Alpha Teknova, Inc. (NASDAQ:TKNO) This fall 2022 Outcomes Convention Name March 15, 2023 5:00 PM ET
Firm Contributors
Jen Henry – Senior Vice President of Advertising and marketing
Stephen Gunstream – President & Chief Govt Officer
Matt Lowell – Chief Monetary Officer
Convention Name Contributors
Joseph Flanagan – Cowen
Matt Larew – William Blair
Hannah Hefley – Stephens
Operator
Thanks for standing by, and welcome to Teknova’s Fourth Quarter and Full 12 months 2022 Monetary Outcomes Name. Right now, all members are in a listen-only mode. After the speaker’s presentation, there shall be a question-and-answer session. [Operator Instructions]
I might now like at hand the decision over to Senior Vice President of Advertising and marketing, Jen Henry. Please go forward.
Jen Henry
Thanks, operator. Welcome to Teknova’s fourth quarter and full yr 2022 earnings convention name. With me on right now’s name are Stephen Gunstream, Teknova’s President and Chief Govt Officer; and Matt Lowell, Teknova’s Chief Monetary Officer, who will make ready remarks after which take your questions.
As a reminder, the forward-looking statements that we make throughout this name, together with these concerning enterprise targets and the expectations for the monetary efficiency of the Firm, are topic to dangers and uncertainties that will trigger precise occasions or outcomes to vary. Further data regarding these danger components is included within the press launch the Firm issued earlier right now, and they’re extra absolutely described within the Firm’s numerous filings with the SEC.
Immediately’s feedback mirror the Firm’s present views, which may change on account of new data, future occasions or different components, and the Firm doesn’t obligate or commit itself to replace its forward-looking statements, besides as required by regulation.
The Firm’s administration believes that along with GAAP outcomes, non-GAAP monetary measures can present significant perception when evaluating the Firm’s monetary efficiency and the effectiveness of its enterprise methods. Throughout this name, we’ll due to this fact use non-GAAP monetary measures of sure of our outcomes. Reconciliations of GAAP to non-GAAP monetary measures are included within the press launch that we issued this afternoon, which is posted to Teknova’s web site and at www.sec.gov/edgar.
Non-GAAP monetary measures ought to all the time be thought-about solely as a complement to and never as an alternative to or as superior to monetary measures ready in accordance with GAAP. These non-GAAP monetary measures on this presentation might differ from equally named non-GAAP monetary measures utilized by different corporations. Please even be suggested that the Firm has posted a supplemental slide deck to accompany right now’s ready remarks. It may be accessed on the Investor Relations part of Teknova’s web site and on right now’s webcast.
And now I’ll flip the decision over to Stephen.
Stephen Gunstream
Thanks, Jen. Good afternoon, and thanks, everybody, for becoming a member of us for our fourth quarter and full yr 2022 earnings name. Teknova is a number one producer of essential reagents for the life sciences trade to speed up the introduction of novel therapies, vaccines and molecular diagnostics that can assist folks dwell longer, more healthy lives. We manufacture high-quality customized reagents with quick turnaround instances and are positioned to scale with our clients as they advance their merchandise from discovery to commercialization.
In 2021, we introduced a technique to place the Firm for sustainable, accelerated development by means of investments in capability enlargement, business excellence, and scientific innovation. I am happy to report that we’re successfully executing to that plan. First, our new state-of-the-art modular manufacturing facility turned operational on the finish of 2022 for research-grade manufacturing and is on monitor for GMP manufacturing by mid-2023.
As well as, we have modernized our supporting infrastructure to scale the enterprise for years to return, together with a brand new ERP system, an up to date high quality system and the introduction of extremely automated reagent manufacturing tools. We imagine these investments plus our present infrastructure will give us the capability to ship roughly $200 million in annual product income when absolutely utilized.
Second, in 2020, I employed the primary two devoted subject gross sales representatives at Teknova and what was the start of our business funding. I am happy to report we are actually absolutely operational from a business and advertising and marketing perspective, together with implementation of back-end methods and processes reminiscent of Salesforce.com, automated advertising and marketing and an e-commerce engine. Gross sales and advertising and marketing associates have been onboarded and are already driving demand for customized and GMP-grade reagents.
Early indicators display our means to maneuver our catalog clients into our customized and scientific options merchandise. Immediately, greater than 76% of our annual income is generated from clients who bought customized and/or GMP-grade reagents in comparison with 68% in 2020. Of these, 56 of our roughly 100 cell and gene remedy accounts now buy customized and/or GMP-grade reagents in comparison with 32 in 2020. These cell and gene remedy clients right now signify roughly 25% of our annual income.
Lastly, on the R&D entrance, we have now made nice progress advancing our new product pipeline. In This fall, we launched an early entry program for 2 novel merchandise supposed to streamline downstream gene remedy course of growth, and we now have a number of clients enrolled in that program. On a associated be aware, right now, we introduced the collaboration association with Sartorius BIA Separations, which is a part of the worldwide life science group, Sartorius, to assist our clients enhance their AAV purification processes with one among our early entry merchandise.
Matt will present particular feedback on our steering, however I need to give an replace on a few of the tendencies we proceed to see out there and a few ideas on what we’re anticipating in 2023. With the certification of our new facility to supply GMP-grade reagents anticipated in the course of this yr and the current strategic investments we have now made to increase our business and advertising and marketing groups, we imagine we’re effectively positioned for future development.
For the following a number of quarters, nevertheless, we anticipate continued headwinds related to restricted demand from early-stage biopharma clients, which we anticipate to be partially offset by development in different markets. However, we stay optimistic concerning the long-term potential of early-stage biopharma. We proceed to interact with these clients, together with with those that have deferred orders whereas establishing a robust pipeline of alternatives that we imagine might start to generate extra income in mid- to late 2023.
I’ll now hand the decision over to Matt for a dialogue of the financials.
Matt Lowell
Thanks, Stephen, and good afternoon, everybody. Outcomes for the fourth quarter of 2022 have been decrease than prior yr as anticipated given challenges within the markets. Nevertheless, we delivered strong outcomes for the complete yr of 2022.
Whole income was $7.9 million for the fourth quarter of 2022 and $41.4 million for the complete yr. Income for the fourth quarter of 2022 was $7.9 million, an 18% decline from $9.6 million within the fourth quarter of 2021 and $41.4 million for the complete yr 2022, a 17% improve from $35.4 million for the yr 2021, excluding Pattern Transport. A manner of reminder, Teknova launched the Pattern Transport product within the latter a part of 2020 to handle the pressing want for COVID-19 exams, and we not market or manufacture the product.
Lab Necessities merchandise are focused on the analysis use solely, or RUO market, and embody each catalog and customized merchandise. Lab Necessities income was $7.0 million within the fourth quarter, a 3% improve from $6.7 million within the fourth quarter of 2021. For the complete yr, Lab Necessities income was $31.8 million, a 17% improve from $27.2 million for the complete yr 2021. Development for the complete yr was pushed by a 3% improve within the common income per energetic buyer to $7,714 and a 13% improve within the variety of energetic clients to 4,121.
Medical Options merchandise are made based on Good Manufacturing Practices, or GMP, high quality requirements and are primarily utilized by our clients as elements or inputs within the growth and manufacture of diagnostic and therapeutic merchandise. Medical Options income was $0.8 million within the fourth quarter, a 68% lower from $2.4 million within the fourth quarter of 2021. For the complete yr, Medical Options income was $8.4 million, a 24% improve from $6.8 million for the complete yr 2021.
We grew our Medical Options income by including new energetic clients, rising from 22 clients in 2021 to 27 in 2022. Common income per energetic buyer in 2022 elevated 1% to $313,000. We anticipate income per buyer to extend over time as they ramp up their buy volumes. Nevertheless, this metric could be affected by the combination of newer scientific clients who sometimes order much less. Simply as a reminder, because of the bigger common orders in Medical Options in comparison with Lab Necessities, there could be quarter-to-quarter income lumpiness on this class.
On to the revenue assertion. Gross revenue for the fourth quarter of 2022 was $2.1 million in comparison with $5.0 million within the fourth quarter of 2021 and $17.5 million for the complete yr 2022 in comparison with $17.6 million for the complete yr 2021. Gross margin was 26.7% of income within the fourth quarter 2022, which is down from 49.2% of income within the fourth quarter of 2021 and 42.2% for the complete yr 2022, which is down from 47.8% for the complete yr 2021. Further headcount resulted in increased labor prices, which primarily drove the decline in gross margin in each the fourth quarter and full yr of 2022. Decrease income additionally considerably impacted the fourth quarter 2022.
Working bills for the fourth quarter of 2022 have been $16.3 million in comparison with $9.7 million for the fourth quarter of 2021 and $67.1 million for the complete yr ’22 in comparison with $29.6 million for the complete yr 2021. Working bills for the fourth quarter of 2022 elevated primarily on account of a $4.2 million onetime noncash impairment cost associated to long-lived belongings recorded through the fourth quarter of 2022 in addition to to extra headcount, stock-based compensation expense and advertising and marketing prices.
Working bills for the complete yr 2022 elevated primarily on account of onetime noncash prices, together with a $16.6 million goodwill impairment cost recorded through the third quarter of 2022, a $4.2 million impairment cost associated to the long-lived belongings recorded through the fourth quarter of 2022. Ongoing working prices have been up as effectively on account of extra headcount, stock-based compensation expense and advertising and marketing prices.
Within the fourth quarter 2022, the Firm determined to stop additional use and growth of sure manufacturing equipment and tools, primarily associated to serving a section of the market we not thought-about engaging as we accomplished our 2023 budgeting course of and finalize the capabilities greatest suited to our new facility. The Firm, due to this fact, reviewed the recoverability of the carrying worth of those belongings and consequently, recorded a onetime noncash impairment cost of $4.2 million associated to those long-lived belongings.
Internet loss for the fourth quarter 2022 was $13.3 million or $0.47 per diluted share in comparison with a internet lack of $3.6 million or $0.13 per diluted share for the fourth quarter of 2021. Internet loss for the complete yr 2022 was $47.5 million or $1.69 per diluted share in comparison with a internet lack of $9.8 million or $0.61 per diluted share for the complete yr 2021. Adjusted EBITDA, a non-GAAP measure, was adverse $8.1 million for the fourth quarter of 2022 in comparison with adverse $3.4 million for the fourth quarter of 2021. Adjusted EBITDA for the complete yr 2022 was adverse $21.9 million in comparison with adverse $7.6 million for the complete yr 2021.
On to money circulation and stability sheet highlights. Capital expenditures for the fourth quarter of 2022 have been $4.7 million in comparison with $7.4 million for the fourth quarter of 2021. Capital expenditures for the complete yr 2022 have been $28.1 million in comparison with $19.9 million for the complete yr 2021. The vast majority of spend within the fourth quarter 2022 went in direction of finishing development of our new manufacturing facility. We don’t anticipate to make the identical stage of capital expenditure in 2023 now the development of the brand new manufacturing facility is considerably full, though there are nonetheless some reasonable investments related to qualification of the ability to supply GMP-grade merchandise.
Free money circulation, a non-GAAP measure, which we outline as money supplied by or utilized in working actions, much less purchases of property, plant and tools, was adverse $12.8 million for the fourth quarter of 2022 in comparison with adverse $10.5 million for the fourth quarter 2021. Free money circulation for the complete yr 2022 was adverse $55.5 million in comparison with $28.9 million for the complete yr 2021. This lower in comparison with the prior yr interval was primarily on account of increased money utilized in working actions for each the fourth quarter and full yr 2022 and a major improve in capital expenditures for the complete yr 2022. Turning to the stability sheet. As of December 31, 2022, we had $42.2 million in money and money equivalents and $22.1 million in gross debt.
On to our 2023 outlook. We’re offering 2023 complete income steering of $42 million to $46 million. On the midpoint, this assumes a income development forecast of roughly 6% as in comparison with 2022. With respect to product classes, we anticipate Lab Necessities income to be roughly flat in comparison with 2022, and Medical Options income to develop between 20% to 50% in comparison with 2022. This product class development steering consists of the belief {that a} vital buyer will shift from Lab Necessities to Medical Options merchandise in 2023.
We’re finishing a deliberate two-year interval of strategic investments that we imagine has ready our enterprise to scale commercially and operationally over the following 5 years. In response to the slowdown in income, seen because the third quarter of 2022, we have now enacted a number of measures to comprise prices.
Notably, in February 2023, we accomplished a discount in pressure that affected roughly 13% of our workforce and resulted in onetime prices within the first quarter 2023 associated to severance of roughly $0.8 million. The discount will generate roughly $4.0 million in annualized financial savings. We anticipate considerably decrease capital expenditures and flat working bills going into 2023 when in comparison with what we reported for the complete yr of 2022, excluding nonrecurring prices.
We’re dedicated to creating worth for shareholders by means of strategic capital allocation that balances investments for future development whereas additionally making certain the trail to profitability. Due to this fact, we’re concentrating on free money circulation of roughly adverse $30 million for 2023. Along with money readily available, we have now extra funds out there below our credit score facility. In sum, we’re snug that our liquidity place permits us to make investments wanted to execute our development technique.
With that, I’ll flip the decision again to Stephen.
Stephen Gunstream
Thanks, Matt. General, we have been happy with our fourth quarter and full yr 2022 efficiency and the progress we made towards our strategic priorities. The long-term outlook for our finish markets stays optimistic, and we’re dedicated to executing on our technique to assist our clients speed up the introduction of novel therapies, diagnostics and different merchandise that enhance human well being.
We are going to now take your questions.
Query-and-Reply Session
Operator
[Operator Instructions] Our first query comes from the road of Joseph Flanagan of Cowen. Your query please, Joseph.
Joseph Flanagan
That is Joe on for Max. Thank for taking the query. Simply first on Medical Options, the quarter got here down a good quantity year-over-year, but it surely was just like what you noticed in Q3. And that 20% to 50% development steering is absolutely encouraging forward of our mannequin, but it surely’s a reasonably big selection. So I suppose, first — or is in reality is providing you with confidence within the return to development right here in 2023? And what are a few of the places and takes that get us from the low to the excessive finish of this vary.
Stephen Gunstream
Thanks, Joe. I am going to begin and, Matt, be certain to leap in. From a confidence perspective, I believe there’s actually three totally different points right here. The primary is, I believe after we discuss to our clients, we’re working in a brand new regular funding, the place there was acceptance of the quantity of funding on the market in folks and clients reminiscent of they’re now working with the funds they’ve and transferring ahead.
The second piece there’s that as we mentioned in our feedback a second in the past, we have now now a full business advertising and marketing group, and we’re a really small half of a big alternative within the area, and we’re getting that up and going. And with that, there’s a couple of 12-month cycle from the time that we see clients have interaction with us after which begin migrating and scaling up by way of their purchases. And so after we have a look at our funnel, we really feel just like the again half is the place we see that return again to that, as we mentioned, the 25% plus for the complete enterprise.
Matt Lowell
And I am going to simply add to that remark, which all are very legitimate, is that we have now this — I discussed in my remarks, a major buyer that’s transferring from buying Lab Necessities merchandise to Medical Options. So we do have that transition taking place, which is sweet for our Medical Options enterprise and in step with our technique of transferring clients from catalog accustomed to the scientific a part of our enterprise, the Medical Options.
And I might say additional to what Stephen mentioned, after all, there’s some dependency on timing of when these scientific orders that we’re anticipating coming in that can type of give us within the again half of the yr, specifically, some variation of what we’d anticipate on account of these lumpy bigger orders. In order that’s some reasoning behind the vary that we supplied. However we do be ok with that enterprise going into 2023.
Joseph Flanagan
Nice. And nice to listen to concerning the funding atmosphere selecting up. I used to be simply curious when you may quantify or possibly roughly quantify the quantity of the bigger deferrals you’ve got seen within the final two quarters. And like how a lot of that might actually trickle into the again half versus extra of a 2024 factor?
Stephen Gunstream
Sure. We aren’t going to drag out the precise numbers and issues like that. However what I can say is that when you bear in mind our Q3 name, we had a really robust first half of 2022. After which we guided down for the again half so far as seeing a few of these deferrals and push-outs of a few of these clients. And I do suppose that a lot of these have been really lowering the variety of therapies in sort 1 in addition to dimension of these.
I believe that has primarily now been, like I mentioned, is absolutely form of the brand new norm for funding for a lot of of those clients. However the cell and gene remedy area, specifically, continues to be a really thrilling space within the space of funding. And so in the intervening time proper now, I believe that it is not a lot deferrals as that is the brand new norm, and we’ll construct from right here.
Operator
Thanks. Our subsequent query comes from the road of Matt Larew of William Blair. Your line is open, Matt.
Matt Larew
May you give us a way for possibly what you’ll be seeing for Lab Necessities development excluding the client shifting? After which with that outlook, are there any type of first half or second half dynamics? You referenced type of conservative clients is that embedded in your outlook as a result of it appears to be a bit lighter than each, clearly, historicals, however even what others within the area have characterised.
Matt Lowell
And also you’re referring particularly to the Lab Necessities piece, Matt?
Matt Larew
That is proper, Matt. Sure.
Matt Lowell
Sure. Good. Sure. Thanks for the query. Sure, this — I believe with respect to what the expansion price would appear to be for the Lab Necessities with out that buyer, we’re not giving actual numbers associated to that particular buyer, clearly. However I believe you’ll see a extra normalized development price within the Lab Necessities with that.
After all, I might simply say, normally, in 2023, we’re having some extra powerful comparisons in comparison with 2022 given the extent of exercise that we noticed specifically within the first half of the yr. So I believe on a form of adjusted foundation for that troublesome comp, the Lab Necessities would look pretty consistent with historic norms on that foundation.
Stephen Gunstream
And simply so as to add somewhat coloration right here, Matt. Lots of these clients, they migrate from catalog to customized scientific. And so a few of these customized lumpiness is in that historic quantity.
Matt Larew
Okay. After which simply fascinated about you referenced the OpEx, clearly, I imply, flat year-over-year. On the gross margin facet, I believe type of competing components given elevated weighting in direction of scientific options, which ought to assist. However clearly, you are now transferring capability and quantity into the brand new facility that you simply introduced on-line. So fourth quarter, I believe was like we’d have thought it might be. So are you able to simply possibly give us some sense for the way you anticipate gross margin to evolve all year long?
Matt Lowell
Sure, certain. I will be completely satisfied to take that one. For certain, as you talked about, Matt, gross margin goes to be considerably impacted by the results of opening the brand new facility now. As a reminder, we spent near $40 million on that facility over the past two years, and we’re beginning to roll these prices out by means of depreciation into the P&L. A few of these prices began within the fourth quarter of final yr.
Others shall be approaching through the course of this yr. So based mostly on that truth and the up to date outlook that we’re offering right here right now for 2023 income, I might say — I might anticipate our gross margins to be within the low 30s for the yr, in that form of vary. And as you would possibly anticipate, seeing enchancment within the second half of the yr versus the primary half of the yr and significantly because the income image improves within the second a part of the yr.
Operator
Thanks. Our subsequent query comes from Jacob Johnson of Stephens. Your query please, Jacob.
Hannah Hefley
That is Hannah on for Jacob. May you simply speak about how you will stability taking prices out of the enterprise and with persevering with to put money into development within the enterprise?
Stephen Gunstream
Sure, certain, Hannah. Clearly, as we have a look at this, we managed our prices to ensure that we have now our path that we’d like ahead to drive the expansion long run. And so every part here’s a stability. And so what we have completed is we have diminished our prices to ensure that we handle our capital, however on the similar time, we’re not sacrificing any of the long-term development points. And you may see by means of what we did in 2022 and what our technique is for 2023 to scale the enterprise, we’re not reducing again in these areas to verify we put ourselves able for prime development going ahead.
Matt Lowell
I’d simply add since I made some feedback concerning the discount in pressure that we had in February final month that as we went by means of that course of, we have been very cautious to take a look at the place we have now invested and the place we anticipate the returns on these investments to be naturally affecting as little as doable these areas that shall be offering the return, like in gross sales and advertising and marketing and analysis and growth.
So, we did take actions there to chop prices usually throughout the board. However in these areas, we have made minimal modifications and look the place we may afford to chop again in different areas to realize precisely what you mentioned there, Hannah, which is the stability of sustaining future development and funding to do this versus price financial savings.
Hannah Hefley
Proper. And might you simply speak about how buyer curiosity has been within the new facility now that it is up and working? Are there any main indicators to level to by way of demand there?
Stephen Gunstream
So, the brand new services simply so that you — everybody understands is the brand new facility is up for manufacturing for research-grade materials. After which our efforts proper now are actually round doing it licensed to fabricate GMP product. And that’s really a major effort. And lots of of those bigger scientific options clients would need their product to manufacturing on this new facility. So, for us, the timing of getting that completed is once they begin coming in to do their audits with that facility.
That mentioned, I do suppose that there’s particular curiosity and a part of our business technique is to be partaking with these clients, letting them know that, that is coming, and when essential or want to have them on website. And I believe the handful of shoppers which were on website and have seen the ability are extraordinarily inspired they usually acknowledge that this can be a firm that they’ll have a look at to go during the scientific trials by means of commercialization.
Operator
Right now, I would like to show the decision again over to Stephen Gunstream for closing remarks. Sir?
Stephen Gunstream
Nice. Thanks and thanks for becoming a member of us for our 2022 full yr earnings name. We sit up for connecting with you on the subsequent investor convention.
Operator
This concludes right now’s convention name. Thanks for taking part. You could now disconnect.
