-art facility, quality management system, and purpose-built processes and equipment is enabling customers to receive custom research or clinical grade reagents in weeks instead of months. As an example, in January, we onboarded a new customer that needed a large number of different custom reagents delivered in single-use bags. We were able to deliver nearly 20 custom buffers in less than six weeks from when the customer placed the order.
Peter: Operationally, we are executing well our new facility is now regularly generating revenue with more than four times. The work already completed in the first quarter compared to the fourth quarter of 2023.
Peter: Combination of our new state of the art facility quality management system and purpose built processes and equipment are enabling customers to receive custom research or clinical grade reagents in weeks instead of months.
Peter: As an example in January we on boarded a new customer that needed a large number of different customers agents delivered in single use bags.
Peter: We're able to deliver nearly 20 custom buffers in less than six weeks from when the customer places the order.
Stephen Gunstream: We believe this rapid turnaround time, particularly for first-time orders, is substantially faster than other suppliers in the market. Most important, we allowed our customer to keep its clinical trials on schedule. This quarter also proved to be successful with respect to the launch of new products and capabilities. First, at the annual meeting of the American Society of Gene and Cell Therapy last week, we launched our latest product in our AAV tech solution, the AAV Tech AAV Stabilizer. This proprietary formulation protects the capsid throughout the AAV downstream filtration and purification process. After testing multiple serotypes, we have shown up to a 50% increase in AAV titer yield when using the stabilizing reagent.
Peter: We believe this rapid turnaround time, particularly for first time orders is substantially faster than other suppliers in the market.
Peter: Most important we allowed our customer to keep its clinical trials on schedule.
This quarter also proved to be successful with respect to the launch of new products and capabilities.
Peter: First at the annual meeting of the American Society of Gene and cell therapy last week, we launched our latest product in our AAV Tech solutions.
Peter: <unk> Tec AAV stabilizer.
Peter: This proprietary formulation protects the capsid throughout the AAV downstream filtration and purification process.
Peter: After testing multiple Sarah we have shown up to a 50% increase in AAV tighter yield when using the stabilizing region.
Stephen Gunstream: We also launched Build Tech, a first-of-its-kind custom configurator providing access to high-quality customizable buffers with exceptionally short turnaround times and no minimum order quantity. Our custom configurator is easy to use, and by leveraging our modular manufacturing platform, BuildTek products can shift in a matter of days.
Peter: We also launched build tech.
Peter: A first of its kind custom configured or providing access to high quality customizable buffered with exceptionally short turnaround times and no minimum order quantities.
Peter: Our custom configuration is easy to use and by leveraging our modular manufacturing platform build tech products ship in a matter of days.
Stephen Gunstream: We believe this will enable the customization of multiple iterative buffers needed during early stage research and design of experiments. Ultimately, this allows process development scientists to focus on advancing science instead of spending their time mixing boxes. Finally, I'd like to take a moment to provide my view on how the market is evolving. I believe we are seeing a stabilization in what has been a very challenging biotech environment over the past couple of years.
Peter: We believe this will enable the customization of multiple iterate buffers needed during early stage research and design of experiment.
Peter: Ultimately this allows process development scientists to focus on advancing science instead of spending their time mixing buffers.
Peter: Finally.
Speaker Change: I'd like to take a moment to provide my view on how the market is evolving I.
Speaker Change: I believe we are seeing a stabilization in what has been a very challenging biotech environment over the past couple of years.
Stephen Gunstream: Recent biotech funding improvements combined with our own positive leading indicators, such as increased engagement and quoting with customers previously focused on preserving capital, support a more optimistic outlook going forward. Given that we typically see about a four-quarter lag between changes in industry funding levels and revenue recognition, we think these indicators point toward a more positive market environment in early 2025. In summary, we had a strong start to the year. We are excited about the progress we have made over the past couple of years and believe we are in a position for long-term success. I will now hand the call over to Matt to talk through the finances.
Speaker Change: Recent biotech funding improvements combined with our own positive leading indicators such as increased engagement and coding with customers previously focused on preserving capital support a more optimistic outlook going forward.
Speaker Change: Given that we typically see about a four quarter lag between changes in industry funding levels and revenue recognition. We think these indicators point toward a more positive market environment in early 2025.
Speaker Change: In summary, we had a strong start to the year we.
Speaker Change: We are excited about the progress we have made over the past couple of years and believe we are positioned for long term success.
Speaker Change: I will now hand, the call over to Matt to talk through the financials.
Matthew C. Lowell: Thanks, Steven. Good afternoon, everyone.
Matt: Thanks, Steven and good afternoon, everyone results for the first quarter of 2024 from a revenue perspective, similar to the first quarter of the prior year, but an 18% increase sequentially.
Matt: Overall, we delivered solid financial results for the first quarter 2024.
Matthew C. Lowell: Results for the first quarter of 2024 from a revenue perspective were similar to the first quarter of the prior year, but an 18% increase sequentially. Overall, we delivered solid financial results for the first quarter of 2020. Total revenue for the first quarter of 2024 was $9.3 million, a 2% increase from $9.1 million for the first quarter of 2023. Lab Essentials products are targeted at the Research Use Only, or RUO, market and include both catalog and custom products.
Matt: Total revenue for the first quarter of 2024 was $9 3, million% to 2% increase from $9 1 million for the first quarter of 2023.
Matt: Lab essentials products are targeted at the research use only or are you will market and include both catalog and custom products.
Matthew C. Lowell: Lab Essentials revenue was $7.3 million in each of the first quarters of 2024 and 2023. Lab Essentials revenue was consistent as the slight increase in the number of customers was offset by a slight decline in average revenue. Notably, we have seen a modest increase in the number of LabEssentials customers compared to the fourth quarter of 2023. Clinical solutions products are made according to Good Manufacturing Practices, or GMP, quality standards and are primarily used by our customers as components or inputs in the development and manufacture of diagnostic and therapeutic products.
Matt: <unk> revenue was $7 3 million in each of the first quarters of 2024 and 2023.
Matt: Lab Essentials revenue was consistent as the slight increase in number of customers was offset by a slight decline in average revenue per customer.
Notably we have seen a modest increase in the number of lab essentials customers compared to the fourth quarter of 2023.
Matt: Clinical solutions products are made according to good manufacturing practices or GMP quality standards and are primarily used by our customers as components or inputs and the development and manufacturer of diagnostic and therapeutic products.
Matthew C. Lowell: Clinical Solutions revenue was $1.7 million in the first quarter of 2024, a 7% increase from $1.6 million in the first quarter of 2023. The increase in Clinical Solutions revenue was attributable to an increased number of customers, partially offset by lower average revenue. Notably, here too, we've seen an increase in the number of Clinical Solutions customers compared to the fourth quarter of 2023. We expect revenue per customer to increase over time as customers ramp up their purchase volumes. However, this metric can be affected by the mix of newer clinical customers who typically order less.
Matt: Clinical solutions revenue was $1 7 million in the first quarter of 2024, 7% increase from $1 6 million in the first quarter of 2023.
The increase in clinical solutions revenue was attributable to an increased number of customers, partially offset by lower average revenue per customer.
Matt: Notably here too we have seen an increase in the number of clinical solutions customers compared to the fourth quarter of 2023.
Matt: We expect revenue per customer to increase over time as customers ramp up their purchase volume. However, this metric can be affected by the mix of newer clinical customers, who typically order less <unk>.
Matthew C. Lowell: Just as a reminder, due to the larger average orders and clinical solutions compared to lab essentials, there can be quarter to quarter revenue lumpiness in this category. Gross profit for the first quarter of 2024 was $2.2 million, compared to $2.4 million in the first quarter of 2023. Gross margin was 23.8% in the first quarter of 2024, which is down from 26.6% in the first quarter of 2023. The decrease in gross profit percentage was primarily driven by increased overhead costs, largely depreciation expense following the completion of our new manufacturing facility in mid-2023, partially offset by reduced headcount.
Matt: Just as a reminder, due to the larger average orders in clinical solutions compared to lab essentials.
Matt: Can be quarter to quarter revenue Lumpiness in this category.
Matt: Gross profit for the first quarter of 2024 was $2 2 million compared to $2 4 million in the <unk>.
Matt: First quarter of 2023.
Matt: Gross margin was 23, 8% in the first quarter of 2024, which is down from 26, 6% in the first quarter of 2023.
Matt: The decrease in gross profit percentage was primarily driven by increased overhead costs largely depreciation expense. Following the completion of our new manufacturing facility in mid 2023, partially offset by reduced head count.
Matt: Okay.
Matthew C. Lowell: Operating expenses for the first quarter of 2024 were $10.2 million, compared to $11.4 million for the first quarter of 2023, excluding the non-recurring charges recorded in the first quarter of 2024 and 2023, of $1.3 million and $0.7 million, respectively, each related to a reduction in workforce. Operating expenses were down $1.7 million. The decrease was driven primarily by reduced headcount and spending, in particular on professional teams, despite $0.5 million in one-time non-cash expenses related to option repricing in the first quarter of 2024.
Matt: Okay.
Matt: Operating expenses for the first quarter of 2024 were $10 2 million compared to $11 4 million for the first quarter of 2023.
Matt: Excluding the nonrecurring charges per quarter in the first quarter of 2024 and 2023.
Matt: Up $1 3 million of <unk> 7 billion respectively.
Matt: Each related to a reduction in workforce operating expenses were down $1 7 million.
Matt: The decrease was driven primarily by reduced head count and spending in particular in professional fees.
Matt: Despite.
Matt: Zero point $5 million in onetime noncash expense related to option repricing in the first quarter.
Matt: <unk> 2024.
Matthew C. Lowell: The net loss for the first quarter of 2024 was 8.1 million, or 20 cents per diluted share, compared to a net loss of 8.8 million, or 31 cents per diluted share, for the first quarter of 2023. Adjusted EBITDA, a non-GAAP measure, was negative $3.8 million for the first quarter of 2024, compared to negative $6.1 million for the first quarter of 2023. Capital expenditures for the first quarter of 2024 were $0.1 million, compared to $4.3 million for the first quarter of 2023.
Matt: Net loss for the first quarter of 2024 was $8 1 million or 20 cents per diluted share compared to a net loss of $8 8 million or <unk> 31 per diluted share for the first quarter of 2023.
Matt: Adjusted EBITDA, a non-GAAP measure was negative $3 8 million for the first quarter of 2024 compared to negative $6 1 million for the first quarter of 2023.
Matt: Okay.
Matt: Capital expenditures for the first quarter of 2024 were 0.1 million compared to $4 3 million for the first quarter of 2023. This marks the seventh straight quarter of sequential decreases in capital expenditures.
Matthew C. Lowell: This marks the seventh straight quarter of sequential decreases in capital expenditure. Pre-cash flow, a non-GAAP measure, which we define as cash used in operating activities plus purchases of property, plant, and equipment, was negative $6.7 million for the first quarter of 2024, compared to negative $1.2 million for the first quarter of 2023. This decrease compared to the prior quarter is due to lower cash used in operating activities and significantly reduced capital expenditure.
Matt: Free cash flow, a non-GAAP measure, which we define as cash used in operating activities plus purchases of property plant and equipment.
Matt: It was negative $6 7 million for the first quarter of 2024.
Matt: Compared to negative $12 million for the first quarter of 2023.
Matt: This decrease compared to prior quarter was due to lower cash used in operating activities and significantly reduced capital expenditures.
Matthew C. Lowell: Turning to the balance sheet, as of March 31st, 2024, we had $21.6 million in cash and cash equivalents and $12.1 million in gross debt. Turning to our 2024 guidance and outlook, we are reiterating our 2024 total revenue guidance of $35 million to $38 million. At the midpoint, this implies a revenue forecast that is approximately flat compared to 2023. With respect to product categories, we continue to expect approximately 10% growth in lab essentials revenue with the remainder coming from clinical solutions revenue.
Matt: Turning to the balance sheet as of March 31, 2024, we had $21 6 million.
Matt: Cash and cash equivalents and $12 1 million in gross debt.
Turning to our 2020 for guidance and outlook. We are reiterating 2024 total revenue guidance of 35 million to $38 million.
Matt: At the midpoint. This implies a revenue forecast is approximately flat.
Matt: Third to 2023.
Matt: With respect to product categories. We continue to expect approximately 10% growth in lab essentials revenue with the remainder coming from clinical solutions revenue.
Matthew C. Lowell: The company continues to manage expenses aggressively while preserving the critical investments we believe will allow us to achieve our long-term growth targets. The company posted operating expenses, excluding non-recurring charges, below $10 million for the fourth quarter in a row and stood at $8.9 million for the first quarter of 2024, despite absorbing $0.5 million in one-time non-cash expenses related to the option reprice. This trend continues to reflect steps we've taken to reduce operating expenses.
Matt: The company continues to manage expenses aggressively while preserving the critical investments, we believe will allow us to achieve our long term growth targets.
Matt: The company posted operating expenses, excluding nonrecurring charges below $10 million for the fourth quarter in a row and stood at $8 9 million for the first quarter of 2024, despite absorbing zero point $5 million in onetime noncash expense related to the optionally pricing.
Matt: This trend continues to reflect steps, we've taken to reduce operating expenses.
Matthew C. Lowell: In total, the savings generated by the most recent RIF and other associated cost-saving measures are expected to reach approximately $8 million on an annualized basis by the second quarter of 2024, when compared to the fourth quarter of 2023. We finished the first quarter of 2024 with 174 associates, down 31% from the year-ago quarter. While the company saw an increase in free cash outflow compared to the fourth quarter of 2024, this is consistent with the company's expectations for the year and is higher due to certain larger payments only occurring during the first quarter.
Matt: In total the savings generated by the most recent risks and other associated cost saving measures.
Matt: Our expected to reach approximately $8 million on an annualized basis by the second quarter of 2024, when compared to the fourth quarter of 2023.
Matt: We finished the first quarter 2024, with 174 associates down 31% from the year ago quarter.
Matt: While the company saw an increasing free cash outflow compared to the fourth quarter of 2024. This is consistent with the company's expectations for the year and is higher due to certain larger payments only occurring during the fourth first quarter.
Matthew C. Lowell: We anticipate lower average quarterly free cash outflows for the remainder of the year. As such, the company continues to expect free cash outflows of less than $18 million for the full year 2024. With that, I will turn the call back to Steven.
Matt: We anticipate lower average quarterly free cash outflows for the remainder of the year.
Matt: As such the company continues to expect free cash outflow of less than $18 million for the full year 2024.
With that I will turn the call back to Steven.
Stephen Gunstream: Overall, we were pleased with our performance in the first quarter of 2024. We believe the long-term outlook for our end markets remains positive, and we are committed to executing on our strategy to help our customers accelerate the introduction of novel therapies, diagnostics, and other products that improve human health. We will now take your questions.
Steven: Thanks, Matt.
Steven: Overall, we were pleased with our performance in the first quarter of 2024.
Steven: We believe the long term outlook for our end markets remains positive and we are committed to executing on our strategy to help our customers accelerate the introduction of novel therapies diagnostics and other products that improve human health.
Speaker Change: Now take your questions.
Operator: Thank you. As a reminder, to ask a question, you'll need to press star 11 on your telephone. To withdraw your question, please press star 11 again.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: As a reminder to ask a question you will need to press star one on your telephone to withdraw your question. Please press star one again, please wait for your name to be announced please standby will be compile the Q&A roster.
Operator: Please wait for your name to be announced. Please stand by while we compile the Q&A roster. One moment for our first question, please. Our first question will come from the line of Jacob Johnson with Stevens. Your line is now open.
Speaker Change: Our first question please.
Speaker Change: Our first question will come from the line of Jacob Johnson with Stephens. Your line is now open.
Jacob K. Johnson: Hey, thanks, and congrats on the quarter. Good afternoon.
Jacob K. Johnson: Hey, thanks, Congrats on the quarter good afternoon.
Jacob K. Johnson: Steven or Matt I guess just on the.
Jacob K. Johnson: The clinical solutions in the quarter really strong Stephen I heard you say.
Jacob K. Johnson: And no real.
Jacob K. Johnson: Perhaps our concentration in the quarter, but then I heard Matt say, hey, it's a lumpy business.
Stephen Gunstream: Steven or Matt, I guess just on the clinical solutions in the quarter, really strong. Steven, I heard you say there was no real customer concentration in the quarter, but then I heard Matt say, hey, it's a lumpy business. You know, if we kind of run rate this 1 cue clinical number, it's probably trending a bit better than the full year. So maybe just anything you'd call out in the quarter or any thoughts about kind of the outlook for clinical solutions as the rest of the year plays out. Thanks. Thanks.
Jacob K. Johnson: We kind of run rate this <unk>.
Jacob K. Johnson: Clinical number.
Jacob K. Johnson: It's trending a bit better than the full year. So maybe just anything you'd call out in the quarter or any thoughts about kind of the outlook for clinical solutions as the rest of the year plays out thanks.
Stephen Gunstream: Thanks, Jacob. Yeah, I would say, I mean, it is a lumpy business, right? We're talking about $1.7 million for a quarter, and some of these orders can be half a million dollars or more, so it's hard to take this as a single run rate. I think we want to get another couple of quarters underneath us to get a confidence in the whole year, but I will say that, you know, accurate in my statement there at the beginning around not having a very large customer, as you remember last year, Q2, which we'll talk about, I'm sure, next Q2, we did have a large customer there, so I just wanted to make sure to point it out that it feels pretty good in the fact that there is a diverse set of customers coming through.
Matt: Thanks, Jacob Yes, I would say I mean.
Speaker Change: It is a lumpy business right, we're talking about $1 7 million for a quarter and some of these orders can be half a million dollars or more so.
Speaker Change: It's hard to take this as a single run rate I think we want to get another couple of quarters underneath that to get our confidence in our full year, but.
Speaker Change: I will say that.
Speaker Change: Accurate in my statement there at the beginning around not having it.
Speaker Change: Large customer as you remember last year, Q2, which I'll talk about I'm sure next Q2.
Speaker Change: We did have a large customer there. So I just wanted to make sure I pointed out that it feels pretty good and the fact that there is a degree.
Speaker Change: Alright.
Jacob K. Johnson: Got it. Thanks for that, Steven.
Speaker Change: Okay.
Speaker Change: Got it.
Speaker Change: Thanks, Thanks for that Steven.
Speaker Change: And then maybe just as a follow up just on the build tech solutions offering.
Speaker Change: If I'm reading this correctly it seems like this allows customers to kind of go online and.
Speaker Change: And customize.
Stephen Gunstream: And then maybe just as a follow-up, just on the BuildTek solutions offering, if I'm kind of reading this correctly, it seems like this allows customers to kind of go online and customize a product online. And I'm just curious about that kind of strategy of them kind of tinkering with it by themselves versus maybe coming to you to work with you directly on this, and maybe tinkering with it online can lead to them coming to you further. But I'm just kind of curious about the digital component of that versus maybe other custom solutions you've done and the strategy behind that.
Speaker Change: Our product online I'm, just curious about that kind of strategy.
Speaker Change: Then kind of tinkering with themselves versus maybe coming to you to work with you directly on this and maybe take carry with it online can lead to them coming to you for either but I'm just kind of curious.
Speaker Change: Digital component of that versus maybe.
Speaker Change: Other custom solutions, you've done and the strategy behind that.
Stephen Gunstream: Absolutely not. So, first, I think it's very complementary to what we've done in the past. So, in this case, you know, we, as a custom reagent manufacturer, are very quick in our turnaround time. So, customers can come to us with a formulation, and we do see a lot of these buffer formulations that come to us, and we can get that in production within a week, where our on-time delivery for these custom, like, buffer formulations is 6 to 14 days at the moment, and we're 95% of the time on time for those.
Speaker Change: So.
Speaker Change: I think it's very complementary to what we've done in the past so in this case.
We have the custom.
Speaker Change: Reagent manufacturer are very quick in our turnaround time, so customers can come to us with a formulation and we do see a lot of these buffer formulations that come to us and we can get that in production within a week, where our on time delivery for these customers like buffer formulations is six to 14 days at the moment and we're 95% of the time on time for us.
Stephen Gunstream: Now, the challenge there for a lot of our customers is that when they're doing a DOE or a big experiment, you know, our minimum order size there is eight. So you're buying eight of the exact same buffer, and then you're scaling out to many of those. And what we found over time is a lot of our customers love that offering once they've kind of narrowed down to exactly what they're going to work with or two or three sets. But in these early discovery phases, they want to, say, walk a pH up across a number of ranges or they want to tweak a salt or something like that.
Speaker Change: Now the challenge there for a lot of our customers is that when theyre doing a dose or a base experiment.
Speaker Change: Our minimum order size. There is eight so you buy in eight of the exact same buffer and then you're you're scaling out through many of those and what we found over time is a lot of our customers love that offering once they've kind of narrowed down to exactly what theyre going to work with our two or three steps, but these early discovery phases. They want to say walk a ph.
Speaker Change: Across a number of ranges or they want to tweak assault or something like that.
Stephen Gunstream: And so what happens is they end up doing that, making those buffers in-house in one liter formats. And so what we spent some time doing over the last six months is finding a way that we can actually make one liter custom formats and ship them in one to two days. And so the combination of the low minimum order quantity, or no minimum order quantity, I should say, and the speed allows us to take their efforts in the lab and transfer them to us so they can focus on other things.
Speaker Change: So what happens is they end up doing that making those buffers in house and one liter formats.
Speaker Change: So what we spent some time doing over the last six months is finding a way that we can actually make one liter customer formats and ship in one to two days.
Speaker Change: And so the combination of the low minimum order quantity or no minimum order quantity I should say and the speed allows us to take.
Speaker Change: Their efforts in the lab and transferred to US. So they can focus on other things and we do think this is a big deal for I would say two pieces. One is this is a market that has not really been touched by from a commercial perspective from a supplier perspective, just because of the challenge of making customer really quickly and we think that is a large market and of course, we are.
Stephen Gunstream: And we do think this is a big deal for, I would say, two reasons. One is that this is a market that has not really been touched on from a commercial perspective, from a supplier perspective, just because of the challenge of making custom buffers really quickly. And we think that is a large market. Of course, we have a somewhat limited initial offering of that now, but we'll be building that over time. And the other part that's exciting about this is that this kind of marks a step for us that is going to expand over time.
Speaker Change: Kind of a somewhat starting limited offering of that now, but we will be building that over time and the other part that is excited about this.
Speaker Change: Is that this kind of marks.
Speaker Change: For us that's going to expand over time, whereas.
Stephen Gunstream: Whereas, you know, if you think about the complexity of doing what we're doing now, customizing these orders online, getting them priced, getting them into our ERP, then getting them into the production floor and guided through that entire production environment, and shipping within one to two days. We think, you know, as we build this out and scale this, this is going to set a new standard for the industry on how to do this. So, yes, we're excited about it. I think it's not a sort of cannibalism strategy; it is very much complementary. We're now going to access things that we haven't been able to talk to them about.
Speaker Change: If you think about the complexity of doing what we're doing now is customizing. These orders online getting them price getting them into our ERP and getting them into the production floor and guided through that entire production environment and shifting within one to two days, we think as we build this out and scale of this this is going to set a new standard for the industry of how to do that so.
Speaker Change: Yes, we're excited about it I think it's not a.
Speaker Change: Sort of that.
Speaker Change: Panel cannibalism.
Speaker Change: Our strategy is very much a complementary we are now going to access things that we.
Speaker Change: We haven't been able to talk to them about the cooler.
Jacob K. Johnson: Got it. Got it. Thanks, Steven. That's really helpful context. I'll leave it there.
Speaker Change: Got it got it thanks, that's really helpful context, and I'll leave it there.
Steven Mah: Thank you. One moment for our next question, please. Our next question comes from the line of Steven Mah with TD Cowen. Your line is now open.
Speaker Change: Thank you one moment for our next question. Please.
Speaker Change: Our next question comes from the line of Steven Mah with TD Cowen. Your line is now open.
Steven Mah: Great. Thanks for the questions and congrats on the quarter. Uh, if you just want to follow up on Jacob's question on Build Tech. Are there existing companies that are doing something similar, or are you building out this market de novo?
Steven Mah: Great. Thanks for the questions and congrats on the quarter.
Steven Mah: And then just a follow up too.
Steven Mah: Maybe just a follow up to Jacob's question on build tech.
Steven Mah: Okay are there existing.
Steven Mah: Existing companies.
Steven Mah: Companies that are doing something similar or are you building out this market.
Stephen Gunstream: I think, I believe we are the only ones that have offered anything like this, so this is definitely a view that, you know, there are a lot of researchers that spend a lot of time in the lab mixing concentrates or weighing their own powders to do exactly what we're going to offer them, and the reason they do that is because the minimotor sizes are too large and the turnaround time is too long. So that's why we're pretty excited about it.
Steven Mah: De Novo.
Speaker Change: I think I believe we are the only ones that are operating or anything like that so this is definitely a view that there are a lot of researchers and a lot of time in the lab.
Speaker Change: Michigan concentrates are way in their own powders to do exactly what we're going to offer them and the reason they do that is because the minimum order sizes are too large and the turnaround time was too long.
Speaker Change: That's why we're pretty excited about it.
Steven Mah: Okay, got it. Yeah, and I appreciate you gave sort of a range of representative prices per liter bottles, but maybe just talk about, I know it's early, but the demand for build tech, given the 40 to 50% increase in costs, can you give us any color on the early stage demand? And what's the ROE on using build tech? Is it really because you can... You know, you can optimize it without having to do bulk orders? Is that the value proposition? Is it saving time and money or just helping us understand a little bit better? Thanks.
Speaker Change: Okay got it yeah and I appreciate you gave sort of a range of.
Speaker Change: Representative prices per liter bottles, but.
Speaker Change: And maybe just talk about.
Speaker Change: I know, it's early but the demand for.
Speaker Change: <unk> given you.
Speaker Change: Given the yield 40% to 50% increase in cost.
Speaker Change: Can you give us any color on the early stage demand and whats our sorrow E on.
Speaker Change: And <unk> is it is it really because if you can.
Speaker Change: You can optimize the yield without having to do bulk orders is is that the value proposition is youre saving time and money or just help us understand a little bit better. Thanks, yes, absolutely. So first.
Stephen Gunstream: Yeah, absolutely. So, on the demand side, we launched this last week, so we're still very much in the early stages. We were at ASGCT last week and had a banner up, and we had a number of people come by and take pictures.
Speaker Change: On the demand side, we launched this last week. So we're still very much in the early stages, we are at the.
Speaker Change: As GCT.
Speaker Change: Last week and had a had a banner up and we had a number of people come by and take pictures and then quite honestly they are pretty blown away that we can do this so quickly.
Stephen Gunstream: And then, quite honestly, they're pretty blown away that we could do this so quickly. And it does feel like one of those moments for some of them that have kind of said, hey, this is true innovation. This is very exciting.
Speaker Change: And it does feel like one of those moments for some of them that have kind of said Hey. This is true innovation. This is very exciting I can now get 10 or 20 buffers in a couple of days instead of a couple of weeks with estimated in house.
Stephen Gunstream: I can now get 10 or 20 buffers in a couple of days instead of a couple of weeks with us doing it in-house. And then, of course, we have the people that are stuck making the buffers. And they're very excited to not have to make the buffers anymore. And there's a big difference here, right?
Speaker Change: And then you of course have the people that are making the buffers and theyre very excited did not have to make the buffers anymore and there's a big difference here right youre, making them in the lab versus.
Stephen Gunstream: You're making them in a lab versus in an ISO 5 environment where we have standardized QC tests that are USD standards versus them actually measuring the pH and conductivity and things like that on their own. And so, you know, from their perspective, it's very much a question of time and effort versus outsourcing it to us. And I think, you know, they recognize the quality and certainly recognize the speed, especially in these larger experiments.
Speaker Change: In a clean room in the ISO five environment, where we have standardized QC tests that a USD standards versus the.
Speaker Change: Im actually measuring ph in connectivity and things like that on their own.
Speaker Change: And so.
Speaker Change: From their perspective, it's very much a question of time and effort versus outsourcing it to us to do and I think.
They recognize the quality and they certainly recognize the speed, especially in these larger experiments or say youre trying to purify proteins.
Stephen Gunstream: Or say you're trying to purify a protein or a viral particle or something like that, where just a small change in pH or a small change in salt or an additive that you put in there can actually mean the difference between higher load yield or higher load purity.
Speaker Change: Our viral particles or something like that we're just a small change in ph or a small change in salt.
Speaker Change: Assume that you put in there can actually mean the difference between higher loan yields are higher LOE purity.
Stephen Gunstream: So I think, you know, it's one of these things where it's a behavior change. So it may take a little bit of time to sort of build out and really convert the number of customers over. But certainly, we are already receiving some orders, and people are pretty excited about that.
Speaker Change: So I think it's one of these things where it's a behavior change. So it may take a little bit of time to sort.
Speaker Change: Sort of below build out and really can break a number of customers over but certainly very are receiving some orders.
Speaker Change: And people are pretty excited about.
Steven Mah: Okay, I appreciate it. The color is helpful.
Speaker Change: Okay. I appreciate that color is helpful. And then maybe one for Matt on the gross margin.
Matthew C. Lowell: And then maybe one for Matt on gross margin. You know, Steven mentioned that the new orders are going through the facility. I think he mentioned it was four times versus last quarter. But, you know, can you help us out with how we should think about gross margin improvements as more products go through the facility and you're amortizing more of the fixed costs of the facility?
Matt: Steven mentioned that the new orders going within the facility I think you mentioned it was four times.
Matt: Versus last quarter.
Can you help us out with how should we should think about the gross margin improvement.
Matt: As more products.
Matt: Both in the field.
Matt: And Youre amortizing more of the fixed costs of the two.
Matthew C. Lowell: Yeah, thanks for the question, Steve. Yeah, gross margin leverage is a real thing, and I think we're showing it here even with this, you know, modest improvement quarter over quarter sequentially. As we've mentioned before, our costs at this point are largely fixed, particularly in the production area. So as we grow in revenue, we're expecting to see on the order of 70 percent or so of that incremental revenue drop through to gross profit.
Matt: Thanks.
Speaker Change: Yes. Thanks for the question, Steve the gross margin leverage is.
Speaker Change: As a real thing and I think we're showing it here even with this.
Speaker Change: Modest improvement quarter over quarter sequentially.
Speaker Change: As we as we've mentioned before our cost at this point are largely fixed particularly in the.
Production area.
Speaker Change: So as we as we grow in revenue, we're expecting to see on the order of 70% or so of that incremental revenue drops through to gross profit. So it's more comparing to the left to the last quarter, rather than the year ago quarter, a little better in this case you can see we were.
Matthew C. Lowell: So more comparing to the last quarter rather than a year ago quarter is a little better in this case. You can see we were, you know, 17, 18 percent in the last couple of quarters. We've been able to show some increased revenue, and that's already picking up and flowing through to gross margin, more or less as expected. So I think as we continue to grow the top line, you'll see that kind of leverage, that 70 percent or so, drop through to revenue, and You know, that's what we're looking to do as the year progresses.
Speaker Change: 17%, 18% in the last couple of quarters, we've been able to show some increased revenue and thats already picking up and flowing through to gross margin more or less as expected. So I think as we continue to grow the topline youll.
Speaker Change: Youll see that kind of leverage that 70% or so.
Drop through to revenue.
Speaker Change: Sure.
Speaker Change: What we're looking to do as the year progresses.
Steven Mah: Okay, got it. So the growth margin improvements from your perspective are, you know, as you're tracking.
Speaker Change: Okay got it so the gross margin improvements from your perspective.
Matthew C. Lowell: Yes, yes, absolutely. Okay, all right, great. That's all for me.
As you are tracking.
Speaker Change: Yes, yes, absolutely.
Steven Mah: I appreciate it. Thank you. Thanks, Steven. Thank you.
Speaker Change: Alright, great. That's all for me I appreciate it.
Speaker Change: Thanks, Steven Thank you.
Operator: One moment for our next question. Our next question comes from the line of Matt Larew with William Blair. Your line is now open.
Speaker Change: One moment for our next question our.
Speaker Change: Our next question comes from the line of Matt <unk> with William Blair. Your line is now open.
Matthew Richard Larew: Good afternoon, Steven, you referenced sort of an external leading indicator for improved biotech funding, which, as you would assume, will take some time to play out. In terms of internal leading indicators, I want to ask you about two. One would be maybe the number of customers you've had in to qualify or audit to take a look at the new ones. I'm just curious if that activity has picked up, and then maybe just the other would be you referenced an increasing sequential number of customers in the businesses and just curious maybe if that's a mix of old customers and new customers. Would you be curious for any comments on that as well?
Matt: Hi, good afternoon.
Matt: Stephen you reference.
Matt: External leading indicator.
Matt: Improved biotech funding, but that will take some time to play out.
Matt: Internal leading indicators I wanted to ask maybe about two one would be maybe the number of customers you've had in qualifying our if you take a look at the new <unk>.
Matt: Utility if that activity has picked up and then maybe just the other one would be.
Matt: Increasing sequential number of customers and the businesses I'm just curious.
Matt: A mix of old customers of new customers.
Speaker Change: Would you be curious for any comments on that as well.
Stephen Gunstream: Yeah, thanks, Matt. So first on the customer to qualify the new facility, we've had, we're not disclosing exactly how many we've had at this point in time, but we have seen a number already through the facility this year. We did get through a large backlog last year, but we are now scheduled out kind of through the fall this year and squeezing more in. So I think, you know, from that perspective, pretty happy with where they are.
Speaker Change: Yeah.
Thanks, Matt So first on the customer to qualify the new facility, we have branded <unk>.
Speaker Change: Closing on exactly how many we've had at this point in time, but we have seen.
Speaker Change: Number already through the facility this year, we did get through.
Speaker Change: Large.
Speaker Change: Backlog last year, but we are now scheduled.
Speaker Change: What kind of through the fall of this year and squeezing more and so I think.
Speaker Change: From that perspective pretty happy with where they are and of course, it's much more fun and as we go through now and there is constantly being work orders being produced in our facility. So.
Stephen Gunstream: And of course, it's much more fun as we go through it now. And there are constantly work orders being produced in the facility. So that is part of the indicator. I would say that the second part of your question is one of the ones that I think is more.
Speaker Change: That is part of the indicator I would say the second part of your question. It is one of the ones that I think is more interesting.
Stephen Gunstream: You know, when I said that we do have a number of increased customers, both in clinical solutions and lab essentials, we obviously really closely watch that clinical solutions number. And despite the lower average revenue per customer, that number has been on a continual increase over the last several years. Actually, six or seven quarters now at this point.
Speaker Change: When I said, we do have a number of increased number of customers both in clinical solutions and lab essentials.
Speaker Change: We see really closely watch that clinical solutions number and despite the lower average revenue per customer that number has.
Speaker Change: <unk> been on a continual increase okay.
Speaker Change: Yes.
Six some quarters now at this point.
Stephen Gunstream: So that's very positive for us. Well, what I was referencing in the call was that we did have a number of customers that bought actually quite a bit from us in 2022 that were, in 2023, very much in the conservation of capital moat, bought very little or not at all. And those customers have now started reaching out to us to talk about other things that we can do with them this year as they scale back.
Speaker Change: That's very positive for us.
Speaker Change: What I was referencing in that.
Speaker Change: On the call as we.
Speaker Change: We did have a number of customers that bought actually quite a bit from us in 2022 that were in 2023 very much in the conservation of capital mode and.
Speaker Change: Bought very little or not at all and those customers have now started reaching out to us to talk about.
Speaker Change: Other things that we can do with them this year as they scale back up so I do see that as a positive without a doubt the timing of when those orders come through and when we recognize them.
Stephen Gunstream: So I do see that as a positive, without a doubt. The timing of when those orders come through and when we recognize them is a little bit blurry at the moment, and we don't want to count on it until we actually get the orders in.
Speaker Change: A little bit.
Hilary at the moment.
Speaker Change: We don't want to count on it until we actually get the orders in and then we start please.
Matthew Richard Larew: Okay, and then obviously, you know, making progress on profitability and cash use here. The CapEx, I think Matt said seven straight quarters, it's been down, just as we think now about throughout the year and then perhaps even beyond, they just remind us what kind of capacity you now have in place from a revenue perspective. When, you know, we should maybe expect things like maintenance and CapEx to start flowing in, and then, you know, just to support, you know, I think, Steven, you referenced 125 new reagents in the deck and, obviously, this new strategy and service offering, you know, just any additional investment or G&A-type support that might be required to help push that. Thanks.
Speaker Change: Okay.
Speaker Change: And then obviously, making progress on.
Speaker Change: Profitability and cash used here.
Speaker Change: The Capex without I think Matt said seventh straight quarter. Its been down just as we think now about throughout the year and then perhaps even beyond maybe just remind us what.
Speaker Change: Kind of capacity you now have in place from revenue perspective.
Speaker Change: We should maybe expect things like maintenance Capex to start slowly and then just to support Thanksgiving.
Excuse me you referenced 125, new regions in the deck and obviously this new strategy and service offering.
Speaker Change: Just any additional investment or our G&A type support that might be required.
Speaker Change: Help push that up.
Matthew C. Lowell: Maybe I'll just start on the CapEx question, Matt. Yeah, we did.
Speaker Change: Thanks.
Speaker Change: Maybe I'll just start on the on the Capex question, Matt, Yes, we did and have seen some pretty dramatic decreases in capital expenditures over the last two years of course that was largely expected and I would say at.
Matthew C. Lowell: And I've seen some pretty dramatic decreases in capital expenditures, you know, over the last two years. But, of course, that was largely expected. And I would say, you know, at this point, they're virtually zero. And I wouldn't expect it to stay at virtually zero. But we're obviously investing where we only believe it is absolutely necessary. We've made a lot of investments, just not a lot of reason to do more than that right now.
Speaker Change: At this point Theyre virtually zero, but I wouldn't expect it to stay at virtually zero.
Speaker Change: But we're obviously investing where we only believe is absolutely necessary and we've made a lot of investments.
Speaker Change: A lot of reasons to do more than that right now.
Matthew C. Lowell: There will be some There are some things on the horizon where we expect the capital to come back up, whether that's maintenance or some small growth capex investments related to, you know, internal capabilities. And I'm speaking on the facility side here primarily in terms of some of these other areas that we're, you know, talking about new, new capabilities and investments. There will be some investment there, too. You know, this digital infrastructure and things will require some investment to support them, but I would not see us, you know, I guess substantially increasing the CapEx where it is going to go up from this level because it has to, but I think we're going to be able to maintain it.
Speaker Change: There will be some there are some things on the horizon, where we would expect the capital to come back up whether Thats <unk>.
Small growth capex investments related to <unk>.
Internal capabilities.
Speaker Change: Speaking on the facilities side here primarily.
Speaker Change: In terms of some of these other areas that were.
Speaker Change: Talking about new new capabilities and investments there will be some investment there too.
Speaker Change: Infrastructure things will require some investments.
Speaker Change: To support, but I would not see us.
Speaker Change: I guess substantially increasing the capex, where it is going to it is going to go up from this level because it has too but.
Matthew C. Lowell: I think we're, you know, kind of in the plus or minus two million range per year, and that will fluctuate up or down depending on what projects we're working on, but I think that's a reasonable place to assume that it's more normal than where we are right now. I'm not sure if I answered all your questions or there was another piece of it, but please let me know.
Speaker Change: I think we're going to be able to maintain it.
Speaker Change: I think we're kind of at that.
Speaker Change: On the plus or minus $2 million range per year, and that will fluctuate up or down depending on what projects, we're working on but I think that.
Speaker Change: A reasonable place to assume that's more normal than where we are right now.
Speaker Change: Yeah.
Speaker Change: I'm not sure if I answered all your question or there was another piece of it but please let me know.
Matthew C. Lowell: Please let me know. That was it, everyone. Thanks, Matt.
Speaker Change: Thanks, Matt.
Operator: Thank you. One moment for our next question, please. Our next question comes from the line of Mark Massaro with BTIG. Your line is now open.
Speaker Change: Thank you Matt.
Speaker Change: Thank you.
One moment for our next question please.
Speaker Change: Our next question comes from the line of Mark Massaro with <unk>. Your line is now open.
Vivian An: Hey guys, this is Vivian An for Mark. Thanks for taking the question. I'll maybe just keep it to one.
And maybe an anchor mark thanks for taking the question.
Stephen Gunstream: So I know you guys talked about the lag time for biotech orders. As far as the three cell and gene therapy customers entering phase three clinical trials later this year, I think you mentioned them in Q4. I'm just curious if you have any early ordering patterns or early conversations that are noteworthy there. Thanks.
Mark Anthony Massaro: Maybe I'll just keep it to one Anthony you talked about the lag time for biotech ordering as far as the <unk> cell and gene therapy customers entering phase III clinical trials. Later this year I think you called out in Q4 I'm. Just curious if you have any early ordering patterns are early.
Mark Anthony Massaro: <unk> that are noteworthy there.
Stephen Gunstream: Yeah, we're probably not going to go into details about those specific customers, but those are still on track, and we started working with one already from a production perspective. So all of that plans out just as we talked about at the beginning of the year, and we continue to talk about what they will need if they're successful in going to commercial, which is probably more of a late 25, 26 timeframe.
Mark Anthony Massaro: Yes.
Speaker Change: We will not go into details about specific customers, but those are still on track and we started.
Speaker Change: Working with one already from a production perspective so.
Speaker Change: All of that is playing out just as we talked about at the beginning of the year and we continue to talk about what they will need.
Speaker Change: If they're successful in going to the commercial which is probably a more of a late 'twenty five 'twenty six time frame.
Vivian An: Okay, understood. I'll leave it there.
Speaker Change: Okay understood I'll leave it there.
Operator: This concludes our Q&A portion. This concludes the conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.
Speaker Change: Thank you.
Speaker Change: This concludes our Q&A portion.
Speaker Change: This concludes the conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.