Alpha Teknova, Inc. (NASDAQ:TKNO) is a leading producer of critical reagents for the life sciences industry that accelerate the introduction of novel therapies, vaccines, and molecular diagnostics. The company has a strong track record of manufacturing high-quality, custom, made-to-order products with short turnaround times and the ability to scale with its customers as they advance their products from discovery to commercialization.

Business Overview

Teknova's product offerings include pre-poured media plates for cell growth and cloning, liquid cell culture media and supplements for cellular expansion, and molecular biology reagents for sample manipulation, resuspension, and purification. The company's customers span the entire continuum of the life sciences market, including leading pharmaceutical and biotechnology companies, contract development and manufacturing organizations, in vitro diagnostics franchises, and academic and government research institutions.

Teknova's proprietary manufacturing processes are highly adaptable and configurable, enabling the company to deliver custom products with short turnaround times and at scale. The company is ISO 13485:2016 certified, allowing it to offer solutions across the entire customer product development workflow and support its customers' need for materials that meet increasingly stringent quality requirements as they scale from research to commercialization.

Teknova manufactures its products at its Hollister, California, headquarters and stocks inventory of raw materials, components, and finished goods at that location. The company relies on a limited number of suppliers for certain raw materials and has no long-term supply arrangements, ordering on a purchase order basis. Teknova ships its products directly from its warehouse in Hollister to its customers and distributors, generally pursuant to purchase orders.

Financials

For the full year 2023, Teknova reported revenue of $36.7 million, a decrease of 3.5% compared to 2022. The company's net loss for the year was $36.8 million, and its operating cash flow and free cash flow were negative $18.9 million and $26.8 million, respectively.

In the first quarter of 2024, Teknova generated revenue of $9.3 million, a 2% increase compared to the first quarter of 2023. The company's net loss for the quarter was $8.1 million, and its operating cash flow and free cash flow were negative $6.6 million and $6.7 million, respectively.

Teknova's revenue is disaggregated into two primary product categories: Lab Essentials and Clinical Solutions. Lab Essentials revenue, which is targeted at the Research Use Only (RUO) market, was $7.3 million in both the first quarters of 2024 and 2023, as a slight increase in the number of customers was offset by a decline in average revenue per customer.

Clinical Solutions revenue, which includes products made to Good Manufacturing Practices (GMP) quality standards and primarily used as components or inputs in the development and manufacture of diagnostic and therapeutic products, was $1.7 million in the first quarter of 2024, a 7% increase from $1.6 million in the first quarter of 2023. The increase in Clinical Solutions revenue was attributable to an increased number of customers, partially offset by a lower average revenue per customer.

Teknova's revenue is also disaggregated by geographic region, with 95.5% and 95.7% of revenue generated from the United States in the first quarters of 2024 and 2023, respectively.

Gross profit for the first quarter of 2024 was $2.2 million, compared to $2.4 million in the first quarter of 2023. Gross margin was 23.8% in the first quarter of 2024, down from 26.6% in the first quarter of 2023, primarily due to increased overhead costs, largely depreciation expense following the completion of the company's new manufacturing facility in mid-2023, partially offset by reduced headcount.

Operating expenses for the first quarter of 2024 were $10.2 million, compared to $11.4 million for the first quarter of 2023. Excluding non-recurring charges related to a reduction in workforce, operating expenses decreased by $1.7 million, driven primarily by reduced headcount and spending, despite a $0.5 million one-time non-cash expense related to option repricing.

Liquidity

As of March 31, 2024, Teknova had $21.6 million in cash and cash equivalents and $12.1 million in gross debt. The company's available capital resources may not be sufficient for it to continue to meet its obligations as they become due over the next twelve months if it cannot improve its operating results or increase its operating cash inflows.

Teknova has an outstanding principal amount of $12.1 million under a senior secured term loan pursuant to an Amended Credit Agreement with MidCap Financial Trust. The Amended Credit Agreement includes minimum net revenue requirements that are measured on a trailing twelve-month basis and a minimum cash requirement. The company was in compliance with its financial covenants as of March 31, 2024; however, it continues to experience unfavorable market conditions and believes it may be unable to comply with the trailing twelve months revenue covenant for the twelve-month period following the date on which the financial statements are available for issuance.

If Teknova violates one or more of its covenants under the Amended Credit Agreement and is not able to obtain a waiver or accommodation from the lender, it could be required to pay all or a portion of the outstanding amount under the term loan. In that event, the company may need to seek other sources of capital, and there can be no assurances that it would be able to do so on acceptable terms.

Teknova also has an at-the-market (ATM) facility under which it may offer and sell, from time to time, shares of its common stock having aggregate gross proceeds of up to $50.0 million.

Outlook

For the full year 2024, Teknova is reiterating its revenue guidance of $35 million to $38 million. At the midpoint, this implies a revenue forecast that is approximately flat compared to 2023. The company expects approximately 10% growth in Lab Essentials revenue, with the remainder coming from Clinical Solutions revenue.

Teknova is also managing expenses aggressively while preserving critical investments. The company posted operating expenses, excluding non-recurring charges, below $10 million for the fourth quarter in a row and stood at $8.9 million for the first quarter of 2024, despite absorbing a $0.5 million one-time non-cash expense related to option repricing.

The company expects the savings generated by its most recent reduction in force and other associated cost-saving measures to reach approximately $8 million on an annualized basis by the second quarter of 2024 when compared to the fourth quarter of 2023. Teknova finished the first quarter of 2024 with 174 associates, down 31% from the year-ago quarter.

The company continues to expect free cash outflow of less than $18 million for the full year 2024, with lower average quarterly free cash outflows for the remainder of the year.

Recent Developments

In the first quarter of 2024, Teknova launched several new products and capabilities, including the AAV-Tek AAV Stabilizer, a proprietary formulation that protects the capsid throughout the AAV downstream filtration and purification processes, and Build-Tek, a first-of-its-kind custom configurator providing access to high-quality customizable buffers with exceptionally short turnaround times and no minimum order quantities.

The Build-Tek offering allows customers to customize and order buffers online, with products shipping in a matter of days. Teknova believes this will enable researchers to focus on advancing science instead of spending time mixing buffers, and the company sees it as a significant market opportunity that has not been addressed by other suppliers.

Conclusion

Teknova is executing well amid a challenging biotech environment, with solid financial results in the first quarter of 2024 and a positive outlook for the full year. The company's new manufacturing facility, quality management system, and purpose-built processes and equipment are enabling it to deliver custom reagents to customers faster than competitors, which is a key competitive advantage.

While Teknova faces liquidity and covenant compliance risks, the company is taking steps to manage expenses and preserve critical investments. The launch of new products and capabilities, such as Build-Tek, also positions Teknova to capitalize on emerging market opportunities and drive long-term growth. Overall, Teknova appears well-positioned to navigate the current industry landscape and continue supporting its customers in the development and commercialization of novel therapies, vaccines, and molecular diagnostics.