Alpha Teknova, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023; financial statements are unaudited. Teknova manufactures reagents for life-sciences research, biopharma, diagnostics, and related markets, primarily at its Hollister, California facility.
Financial highlights
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Revenue | $11.5m | $11.7m | $20.6m | $22.8m |
| Gross profit / margin | $5.1m / 43.9% | $5.2m / 44.9% | $7.5m / 36.3% | $10.6m / 46.4% |
| Operating loss | $(7.0)m | $(6.6)m | $(15.9)m | $(12.5)m |
| Net loss | $(7.2)m | $(6.2)m | $(16.0)m | $(11.7)m |
| Net loss per share | $(0.25) | $(0.22) | $(0.57) | $(0.42) |
First-half operating cash outflow was $11.5m, compared with $11.0m a year earlier. Investing cash outflow, primarily capital expenditures, was $6.7m versus $16.8m. Financing used $0.2m, versus $5.1m provided in the prior-year period. Cash and cash equivalents were $23.7m at June 30, down from $42.2m at December 31, 2022. Working capital was $14.4m.
At June 30, principal debt was $22.1m, with no Revolver borrowings. The debt was reclassified as current after the company determined it had breached its minimum-revenue covenant on July 31. Total liabilities were $46.3m and stockholders’ equity was $86.2m at quarter-end.
Changes versus prior comparable periods
- Q2 revenue declined 1.4%; first-half revenue declined 9.6%. First-half Lab Essentials revenue fell 3.4%, while Clinical Solutions fell 22.1%. In Q2, Clinical Solutions revenue increased 24.1%, but Lab Essentials declined 9.7%.
- First-half gross margin contracted 10.1 percentage points, primarily from higher overhead and lower revenue reducing absorption of fixed manufacturing costs.
- First-half net loss widened by $4.3m. A $2.2m long-lived asset impairment was recorded in Q2; no comparable impairment was recorded in 2022.
- Operating expenses were reduced in several areas, including research and development and general and administrative costs. A workforce reduction of approximately 40 positions in February generated $0.7m in severance and related costs.
Outlook, risks, and unusual items
- Going concern: Management concluded that conditions raise substantial doubt about the company’s ability to continue as a going concern for the next 12 months. It cited continuing losses, limited capital resources, and uncertainty about meeting obligations without improved operating results or additional funding.
- Debt covenant: Although compliant at June 30, the company was not compliant with the trailing-12-month minimum-revenue covenant as of July 31. Management lowered its revenue projections and said compliance for the remainder of 2023 was unlikely. The lender may accelerate repayment; the company may seek a waiver or other accommodation, but none is assured. The loan is secured by substantially all company assets.
- Funding and dilution: The company may need to raise capital, pursue collaborations, seek other financing, or sell assets. Its ATM facility permits up to $50m of gross stock sales, subject to applicable limits, and carries commissions of up to 3%.
- Business pressures: Management cited unfavorable market conditions, inflation and higher input and labor costs, rising interest rates, and the possibility that customers delay or reduce orders. It expects expenses to continue increasing, but at a slower rate, including investment in automation, capacity, and facilities.
- Controls: Disclosure controls were ineffective at June 30 because a previously reported material weakness in income-tax accounting remained unremediated. The company is adding tax expertise and controls; remediation effectiveness has not yet been validated.
- Other items: The company recorded $166,000 of other income in Q2, primarily associated with income on short-term liquid investments. A July 13 credit agreement amendment permitted financing of D&O insurance; the related financing totals $1.2m plus 7.74% interest, payable in ten monthly installments. No material legal proceedings were reported.
Key facts investors should verify
- Whether the lender grants a waiver or other accommodation for the revenue-covenant breach, and whether any additional covenant defaults occur.
- Updated cash runway, operating cash burn, capital-spending requirements, and the company’s ability to fund operations for the next 12 months.
- Whether revenue stabilizes, particularly in Clinical Solutions, and whether gross margins recover as facility overhead is absorbed.
- Whether management executes its funding options, including potential ATM sales, and the resulting financing terms and shareholder dilution.
- Progress remediating the income-tax control weakness and any subsequent developments affecting going-concern disclosures.