Alpha Teknova, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Dollar amounts below are in millions unless noted. Financial statements are unaudited.
Business context
Teknova supplies research-use-only and GMP-grade reagents, cell-culture media and related products to life-sciences customers. Its product categories are Lab Essentials, Clinical Solutions and Sample Transport. The company completed its IPO in June 2021 and received approximately $99.1 million in net proceeds. At September 30, THP owned approximately 62.5% of its voting stock.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $9.4 | $9.0 | $26.8 | $21.1 |
| Gross profit | $4.3 | $5.1 | $12.6 | $12.2 |
| Gross margin | 45.4% | 56.6% | 47.2% | 57.6% |
| Operating income (loss) | ($3.9) | $2.2 | ($7.2) | $3.9 |
| Net income (loss) | ($3.3) | $1.5 | ($6.2) | $3.0 |
| Adjusted EBITDA, non-GAAP | ($2.7) | $2.7 | ($4.2) | $5.3 |
Revenue grew approximately 4.5% year over year in Q3 and 26.7% for the first nine months. Gross margin fell 11.2 percentage points in Q3 and 10.4 points year to date. Management attributed margin pressure to higher manufacturing overhead and labor costs, and, for the nine-month period, a $0.7 million reserve against Sample Transport inventory.
At September 30, cash and cash equivalents were $98.0 million, working capital was $104.9 million, and total current liabilities were $6.2 million. Total assets were $169.2 million. Net cash used in operating activities was $6.0 million for the first nine months, versus $0.1 million provided in 2020; capital expenditures were $12.5 million. Cash increased by $94.7 million, principally reflecting IPO proceeds and debt financing.
Long-term debt was $12.0 million gross ($11.8 million net of issuance costs). The $5.0 million revolver was undrawn. The secured credit facility has a $27.0 million maximum commitment, variable interest on the term loan of one-month LIBOR plus 6.45% (subject to a 1.50% floor), revenue covenants, and a March 2026 maturity. Teknova reported compliance with its covenants at quarter-end.
Material changes and unusual items
- Lab Essentials revenue rose to $7.2 million from $5.8 million in Q3; Clinical Solutions increased to $1.7 million from $1.4 million.
- Sample Transport revenue fell to $0.1 million from $1.6 million in Q3 as COVID-19 testing demand declined and market supply increased. The company fully reserved $0.7 million of Sample Transport inventory.
- Operating expenses increased to $8.2 million from $2.9 million in Q3. Higher R&D, sales and marketing, and general and administrative costs reflected hiring, product development, commercial investment, public-company costs and infrastructure build-out.
- G&A included the effects of a stock-option modification; incremental compensation expense of approximately $3.5 million is being recognized over 48 months.
- On October 8, 2021, Teknova signed a five-year lease for additional Hollister warehouse and distribution space, with approximately $3.1 million in minimum future payments.
Outlook, risks and contingencies
Management expects expenses and investment to rise as the company hires, develops products, expands manufacturing capacity and builds a new Hollister facility. It expects that facility to be a significant cash use over the next 12–18 months, but believes available liquidity will fund requirements for at least 24 months. No specific revenue or earnings guidance is provided. The company also cited possible acquisitions and additional financing needs.
Key risks include uncertain COVID-related demand, customer and supplier concentration, reliance on purchase orders and a limited number of raw-material suppliers, execution and quality risks in scaling manufacturing, and the possibility of continued losses. The three largest customers represented approximately 40% of Q3 revenue; two individual customers represented 21% and 11%. Two suppliers together accounted for 50% of Q3 inventory purchases.
Management concluded disclosure controls were not effective at September 30 because of a previously identified material weakness in financial close and reporting for complex, non-routine transactions. Remediation is ongoing; management stated the presented financial statements fairly reflect the company’s position and results. No material litigation was reported. The filing describes forward-looking statements as subject to substantial risks and uncertainties.
Investor verification points
- Track whether Lab Essentials and Clinical Solutions growth offsets the continued weakness in Sample Transport, and whether the inventory reserve proves sufficient.
- Monitor gross-margin recovery, labor and overhead costs, and whether operating expenses grow faster than revenue.
- Verify construction spending, facility capacity ramp-up, and cash burn against the stated liquidity outlook.
- Check debt-covenant compliance and the conditions for any additional term-loan borrowing; confirm the impact of variable rates and the LIBOR transition.
- Follow remediation of the material weakness and any updates on internal-control effectiveness.
- Assess customer and supplier concentration, THP’s controlling ownership, and potential share-sale pressure as IPO lock-up restrictions expire.