Q3 2024 Alpha Teknova Inc Earnings Call
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Speaker Change: Hello, and welcome to Alpha Tech Nova third 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. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised.
To withdraw your question, please press star 11 again.
Speaker Change: I would now like to hand the conference over to Jennifer Henry, Technover Senior Vice President of Marketing. You may begin.
Thank you, Operator.
Jennifer Henry: Welcome to TechNova's third quarter 2024 earnings conference call. With me on today's call are Stephen Gunstream, TechNova's President and Chief Executive Officer, and Matt Lowell, TechNova's Chief Financial Officer, who will make prepared remarks and then take your questions.
Jennifer Henry: As a reminder, the forward-looking statements that we make during this call, including those regarding business goals and expectations for the financial performance of the company, are subject to risks and uncertainties that may cause actual events or results to differ.
Jennifer Henry: 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.
Jennifer Henry: Today's comments reflect the company's current views, which could change as a result of new information, future events, or other factors, and the company does not obligate or commit itself to update its forward-looking statements except as required by law.
Jennifer Henry: The company's management believes that, in addition to GAAP results, non-GAAP financial measures can provide meaningful information about the company's financial performance and the effectiveness of its business strategy. We will therefore use non-GAAP financial measures of certain of our results during this call.
Jennifer Henry: 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.
Jennifer Henry: 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.
Jennifer Henry: 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 Gunstream: Thanks, Jen. Good afternoon, everyone, and thank you for joining the call today.
Stephen Gunstream: We reported strong results in the third quarter, with 17% revenue growth compared to the same period last year and quarterly free cash outflow of $2.4 million, our lowest level in over three years.
Stephen Gunstream: I'm pleased with how we're advancing our strategy while continuing to manage our costs and I believe we're on track to achieve our long-term goal of sustainable above-market growth.
Thank you.
Let me start by talking about the biopharma market environment.
Stephen Gunstream: Even though some of our biopharma customers continue to rationalize their clinical pipeline and reduce headcount, we believe the market has now stabilized and we expect modest growth in 2025.
Stephen Gunstream: Notwithstanding that market environment, our growth in the third quarter was driven by sales of custom research and clinical grade reagents to biopharma customers.
Stephen Gunstream: We are also encouraged by the fact that the number of our active clinical customers, again, increased in the third quarter.
Stephen Gunstream: The growth in the number of accounts and our sales to these biopharma customers is encouraging because we expect these customers to increase their annual spend with us as their therapies move closer to commercialization.
Stephen Gunstream: Outside of sales of custom products to Biopharma, we were also pleased with the underlying performance of the broader business.
Stephen Gunstream: Our lab essentials catalog sales returned to high single-digit growth, offset primarily by lower sales of custom products to a few large life science tools companies, which we believe were either timing-related or account-specific.
Stephen Gunstream: Our ability to achieve high rates of revenue growth in spite of headwinds associated with a few customers is a testament to the diversity of our business and customer base, with no single direct customer representing more than 4% of our total revenue in the trailing 12 months.
Stephen Gunstream: When it comes to managing our costs, we are seeing the benefit of the difficult decisions we've made over the past two years. We have reduced our operating expenses by more than $9 million on an annualized basis since the end of 2023 and $19 million since the end of 2022.
Stephen Gunstream: Lower operating expenses have combined with operational improvements to deliver our lowest free cash outflow since we began investing in our growth strategy in the first half of 2021.
Stephen Gunstream: In summary, I feel confident that we'll achieve our long-term goal of sustainable above-market growth for several reasons.
Stephen Gunstream: First, the biopharma market environment has stabilized in 2024 and we expect modest growth in 2025.
Stephen Gunstream: Second, we continue to build a strong pipeline of clinical customers which we expect will drive additional revenue and growth as their therapies move towards commercialization.
Stephen Gunstream: Third, our business is prepared to scale, with the infrastructure and facilities in place to support up to approximately $200 million in revenue.
Stephen Gunstream: Fourth, we have successfully reduced our costs while executing on our core strategy.
Stephen Gunstream: And finally, we have the liquidity necessary to reach profitability without additional capital.
Stephen Gunstream: I will now hand the call over to Matt to provide additional color on the financials.
Matt Lowell: Thanks, Stephen, and good afternoon, everyone. Results for the third quarter of 2024 from a revenue perspective were up 17% from the same quarter prior year.
Matt Lowell: Excluding the impact of a $2.8 million non-recurring, non-cash charge that we will discuss in further detail later in our prepared remarks, we delivered solid financial results for the third quarter of 2024.
Matt Lowell: Total revenue for the third quarter of 2024 was $9.6 million, a 17 percent increase from $8.2 million for the third quarter of 2023, and a level similar to the second quarter of 2024.
Matt Lowell: Lab Essentials products are targeted at the research use only or RUL market include both catalog and custom products.
Matt Lowell: Labessential's revenue was $7.2 million in the third quarter of 2024, a 2% decrease from $7.3 million in the third quarter of 2023.
Matt Lowell: The decrease in lab essentials revenue was attributable to lower average revenue per customer, partially offset by an increased number of customers.
Matt Lowell: Consistent with the last two quarters we saw a sequential increase in the number of lab essential customers during the third quarter.
Matt Lowell: Clinical solutions products are made according to Good Manufacturing Practices, or GMP, quality standards, and are primarily used by our customers as components or inputs in the development and manufacture of diagnostic and therapeutic products.
Matt Lowell: Clinical Solutions revenue was $2.0 billion in the third quarter of 2024, a 229 percent increase from $0.6 million in the third quarter of 2023.
Matt Lowell: The increase in Clinical Solutions revenue was primarily attributable to an increased number of customers, and to a lesser extent, higher average revenue per customer.
Thank you. Bye.
Speaker Change: Consistent with the previous three quarters, we saw a sequential increase in the number of Clinical Solutions customers during the third quarter.
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 lumpiness in this category.
Speaker Change: On to the income statement. Gross profit for the third quarter of 2024 was 0.1 million compared to 1.5 million in the third quarter of 2023.
Gross margin was 0.9%.
in the third quarter of 2023.
Speaker Change: The decrease in gross profit percentage was attributable to a $2.8 million non-recurring non-cash
Speaker Change: charge related to the disposal of expired inventory and write down of excess inventory created in the second half of 2022 when we increased production in anticipation of persistent high demand.
Speaker Change: Instead, demand dropped abruptly, to which we responded by decreasing production and ending both our second and third shifts.
Speaker Change: We have now determined that it is appropriate to write down the remaining inventory manufactured during that period to its net realizable value.
Speaker Change: Excluding the impact of this charge, gross margin would have been 29.8% in the third quarter of 2024.
Thank you very much.
Speaker Change: Operating expenses for the third quarter of 2024 were $7.5 million compared to $10.2 million for the third quarter of 2023.
Speaker Change: Excluding the non-recurring charges of $0.4 million recorded in the third quarter of 2023 related to the write-off of at-the-market facility costs, operating expenses were down $2.3 million.
Speaker Change: The decrease was driven primarily by reduced headcount and spending, in particular on professional fees.
Speaker Change: Operating expenses continue to decline in the third quarter of 2024 and we're at the lowest level since our IPO in the second quarter of 2021.
Thank you. Thank you.
Speaker Change: Net loss for the third quarter of 2024 was 7.6 million or 15 cents per diluted share compared to a net loss of 10.2 million.
Speaker Change: or $0.34 per diluted share for the third quarter of 2023.
Speaker Change: Adjusted EBITDA, a non-gap measure, was negative 5.0 million for the third quarter of 24, or negative 2.2 million excluding the impact of the 2.8 million dollar charge related to inventory.
compared to
Negative 5.5 million for the third quarter of 2023.
On to Cash Flow and Balance Sheet.
Speaker Change: Capital expenditures for the third quarter of 2024 were $0.3 million compared to $1.0 million for the third quarter of 2023. In 2023, we completed our large investments 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 limited in the last three quarters, we expect a moderate increase in the last quarter of 2024.
The End
Speaker Change: Pre-cash outflow, a non-GAAP measure that we define as cash used in operating activities plus purchases of property, plant, and equipment.
Speaker Change: was $2.4 million for the third quarter of 2024 compared to $5.4 million in the third quarter of 2023. This decrease compared to the year ago quarter was due to lower amounts of cash used in operating activities and reduced capital expenditures.
Speaker Change: Free cash outflow continued to improve in the third quarter of 2024 and was at its lowest level since our IPO in the second quarter of 2021.
Thank you. Bye.
Speaker Change: Turning to the balance sheet, as of September 30th, 2024, we had $31.7 million in cash equivalents in short-term investments and $12.1 million in gross debt.
Moving on to our 2024 Guidance and Outlook.
Speaker Change: We reiterate our 2024 total revenue guidance of $35 to $38 million. At the midpoint, this implies revenue for the year approximately flat when compared to 2023.
Speaker Change: We typically see revenue soften in the fourth quarter, primarily due to fewer business days.
Speaker Change: A customer also recently canceled a large clinical solutions order that we would have delivered in the fourth quarter, although the customer may reorder in 2025.
Speaker Change: With respect to product categories, we now expect approximately 2% growth in lab essentials revenue for 2024. The company now expects free cash outflow to be less than $16 million for the full year of 2024, down from our previous estimate of $18 million.
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 third quarter operating expenses of $7.5 million, below our $8.0 million per quarter target, although we do expect these expenses to be somewhat higher in the fourth quarter.
Speaker Change: We finished the third quarter of 2024 with 165 associates down 24% from a year ago.
Speaker Change: As shared during our last earnings call, we continue to believe that we have sufficient liquidity from cash on hand and the availability under our revolver to take us to cashflow positive.
Speaker Change: This belief relies on the following key four financial assumptions. One,
Speaker Change: 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 large order delivered in 2023.
Speaker Change: This is also similar to the Total Revenue CAGR of 2009 to 2019.
Speaker Change: Second, additional revenue in 2025 and beyond drops through at approximately 70% margin due to the high fixed cost nature of our business.
Speaker Change: Third, limited increases in operating expenses as the business grows. And fourth.
Speaker Change: capital expenditures of $2 million per year on average. Relying on these assumptions, we also believe that the company can achieve adjusted EBITDA break-even when we get to between 50 to 55 million in annualized revenue and will become cash flow positive shortly thereafter.
Speaker Change: Revenue growth upside will be possible over the next few years as some of our growing number of clinical solutions customers move through later clinical trial phases and ultimately into commercialization.
Speaker Change: In summary, we are excited about the future and the company's competitive position in a market with attractive long-term fundamentals.
With that, I'll turn the call back to Stephen.
Thanks, Pat.
Stephen Gunstream: Overall, we were pleased with our performance in the third quarter of 2024. We believe the long-term outlook for our end markets remains positive, and we are committed to executing on our growth strategy to help our customers accelerate the introduction of novel therapies, diagnostics, and other products that improve human health.
We will now take your questions.
Thank you.
Speaker Change: Ladies and gentlemen, as a reminder to ask a question, please press star 1-1 on your telephone. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster.
Rodriguez. Thank you.
All right,
Speaker Change: Our first question comes from the line of Brendan Smith with TVCORN. Your line is open.
Hey everyone, this is Chad Weitrofsky on for Brendan.
Speaker Change: Could you just speak to the ongoing launches of Express Tech and RUO Plus? Yeah, how are they going and is that an area where we're going to need any more investment in sales marketing as they kind of scale?
I'll get it.
Speaker Change: Thanks, Chad. So, we launched those last quarter. We've seen some nice increase in engagement around some of those orders.
Speaker Change: If you remember, Express Tech is the opportunity for customers to essentially jump the line and get their product sooner than they would otherwise, which is already in weeks, and so you're talking about just a handful of weeks to get a GMT product. And many of these are orders that are needed last minute for customers in the moment they're actually doing these builds.
Speaker Change: And so we've actually executed a couple of these already. These are essentially.
Speaker Change: operating now, full speed, and there's some engagement from customers. Many of them are fine with the current turnaround times because we're, you know, in a six to eight week time frame, but this takes us to four to six, so when they need it, they order, and it's a margin increase for us, and we put the systems in place to make that happen.
Speaker Change: Same thing, RUO Plus has actually been a feature that I've talked to a number of customers about. They've been very responsive to it. They really like the idea that we're manufacturing in the new facility using the same equipment and processes, but do not have the constraint of the GMP change control and otherwise GMP environment.
Speaker Change: That we've migrated a number of customers to already. It's a seamless transition to GMP. It's pretty obvious to them when they need RUO plus versus RUO, and so we're seeing success there. So from a marketing sales perspective, it's something we bring up with every single one of our customers. It's a great fit for those in need of speed to jump to ExpressTech, for those in that sort of transitionary preclinical phase to get RUO plus.
Speaker Change: I don't think there's significant more investment needed there. This is conversations we have with customers after we've brought them on board.
Speaker Change: That's helpful, Culler. And then just on gross margin, I appreciate, you know, excluding the write-down. Gross margins were strong. Are you expecting any additional write-downs? And this happening, did this change your perspective on kind of how you manage inventory going forward?
Hey Chad, it's Matt.
Matt Lowell: Yeah, to the first part of your question, you know, we're not anticipating any future write-downs where we would have to be taking those right now.
Matt Lowell: But, and obviously this is a, this is a key one here and provide a little bit of explanation in the, in the script about that. And this relates to some production patterns that we had back in twenty twenty two when the market was in a different place.
Matt Lowell: And to further answer your question, yeah, we've done, since that time frame now, which is now several years ago, we have made changes to how we
Matt Lowell: build inventory inside the company and have different rules basically internally about how much we stock, when to stock at all. And we've implemented those, I would say, in the last couple of quarters here. And that's certainly helping us better manage the inventory going forward.
Thanks for the questions guys.
Thank you. Please stand by for our next question.
Thank you.
Matt Lowell: Our next question comes from the line of Lukas Baranowski with KeyBank Capital Markets. Your line is open.
Speaker Change: Hi, this is Lucas Sun for Paul Knight at KeyBank. When you look at cell and gene therapy relative to the rest of your customers, is there any difference in trend you've noticed in terms of revenue growth or pace of recovery with those customers?
Speaker Change: Yeah, thanks Lucas. We obviously look at this really closely and if you, if you kind of go back through what we just talked about, you know, our third quarter revenue growth was driven.
largely by biopharma in this case, right?
Speaker Change: Biopharma encompasses cell and gene therapy as well as, you know, CMOs, CDMOs, biotech companies, and the like. In particular, we've seen it in the custom products, right, which is great. That's been our strategy from the beginning. We're getting those customers in and then they're going down that clinical pipeline over time.
Speaker Change: Now, with respect to cell and gene therapy versus, say, you know,
and other biotech companies doing monoclonal antibodies.
Thank you.
Speaker Change: I would say we've seen something different. I think what we're seeing is a broader stabilization in the space, right? And if you read through some of the comments we've made here, you know, I feel like we're kind of definitely in the back half of the year stable, modest growth next year, but I wouldn't say it's specific to, you know, a gene therapy versus a different type of therapy.
Speaker Change: There is maybe a little bit in the life science tools in large pharma that we seen a slight slowdown from previous year or so, but it seems very account specific right now.
Speaker Change: And so that part, actually, if you heard, our catalog business for LabEssentials actually grew in the high single digits in the third quarter, and we just had a couple of accounts that were down. So if anything, we're seeing just a slight pullback from there, but nothing significant.
Speaker Change: Yeah, that's excellent color. And just one last question for me.
Speaker Change: You know, you've launched a lot of new products in recent quarters, whether it was RUO Plus or Express Tech. Do you feel like you now have all of the products you need in the portfolio, or are there others that are still in development?
and Matthew Lowell.
Thank you.
Speaker Change: So, yeah, Express Tech and RUO Plus are a little bit more almost like service-related products and so we continue to find those and they really come stem from our customers who are saying we'd like this really fast or we wish we had something in between RUO and GMP. So we'll always continue to find those and drive operational improvements and add more value to customers.
Speaker Change: There are some previous products that we developed here around AAB in particular. Those kind of have been put on hold to focus more on short-term investments that have a shorter return on investment given the current or in the previous environment.
Speaker Change: I think there's opportunity here, actually, for us. You know, we built the commercial organization, the infrastructure there, that we could add more products to our portfolio over time. How we do that, when we do that, I think is probably much more of a 2025 conversation. But the fact that we're actually in, you know, a number of these customers talking to them provides this opportunity to maybe see what other products they might need to purchase from us and see if we can't help them there as well.
Excellent, that's all I had.
Thanks, Lucas. Thank you.
Please stand by for our next question.
Speaker Change: Our next question comes from the line of Mark Massaro with BTIG. Your line is open.
Speaker Change: Hey guys, this is Vivian. I'm from Mark. Thanks for taking the questions.
Speaker Change: So I understand it's early to comment on 2025, but you're going off of relatively easy concepts. How do you think your position for acceleration there? I heard you say modest growth in 2025, so would getting back to that historical mid-teens growth be the right way to think about it? Thanks.
Thanks Vivian. Bye.
Speaker Change: Yeah, we talked about Montesquieu, we're talking about the market, and as I said, you know, we believe it's stabilized now in the back half of 24 You know, and you're absolutely right, you know, there's some, you know, comps that are more favorable compared to 3-4. That said, those have historically been some of our lower quarters just because of the seasonality of the business and the number of business days.
and um
Speaker Change: We look to next year, you know, obviously we're not going to give any guidance on that. I think, you know, what we'd like to do is get the business back to that historical annual growth rate.
Speaker Change: that's in that 12-13 percent. And then over time, you know, we think modest growth next year in 2025, but then the market itself would probably return to normal historical bioprocessing growth rates in 2026.
Speaker Change: and at that point maybe there's opportunity for higher growth in the future and we've certainly set that up now with all these therapeutic companies that we're working with.
Thank you for tuning in.
Perfect, makes sense.
Speaker Change: And then just one on gross margins, just what additional leverage do you think you have to pull for gross margins here? I think you've talked about in the past, 55 gross margins at scale. I heard your comments on any additional revenue coming in at 70% drop-down. So could you just discuss the path to getting to that long-term gross margin target?
Speaker Change: Yeah, sure Vivian, thanks. I'll just say that our long-term target
Speaker Change: in the P&L F gross margin line and all the way to the bottom line, frankly. And it's really because of the high fixed cost structure that we have. And we've done a very good job, I think, of managing any increases or even decreasing that fixed cost structure, I should say.
Speaker Change: So, it's certainly going to be revenue growth on top of that, on top of where we are today, to be able to make significant improvement in the gross margins. Of course, there are other levers and we're continuing to pursue.
other production efficiencies.
Speaker Change: You know, by through automation or otherwise changing the way that we manufacture our products, there is the potential for some from some mix.
Speaker Change: and changes as we move more towards chemical solutions to help with that as well, but the real driver and the primary driver I would say is just achieving a higher revenue base which we think we're now in the right direction towards.
Perfect, understood. Thanks for taking the questions. Thank you.
Please stand by for our next question.
Speaker Change: Our next question comes from the line of Jacob Johnson with Stevens. Your line is open.
Speaker Change: Hey, thanks. Good afternoon, guys. Maybe first just on clinical solutions ticked up sequentially a little bit better than we expected. It sounded like that was kind of new customers, not any lumpy orders, but I just wanted to confirm that. And then
Speaker Change: Just looking to 4Q, you gave us 2% growth for lab essentials for the year, and a $3 million range for revenue guidance for the year. Just curious,
Speaker Change: How should we think about clinical solutions in 4Q? It sounds like maybe that's where we'll see some seasonal weakness, but curious about that. Thank you.
So why don't I start with the critical solution side.
Speaker Change: Yeah, it's a combination of new and some larger orders, right? So it's pretty lumpy.
Speaker Change: Jacob in general but it's a combination of the two and there's not like a you know not an individual's large order that's transforming the Q quarter for example right and and you know like I said 4% of our our largest customer in the trail in 12 months is only 4%
Speaker Change: of our revenue. So now we're getting a little bit of a better mixture, but there's always timing on some of these large ones. And I know in the quarter, there were some decent orders in there that we were able to accept and then ship. So, but I absolutely, it's a combination of new and existing there. Nothing specific like we've had in the past, like Q2 2023, nothing of that size.
Speaker Change: So, that's the answer on that piece. You want to? You know, I just add, you know, looking at Q4, since that's where you were going.
Speaker Change: We, and I did mention in the remarks that there was a large order, a clinical solutions order that we did have fall out of the quarter and move into next year.
Speaker Change: So, yeah, I do expect that Q4 we will see, you know, lower clinical solutions revenue just in general and also thanks to that particular situation.
Speaker Change: But we have pointed out, you know, for the back half of the year in general, looking for double digit growth.
Speaker Change: and again just because of this order and the general seasonality in Q4 would expect Q4 you know to be to be lower than we're coming out for Q3 so
Hopefully that's a helpful color for the year end.
Speaker Change: Yep, yep. Thanks for that, guys. And then just as a follow-up, kind of bigger picture question, kind of struck in the comments, you guys are talking about a stable environment and modest growth next year, but you also mentioned
Speaker Change: customer additions in both segments sequentially. I'm guessing some of that's execution on your part, or maybe that's all of it, just kind of the business development efforts. But I guess as we think about growth from here is what I'm trying to get at is
Speaker Change: Should we think about customer additions being kind of, you're able to control that to some degree. Obviously, the macro plays a factor in it. And then kind of what we're really waiting on is kind of spending per customer to pick up and that's reliant on the macro. Is that a fair way to think about it?
Speaker Change: Yeah, I think there's a lot of intertwined pieces here. So, you know, on the market, stable, modest growth next year, obviously
Speaker Change: From my comments, you can see that the growth we had in Q3 was driven by these biopharma customers. So clearly we're growing faster than market and taking share. And that's not efforts from Q4 specifically. It's efforts from the last 18 months to bring those customers on board. And those are now kind of working their way through the pipeline.
Speaker Change: when we talk about the future and how the market affects those two variables. Obviously, if the marketing picks up...
Speaker Change: I think we should be able to, you know, acquire more customers, but they are also not...
Speaker Change: have as sort of limited pipelines, right? So it's kind of a double hit there, which would be great, right? And so, you know, I'm happy with where we sit because we continue to add customers as we, as you can see, every quarter in Clinical Solutions, which is our goal, getting those customers on board and supporting them as they go through the clinical trial.
Speaker Change: On the Lab Essentials side, we really focused a little bit more on the wallet share, the average spend per customer, and we're also seeing that increase now, and the number of customers increased. But I think...
Speaker Change: Part of that is maybe some customers that fell off during the biotech funding drop.
Speaker Change: and some of the environments that are now starting to come back. So this is kind of why we feel like, hey, things are in a good spot right now from a market perspective relative to where they were before. But it's going to be a build, right? And 2025 is not bounce back. It's 2026, my guess, until we're back to where we were before.
Got it. Thanks for the questions.
Thank you.
Please stand by for our next question.
Speaker Change: Good afternoon. Maybe going back to the margin question, if I think about the business today versus 2020, nearly doubled in size, obviously, clinical solutions, you know, now $7 million business, maybe this year versus $1.5 million or under $5 million at least in 2020.
Speaker Change: So there's clearly a big drag from the recent capacity expansions on gross margins and two-point map. We should see some leverage there.
Speaker Change: We've seen a thousand basis points of gross margin leverage in the last four quarters and understanding you're not giving guidance, but just to help us think about
Speaker Change: how much of the drag is related to fixed capacity and how leverage can translate to margin expansion. Could you maybe tie some of those pieces together to help us think about the go-forward expansion opportunity?
Speaker Change: You know, we've pretty much got the assets in place that we need to, you know, be able to grow to a much larger business as we've talked about.
Speaker Change: In terms of the go-forward opportunity for gross margin, as I said just a few minutes ago, I mean, I think there is a substantial opportunity, especially if you use that ...
Speaker Change: 70% metric as an approximation of a drop through on additional revenue. So, I mean, you could almost, you could use that math essentially to map out what the future progression is going to look like.
Speaker Change: You know, until we reach a point where there's some more, you know, step function investments, which I don't, I don't think will be for a while.
um
Speaker Change: But we've, you know, and as I said, there even are some margin accelerators possible if there are significant enough movements in terms of potential mix change or, you know, other things that we're, you know, always working on internally to increase the productivity of our, you know, production efforts here.
Speaker Change: I do expect to see, you know, good margin improvement going into 2025, and I guess it's probably fairly commensurate with that 7% type metric.
Speaker Change: Okay, thank you. And then, you know, last quarter, you spoke to increasing customer engagement, number of active customers increasing, sort of communicating a similar message here, as customers are re-engaging or you're re-engaging them, and there may be
Speaker Change: you know, from an activity perspective, more ready to order? Are you finding that the time to order, the competition, if it's an RFP, is anything about either the competitive process or the sales process?
Speaker Change: different, better, worse than, you know, sort of when you entered this sort of years-long malaise in the market. Just kind of get that as a proxy, I guess, for asking how you feel about the assets, capabilities you put in place relative to the competition over the last couple of years.
Speaker Change: Yeah, if we expand over the last couple of years, it's different. We go back two or three years, it was customers were finding us.
Speaker Change: and we were able to deliver for them when others could not.
Speaker Change: But really, if you go back to even the last year, it has been almost the same in that, you know, we found customers and they've told us repeatedly
Speaker Change: Yeah, we love Technovo. We love the story. We love how you fit in our business.
Speaker Change: But we don't have, we're not ordering right now. When we do, we're gonna call you, right? And we're starting to see some of that dynamic change as you can see in the comments and even from some of the data.
Speaker Change: So, I still don't feel like, you know, there's not some big change in the way they think about how we fit in the space. In fact, I feel like there's quite a bit of validation in the fact that we've increased our customer count in clinical solutions, you know.
every year, really, for the last three-plus years.
Speaker Change: despite this environment so I think I still think there were the stories right you know this smaller scale
Speaker Change: which you know there's movement obviously in cell and gene therapy but also just movement from going to single-use for people who want smaller batches.
Speaker Change: smaller scale, custom and delivered really quickly and what we built it feels like the right thing for what we expect a lot of these customers are going to want in the future in the bioprocessing space.
Thank you for tuning in.
Okay, thank you.
Thank you. Thank you.
Thank you.
Speaker Change: Ladies and gentlemen, I'm showing no further questions in the queue.
Speaker Change: That concludes today's conference call. Thank you for your participation. You may now disconnect.