Alpha Teknova, Inc. — Q1 2023 Form 10-Q
Business and period: Alpha Teknova manufactures research and clinical reagents for life-sciences customers. This unaudited report covers the three months ended March 31, 2023, compared with Q1 2022. Amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | $9.1 million | $11.1 million; down 18.2% |
| Gross profit / gross margin | $2.4 million / 26.6% | $5.3 million / 48.0% |
| Operating loss | $8.9 million | $5.8 million |
| Net loss / loss per share | $8.8 million / $0.31 | $5.5 million / $0.20 |
| Cash used in operating activities | $7.7 million | $5.2 million |
| Capital expenditures / investing cash use | $4.3 million | $5.9 million |
At March 31, cash and cash equivalents were $30.2 million, working capital was $41.0 million, total assets were $141.0 million, and stockholders’ equity was $92.1 million. Long-term debt, net, was $22.0 million; no revolving-credit borrowings were outstanding. Operating lease liabilities totaled $18.9 million. Cash declined $12.0 million during the quarter, from $42.2 million at year-end 2022.
Material changes and notable items
- Clinical Solutions revenue fell 57.8% to $1.6 million, while Lab Essentials revenue grew 4.0% to $7.3 million. Management attributed the Clinical Solutions decline mainly to lower average revenue per customer.
- Lower revenue reduced absorption of fixed manufacturing labor and overhead, contributing to the gross-margin decline. Cost of sales increased 15.5% despite the revenue decrease.
- Operating expenses rose 1.6% to $11.4 million. Research and development declined 30.7%; sales and marketing increased 46.7%. General and administrative expense included $0.7 million of workforce-reduction costs.
- On February 1, the company eliminated approximately 40 positions to reduce operating expenses. Management said expenses are expected to continue increasing, but at a slower rate.
- On March 28, amendments to the credit agreement increased the term-loan margin to 7.00% and the SOFR floor to 4.50%; the revolver margin rose to 4.00%, also with a 4.50% floor. Future term-loan advances are subject to lender discretion. The agreement includes a $10 million minimum-cash covenant and an 8.5% exit fee on aggregate term-loan principal.
- The company established an at-the-market equity facility of up to $50 million, with the current prospectus supplement covering up to $14.5 million of shares. Sales would incur commissions of up to 3.0% and could dilute existing shareholders.
Outlook, risks, and controls
The company expects operating losses in the near to medium term and states that cash, the credit facility, and the ATM facility are expected to fund operating and capital requirements for at least 12 months from the financial-statement issuance date. This is not a guarantee: additional financing may be needed, may not be available on favorable terms, and the company says it cannot guarantee continued covenant compliance, expense control, additional capital, or revenue growth. The filing does not provide a specific revenue or earnings forecast.
Risks highlighted include inflation and higher interest rates, possible customer order reductions or delays, reliance on a limited number of raw-material suppliers without long-term supply agreements, customer concentration, and continued operating losses. One distributor customer represented 19% of Q1 revenue and 25% of receivables at March 31. A supplier represented 36% of inventory purchases. The company reported no material legal proceedings.
Management concluded disclosure controls were ineffective at March 31 because of an unremediated material weakness in income-tax accounting, arising from insufficient tax resources. Remediation work was underway, but effectiveness had not yet been validated. The company also noted it held cash at First Republic Bank, acquired by JPMorgan Chase on May 1, 2023; it had no accounts at Silicon Valley Bank or Signature Bank.
Important facts for investors to verify
- Whether Clinical Solutions revenue stabilizes and gross-margin pressure eases.
- Quarterly operating cash burn, capital spending, and the runway implied by available liquidity.
- Credit-facility covenant compliance, lender discretion over future advances, interest costs, and the exit fee.
- Whether and how much the company sells through the ATM facility, and the resulting dilution.
- Progress in remediating the tax-accounting material weakness and restoring effective controls.
- Exposure to key customers and suppliers, and access to cash held at financial institutions.