Q2 2024 Alpha Teknova Inc Earnings Call
His presentation, there will be a question and answer session to ask a question. During this session you need to press star one one on your telephone you wouldn't hear an automated message advising your hand is raised to withdraw your question. Please press star one again, please be advised that today's conference is being recorded.
And the conference over to your Speaker today, Jennifer Henry Senior Vice President of marketing. Please go ahead.
Jennifer Henry: Thank you operator.
Speaker Change: Welcome to Teck Nova's second quarter 2024 earnings Conference call with me on today's call are Stephen Gulfstream Technical as President and Chief Executive Officer, and Matt Little Tech Novus, Chief Financial Officer, who will make prepared remarks, and then take your questions.
Speaker Change: 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.
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.
Speaker Change: 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.
Speaker Change: We will therefore use non-GAAP financial measures of certain of our results during this call.
Speaker Change: Conciliations of GAAP to non-GAAP financial measures are included in the press release that we issued this afternoon, which is posted on both tech novo's 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 as superior to financial measures prepared in accordance with GAAP.
Speaker Change: The non-GAAP financial measures in this presentation may differ from similarly, named non-GAAP financial measures used by other companies.
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 Susan.
Susan: Thank you Jen.
Susan: Good afternoon, and thank you to everyone for joining us for our second quarter 2024 earnings call.
Susan: As we enter the second half of 2024, I am increasingly confident in our future.
Speaker Change: I believe the combination of positive signals from leading indicators capable internal execution and a recent cap.
Speaker Change: Strong position to deliver on our long term goal of sustainable above market growth.
Let me start by sharing some thoughts about the market, which has not changed substantially since our first quarter 2024 earnings call.
Speaker Change: We continue to see a stabilization in what has been a very challenging biotech environment.
Speaker Change: Great.
Speaker Change: Recent biotech funding increases combined with positive internal leading indicators such as increased engagement by 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 their impact on our revenue. We think these indicators point toward a more supportive market environment in 2025.
Speaker Change: We now supply more than 43 active clinical customers up from 34 at the end of 2023 and 25 at the end of 2022.
Speaker Change: Of the 43 active clinical customers 39, our biopharma related 23 of which operate in the cell and gene therapy market segment.
Speaker Change: Our ability to acquire these customers. Despite the challenging biotech environment is a testament to the capabilities. We have built over the past couple of years.
Speaker Change: We believe we are in a great position to support these customers as they progress their therapies towards commercialization.
Speaker Change: Okay.
Speaker Change: Today, we introduced two new offerings that we believe will accelerate the introduction of novel therapies.
Speaker Change: First we launched a new manufacturing grade called <unk> plus.
Speaker Change: This new grade enables a seamless and cost effective transition from reagents used in early stage research and process development to GMP grade reagents used in clinical trials.
Speaker Change: With our UO quest, we manufacturer customers products utilizing the same facilities equipment and processes as in GMP grade production.
Speaker Change: This bridge between research and clinical grade is an ideal solution for those customers working towards a clinical trial, but who are not quite ready for the change control documentation and expense associated with GMP grade reagents.
Speaker Change: We also launched express tech production expedited service offering this quarter techno is already a leader in turnaround time for customer ego Mascara.
Speaker Change: Clemens expedited manufacturing and delivery for critical products.
Speaker Change: For these customers Express tech allows customers to have their custom products enter production in days instead of weeks.
Speaker Change: We expect the combination of these offerings to not only generate new high margin revenue for the business, but also to address some key customer pain points.
Following our strong start to the first quarter, we again delivered on revenue adjusted EBITDA and cash outflow in the second quarter of 2024.
Speaker Change: From a revenue perspective, we saw sequential improvement of 3% compared to the first quarter of 2024.
Speaker Change: While our second quarter revenue was down 17% compared to the prior year when excluding the one large clinical solutions order, we delivered in the second quarter of 2023, the resulting year over year revenue increase was 9%.
Speaker Change: Importantly, this underlying growth was driven by a diverse customer base with no direct customer representing more than 10% of revenue.
Speaker Change: Assuming a stable market through the second half of the year, we remain confident in our 35% to $38 million full year revenue guidance for 2024.
Speaker Change: The midpoint of our full year guidance implies a return to double digit growth in the second half of 2024, when compared to the second half of 2000.
to 2022.
Speaker Change: 2003.
Of the 43 active clinical customers, 39 are biopharma-related, 23 of which operate in the cell and gene therapy market segment.
Speaker Change: In addition to solid performance on our top line, we are executing to plan from a cost management perspective.
Speaker Change: Matt will provide more details on our operating and capital expenditures, but at a high level. We have now realized a full quarter of the benefits from our cost control measures. We carried out during the first quarter of 2024.
Our ability to acquire these customers, despite the challenging biotech environment, is a testament to the capabilities we have built over the past couple of years.
We believe we are in a great position to support these customers as they progress their therapies towards commercialization.
Matt: Our second quarter, adjusted EBITDA was a sequential $1 $2 million improvement over Q1.
Matt: Finally.
Today we introduce two new offerings that we believe will accelerate the introduction of novel therapies.
Matt: In the first half of July we closed on a $15 4 million capital raise supported by Telegraph Hill partners, our largest shareholder and technical management.
First, we launched a new manufacturing grade called RUO+. This new grade enables a seamless and cost-effective transition from reagents used in early stage research and process development to GMP-grade reagents used in clinical trials.
Speaker Change: I would like to take a moment here to thank Telegraph Hill partners for their continued confidence in our growth strategy and in our ability to execute on our long term plan.
Speaker Change: We believe this additional capital provides us a bridge to profitability without the need for more external funding.
With RUO+, we manufacture our customers' products utilizing the same facilities, equipment, and processes as in GMP-grade production.
Speaker Change: In summary, we've enjoyed a strong first half of the year. We are pleased with the advances we've made in executing our strategy and believe we are well positioned for long term success.
This bridge between research and clinical grade is an ideal solution for those customers working towards a clinical trial, but who are not quite ready for the change control, documentation, and expense associated with GMP grade reagents.
Speaker Change: I will now hand, the call over to Matt to talk through the financials.
Matt: Thanks, Steven and good afternoon, everyone results for the second quarter of 2024 from a revenue perspective were down 17% from the same quarter. Prior year. However, as Stephen mentioned when excluding revenue from a single large political solutions order during the second quarter of 2023 total.
We also launched Express Tech production expedited service offering this quarter.
TechNova is already a leader in turnaround time for customer agents.
Clippers expedited manufacturing and delivery for critical products. For these customers, Express Tech allows customers to have their custom products enter production in days instead of weeks.
Matt: Revenue was up 9% overall, we delivered solid financial results for the second quarter 2024.
We expect a combination of these offerings to not only generate new high-margin revenue for the business, but also to address some key customer pain points.
Matt: Total revenue for the second quarter of 2024 was $9 6 million, 17% decrease from 11 5 million for the second quarter of 2023.
Following our strong start to the first quarter, we again delivered on revenue, adjusted EBITDA, and cash outflow in the second quarter of 2024. From a revenue perspective, we've got sequential improvement of 3% compared to the first quarter of 2024.
Matt: Okay.
Speaker Change: <unk> essentials products are targeted at the research use only or are you all market that include both catalog and custom products.
Speaker Change: <unk> Essentials revenue was $7 6 million in each of the second quarters of 2024 inch Basel III.
While our second quarter revenue was down 17% compared to the prior year, when excluding the one large clinical solutions order we delivered in the second quarter of 2023, the resulting year-over-year revenue increase was 9%.
Lab Essentials revenue was flat because the increase in the number of customers was offset by a similar decline in average revenue per customer.
Importantly, this underlying growth was driven by a diverse customer base with no direct customer representing more than 10% of revenue.
Speaker Change: As in the first quarter, we continued to see a sequential increase in the number of lab essentials customers during the second quarter.
Speaker Change: As disclosed in our pre release, we recorded an increase in the number of lab essentials customers.
Assuming a stable market through the second half of the year, we remain confident in our 35 to 38 million dollar full year revenue guidance for 2024.
Speaker Change: From 2829 during 2023 to 2913 for the year ended June 32024.
The midpoint of our full-year guidance implies a return to double-digit growth in the second half of 2024 when compared to the second half of 2016.
Speaker Change: 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.
23
In addition to solid performance on our top line, we are executing the plan from a cost management perspective. Matt will provide more details on our operating and capital expenditures, but at a high level, we have now realized a full quarter of the benefits from the cost control measures we carried out during the first quarter of 2024.
Speaker Change: Clinical solutions revenue was $1 6 million in the second quarter of 2024 50.
Matt: Our second quarter adjusted EBITDA with a sequential 1.2 million dollars improvement over Q1.
Speaker Change: <unk>, 57% decrease from $3 7 million in the second quarter of 2023. However.
Speaker Change: However, when excluding revenue from a single large order delivered during the second quarter of 2023 clinical solutions revenue was up 66%.
Matt: Finally, in the first half of July, we closed on a $15.4 million capital raise supported by Telegraph Hill Partners, our largest shareholder, and Technova Management.
Speaker Change: The decrease in clinical solutions revenue was attributable to a lower average revenue per customer, partially offset by an increased number of our customers.
Matt: I would like to take a moment here to thank Telegraph Hill Partners for their continued confidence in our growth strategy and in our ability to execute on our long-term plan. We believe this additional capital provides us a bridge to profitability without the need for more external funding.
Speaker Change: Consistent with the first quarter, we continued to see an increase in the number of clinical solutions customers during the second quarter.
Speaker Change: As disclosed in our pre release, we recorded an increase.
Matt: In summary, we've enjoyed a strong first half of the year. We are pleased with the advances we made in executing our strategy and believe we are well positioned for long-term success.
Speaker Change: And the number of clinical solutions customers from 34 during 2023.
Speaker Change: The <unk> 43 for the year ended June 32024.
Matt: I will now hand the call over to Matt to talk through the financials.
Speaker Change: 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: Thanks, Stephen. Good afternoon, everyone. Results for the second quarter of 2024 from a revenue perspective are down 17%.
Matt: from the same quarter prior year. However, as Stephen mentioned, when excluding revenue from a single large clinical solutions order during the second quarter of 2023, total revenue was up 9%. Overall, we delivered solid financial results for the second quarter, 2024.
Speaker Change: Just as a reminder, due to the larger average order size and clinical solutions compared to lab essentials, there can be quarter to quarter revenue lumpiness in this category.
Speaker Change: As a case in point during the second quarter of 2023 delivered a large GMP order to a diagnostics customer with no comparable activity in the second quarter of 2024.
Matt: Total revenue for the second quarter of 2024 was $9.6 million, a 17% decrease from $11.5 million for the second quarter of 2023.
Speaker Change: Onto the income statement gross profit for the second quarter of 2024 was $2 8 million compared to $5 1 million in the second quarter of 2023.
Matt: Lab Essentials products are targeted at the Research Use Only, or RUL, market and include both catalog and custom products. Lab Essentials revenue was $7.6 million in each of the second quarters of 2024 and 2023.
Speaker Change: Gross margin was 29, 2% in the second quarter of 2024, which is down from.
Speaker Change: <unk> 43, 9% in the second quarter of 2023.
Speaker Change: The decrease in gross profit percentage was primarily driven by lower clinical solutions revenue and increased overhead costs largely depreciation expense. Following the completion of our new manufacturing facility in the prior year, partially offset by reduced head count.
Matt: Lab Essentials revenue was flat because the increase in the number of customers was offset by a similar decline in average revenue per customer.
Matt: As in the first quarter, we continue to see a sequential increase in the number of Lab Essentials customers during the second quarter.
Matt: As disclosed in our pre-release, we recorded an increase in the number of LabEssentials customers from 2,829 during 2023 to 2,913 for the year ended June 30, 2024.
Speaker Change: Operating expenses for the second quarter of 2024 was $7 9 million.
Speaker Change: Third to $12 1 million for the second quarter of 2023.
Speaker Change: Excluding the nonrecurring charges of $2 $2 million related to certain long lived assets recorded in the second quarter of 2023 operating expenses were down two.
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 in the development and manufacture of diagnostic and therapeutic products.
Speaker Change: Two zero million.
Speaker Change: The degree the decrease was driven primarily by reduced head count and spending in particular in professional fees.
Speaker Change: Operating expenses in the second quarter of 2024 were at their lowest level since our IPO in the second quarter of 2021.
Matt: Clinical Solutions revenue is $1.6 million in the second quarter of 2024.
Net loss for the second quarter of 2024 was $5 4 million or <unk> 13 per diluted share.
Matt: A 57% decrease from $3.7 million in the second quarter of 2023. However, when excluding revenue from a single large order delivered during the second quarter of 2023, political solutions revenue was up 66%.
Speaker Change: Compared to a net loss of $7 2 million or <unk> 25 per diluted share for the second quarter of 2023.
Matt: The decrease in clinical solutions revenue was attributable to a lower average revenue per customer, partially offset by an increased number of customers.
Speaker Change: On to cash flow and balance sheet.
Speaker Change: Capital expenditures for the second quarter of 2024 zero point $1 million compared with $2 3 million for the second quarter of 2023 and.
Matt: Consistent with the first quarter, we continue to see an increase in the number of Clinical Solutions customers during the second quarter.
Speaker Change: 2023, we completed our large investments in production capacity in.
Matt: As disclosed in our pre-release, we recorded an increase in the number of Clinical Solutions customers from 34 during 2023 to 43 for the year ended June 30th, 2024.
Speaker Change: In 2024, we are focusing our capital expenditures on projects with shorter payback periods.
Speaker Change: Although our capital expenditures have been de Minimis. The last two quarters, we expect to increase our investment activity in the second half 2024.
Matt: 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.
Speaker Change: Free cash outflow of non-GAAP measure that we define as cash used in operating activities plus purchases of property plant and equipment.
Matt: Just as a reminder, due to the larger average order size in clinical solutions compared to lab essentials, there can be quarter-to-quarter revenue lumping issues categorized.
Speaker Change: Three zero million for the second quarter of 2024 compared to $6 2 million for the second quarter of 2023.
Matt: As a case in point, during the second quarter of 2023, we delivered a large GMP order to a diagnostics customer with no comparable activity in the second quarter of 2024.
Speaker Change: This decrease compared to the prior quarter was due to lower amounts of cash used in operating activity and.
Speaker Change: Significantly reduced capital expenditures.
Speaker Change: Free cash outflow in the second quarter of 2024 was at its lowest level since our IPO in the second quarter of 2021.
Matt: Onto the income statement, gross profit for the second quarter of 2024 was $2.8 million compared to $5.1 million in the second quarter of 2023.
Speaker Change: Turning to the balance sheet as of June 32024, we had $18 6 million in cash and cash equivalents and $12 1 million in gross debt.
Matt: Gross margin was 29.2% in the second quarter of 2024, which is down from 43.9% in the second quarter of 2023.
Speaker Change: Plus as Stephen described in July we raised $15 4 million of equity capital.
Matt: The decrease in gross profit percentage was primarily driven by lower clinical solutions revenue and increased overhead costs, largely depreciation expense, following the completion of our new manufacturing facility in the prior year, partially offset by reduced headcount.
Stephen: Private placement offering strengthening our balance sheet.
Speaker Change: Turning to the 2020 for outlook.
Speaker Change: We reiterate our 2024 total revenue guidance of $35 million to $38 million.
Stephen: Which suggests the second half of 2024 similar to the first half of 2024.
Matt: Operating expenses for the second quarter of 2024 were $7.9 million, compared to $12.1 million for the second quarter of 2023.
Stephen: At the midpoint this implies revenue for the year approximately flat when compared to 2023.
Matt: Excluding the non-recurring charges of $2.2 million related to certain long-lived assets and recorded in the second quarter of 2023, operating expenses were down $2.0 million.
Speaker Change: However, based on the midpoint of guidance, we expect second half of 2020 for revenue growth to be double digits compared to the second half.
Stephen: Great.
Stephen: With respect to product categories. We now expect approximately 5% growth in lab essentials revenue for 2024 with the Delta of the total revenue dollars coming from clinical solutions.
Matt: The decrease was driven primarily by reduced headcount and spending, in particular in professional fees. Operating expenses in the second quarter of 2024 were at their lowest level since our IPO in the second quarter of 2021.
Stephen: The company continues to expect free cash flow, our free cash outflow of less than $18 million for the full year of 2024.
Matt: Net loss for the second quarter of 2024 was $5.4 million or $0.13 per diluted share compared to a net loss of $7.2 million or $0.25 per diluted share for the second quarter of 2023.
Stephen: The company has continued to manage expenses aggressively while preserving the critical investments, we believe will allow us to achieve our long term growth targets.
Stephen: The company posted second quarter operating expenses, excluding nonrecurring charges of $7 $8 million below our eight points.
Matt: On to Cash Flow and Balance Sheets.
Stephen: <unk> zero million target.
Matt: Capital expenditures for the second quarter of 2024 were $0.1 million compared to $2.3 million for the second quarter of 2023. In 2023, we completed our large investment in production capacity.
Stephen: Collecting the full impact of the cost measures announced in the first quarter of 2024, we.
Stephen: We finished the second quarter of 2024 with 169 associates down.
Stephen: Down, 27% from a year ago and down more than 40% compared to the peak in the second quarter of 2022.
Matt: In 2024, we are focusing our capital expenditures on projects with a shorter payback period.
Stephen: Following our capital raise a month ago, we believe that we now have sufficient liquidity from cash on hand, and the availability under our revolver to take us to cash flow positive.
Matt: Although our capital expenditures have been de minimis the last two quarters, we expect to increase our investment activity in the second half of 2024.
Matt: Free cash outflow, a non-GAAP measure that we define as cash use in operating activities plus purchases of property, plant, and equipment, was $3.0 million for the second quarter of 2024, compared to $6.2 million for the second quarter of 2023.
Stephen: This belief relies on the following five key financial assumptions.
Stephen: First revenue growth added on average at a minimum of 13% over the next few years. This is the actual compounded annual growth rate of total revenue between 2019 to 2023, excluding the impact of a single large order delivered in 2023.
Matt: This decrease compared to the prior quarter was due to lower amounts of cash used in operating activity and significantly reduced capital expenditures.
Stephen: This is also similar to the total revenue CAGR from 2009 to 2019.
Matt: Pre-cash outflow in the second quarter of 2024 was at its lowest level since our IPO in the second quarter of 2021.
Stephen: Number two revenue growth upside will be possible over the next few years as some of our growing number of clinical solutions customers.
Matt: Turning to the balance sheet, as of June 30th, 2024, we had $18.6 million in cash and cash equivalents and $12.1 million in gross debt.
Stephen: Move through later clinical trial phases, and ultimately into commercialization.
Stephen: Third additional revenue in 2025 and beyond drops through at approximately 70% margin due to the high fixed cost nature of our business.
Matt: Plus, as Stephen described, in July we raised $15.4 million of equity capital through a private placement offering strengthening our balance sheet.
Stephen: Fourth limited operating expense increases as the business grows.
Stephen: Turning to the 2024 Outlook.
Stephen: We reiterate our 2024 total revenue guidance of $35 million to $38 million, which suggests a second half of 2024 similar to the first half of 2024.
Stephen: And fifth capital expenditures of $2 million per year on average.
Stephen: Relying on these assumptions, we also believe that the company can achieve adjusted EBITDA breakeven.
Stephen: At the midpoint, this implies revenue for the year approximately flat when compared to 2023.
Stephen: Get to $50 million to $55 million in annualized revenue and we will become cash flow positive shortly thereafter.
Stephen: However, based on the midpoint of guidance, we expect the second half of 2024 revenue growth to be double digits compared to the second half of 2023.
Stephen: In summary, we are excited about the future and the company's competitive position in our markets with attractive long term fundamentals.
Stephen: With respect to product categories, we now expect approximately 5% growth in lab essentials revenue for 2024, with the delta to total revenue dollars coming from clinical solutions.
Stephen: With that I will turn the call back to Steven.
Steven: Thanks, Matt.
Steven: Overall, we were pleased with our performance in the.
Stephen: The company continues to expect free cash outflow of less than 18 million for the full year of 2024.
Steven: Four 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.
Stephen: The company has continued to manage expenses aggressively while preserving the critical investments we believe will allow us to achieve our long-term growth targets.
Speaker Change: We will now take your questions.
Speaker Change: Thank you and as a reminder to ask a question you wait to press star one to one on your telephone.
Stephen: The company posted second quarter operating expenses excluding non-recurring charges of $7.8 million below our $8.0 million target, reflecting the full impact of cost measures announced in the first quarter of 2024.
Speaker Change: For your name to be announced to withdraw your question.
Speaker Change: Please press star one again, please standby.
Speaker Change: Please standby, while we compile the Q&A roster.
Stephen: We finished the second quarter of 2024 with 169 associates.
Stephen: down 27% from a year ago and down more than 40% compared to the peak in the second quarter of 2022.
Speaker Change: One moment for our first question.
Speaker Change: Our first question comes from the line of Mark Massaro from BTG. Your line is open.
Stephen: Following our capital raise a month ago, we believe that we now have sufficient liquidity from cash on hand and the availability under our revolver to take us to cash flow positive.
Mark Massaro: Hey, guys congrats on a good quarter and thank you for all the financial.
Mark Massaro: Long term metrics that you provided that was helpful. Maybe just the first one on the new product launches the <unk> plus and the express tech.
Stephen: This belief relies on the following five key financial assumptions.
Stephen: First, revenue grows on average at a minimum of 13% over the next few years.
Speaker Change: I heard you guys talk about express tech being high margin.
Stephen: This is the actual compounded annual growth rate of total revenue between 2019-2023, excluding the impact of a single large order delivered in 2023.
Speaker Change: It wasn't clear if that is high margin for your customers are high margin for you I guess can you just clarify if those new.
Speaker Change: New products will be gross margin accretive for you in the near term or will that require some time to achieve some scale.
Stephen: This is also similar to the total revenue CAGR from 2009 to 2019.
Mark Massaro: Yes, thanks Mark.
Stephen: Number two, revenue growth upside will be possible over the next few years as some of our growing number of solutions customers move through later clinical trial phases and ultimately into commercialization.
The express tech offering is really a way for customers to get your product into production faster than we would normally get it into production so that allows them to.
Speaker Change: Order today, and say, Hey, I want this particular custom product, but I need it very quickly. We will then Paul the streams to make that happen and for that there is an additional fee. So yes. It will be gross margin accretive for us and in this case, we're actually solving some of the customer pain points in that many times. This happens where they are in the middle of the clinical trial and the Bill doesn't go away.
Stephen: Third, additional revenue in 2025 and beyond drops through at approximately 70% margin due to the high fixed cost nature of our business.
Stephen: Fourth, limited operating expense increases as the business grows.
Speaker Change: Walked in they need something very very quickly.
Stephen: and fifth, capital expenditures of $2 million per year on average.
Speaker Change: And so in order to rearrange our manufacturing our production line and then we can.
Stephen: Relying on these assumptions, we also believe that the company can achieve adjusted EBITDA break-even when we get to 50 to 55 million in annualized revenue and will become cashflow positive shortly thereafter.
Speaker Change: Offer this service in charge of additional fee.
Speaker Change: Okay.
Speaker Change: That's super helpful.
Speaker Change: You said some sort of positive statements about the improved backdrop in biotech funding.
Stephen: In summary, we are excited about the future and the company's competitive position in a market with attractive long-term fundamentals.
Speaker Change: And that you're cautiously optimistic around the timing of our further market recovery.
Speaker Change: With that, I will turn the call back to Stephen.
Speaker Change: I would I would.
Speaker Change: I'd say that that language is probably a little more positive than language, we've seen from other companies on average.
Stephen: Thanks, Matt.
Stephen: Overall, we were pleased with our performance in the S&P 24. 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: So I wonder if there is something perhaps unique about your business I know that you cited that.
Speaker Change: The majority of your new clinical customers are in Biopharma and many are in cell and gene therapy. So I wonder if you can just maybe speak to.
Stephen: We will now take your questions.
Speaker Change: Perhaps some of your optimism.
Speaker Change: Thank you and as a reminder to ask a question you need to press star 1 1 on your telephone and wait for name to be announced to withdraw a question. Please press star 1 1 again. Please stand by while we compile the Q&A roster.
Speaker Change: About the end markets and funding and maybe just clarify what youre seeing.
Mark Massaro: Yes, thanks Mark.
Speaker Change: I would say first we are seeing.
Speaker Change: As most are the biotech funding environment improve that hasnt totally translated to orders yet, but the conversations we've had with customers many of which really held back capital spending.
Speaker Change: Thank you all.
Speaker Change: Thank you.
Speaker Change: One moment for our first question.
Speaker Change: Our first question comes from Mark Massaro from VTIG. Your line is open.
Speaker Change: The spending last year.
Speaker Change: And purchases with us and are starting to come back and request quotes and planned build for 2025. So I think that's generally what we're seeing it is LNG in therapy, but as you saw we have 43 clinical customers 39 or Biopharma and.
Mark Massaro: Hey guys, congrats on a good quarter and thank you for all the financial long-term metrics that you provided. That was helpful. Maybe just the first one on the new product launches, the RUO Plus and the Express Tech.
Speaker Change: Hi.
Mark Massaro: I heard you guys talk about Express Tech being high margin. It wasn't clear if that's high margin for your customers or high margin for you. I guess, can you just clarify if those...
Speaker Change: About half of that cell and gene therapy of 'twenty three so there's actually quite a few other biopharma related customers in there and generally seen a pick up I wouldn't say if you remember we're guiding towards.
Speaker Change: New products will be gross margin accretive for you in the near term, or will that require some time to achieve some skill?
Speaker Change: $35 38.
Speaker Change: Which implies essentially three.
Speaker Change: Six five.
Speaker Change: At the midpoint and so we're not seeing a pickup yet, but even that midpoint is double digit growth from a year on year perspective, when you compare the back half for both of these.
Mark Massaro: Yeah, thanks Mark
Speaker Change: The Express Tech offering is really a way for customers to get your product into production faster than we would normally get it into production. So that allows them to, you know, order today and say, hey, I want this particular custom product, but I need it very quickly. We will then, you know, pull all the strings to make that happen. And for that, there is an additional fee.
Speaker Change: 2024 and 2023.
Speaker Change: Okay, Great maybe one last one for me.
Speaker Change: Next year, you will go up against.
Speaker Change: At least two quarters of easy comps or maybe three quarters of easy comps depending on how you describe.
Speaker Change: So, yes, it will be gross margin accretive for us.
Speaker Change: and in this case we're actually solving some of the customer pain points in that many times this happens where they're in the middle of a clinical trial and the build doesn't go as they want and they need something very very quickly and so in order to rearrange our manufacturing our production line and then we can
Speaker Change: Describe easy but.
Speaker Change: Going up against the negative.
Speaker Change: 17.
Speaker Change: A plus two from Q1 so.
As we think about the second half of this year you guys talked about.
Speaker Change: That being about a double digit return to growth in the second half of the year.
Speaker Change: offer the service and charge them additional fees.
Speaker Change: Okay, that's super helpful. You know, you've said some sort of positive statements about the improved backdrop and biotech funding.
Speaker Change: Assuming trend stay constant in terms of biotech funding is it reasonable to think or are there any reasons why you think achieving double digit topline growth in 25 would be unreasonable.
Speaker Change: and that you're cautiously optimistic.
Speaker Change: around the timing of a further market recovery. I would say that that language is probably a little more positive than language we've seen from other companies on average. So I wonder if there is...
Speaker Change: Yes, so I would just say, obviously, we're not giving guidance on 'twenty five yet.
Speaker Change: And we don't tend to think anything has been easy at the moment, but that.
Speaker Change: That said, we do we do look at it.
Speaker Change: And as Matt said, if you take a look at 2019, and 2023, which is sort of the bookends of the pandemic and the biotech funding are.
Speaker Change: something perhaps unique about your business. I know that you cited that the majority of your new clinical customers
Matt: Average annual growth there was 13% and actually go all way back to 2009. This business has averaged about 13%. Since then so I don't think it's unreasonable to expect that going forward, but of course, we have to be very careful watching the market and we've been through a lot. These last couple of years and we are glad to see that we think it stabilized but I don't.
Speaker Change: are in biopharma, and many are in cell and gene therapy. So I wonder if you can just maybe speak to perhaps some of your optimism about the end markets and funding, and maybe just clarify what you're seeing.
Speaker Change: Yeah, thanks, Mark. I mean, I would say, first,
Speaker Change: Hey, it's necessarily picking up from what it had been historically.
Speaker Change: We are seeing, as most are, the biotech funding environment improve. That hasn't totally translated to orders yet.
Speaker Change: Okay, great. Thanks for taking my questions.
Speaker Change: Thank you one moment for our next question.
Speaker Change: but the conversations we've had with customers, many of which really held back capital spending last year and purchases with us and are starting to come back and request quotes and plan build for 2025.
Speaker Change: Our next question comes from the line of Jacob Johnson from Stephens. Your line is open.
Speaker Change: Hey, thanks.
Jacob Johnson: And congrats on the quarter I guess I've got a couple of follow ups on that last.
Speaker Change: So I think that's that's generally what we're seeing it is challenging therapy but as you saw, you know, we have 43 clinical customers 39 are biopharma and
Mark Massaro: Last line of questioning for Mark.
Jacob Johnson: I guess first just on an AAV <unk> and some of the new product launches is there any way to quantify how much those have contributed in recent quarters.
Speaker Change: about half of that cell and gene therapy of 23.
Speaker Change: So, there's actually quite a few other biopharma-related customers in there and generally seeing a pickup. I wouldn't say, if you remember, we're guiding towards, you know, still 35, 38, which implies essentially 36 and a half.
Speaker Change: Or how much of those could contribute.
Mark Massaro: Over the next year or two as we think about kind of that 13% historical growth and then layering in new product introductions.
Speaker Change: at the midpoint, and so we're not seeing a pickup yet, but even that midpoint is double-digit growth from a year-on-year perspective when you compare the back half with both of these 2024 and 2023.
Speaker Change: Yes, Jacob I would say that AAV tack on some of the new products.
Mark Massaro: Launched in the last year or two.
Jacob Johnson: Or are not a significant factor in that 13%.
Jacob Johnson: I would say what they have been the biggest contributor to us getting in and talking to some of these customers and Onboarding and then their actual purchases of the AAV Tech stuff. So far is pretty small in dollar amount but of course.
Speaker Change: Okay, great. Maybe one last one for me. Next year you will go up against...
Speaker Change: at least two quarters of easy comps, or maybe three quarters of easy comps, depending on how you describe easy. But, you know, going up against a negative 17, and then a plus two from Q1. So,
Jacob Johnson: Should those go forward and become.
Jacob Johnson: Enter commercialization commercialize therapies, we'd expect those to be more like I said I think it's showing in the fact that we're bringing on these customers and they are buying a lot more from us just generally overall.
Speaker Change: you know, as we think about the second half of this year, you know, you guys talked about that being about a double-digit return to growth in the second half of the year. You know, assuming trends stay constant in terms of biotech funding,
Speaker Change: So I wouldn't there is not if youre looking at that 13% or it's not built into that 13% between 19 and 23.
Dave: Got it thanks for that Steven and then I guess kind of I appreciate the quantification of kind of the historical growth rates, but I guess, Steven from from kind of a qualitative perspective and at a higher level in 2021 U you embarked on this growth strategy and then obviously that the macro kind of rolled over with the macro it's Dave.
Speaker Change: Is it reasonable to think, or are there any reasons why you think achieving double-digit top-line growth in 2025 would be unreasonable?
Speaker Change: Yeah, so I would just say obviously we're not giving guidance on 25 yet.
Speaker Change: <unk> and <unk>.
Speaker Change: Um, um, [inaudible]
Speaker Change: And we don't tend to think of anything as being easy at the moment, but...
Speaker Change: And your cost control efforts over the last year or so.
Speaker Change: That said, we do look at it, and as Matt said, if you take a look at 2019 and 2023,
Speaker Change: I guess, how do you think about the growth opportunities in front of you take Nova today versus your expectations a couple of years ago.
Matt: which is sort of the bookend of the pandemic and the biotech funding, our average annual growth there was 13%. And actually, go all the way back to 2009,
Speaker Change: Okay.
Steven: Okay. So I would say this I'm still very confident in the long term outcome of this business I still think we can get into that 20% growth range that we've laid out and we went took the company public the timing of that is really the question right now we're in a situation, where we did onboard a lot of customers in early phases.
Matt: this business has averaged about 13% since then. So I don't think it's unreasonable to expect that going forward. But of course, we have to be very careful watching the market. And we've been through a lot these last couple of years. And we're glad to see that we think it's stabilized. But I wouldn't say it's necessarily picking up from what it had been historically.
Speaker Change: Preclinical phase one type of trials.
Speaker Change: Many of those trials had been rationalized and so we're of course building this customer base, but it takes time to get through clinical trials and there is a certain amount of success and often very binary results that come from that.
Speaker Change: Okay, great. Thanks for taking my questions.
Speaker Change: Thank you. One moment for our next question.
Speaker Change: Our next question comes from Jacob Johnson from Stevens. Your line is open.
Speaker Change: And put in perspective, if some of these trials get to commercialization in maybe two to three years.
Jacob Johnson: Hey, thanks and congratulations. I guess I've got a couple follow-ups on that last line of questioning from Mark. I guess first, just on AAV tech and some of the new product launches.
Speaker Change: Hundreds of thousands of dollars that they spend with us today, we expect to be.
Speaker Change: And millions of dollars right and that can be a huge.
Speaker Change: <unk> impacted the overall growth of the business in the meantime, obviously continue to acquire these customers, but also run this rest of the business the catalog business with Geo ounces at <unk>.
Jacob Johnson: Is there any way to quantify how much those have contributed in recent quarters?
Speaker Change: 70% or so of the business right, we need to run that well is the foundation as we as we keep onboarding these customers and helping us and the ones that we do have to get through clinical trials.
Jacob Johnson: or how much of those could contribute over the next year or two as we think about kind of that 13% historical growth and then layering in new product introductions.
Speaker Change: Got it I'll leave it there thanks for taking the questions. Thanks Jacob.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Yeah, Jacob, I would say that AAB Tech and some of the new products we've launched in the last year or two.
Speaker Change: Okay.
Speaker Change: The next question will come from the line of Steven Mah from TD Cowen Your line is open.
Speaker Change: You know are are not a significant factor in that 13%
Speaker Change: I would say what they've been the biggest contributor to is us getting in and talking to some of these customers and onboarding.
Steven Mah: Great. Thanks for taking the questions I just have a couple of follow up questions.
Speaker Change: So firstly on express tax.
Speaker Change: and then their actual purchases of the AAV tech stuff so far.
Steven Mah: Can you comment on the premium you're charging for express tech products and ended of bearable.
Speaker Change: is pretty small in dollar amount, but of course, you know, should those go forward and become, you know, into commercialization, commercialized therapies, we'd expect those to be more. But like I said, I think it's, it's showing in the fact that we're bringing on these customers and they're buying a lot more from us just generally overall.
Speaker Change: Premium look like Uber or is it really just faster delivery at a fixed price.
Speaker Change: Yes, we're not going to comment on the exact fee, but it.
Speaker Change: so I wouldn't they're not if you're looking at that 13% there it's not built into that 13% between 19 and 23
Speaker Change: It varies by customer, it's really going to be likely to be a percent of the total order to move it forward because.
Speaker Change: Got it. Thanks for receiving it. And then I guess kind of I appreciate the quantification of kind of the historical growth rates
Speaker Change: The dollar represent the amount of work essentially that we have to do to put in production, but you can say it in.
Speaker Change: But I guess, Stephen, from kind of a qualitative perspective and at a higher level, you know, in 2021 you embarked on this growth strategy and then obviously the macro kind of rolled over. With the macro stabilizing and your cost control efforts over the last year or so,
Speaker Change: I don't know, 20% to 40% and something in that range is.
Speaker Change: It's not demand based pricing, though it's not like if we get a bunch of express request that the price is going to go up and I don't think we're going to use it on.
Speaker Change: Orders necessarily everyday these are big orders and customers need our UO fostered G&P products really really quickly to get into.
Speaker Change: I guess, how do you think about the growth opportunities in front of you at Technova today versus your expectations a couple years ago?
Speaker Change: Keep their clinical trials going.
Speaker Change: Okay got it and.
Speaker Change: <unk> company is offering us and do you have the capacity to meet the expressed demand if this takes off.
Stephen: Okay, so I would say this.
Speaker Change: I'm still very confident in the long-term outcome of this business. I still think we can get into that 20 plus percent growth.
Speaker Change: I'm not aware of any other companies offering this I will say that our normal turnaround time.
Speaker Change: range that we laid out and we took the company public.
Speaker Change: Is still dramatically faster than many of the others, particularly around the custom product side, but.
Speaker Change: The timing of that is really the question, right? You know, we're in a situation where we did onboard a lot of customers in early phases, preclinical, phase one type of trials.
Speaker Change: But we have had a number of customers in the first couple of quarters. This year that have been in this situation, where they've really needed something quickly.
Speaker Change: many of those trials have been rationalized. And so, you know, we're of course building this customer base, but it takes time to get through clinical trials. And there's a certain amount of success and often very binary results that come from that.
Speaker Change: I do not expect to run out of capacity and or do this and we have.
Speaker Change: The ability to scale up capacity really quickly and so we'd love to have a great problem like that that goes off.
Speaker Change: But to put it in perspective, if some of these trials get to commercialization in maybe two or three years,
Speaker Change: Alright Super helpful. And then my last question is on <unk> plus.
Speaker Change: you know, the hundreds of thousands of dollars that they spend with us today, we expect to be, you know,
Speaker Change: Similar question is there anyone else offering this product or is it unique to you guys and then.
Speaker Change: in the millions of dollars, right? And that can be a huge impact to the overall growth of the business.
Speaker Change: Given that is made under GMP conditions, and just not documented and is that going to be more expensive from a cogs perspective. Thank you.
Speaker Change: In the meantime, obviously continue to acquire these customers, but also run this rest of the business, the catalog business, which, you know, says, you know, 70% or so of the business, right? We need to run that well as the foundation as we as we keep onboarding these customers and helping the ones that we do have get through clinical trials.
Speaker Change: Yes. So are you a plus there are a number of cost cut.
Speaker Change: <unk> is out there that maybe not in the reagent side that we're doing here that offer somewhere between this research use only and GMP.
Speaker Change: Got it. I'll leave it there. Thanks for taking questions. Thanks, Jacob.
Speaker Change: Or a lot of the reasons that we laid out.
Speaker Change: In the call here.
Speaker Change: Thank you. One moment for our next question.
Speaker Change: This would be an increased price over or you own a lot of the customers that want this service with by our UO, but they really want it made in our new facility in under the controls that we have there and it really helps them go from <unk> to GMP. So that was a lot more on managing the change control of the documentation that we really lock.
Speaker Change: Our next question will come to the line of Stephen Ma from T.D. Callen. Your line is open.
Stephen Ma: Great, thanks for taking the questions. I just have a couple follow-up questions.
Stephen Ma: So first on Express Tech, can you comment on the premium you're charging for Express Tech products and is it a bearable premium like like Uber or is it really just faster delivery at a fixed price?
Speaker Change: In that process.
Speaker Change: It makes it that transition much smoother so.
Speaker Change: The cost will likely increase a little bit when they go to our <unk> plus obviously the cost increase even more when you go to GMP, but we'll be recovering those costs through additional pricing when they choose our yield plus over our UO.
Speaker Change: Yeah, we're not going to comment on the exact fee, but and it varies by customer it's really it's going to be likely to be a percent of the total order to move it forward because
Speaker Change: Okay got it that's helpful. Thank you.
Speaker Change: Thank you one moment for our next question.
Speaker Change: you know, the dollars represent the amount of work, essentially, that we have to do to put in production, but you can, you know, say it's an
Speaker Change: Our next question comes from the line of Matt Larew from William Blair. Your line is open.
Speaker Change: 20 to 40 percent in something in that range, right?
Speaker Change: It's not demand-based pricing though. It's not like we get a bunch of express-desk requests that the price is going to go up And I don't think we're going to use it on, you know, you know orders necessarily every day These are big orders and customers need, you know, RUO Plus or GMP products really really quickly to get into
Speaker Change: Matt Your line is open.
Speaker Change: You may be on mute.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Phone on speaker, please pick it off speaker.
Speaker Change: Alright, one moment for our next question.
Speaker Change: keep their clinical trials going.
Speaker Change: Okay, got it. And are other companies offering this and do you have the capacity to meet the express demand if this takes off?
Speaker Change: Our next question will come from the line of Paul Knight from Keybanc. Your line is open.
Paul Knight: Thanks, Stephen we've seen.
Speaker Change: Meaning Sigma Aldrich and event or in there related business lines show sequential.
Speaker Change: I'm not aware of any other companies offering this. I will say that, you know, our normal turnaround time, you know, is
Paul Knight: <unk> improvement similar to yours, when do you think.
Speaker Change: still dramatically faster than many of the others, particularly around the custom product side.
Speaker Change: You'll have more leverage to this rebound with your marketing strategy or speed to market.
Speaker Change: But we have had a number of customers say in the first couple quarters that have been in this situation where they've really needed something quickly.
Speaker Change: What are your thoughts relative to.
Speaker Change: Um...
Speaker Change: Competition that often correlate to your improvement.
Speaker Change: I do not expect to run out of capacity in order to do this and we have ability to scale up capacity really quickly and so we'd love to have a great problem like that to go solve.
Speaker Change: Yes, I think it's very much related to access.
Speaker Change: The money to spend on the regions and get these trials.
Speaker Change: I think when as that ramps and in fact, if you look at our.
Speaker Change: Yeah, all right, super helpful. And then my last question is on RUO+.
Speaker Change: Historical growth even through the biotech funding era of 2019 2021, but even prior to that you can actually track our sales directly to that funding with about a four quarter lag. So.
Speaker Change: A similar question, is there anyone else offering this product or is it unique to you guys? And then, you know, given that it's made under GMP conditions and just not documented, is that going to be more expensive from a COGS perspective? Thank you.
Speaker Change: We are optimistic that 2025 is when we start to see some of that funding come through it does seem to be a little bit different. It's not every single biotech gets a certain amount of money.
Speaker Change: Yeah, so RUL Plus, there are a number of companies out there that, maybe not in the reagent side that we're doing here, that offer somewhere between this research use only and GMP for a lot of the reasons that we laid out in the call here.
Speaker Change: So it may change the dynamics of that but.
I do think that's a great leading indicator for us because we're so broad based even in our in our catalog business as well. So that's probably the time I think we will be looking into Q1 Q2 time next year to see some of those funds flow through in and certainly the investments we've made in the commercial organization like you said.
Speaker Change: This would be an increased price over RUO. A lot of the customers that want this service would buy RUO, but they really want it made in our new facility and under the controls that we have there.
Speaker Change: And our new facility.
Speaker Change: and it really helps them go from REO plus then to GMP. So that was a lot more managing the change control, the documentation, and we really lock in that process.
Speaker Change: We'll help.
Speaker Change: It will help us bring on those customers and support them.
Speaker Change: Still believe that the Hollister capacity gives you $200 million of revenue capacity.
Speaker Change: and it makes it that transition much smoother. So the cost will likely increase a little bit when they go to RUO plus. Obviously the cost increase even more when you go to GMP but we'll be recovering those costs through additional pricing when they choose RUO plus over RUO.
Speaker Change: Yes, we've been running our new facility.
Speaker Change: Daily and.
Speaker Change: Yes, when you do the math.
Speaker Change: Obviously, it depends on mix of orders and things like that and the complexity of those but it does work out that with the new facility. We can we could scale to around that 200 plus range.
Speaker Change: Okay, got it. That's helpful. Thank you.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you. One moment for our next question.
Speaker Change: Thank you.
Speaker Change: Once again Thats star one for a question Star one one.
Speaker Change: Our next question will come from Matt LaRue from William Blair. The line is open.
Speaker Change: And our next question will come from the line of Matt Larew from William Blair. Your line is open.
Speaker Change: [inaudible]
Matt Larew: Hey, Good afternoon, Hey can you hear me this time.
Speaker Change: Matt, your line is open.
Matt Larew: I wanted to ask on new customer traction biopsy.
Speaker Change: You may be on mute.
Matt Larew: A nice number in the quarter itself, but even sort of back over the last 12 15 months, just curious if theres any sort of consistent point of traction whether it's the new products you referenced obviously, the new facility I presume part of it but any sort of theme too.
Speaker Change: If your phone's on speaker, please take it off speaker.
Speaker Change: All right, one moment for our next question.
Speaker Change: Our next question will come from Paul Knight from Key Bank. Your line is open.
Speaker Change: The Newcrest protraction degradation here.
Paul Knight: Hi Stephen, we've seen HGA, meaning Sigma Aldrich and Avantor and their related business lines show sequential improvement.
Speaker Change: Yeah. Thanks, Matt we've talked for a while about the time it takes to get a customer on boarded and it's usually 12 to 18 months and getting this new facility. As you mentioned is a critical factor once we can get them out we walk them through they meet the quality team.
Paul Knight: Similar to yours, do you think you'll have more leverage to this rebound with your marketing strategy, your speed to market? What are your thoughts relative to this competition that also correlates to your improvement?
Speaker Change: See how we make products here, it's actually a pretty straightforward to get them on board and then start ordering.
Speaker Change: However of course.
Speaker Change: Dependent on the macro environment and changes has changed some of that timing, but I would say definitely facility has been a part of it. The commercial side has also been the other part right getting in front of the right customers and having a conversation about the capabilities, we have and how we can support them certainly helps so I would think the combination of the commercial and the new facility.
Speaker Change: Yeah, I think it's very much related to access the money to spend on the reagents and get these trials going. I think when, as that ramps, and in fact, if you look at our
Speaker Change: historical growth even through the biotech funding era of 2019, 20, 21, but even prior to that you can actually track our sales.
Speaker Change: Really what's driving that customer growth.
Speaker Change: You referenced green shoots.
Speaker Change: <unk>, then I think alluded to improve customer engagement curious are there any metrics you can share.
Speaker Change: directly to that funding with about a four quarter lag, so.
Speaker Change: We're optimistic that, you know, 2025 is when we start to see some of that funding come through. It does seem to be a little bit different. It's not, you know, every single biotech gets a certain amount of money. So it may change the dynamics of that, but...
Speaker Change: That's our core of what Youre seeing and whether that.
Speaker Change: And bounds.
Speaker Change: Our customer audits of your facilities and even tenant Keith to the sort of generic.
Speaker Change: Generic <unk> commentary.
Speaker Change: I do think that's a great leading indicator for us because we're so broad-based, even in our catalog business as well.
Speaker Change: Yeah, and I think there's a couple of things here, Matt one is.
Speaker Change: So that's probably the time I think we'll be looking in the Q1, Q2 time next year to see some of those funds flow through. And certainly the investments we've made in the commercial organization, like you said, and our new facility will help us bring on those customers and support them.
Speaker Change: The conversations actually with other CMO now ordering they use to order a lot from US and then of course when the biotech funding environment change. They had there has been a lot of capacity that they seem to be more engaged and they were in the past. It means many of the customers of these other therapies that are coming to them. So that's a very positive signs that they're starting to think about ramping up.
Speaker Change: Do you still believe that the Hollister capacity gives you $200 million of revenue capacity?
Speaker Change: Obviously.
Speaker Change: We see the the.
Speaker Change: Yeah, we've been running our new facility daily and yeah, when you do the math, it obviously depends on mixed up orders and things like that and the complexity of those, but it does work out that with the new facility we can scale to around that 200 plus range.
Speaker Change: Types of customers I wouldn't say that the number of audits has necessarily increased but we went through a whole lot of our customers early on but now we're getting new customers. Obviously, you have audits of existing customers, but are now starting to get some new customers coming through.
Speaker Change: And then I would just say generally youre looking at the number of customers, which I know, we talked about we have 43 clinical customers well.
Speaker Change: Okay, thank you.
Speaker Change: Thank you. Once again, that's star 11 for questions, star 11.
Speaker Change: A wide variety in spend but there's still a lot that are just starting out right and so when you think of those as those customers start to do their trials and stuff they will ramp up and spend quite a bit.
Speaker Change: And our next question will come from Matt LaRue from William Blair. Your line is open, Matt.
Speaker Change: And again all of this is predicated on the fact that biotech funding remains stable and then of course that there is a little bit of a lag here between the time that.
Matt LaRue: Hey, good afternoon, if you can hear me this time. I wanted to ask on new customer traction. Obviously, it's a nice number in the quarter itself, but even sort of back over the last 12-15 months.
Speaker Change: They are on boarded to the time, they actually start spending on a larger dollar amounts.
Matt LaRue: Just curious if there's any sort of consistent point of traction whether it's the new products you referenced, obviously the new facility I presume is part of it, but any sort of theme to the new customer traction that would be interesting to hear.
Okay. My last one would be the updated guidance.
Speaker Change: It's consistent but now incorporate.
Speaker Change: I think 5% growth.
10% really thats been compensated for by clinical solutions growth, but sort of a mix solid discussion of that stable.
Matt LaRue: Yeah, thanks Matt. We've talked for a while about the time it takes to get a customer onboarded and it's usually 12 to 18 months and
Speaker Change: Stable end market Green shoots just curious.
Speaker Change: getting this new facility, as you mentioned, is a critical factor. Once we can get them out, we walk them through, they meet the quality team, they see how we make products here. It's actually pretty straightforward to get them on board and then start ordering.
Speaker Change: What is that sort of taking that level of <unk>.
Speaker Change: Ed.
Ed: Yeah, absolutely so we look at it.
Speaker Change: Lab Essentials clinical solutions remember lab Essentials does include a number of these preclinical customers. So we have a little better.
Speaker Change: However, of course, depending on the macro environment, it has changed some of that timing.
Speaker Change: Year on year comparison difficulty, but I also say there are some large pharma that are not growing as fast as they were before and it's still pretty early for us to call that out again, we still feel confident about our long term position and how those rebound and our 13% growth.
Speaker Change: but I would say definitely the facility has been a part of it. The commercial side has also been the other part, right? Getting in front of the right customers and having the conversations about the capabilities we have and how we can support them certainly helps. So I would think the combination of the commercial and the new facility is really what's driving that customer growth.
Speaker Change: Laid out for getting to profitability, but that's one that we're watching and engaging with those customers on right now it's very much on the discovery side, but again its a handful and so we want to see this play out before.
Speaker Change: you referenced green shoots and
Speaker Change: the script and I think alluded to improved customer engagement.
Speaker Change: Curious if there's any metrics you can share to sort of support what you're seeing, whether that's, you know, inbounds or POs or customer audits of your facilities, anything to kind of add some teeth to the sort of generic re-shoots commentary.
Speaker Change: And.
Speaker Change: Change that but I do think over the long run we're in a good spot.
Speaker Change: Okay.
Speaker Change: Alright, that's all for me thank you.
Speaker Change: Thank you.
And I'm not showing any further questions in the queue.
Speaker Change: Yeah, and I think there's a couple things here, Matt. One is...
Speaker Change: With that I'll go ahead and close the call. This concludes.
Speaker Change: The conversations actually with other CMOs now ordering, they used to order a lot from us. And then of course, when the biotech funding environment changed, they had, they were sitting in a lot of capacity. They seem to be more engaged than they were in the past, which means.
Speaker Change: Thank you for your participation today's conference. This concludes the program you may now disconnect everyone have a great day.
Yes.
Speaker Change: Many of the customers of these other therapies are coming to them. So that's a very positive sign. They're starting to think about ramping up
Speaker Change: you know, obviously the
Speaker Change: types of customers. I wouldn't say that the number of audits has necessarily increased, but we went through a whole lot of our customers early on, but now we're getting new customers. Obviously, you have audits of existing customers, but now we're starting to get some new customers coming through.
Speaker Change: And then I would just say generally, you know, you're looking at the number of customers, which I know, you know, we talked about we have 43 clinical customers. Well, you know, there's a wide variety in spend, but there's still a lot that are just starting out. Right. And so you think that those
Speaker Change: as those customers start to do their trials and stuff, they will ramp up and spend quite a bit. And again, all this is predicated on the fact that, you know, biotech funding remains stable. And then of course, you know, that there is a little bit of a lag here between the time that they're onboarded to the time they actually start spending a larger dollar amounts.
Speaker Change: Okay, thank you. My last one would be the updated guidance.
Speaker Change: It's consistent, but now incorporate.
Speaker Change: I think 5% live essentials growth versus 10%. I realize that's being compensated for by clinical solutions growth, but sort of amidst all this discussion of, you know, stable end market, green shoots, just curious.
Speaker Change: what it is that sort of takes you down the old guide.
Speaker Change: Yeah, absolutely. So, you know, we look at it, lab essentials, clinical solutions. Remember, lab essentials does include a number of these preclinical customers.
Speaker Change: So we have a little bit of a year-on-year comparison difficulty, but I also say there are some large farmers that are not growing as fast as they were before, and it's still pretty early for us to call that out.
Speaker Change: Again, we still feel confident about our long-term position and how those rebound and our 13% growth that Matt laid out for getting to profitability, but that's one that we're watching and engaging with those customers on right now. Even on, it's very much on the discovery side, but
Speaker Change: Again, it's a handful, and so we want to see this play out before we dig in and change that. But I do think, over the long run, we're in a good spot.
Speaker Change: All right, that's all for me. Thank you.
Speaker Change: Thank you.
Speaker Change: And I'm not sure we have any questions in the queue. With that, I'll go ahead and close the call. This concludes. Thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone have a great day.
Speaker Change: Thank you for watching!
Speaker Change: [inaudible]
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Speaker Change: 【uc physiology & genetics no 1】 【 도靡 spinner slowly prepares for the next exploration...】 【and be ready...】
Speaker Change: Good day and thank you for standing by. Welcome to the Tech Nova second quarter 2024 financial results.
Speaker Change: at this time. All participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session.
Speaker Change: to ask a question during the session, you need to press star 11 on your telephone.
Speaker Change: You will then hear an automated message advising your hand is raised.
Speaker Change: To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would like to hand the conference over to your speaker today, Jennifer Henry, Senior Vice President of Marketing. Please go ahead.
Jennifer Henry: Thank you, Operator.
Speaker Change: Welcome to TECNOVA's second quarter 2024 earnings conference call. With me on today's call are Stephen Gunstream, TECNOVA's President and Chief Executive Officer, and Matt Lowell, TECNOVA's Chief Financial Officer, who will make prepared remarks and then take your questions.
Speaker Change: As a reminder, the forward-looking statements that we make during this call, including those starting 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.
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.
Speaker Change: 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.
Speaker Change: 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 on both TechNova's 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 as superior to, financial measures prepared in accordance with GAAP.
Speaker Change: The non-GAAP financial measures in this presentation may differ from similarly named non-GAAP financial measures used by other companies.
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 TechNova's website and on today's webcast. And now I will turn the call over to Stephen.
Stephen Ma: Thank you, Jen.
Stephen Ma: Good afternoon and thank you everyone for joining us for our second quarter 2024 earnings call.
Stephen Ma: As we enter the second half of 2024, I am increasingly confident in our future.
Stephen Ma: I believe the combination of positive signals from leading indicators, capable internal execution, and our recent capabilities put the company in a strong position to deliver on our long-term goal of sustainable, above-market growth.
Stephen Ma: Let me start by sharing some thoughts about the market, which has not changed substantially since our first quarter 2024 earnings call.
Stephen Ma: We continue to see a stabilization in what has been a very challenging biotech environment over the years.
Stephen Ma: Recent biotech funding increases combined with positive internal leading indicators such as increased engagement by customers previously focused on preserving capital support a more optimistic outlook going forward.
Stephen Ma: Given that we typically see about a four-quarter lag between changes in industry funding levels and their impact on our revenue, we think these indicators point toward a more supportive market environment in 2025.
Stephen Ma: We now supply more than 43 active clinical customers, up from 34 at the end of 2023 and 25 at the end of 2022.
Stephen Ma: Of the 43 active clinical customers, 39 are biopharma-related, 23 of which operate in the cell and gene therapy market segment.
Stephen Ma: Our ability to acquire these customers, despite the challenging biotech environment, is a testament to the capabilities we have built over the past couple of years.
Stephen Ma: We believe we are in a great position to support these customers as they progress their therapies towards commercialization.
Stephen Ma: Today, we introduce two new offerings that we believe will accelerate the introduction of novel therapies.
Stephen Ma: First, we launched a new manufacturing grade called RUO+. This new grade enables a seamless and cost-effective transition from reagents used in early-stage research and process development to GMP-grade reagents used in clinical trials.
Stephen Ma: With RUO+, we manufacture our customers' products utilizing the same facilities, equipment, and processes as in GMP-grade production.
Stephen Ma: This bridge between research and clinical grade is an ideal solution for those customers working towards a clinical trial, but who are not quite ready for the change control, documentation, and expense associated with GMP grade reagents.
Stephen Ma: We also launched Express Tech production expedited service offering this quarter. Techno is already a leader in turnaround time for customer agents.
Stephen Ma: Clippers expedited manufacturing and delivery for critical products. For these customers, Express Tech allows customers to have their custom products enter production in days instead of weeks.
Stephen Ma: We expect a combination of these offerings to not only generate new high-margin revenue for the business, but also to address some key customer pain points.
Stephen Ma: Following our strong start to the first quarter, we again delivered on revenue, adjusted EBITDA, and cash outflow in the second quarter of 2024.
Stephen Ma: From a revenue perspective, we've got sequential improvement of 3% compared to the first quarter of 2024.
Stephen Ma: While our second quarter revenue was down 17% compared to the prior year, when excluding the one large clinical solutions order we delivered in the second quarter of 2023, the resulting year-over-year revenue increase was 9%.
Stephen Ma: Importantly, this underlying growth was driven by a diverse customer base with no direct customer representing more than 10% of revenue.
Stephen Ma: Assuming a stable market through the second half of the year, we remain confident in our 35 to 38 million dollar full-year revenue guidance for 2024.
Stephen Ma: The midpoint of our full-year guidance implies a return to double-digit growth in the second half of 2024 when compared to the second half of 2016.
Stephen Ma: 23
Matt LaRue: In addition to solid performance on our top line, we are executing to plan from a cost management perspective. Matt will provide more details on our operating and capital expenditures, but at a high level, we have now realized a full quarter of the benefits from the cost control measures we carried out during the first quarter of 2024.
Matt LaRue: Our second quarter adjusted EBITDA with a sequential $1.2 million improvement over Q1.
Matt LaRue: Finally, in the first half of July, we closed on a $15.4 million capital raise supported by Telegraph Hill Partners, our largest shareholder, and Technova Management.
Speaker Change: I would like to take a moment here to thank Telegraph Hill Partners for their continued confidence in our growth strategy and in our ability to execute on our long-term plan.
Speaker Change: We believe this additional capital provides us a bridge to profitability without the need for more external funding.
Speaker Change: In summary, we've enjoyed a strong first half of the year. We are pleased with the advances we've made in executing our strategy and believe we are well positioned for long-term success.
Speaker Change: I will now hand the call over to Matt to talk through the financials.
Matt LaRue: Thanks, Stephen. Good afternoon, everyone. Results for the second quarter of 2024, from a revenue perspective, we're down 17%.
Matt LaRue: From the same quarter prior year. However, as Stephen mentioned.
Matt LaRue: When excluding revenue from a single large clinical solutions order during the second quarter of 2023, total revenue was up 9%. Overall, we delivered solid financial results for the second quarter of 2024.
Matt LaRue: Total revenue for the second quarter of 2024 was $9.6 million, a 17% decrease from $11.5 million for the second quarter of 2023.
Speaker Change: Lab Essentials products are targeted at the research use only or RUL market and include both catalog and custom products.
Speaker Change: Lab Essentials revenue was $7.6 million in each of the second quarters of 2024 and 2023.
Speaker Change: Lab Essentials revenue was flat because the increase in the number of customers was offset by a similar decline in average revenue per customer.
Speaker Change: As in the first quarter, we continue to see a sequential increase in the number of Lab Essentials customers during the second quarter.
Speaker Change: As disclosed in our pre-release, we recorded an increase in the number of LabEssentials customers from 2,829 during 2023 to 2,913 for the year ended June 30, 2024.
Speaker Change: 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.
Speaker Change: Clinical Solutions revenue is $1.6 million in the second quarter of 2024.
Speaker Change: A 57% decrease from $3.7 million in the second quarter of 2023. However, when excluding revenue from a single large order delivered during the second quarter of 2023, critical solutions revenue was up 66%.
Speaker Change: The decrease in clinical solutions revenue was attributable to a lower average revenue per customer partially offset by an increased number of customers.
Speaker Change: Consistent with the first quarter, we continue to see an increase in the number of Clinical Solutions customers during the second quarter.
Speaker Change: As disclosed in our pre-release, we recorded an increase.
Speaker Change: and the number of Clinical Solutions customers from 34 during 2023.
Speaker Change: to 43 for the year ended June 30, 2024.
Speaker Change: 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.
Speaker Change: Just as a reminder, due to the larger average order size in clinical solutions compared to lab essentials, there can be quarter-to-quarter revenue bumping issues categorized.
Speaker Change: As a case in point, during the second quarter of 2023, we delivered a large GMP order to a diagnostics customer with no comparable activity in the second quarter of 2024.
Speaker Change: Onto the income statement, gross profit for the second quarter of 2024 was $2.8 million compared to $5.1 million in the second quarter of 2023.
Speaker Change: Gross margin was 29.2% in the second quarter of 2024, which is down from 43.9% in the second quarter of 2023.
Speaker Change: The decrease in gross profit percentage was primarily driven by lower clinical solutions revenue and increased overhead costs, largely depreciation expense, following the completion of our new manufacturing facility in the prior year, partially offset by reduced headcount.
Speaker Change: Operating expenses for the second quarter of 2024 were $7.9 million, compared to $12.1 million for the second quarter of 2023.
Speaker Change: Excluding the non-recurring charges of 2.2 million related to certain long-lived assets and recorded in the second quarter of 2023, operating expenses were down 2.0 million.
Speaker Change: The decrease was driven primarily by reduced headcount and spending, in particular in professional fees.
Speaker Change: Operating expenses in the second quarter of 2024 were at their lowest level since our IPO in the second quarter of 2021.
Speaker Change: Net loss for the second quarter of 2024 was $5.4 million or $0.13 per deleted share compared to a net loss of $7.2 million or $0.25 per deleted share for the second quarter of 2023.
Speaker Change: On to Cash Flow and Balance Sheets.
Speaker Change: Capital expenditures for the second quarter of 2024 were $0.1 million compared to $2.3 million for the second quarter of 2023. In 2023, we completed our large investment in production capacity.
Speaker Change: In 2024, we are focusing our capital expenditures on projects with a shorter payback period.
Speaker Change: Although our capital expenditures have been de minimis the last two quarters, we expect to increase our investment activity in the second half of 2024.
Speaker Change: Free cash outflow, a non-GAAP measure that we define as cash used in operating activities plus purchases of property, plant, and equipment, was $3.0 million for the second quarter of 2024, compared to $6.2 million for the second quarter of 2023.
Speaker Change: This decrease compared to the prior quarter was due to lower amounts of cash used in operating activity and significantly reduced capital expenditures.
Speaker Change: Pre-cash outflow in the second quarter of 2024 was at its lowest level since our IPO in the second quarter of 2021.
Speaker Change: Turning to the balance sheet, as of June 30th, 2024, we had $18.6 million in cash and cash equivalents and $12.1 million in gross debt.
Speaker Change: Plus, as Stephen described, in July we raised $15.4 million of equity capital through a private placement offering strengthening our balance sheet.
Stephen Ma: Turning to the 2024 outlook.
Stephen Ma: We reiterate our 2024 total revenue guidance of 35 million to 38 million, which suggests a second half of 2024 similar to the first half of 2024.
Stephen Ma: At the midpoint, this implies revenue for the year approximately flat when compared to 2023.
Speaker Change: However, based on the midpoint of guidance, we expect second half of 2024 revenue growth to be double digits compared to second half of 2023.
Speaker Change: With respect to product categories, we now expect approximately 5% growth in lab essentials revenue for 2024, with a delta of the total revenue dollars coming from clinical solutions.
Speaker Change: The company continues to expect free cash outflow of less than $18 million for the full year of 2024.
Speaker Change: The company has continued to manage expenses aggressively while preserving the critical investments we believe will allow us to achieve our long-term growth targets.
Speaker Change: The company posted second quarter operating expenses excluding non-recurring charges of $7.8 million below our $8.0 million target, reflecting the full impact of cost measures announced in the first quarter of 2024.
Speaker Change: We finished the second quarter of 2024 with 169 associates.
Speaker Change: down 27% from a year ago, down more than 40% compared to the peak in the second quarter of 2022.
Speaker Change: Following our capital raise a month ago, we believe that we now have sufficient liquidity from cash on hand and the availability under our revolver to take us to cash flow positive.
Speaker Change: This belief relies on the following five key financial assumptions.
Speaker Change: First, revenue grows on average at a minimum of 13% over the next few years. This is the actual compounded annual growth rate of total revenue between 2019 to 2023, excluding the impact of a single large order delivered in 2023.
Speaker Change: This is also similar to the total revenue CAGR from 2009 to 2019.
Speaker Change: Number two, revenue growth upside will be possible over the next few years as some of our growing number of solutions customers move through later clinical trial phases and ultimately into commercialization.
Speaker Change: Third, additional revenue in 2025 and beyond drops through at approximately 70% margin due to the high fixed cost nature of our business.
Speaker Change: Fourth, limited operating expense increases as the business grows.
Speaker Change: Thank you for watching!
Speaker Change: And fifth, capital expenditures of $2 million per year on average.
Speaker Change: Relying on these assumptions, we also believe that the company can achieve adjusted EBITDA rate even when we get to 50 to 55 million in annualized revenue and will become cashflow positive shortly thereafter.
Speaker Change: In summary, we are excited about the future and the company's competitive position in a market with attractive long-term fundamentals.
Speaker Change: With that, I will turn the call back to Stephen.
Stephen Ma: Thanks, Matt.
Stephen Ma: Overall, we were pleased with our performance in 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.
Speaker Change: accelerate the introduction of novel therapies, diagnostics, and other products that improve human health.
Speaker Change: We will now take your questions.
Speaker Change: Thank you and as a reminder to ask a question you need to press star 1 1 on your telephone and wait for a name to be announced. To withdraw a question please press star 1 1 again. Please stand by while we compile the Q&A roster.
Speaker Change: Thank you.
Speaker Change: [inaudible]
Speaker Change: One moment for our first question. Our first question comes from Mark Massaro from VTIG. Your line is open.
Mark Massaro: Hey guys, congrats on a good quarter and thank you for all the financial long-term metrics that you provided. That was helpful. Maybe just the first one on the new product launches, the RUO Plus and the Express Tech.
Mark Massaro: I heard you guys talk about Express Tech being high margin. It wasn't clear if that's high margin for your customers or high margin for you. I guess, can you just clarify if those...
Speaker Change: New products will be gross margin accretive for you in the near term, or will that require some time to achieve some skill?
Mark Massaro: Yeah, thanks, Mark.
Speaker Change: The Express Tech offering is really a way for customers to get your product into production faster than we would normally get it into production. So that allows them to, you know, order today and say, hey, I want this particular custom product, but I need it very quickly. We will then, you know, pull all the strings to make that happen. And for that, there is an additional fee.
Speaker Change: So, yes, it will be gross margin accretive for us.
Speaker Change: and in this case we're actually solving some of the customer pain points in that many times this happens where they're in the middle of a clinical trial and the build doesn't go as they want and they need something very very quickly and so in order to rearrange our manufacturing and our production lines and then we can
Speaker Change: offer the service and charge them additional fees.
Speaker Change: Okay, that's super helpful. You know, you've said some sort of positive statements about the improved backdrop and biotech funding and that you're cautiously optimistic.
Speaker Change: around the timing of a further market recovery. I would, I would say that that language is probably a little more positive than language we've seen from other companies on average. So I wonder if there is
Speaker Change: something perhaps unique about your business. I know that you cited that the majority of your new clinical customers
Speaker Change: are in biopharma, and many are in cell and gene therapy. So I wonder if you can just maybe speak to perhaps some of your optimism about the end markets and funding, and maybe just clarify what you're seeing.
Speaker Change: Yeah, thanks, Mark. I mean, I would say, first...
Speaker Change: We are seeing, as most are, the biotech funding environment improve. That hasn't totally translated to orders yet.
Speaker Change: but the conversations we've had with customers, many of which
Speaker Change: really held back capital spending last year and purchases with us and are starting to come back and request quotes and plan build for 2025.
Speaker Change: So I think that's that's generally what we're seeing. It is challenging therapy, but as you saw, you know, we have 43 clinical customers, 39 are biopharma and
Speaker Change: about half of that cell and gene therapy of 23.
Speaker Change: So, there's actually quite a few other biopharma related customers in there and generally seeing a pickup. I wouldn't say, if you remember, we're guiding towards, you know, still 35, 38, which implies essentially 36 and a half.
Speaker Change: at the midpoint. And so we're not seeing a pickup yet, but even that midpoint is double-digit growth from a year on your perspective when you compare the back half with both of these 2024 and 2023.
Speaker Change: Okay, great. Maybe one last one for me. Next year you will go up against...
Speaker Change: at least two quarters of easy comps or maybe three quarters of easy comps depending on how you describe easy.
Speaker Change: But, you know, going up against a negative 17.
Speaker Change: and then a plus two from Q1.
Speaker Change: As we think about the second half of this year, you guys talked about that being about a double-digit return to growth in the second half of the year. Assuming trends stay constant in terms of biotech funding,
Speaker Change #100: Is it reasonable to think, or are there any reasons why you think achieving double-digit top-line growth in 2025 would be unreasonable?