Alpha Teknova, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Financial statements are unaudited. Teknova manufactures reagents and related products for life-sciences research, diagnostics, and therapeutic development, primarily at its Hollister, California facility.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $8.2m | $10.7m | $28.8m | $33.5m |
| Gross profit / margin | $1.5m / 18.0% | $4.8m / 44.6% | $9.0m / 31.1% | $15.4m / 45.8% |
| Operating loss | $(8.8)m | $(23.0)m | $(24.7)m | $(35.4)m |
| Net loss | $(10.2)m | $(22.5)m | $(26.1)m | $(34.2)m |
| Net loss per share | $(0.34) | $(0.80) | $(0.91) | $(1.22) |
Q3 revenue fell 23.6%; nine-month revenue fell 14.1%. Management attributed lower revenue mainly to fewer Lab Essentials customers and lower Clinical Solutions revenue per customer. Lower sales reduced absorption of fixed manufacturing costs; higher overhead also weighed on gross margin. U.S. sales represented about 96% of revenue in both periods.
For the nine months, cash used in operations was $15.9m, investing cash outflow was $7.6m, and financing provided $13.4m. Cash and cash equivalents were $32.1m at September 30, down from $42.2m at year-end 2022; working capital was $42.7m. Capital expenditures were $7.6m. The balance sheet showed $13.2m of long-term debt, net, and $12.1m of debt principal outstanding. Lease liabilities totaled $17.6m.
Material changes and unusual items
- September equity offerings raised $22.9m gross at $1.85 per share, issuing about 12.4m shares. Offering costs were approximately $0.4m. The share count rose from 28.2m at year-end 2022 to 40.7m at September 30, 2023.
- The company prepaid $10.0m of term-loan principal in September and recorded an $0.8m loss on debt extinguishment. The lender waived a July revenue-covenant violation and amended future covenant thresholds. The loan bears interest at Term SOFR plus a 7.0% margin, with a 4.5% floor; the exit fee increased to 9.0%.
- A $2.2m impairment charge on long-lived assets was recorded in Q2; the affected assets were subsequently sold for approximately their post-impairment carrying value. The prior-year comparison includes a $16.6m goodwill impairment, which helps explain the lower reported net loss in 2023 despite weaker revenue and gross margin.
- A workforce reduction of approximately 40 positions occurred in February, with $0.7m of severance and related costs. The company also wrote off $0.4m of ATM facility costs in Q3.
Outlook, liquidity, and risks
The filing provides no specific revenue or earnings guidance. Management says unfavorable market conditions have led it to lower revenue projections and expects expenses to continue increasing, though at a slower rate. It cites inflation and higher interest rates as potential pressures on costs and customer orders.
Management concluded that conditions raise substantial doubt about Teknova’s ability to continue as a going concern for the year following issuance of the financial statements. Despite $32.1m of cash and $42.7m of working capital, management says resources may be insufficient over the next 12 months without improved operating results or increased cash inflows. The company was covenant-compliant at September 30 but believes it may fail the monthly trailing-revenue covenant in the following 12 months. A default could allow the lender to accelerate repayment; substantially all company assets secure the debt. Management may seek financing, collaborations, or asset sales, but gives no assurance these will be available on acceptable terms.
- Customer and supplier concentration: one distributor accounted for 20% of Q3 revenue and 28% of receivables; one supplier accounted for 46% of Q3 inventory purchases.
- Disclosure controls were deemed ineffective due to an unremediated material weakness in income-tax accounting. Management is adding tax expertise and controls; remediation effectiveness has not yet been validated.
- No material legal proceedings were reported. The filing also notes potential share-price pressure from resale of offering shares and other outstanding shares.
Investor verification priorities
- Track monthly revenue against the amended lender covenant, and confirm covenant compliance, any waivers, and available borrowing capacity.
- Assess cash burn, liquidity runway, and whether management secures additional capital or improves operating cash flow.
- Monitor customer demand, especially Lab Essentials, and the recovery or further deterioration of gross margin.
- Review the impact of the September offerings, resale registration, and potential future equity issuance on dilution and trading supply.
- Check progress in remediating the income-tax control weakness and any further asset impairments or restructuring actions.