Alpha Teknova, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparative period is Q1 2023. Teknova manufactures reagents and related products for life-sciences research, diagnostics, and therapeutic development.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $9.29 million | $9.12 million | +1.9% |
| Gross profit / margin | $2.21 million / 23.8% | $2.42 million / 26.6% | Margin down 2.8 percentage points |
| Operating loss | $7.99 million | $8.95 million | Loss narrowed $0.96 million |
| Net loss | $8.10 million | $8.82 million | Loss narrowed $0.72 million |
| Net loss per share | $0.20 | $0.31 | Improved |
| Cash used in operating activities | $6.56 million | $7.68 million | Use decreased $1.13 million |
| Cash and cash equivalents, quarter-end | $21.60 million | $30.22 million | Down $8.62 million year over year |
Operating expenses were $10.20 million, down 10.3%, primarily reflecting lower R&D and sales and marketing costs. Cost of sales rose 5.7% despite modest revenue growth; management attributed the lower gross margin mainly to higher overhead, including depreciation at the new manufacturing facility, partly offset by lower headcount. Interest and other expense shifted to $0.15 million of expense from $0.11 million of income.
At March 31, 2024, current assets were $38.82 million, current liabilities $7.04 million, and working capital $31.8 million. Total liabilities were $37.44 million. Term-loan principal was $12.14 million and debt carrying value, net, was $13.18 million. The loan matures May 1, 2027; the term loan bears interest at one-month Term SOFR plus 7.00%, subject to a 4.50% floor. Operating lease liabilities totaled $18.18 million.
Investing activities provided $0.01 million of cash in Q1 2024, compared with $4.31 million used in Q1 2023, reflecting sharply lower capital spending. Financing activities used $0.34 million. The company reported no formal quantified revenue or earnings guidance in this filing.
Material changes and management commentary
- Revenue increased only slightly. Lab Essentials revenue was essentially flat at $7.27 million; Clinical Solutions grew 6.8% to $1.72 million. International sales were 4.5% of revenue.
- On January 11, 2024, Teknova eliminated approximately 35 positions and recorded $1.3 million in severance and related costs. It also repriced 1.63 million employee, executive, and director stock options; the repricing added $0.9 million of compensation expense, including $0.5 million recognized immediately.
- On March 8, 2024, the company amended its MidCap credit agreements and received waivers for revenue-covenant violations for periods ending November 2023 and January 2024. The amendment reduced the minimum trailing-12-month revenue covenant to $34 million through December 2024, raised the minimum cash requirement from $9 million to $10 million, and set a $38 million trailing-12-month revenue threshold for the next revolver borrowing. Teknova issued MidCap a warrant for up to 125,000 shares at $2.9934 per share.
Outlook, risks, and unusual items
- Going concern: Management concluded that substantial doubt exists about the company’s ability to continue as a going concern for the year following issuance of the statements. Teknova cites continuing losses, limited capital resources, and potential inability to meet future revenue covenants. It was compliant with covenants at March 31, 2024, but believes it may be unable to comply during the following 12 months. A breach without a waiver or accommodation could make some or all term-loan obligations payable.
- Funding needs: Management says available resources may not be sufficient if operating results or cash inflows do not improve. Potential responses include raising debt or equity, pursuing collaborations, obtaining other funding, selling assets, reducing spending or operations, or curtailing development programs. An ATM facility permits up to $50 million of gross stock sales, subject to applicable limitations and commissions; use would dilute shareholders.
- Operating risks: Management cites unfavorable market conditions, inflation in materials and labor, interest rates, customer order sensitivity, and the risk that new-facility overhead pressures margins. The company relies on a limited number of suppliers for certain raw materials and has no long-term supply arrangements. One distributor customer accounted for 16% of quarterly revenue; one distributor supplier accounted for 39% of inventory purchases.
- Contingency: A former employee has asserted California wage-and-hour claims, with mediation scheduled for June 6, 2024. Teknova accrued $0.3 million for potential settlement costs; the ultimate loss could differ materially. The filing states that the company is not party to other material legal proceedings.
- Controls: Management concluded disclosure controls were effective as of March 31, 2024, and reported no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Cash burn, available liquidity, and management’s plans to address the disclosed going-concern doubt.
- Actual performance against monthly revenue and minimum-cash covenants, and any further lender waivers or restrictions on revolver availability.
- Whether revenue growth and manufacturing utilization can improve gross margin as depreciation and facility overhead continue.
- Potential effects of customer and supplier concentration, and the outcome or revised estimate of the wage-and-hour claims.
- Potential dilution from the ATM facility, outstanding equity awards, and the MidCap warrant.