Alpha Teknova, Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Revenue Growth: Reported 17% revenue growth in Q3 2024 compared to the same period last year. Free cash outflow was $2.4 million, the lowest in over three years. Biopharma market stabilized, expecting modest growth in 2025. Growth in Q3 driven by sales of custom research and clinical-grade reagents to biopharma customers; active clinical customers increased.
• Cost Management: Operating expenses reduced by more than $9 million annualized since end 2023 and $19 million since end 2022. Q3 operating expenses were $7.5 million, down $2.3 million excluding non-recurring charges. Free cash outflow improved to $2.4 million in Q3 2024, lowest since IPO.
• Financials: Total revenue Q3 2024 was $9.6 million, up 17% from Q3 2023. Gross profit $0.1 million vs $1.5 million in Q3 2023, gross margin 0.9% vs 18.0% in Q3 2023 due to $2.8 million non-recurring non-cash charge. Balance sheet as of Sept 30, 2024: $31.7 million in cash, etc., $12.1 million gross debt.

Segment Performance

• Lab Essentials: Revenue in Q3 2024 was $7.2 million, a 2% decrease from $7.3 million in Q3 2023. Attributable to lower average revenue per customer, partially offset by an increased number of customers. Revenue contribution: Lab Essentials made up a significant portion, though exact percentage wasn't specified but was the larger segment.
• Clinical Solutions: Revenue in Q3 2024 was $2.0 million, a 229% increase from $0.6 million in Q3 2023. Driven by an increased number of customers and slightly higher average revenue per customer. Clinical Solutions showed sequential growth consistent with previous quarters.

Guidance

• Reiterates 2024 total revenue guidance of $35 million to $38 million (midpoint flat vs 2023). Lab Essentials expected to grow ~2% in 2024. Full-year free cash outflow <$16 million, down from previous $18 million. Q4 operating expenses expected higher than Q3. Believes can achieve adjusted EBITDA breakeven at $50 million to $55 million annualized revenue and become cash flow positive thereafter.

Risks

• Forward-looking statements subject to risks and uncertainties detailed in press release and SEC filings. Non-GAAP financial measures supplement GAAP, not substitute. Past inventory write-downs, but no future write-downs anticipated now; changed inventory management post 2022 production patterns.

Question and Answer

Q: Speak to the ongoing launches of Express-Tek and RUO+, and whether more investment in sales and marketing is needed?

A: Express-Tek and RUO+ are seeing success. Express-Tek allows faster product delivery, RUO+ offers a transitionary option between RUO and GMP. No significant additional investment needed, as these are discussed with customers after they're onboarded.

Q: On gross margin, any additional write-downs expected, and how it's affected inventory management going forward?

A: No future write-downs anticipated. Post 2022 production patterns, changes have been made to inventory management to better handle stock levels.

Q: Cell and gene therapy vs other customers, and status of product portfolio?

A: Biopharma growth driven by customers, some product development on AAV put on hold to focus on short-term investments with quicker return on investment. Focus on serving customer needs for speed and transitionary products.

Q: Thoughts on 2025 acceleration and levers for gross margin?

A: Modest growth expected in 2025. Long-term gross margin target is 60%+; revenue growth is a key lever, with potential for mix changes and production efficiencies to aid in reaching this target.

Q: Clinical Solutions in Q4, and customer additions?

A: Clinical Solutions has a mix of new and existing customers, but Q4 expected lower due to seasonality and a canceled large order. Customer additions tied to market stabilization and pipeline progress of biopharma customers.

Q: Margin leverage and customer engagement vs competition?

A: Substantial margin opportunity with the high fixed cost structure. Customer engagement remains steady, and assets in place provide a competitive edge in the bioprocessing space.