Alpha Teknova (TKNO) 10 Aug 232023 Q2 Earnings call transcript

Good day, and welcome to Teknova’s Second Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker, Ms. Relations. Investor with Michelmore Sara The floor yours. is

Sara Michelmore

Officer; you, XXXX Earnings Thank ,are who Gunstream, Chief will operator. Financial remarks Teknova's on your Welcome of Quarter Stephen questions. Executive and President then Second make Teknova's Teknova's Matt Conference Officer, call Lowell, Chief to today's Great. and and Call. take prepared me With

to for As risks results company, regarding business those this call, a reminder, including may the that the uncertainties to of forward-looking and and statements the expectations cause that are or performance subject we make during events financial goals actual differ.

risk is company's company the are these concerning information release and fully press more in various the filings Additional earlier they today factors included with in the the described issued SEC.

which new the result law. except Today's forward-looking change could or as comments not reflect information, its by events and factors, as itself of the company other does commit statements, required or obligate views, current update future a to company's

non-GAAP to business strategies. The company's financial its the of management results, the effectiveness evaluating insight performance believes can addition and company's that, GAAP meaningful when provide financial in measures

We call. measures of of will results during use therefore non-GAAP our financial this certain

to are the release which Non-GAAP a or to financial included for as we be only in financial of always press considered and afternoon, non-GAAP accordance and to as measures GAAP. substitute prepared is supplement issued the in this Teknova's superior with posted SEC a website. Reconciliations that also not website GAAP on measures to available financial measures as should

has can the and be by presentation on remarks. website advised also other accompany slide non-GAAP measures similarly measures section Teknova's The that posted used Investor also named It deck supplemental be this of prepared in to from Please webcast. on differ a today's today's financial accessed Relations non-GAAP the company may companies. financial

I now, call over Stephen. turn to will the And

thank XXXX Good call. Sara. afternoon, and quarter of joining you, earnings our for for second you, everyone, Thank us

will for reagents times lives. to manufacture from positioned to producer of to longer, are as of with customers, vaccine, the commercialization. Tecknova introduction therapies, a their the people turnaround critical novel high-quality with accelerate that products industry advance healthier life is they discovery our short and leading help diagnostics live sciences reagents molecular custom scale We and

We second a market both and operationally financially had an backdrop. difficult excellent quarter, against

Our company ability to growth. talented conditions a very execute diversity initiatives dedication our team XX% long-term of continued to deliver is key our and by in for the to sustainable, We segments. these testament on challenging market revenue our position the of sequentially and to increased the

second solutions, from were in sales the from the highest second Our a lab it of had trials. million, to as $XX.X essentials large enter in customer company's migration clinical prepares benefiting in notable a uptick clinical quarter the We the quarterly history. revenue

reducing actively have of giving free confidence in and we outlook. a revenue despite will cash operating near-term target our million year, addition, outflow that In $X.X outflow million, second the lowered expenses our achieve us managed free effectively the cash quarter our for $XX we to

excited are execute the about of growth quarter we've potential optimistic our and the markets in about to second the remain strategy. We long-term long-term progress target made our

our grade GMP for is First, manufacturing state-of-the-art now modular new, production. facility certified

the business. unlock this the investment enthusiastic for potential about multi-year We are will

transformation. to number very a reaction We have and the and facility by already the hosted of customers have company's been encouraged high-profile the

of for increasing investment XXXX, Our this confidence audit in mid-to-late schedule that bear begin to is the nearly XXXX. remainder our customer full will fruit

will existing our product this operating a the reminder, revenue to approximately As plus new utilized. when facility, infrastructure deliver us capacity annual believe $XXX million give we in fully

to screening is say upon our buffer our AAVX the the kit we progressing am serotype. of recent new product schedule. I portfolio front, of R&D built In launch the the on ahead to pipeline include by AAVX Next, extending pleased July,

We expect AAVX end by the year. AAVX launch the to and of

scaling has our on already gene line the with been believe therapy develop some about production discussions as in feedback customers save kit they their product customers proprietary positive with months this buffer workflows. our buffer up very can Early formulations. We

launched more than reagents we simplify entire and production streamline the process. bio addition, In XX to AAV

expect customers even more become valued therapies We towards to they supplier an their advance these to as commercialization.

number growth market to the In to encouraging by this biotech, be one in capital discuss see conserving of trials. moment clinical our against emerging outcomes. segments reducing continue of or want to I temporary, view Lastly, a term, canceling of to of total delaying, believe We recent on environment. we take underway our clinical still near the trials larger backdrop the historically, particularly the focused current

saw We an of area positions in advancements recently capabilities We operational in a gene approval have products we offerings. in to gene We market our which combination to for a notable believe the our developed approval number are continue us as potential product AAV with and by demonstrates The duchenne develop AAV an of the particularly value the therapies, muscular therapy. for this dystrophy. participate segment new proprietary of gene the therapy will evolves. encouraged well

this fiscal return to of revenue approximately turn XXXX, the continue the fourth previously, year-on-year guidance, to of our remainder year-on-year of towards our XXXX. we percentage cash track communicated digit outlook in we XXXX. in we for revenue decline a mid-single change outflow Even top-line for with free quarter growth $XX million As now with to expect a in target

to now financials. a Matt for will the call hand the of I discussion over

of partially the the customer continued offset headwinds afternoon, pharma delivery by early-stage million good for but customers, large the second $XX.X lower from to bio and Total order million a quarter quarter. was second of revenue a with demand XXXX, from significant the associated Steven Thanks, reflecting of $XX.X quarter decline XXXX, a everyone. in slight during

decrease second to XXXX. Research custom decline $X.X number million a higher included Lab XX% and of revenue and Lab from a was quarter Essentials partially at in catalog targeted second attributable of of revenue XXXX, by offset Use the Only in decreased Essentials’ customers, RUO was the The or products both average are products. per million market $X.X customer. the quarter

standards Good our or Practices customers, and of in GM or manufacture and diagnostic to products therapeutic inputs components quality by and P Manufacturing Solutions are products. the as primarily development used made Clinical are according

Clinical an lower Solutions from by quarter, a million XX% in Solutions million second of revenue the revenue $X.X in the increase was revenue partially growth per to quarter customers, $X.X Clinical in The of was customer. XXXX. attributable offset increased average number second

customer per increase volumes. revenue as time up their they over expect We ramp purchase to

who be less. However, can affected this typically by mix metric order of customers newer clinical the

compared revenue lumpiness in the orders can category. there quarter-to-quarter to reminder a as average larger be ESSENTIALS, due Just to LAB this Clinical in Solutions,

purchased Essentials case during As large products to of quarter XXXX. a the who the in Lab GMP in order customer point, second delivered XXXX, diagnostics had previously a we

of margin to quarter in for profit Gross the the of of statement, XXXX. is XXXX. revenue quarter the second from income of second XX.X% compared the which in of second $X.X quarter Despite down million Turning $X.X to in XXXX, quarter higher the increased revenue second XXXX second of gross was to was XX.X% total million, compared overhead represented of compared of manufacturing XXXX. new larger to revenue costs, were second only XXXX including depreciation quarter our of margins from the gross the a percentage the of quarter Clinical XXXX, as Solutions margin down facility, revenue in second quarter our slightly, our

labor Solutions significantly, gross costs and up margins due mix. revenue favorable lower also to Sequentially, a Clinical were

second compared XXXX million of the second for $XX.X expenses to for were Operating of quarter quarter $XX.X XXXX. the million,

by million, impairment $X second XXXX, quarter to occupancy compared non-cash operating down quarter XXXX. spending certain reduced a professional $X.X second costs. of Excluding million charge in related expenses assets The of fees were was fixed primarily of driven to in decrease the and the

second we quarter completed manufacturing machinery, certain further cease facility qualification to equipment, for ISO consolidated as facilities. audit the and of decided development and of company our In of and prepared our XXXX, the also recertification manufacturing use new

impaired previously the to charge related ability the changes assets. market company long-lived value And impairment the result, identified. non-cash a The reviewed Additionally, $X.X recorded of recover in a these these of assets were million price assets. of carrying as of

a diluted, its expense share against quarter loss XXXX pre-tax forwards. due allowances loss or compared recorded increases to to valuation minimal incremental diluted our or $X.X loss in quarter of second company Net $X.X XXXX. million was tax $X.XX against of second for the for losses $X.XX quarter The the net net loss share this of per non-current carry per million operating

negative after $X.X second was adding of measure a was XXXX, recorded second second quarter non-GAAP million of quarter million by $X.X impairment net charge XXXX, XXXX. million the quarter $X.X for the of compared lower The compared Adjusted the to quarter second XXXX. the for EBITDA, loss primarily driven back the in to negative non-cash of decrease

for million marks second straight were to balance the to sheet. XXXX. Turning sequential capital of $X.X XXXX million, quarter of cash quarter expenditures. of the Capital the decreases compared $XX.X the and for second in fourth quarter flow This expenditures

new in have We now our manufacturing investment completed facility. substantially the capital

in Free measure, property, cash cash of second This activities purchases both a $X.X activities, of decrease $XX quarter to XXXX, we in the compared to in plant less was second as of the and was year operating XXXX. used for flow decrease operating prior compared cash non-GAAP provided equipment capital million by a the negative are .X lower define for and which negative million quarter to expenditures. period used due

balance the to sheet. Turning

debt. cash equivalents, $XX.X cash in As we and June XXXX, million XXth had of million in gross $XX.X and

a Lab down to we down the revenue range outlook, respect With to to approximately to product At categories we now compared $XX compared our XXXX be XXXX down lowering XX% X%, X%, revenue XXXX. X% to this XXXX. to Clinical of million to to Essentials X%, total XXXX to and revenue million. Solutions be midpoint, revenue up to compared guidance assumes For decrease of $XX are expect

end manage XXXX. quarter of quarter XXX down the expenses, company At we the expenses The of $XX first of end below have since at excluding at had aggressively. non-recurring continues the associates, of the company million, operating from end XXXX XXX and the so charges XXX the first company posted done XXXX. to The June,

cash of for a downward outlook fourth trend consistent of we continue the the with company This marks is course as the outflow revenue operating XXXX. year, to lower reduction despite our lower over outflow quarter cash expenditures the second to company's free the saw Similarly, and the and quarter expectations during capital the in expenses year. of straight anticipate

$X growth have to without our second million $XX.X on of the investments. on in up that our hand, we strategy cash to million In We to guidance, cash expect scale can in and step-up half we and additional needed believe our access addition have approximately outflow made execute we Based on free significant XXXX. already facility. ATM revolver, the to Investments

back With that, the call I'll to turn Stephen.

with end-markets long term The pleased XXXX. quarter were we for performance Overall, Matt. our outlook of positive. the second Thanks, in remains

novel therapies, that of our and committed to on health. strategies customers other human our are products accelerate diagnostics introduction executing help We to the improve

will now your take questions. We

[Operator Instructions]

will question from the come Steven with line first Our Mah Cowen.

Your line is open.

Great. impacting Thanks and color taking landscape it's the the gave the Tecknova. Appreciate you questions. for on macro how

down growth on Just drivers, new some the appreciate of there the coming guided significantly at else your down of that the on the recent new facility. gave color the anything guide by them that new than you gives But peers, have looking you. I are GMP online, is confidence And more guide? the products some you

the Stephen. Sure. we impact customer. seeing just have of when of go - I last back early-stage year, Thanks, guidance we lowered would kind started to to the biopharma

lot the closer shoot a we're this of the this, view to to to up of not in closely The a of revenue early - the towards allows spending half others. tied and patterns compared year. in destocking tied combination back end think our pretty of the get us pretty having being I stock there

the research while growth have lot say science would offering, but are that And these a We not business and through life the are commercialization solely diverse cover the tools also two pretty the the in drivers from early-stage really also we three all diagnostics. serve years that, last biopharma. of and in I or of biopharma, been our way

research we know, obviously, So slowdown migrate are in guidance. have to long-term reason of continued down do I from clinical believe lowering these slow throughout think this a to we're we strategy that will you the half and That be said, business and the diverse. bit we more the year. Hence back a has little seen customers the

facility. are interest That’s And of sales on Thank facility customers? cycle that these you what to the you the customer the you gave think sense Can your color audits increased appreciate us helpful you. give GMP that also convert people is a the on color. to doing

down scale a that and Sure. pipeline. they then I this customers it a with Yeah, engage takes patterns. development preclinical We it to while. mean, – in those the long-term as us great is it’s a not them go with here side. very similar did that talk about does a although large use follow might therapeutics It for on customer be to example strategy

We and going preclinical that engage like for work. demonstrate before research-grade version XXXX product. that we with make discussion of XXXX. can they a works, to work on of in deliver half a started product We customer We this trial in the their to to GMP-grade XXXX. But product back as verification manufacture product their would the basically

After in, validation. came half delivering quarter actually XXXX for GMP-grade order the that, the of in first first for XXXX, of

into can they trials. clinical So go those use products to

well those the And of can when and course, see, the that as do well the towards as revenue orders. QX and as you there. has we in so of clinical you delivered we size impact see type that shift can solutions, as more financial And

trials. just that's them so, clinical the And into getting

it's for this year and this another diagnostic. Now one in probably particular

So different we're just even But and some of between onboarding it's timeline scale months is as up. forward. with anywhere that, they The from can we that believe XX these in see up, get process, more customers tail manufacturing for a that going strategy. the funnel. others. these XX they'll the not talking probably the extremely you What But are only become in the early-stage that safety the essentially clients of we

you. Thank Great.

for Larew next And with of come you. our from Blair. Matt One the moment that William. Thank will question. line

is Your open. line

Hey, good afternoon.

ask wanted to about First OpEx.

year, impairment right particularly year-over-year you [Indiscernible] and is to you’ll able facility charges. about back sort think about The And next there. about on remind to meaning excluding stay – – new that so, that talked of obviously in capacity the hop starting and as Volumes it the there flat be now

how quiet. a that? are The year-on-year bit you I that you Did time? over excluding OpEx? those you you get asking Are flat scale Matt, charges? Hey impairment were didn't little saying

Yes, yes.

grow to – going new just year-over-year they're OpEx implying facility think as fly to Sorry will the XXXX online of was about year I trends kind start next come you ‘XX? if

I this Yeah, manage the to all, Matt. question the year. down these we've the I here levels. think mean, thanks way - happy able been course I of we've very down those at And to stay been think from OpEx of during for first cost with or certainly Yeah, obviously expecting

we’re costs. So that we've demonstrating been manage able to

necessary said bit remarks limited feel a means in when the made that future, we investments scale In mean, the with terms to we've of as to for what we we like be the little I business, able say the additional investments.

But not or need that we're point. FY at think substantially way. specific any back, assume do Of ‘XX course, start providing those ‘XX to that guidance expenses would we to FY expect we in can this grow we not in which as you I any to increase

all budget the of our we So gotten to detailed haven't or preparation anything.

we But that business expenses. those principle, can we this Does in believe operating up grow help that your with question? answer withholding

Yes, it Thank you. does.

second question, Matt. The

noticed a covenant to I And portion period. long-term this think that some December revenues as related of PTM current XXst. reclassified You into debt there's

reclassification guidance guess, position debt maybe reduction? amount your I the obviously just related outflow cash of get to that us year? help comfortable is this the and with relative standing And So, to

bbservation Good, debt did from to short-term Matt. Yes. We our good for long-term this reclassify quarter.

in have notified on of be and July with covenants our covenant. the We're have to period quarter, so compliance a with are the preliminary following we a in discussions open, and Just this out we basis here situation them far. did actually of lender

notice to the don't have kind is plan filed here. us They until point after any issued quarter at this to not of statement and

short-term, long-term situation to with until the debt is been resolve able we're why reclassified that So, them. from to the has the reason

question. of the for come moment line One our Paul from with will next Knight Thank And KeyBanc. that you.

is open. Your line

ATM, Matt, on it's to I fair say guess the no, action that.

Right.

tomorrow We have be and there – of ATM. point, we XX-Q has have this course, will no - been of we but use at filing the the

we data you start half have And if the Are the little the is staying in arm first seeing trials year. to macro. that? correct, bit grow of regarding that, I It like does look a had overall guess

have competing one putting increasing, trials attracting a the that's would scaled our say here, moment, multiple the cycles up of that seem organization. see measure right. to We which are factors that efforts to funnel we true. It's be commercial our we're because do longer size a at customers. also hard We’ve But our will used still and the I those But they than towards the be. smaller to indicate

customers we said, customers really still It trying and capital of talk with with to are agreement things happens you. you the stuck I'm starting their maintain timing to the when to builds is That forward. like they when think those move they're conversations still But how in feel about that to have undetermined. that in these does actually

the Would it or And say Would last do not kind of be is the larger more follow-on what revenue you emerging components then, kind fair of medium-sized, fair? be, biotech now think? deteriorating? are portion that of the to of would biotechs XBI the right be really that

that. Yeah, I'm can not sure I comment

we We had come probably five mentioned now they've facility and opening. have customers there had and four We've small. our or been both through new large

And you're will a not is just this seen that, the fact very trend facility side. that necessarily But on specific the that engaging early I with now we given so wherever say coming customers online. on is have

Thanks. Okay.

of for moment our next will question. One you. Mark come that Massaro from Thank And with BTIG. the line

open. is line Your

guess, areas in segments like of across I'd business, curious are on, diagnostics, are areas end-markets? therapy of really thoughts climate Stephen, in have food, Thanks taking soft biotech other hear very called There's with to your peers But guys. gene your cell consistent questions. and seeing said. other the be I that's much surprise all and obviously, your agriculture, you no you've Hey for Diversified which what there. out those your some of what

great Mark. Yeah, question,

of, outside do those I historically. say, early-stage those so, of we And would academic generally diagnostics serve food, within are the Ag. to and line across everything majority expectations from to all of from And sort biotechs, of the segments biopharma kind tools, of speaking,

over comparison tough coming you see. a year-on-year are can We as

for half the being of first lot ‘XX at biotech then of look those last on you end we of If put trials, a XXXX, the hold. year, made part larger builds had of early were and clinical

hot is comparison spots perspective, down, aware nicely. when quite growing which genomics, year-on-year but take a spatial That financial exactly do our fair of. So step from within is look group you a sure I'm see you're not we

of more like were seeing been type diagnostic COVID-related the diagnostics. genomic favorable is some pick and what then, to sites And there ‘XX biopsy of time period excluding novel the like previously or diagnostics that liquid up other probably some in equal has

So benefit diverse we all that from business support do can a and customers. that being these

Whether Yes. on it's of you from facility sense. next us walk of through in of just Maybe to couple likely see changing sort facility. That you And business the maybe customers, customers, of what the ribbon size years? the the us congrats the new makes enable? cutting just can new GMP-grade remind how is

some ability And out last building deliver can ready. the Yeah, concerned really a them. customers long-term facility. this two they're number to We where said, we company for a bring us customers years are and is that the had we've I to of. takes yeah. spent for like position of are in about This we proud not It the really

towards our we perfect. what is them of This to forward stuff one over where every this looking is And moving time. want And said, made. we're

a million very from revenue about facilities, combined existing $XXX all the with from to from those positive capability the can other get of capacity that's So, total standpoint. we in our facility,

leader But even redundancies, a have liter is sort than we or of can the we these facility of in can batch that and operate the one extremely how number bags way and that relevant well. we specializes in less with down fact sizes. this more smaller do, All is here flexible we built X,XXX probably as facility a

of it's we not finding fact customers of we're what just some capacity. that the So, the sort and these we this in, have bring

they're the can facility up then And small this. way that these through and built we do commercialization. them all at to custom excited scales with But a this are purpose-built scale manufacturing we've and they're and

think, indicators of is I So that, long right capability us is the for type the term. on this for early the them

of and kind in. the them And bring through we're schedules audit how working them

pile the We up trials. suppliers will get the go do years, of become next few then over course couple hopefully and clinical they as one into the in of of

for Thanks Okay. color. the

our moment come the question. will One from you. Stephens. Thank for Jacob line that with next Johnson of And

open. is line Your

the Maybe Yeah. related understand in that, kind lumpy than, half? guidance it's a Thanks order just the Clinical implied just for getting the kind midpoint previously I you you're XQ you and at on the could these into still back of I sausage why back macro down as environment. number of or thought ordering to would the relates but taking afternoon. the half understand orders in XQ, one Solutions is than to But less something there. XXXX? a had lighter speak of are Good And questions. seeing that at pushed they than the implies such step customers you maybe some another

Yeah, Stephen can first and it want. I'll you then if comment take

essentially QX, did course, in observation, the In this from I have year from environment is general, what the step particularly think we're in for unchanged customer from that the through Jacob, half here seeing seeing go is guidance a seen and what Clinical yeah we've for it's one we've is implied what in QX. fair large our certainly earlier the guidance order been business we down quarter. back the of during Solutions So, your

during So nice boost we've gotten the QX.

improves. But expect of I’ll maybe? orders customer, in So, fewer are back to from Stephen let it to environment, QX this of we’d seeing although go in environment can to more we're are as smaller we course, terms come back expecting the and what that normal QX

are Yeah, customers. fewer there yeah, I don't think

are of it's year, builds. small talking still or use things. XX smaller getting for now about to some that type of this customers Teknova I last think year I combination both. mean of using delays six instead, figure orders But dedicated a their for and mostly figures to order they're we're figures seven

have they piece one that the QX that on be based sure are QX is to would that not the about we have delivery or planned of do quarters, is delivery they that some think, going that So, primary two QX own QX have originally, order, and customers order or like right? their I even, exactly constraints. timing those capital they gone out And are when need a

that's seeing. excitement the And much we're I It's not really what dynamic. losing a So, we're is market mean, it's there. very like customers.

really that's in And helpful. Then we Q&A. it. for the then, Thanks Stephen. Got haven't talked tech about AAV

question So maybe a on that.

Just launches one, sounds can many here? initial been? how this two, reception and initial has talk that? then potentially beyond you like the how It more from year. about more two But

of Thank And it there. just kind you. then leave the about from revenue how should us this? if And also, think we contribution you remind I'll

know whole the start contribution. now going revenue Yeah. customers to Great, to because of mean, from we I'll is screening the get AAV buffers polishing mean, point help products are empty we’re overall set this out the work I the on is full the try capsids. for relatively obviously buffer with a where they separate I step that to to insignificant business, screening selling kit tech of that kits them

right trial. get process, development them up scale then the can the that into then, reagent clinical the And through into they and

trials than faster be then will kind to of would long-term with otherwise allows they us so. into a strategy these play them to And overtime. engage over that this do and get out here So, able them is

the of broad itself kind their serotypes. possible, make right? relatively but is, there AAV as across all revenue from for small, want portfolio is is and important as production end-to-end support we many of So reason to the So, to

end have yes, out serotypes, plan year, but most more think So, we’re or We which through, out go of XX XX will four two at probably we of of the out have which I by knocking and the now. popular, two to the kind two the five moment. to we again or continue there's of

we it. launched this that then, are make going reagents of other to And suite

to lysis that reagent the making purification of they are will buy so, throughout reagents. PFF, the people or portfolio and standard own just or out And for year. rest continue our So, we can off-the-shelf their build

– more be One share piece can clinical trials. and them as going down start of move of Shop it a dollar kind Stop kind they development, that for they be that a So as capture can into process the they

the go again, see to they maybe up these decent be stages. into But in of a that's over early altogether, the clinical we'll as trials, uptick. So, time revenue biggest certainly amount where add will

Got for it. Thanks taking the questions.

as questions showing the you time, you, at Thank for I'm this in queue further today's all no Thank program. concludes participating. this

now may disconnect You