Alpha Teknova, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Unless noted otherwise, dollar amounts are in millions. Teknova supplies reagents and related products to life-sciences and biopharmaceutical customers.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $11.147 | $9.078; up 22.8% |
| Gross profit / margin | $5.349 / 48.0% | $5.025 / 55.4% |
| Operating expenses | $11.192 | $5.853; up 91.2% |
| Operating loss | $(5.843) | $(0.828) |
| Net loss | $(5.497) | $(0.655) |
| Basic and diluted loss per share | $(0.20) | $(0.18) |
| Operating cash flow | $(5.201) | $2.401 provided |
| Capital expenditures | $5.917 | $3.884 |
| Cash and cash equivalents at period end | $76.455 | $87.518 at Dec. 31, 2021 |
Revenue growth was led by Clinical Solutions, up 255.9% to $3.812 million. Lab Essentials increased 2.7% to $6.975 million; Sample Transport fell to $0.006 million from $0.924 million. U.S. revenue was $10.820 million, or 97.1% of total revenue.
Gross margin declined 7.4 percentage points, which management attributed primarily to higher manufacturing overhead and labor costs. Operating expenses rose substantially, including research and development to $2.013 million, sales and marketing to $1.597 million, and general and administrative expenses to $7.295 million. Management attributed the increases to hiring and investment in product development, commercial capabilities, and infrastructure.
Cash decreased $11.063 million during the quarter. Operating cash use reflected the net loss and working-capital investment, including increases in accounts receivable and inventory; investing cash use was primarily capital expenditures. At March 31, current assets were $91.938 million and current liabilities were $12.636 million. The company reported net working capital of $79.3 million.
At March 31, long-term debt was $12.0 million gross, or $11.916 million net of unamortized costs; the $5.0 million revolver was undrawn. Debt was secured by substantially all company assets, bore interest at one-month LIBOR plus 6.45% subject to a 1.50% floor, and was due March 1, 2026. The company reported compliance with the then-applicable revenue covenant. Adoption of lease accounting in January 2022 added operating lease assets and liabilities; at quarter-end, lease liabilities totaled $20.036 million.
Material changes and developments
- Revenue growth was concentrated in Clinical Solutions, while Sample Transport revenue declined sharply following reduced COVID-19 testing demand and the company’s decision to cease production and marketing of those reagents.
- Customer concentration increased: customers individually accounting for at least 10% represented 40% of Q1 2022 revenue, compared with 15% in Q1 2021. One distributor accounted for 13% of Q1 2022 revenue.
- Capital spending accelerated as the company expanded manufacturing capacity. Property, plant and equipment reached $37.059 million, including $25.737 million of construction in progress.
- On May 10, 2022, after quarter-end, Teknova amended its credit agreements to provide for a potential $57.135 million secured facility, comprising a $52.135 million term loan and a $5.0 million revolver. Term-loan advances are staged, and some are conditional on Clinical Solutions revenue and liquidity targets. The amended facility matures May 1, 2027; its term-loan rate is LIBOR plus 6.45%, subject to a 1.00% floor. The filing does not state that all potential staged advances had been drawn.
- Management said the existing cash and liquidity sources, including the credit facility, were expected to fund requirements for at least 24 months. This is an estimate, not a revenue or earnings forecast.
Outlook, risks, and other notable items
- No specific revenue, margin, earnings, or cash-flow guidance was provided. Management expects expenses to rise as it hires, develops products, builds commercial capabilities, expands capacity, and operates as a public company.
- A new Hollister manufacturing facility is under construction and is expected to be a significant cash use over the next 6 to 12 months. The company also described a plan to expand production capacity substantially, while warning that construction, hiring, supply, equipment, quality, and operational delays could disrupt production or increase costs.
- Management cited COVID-19 uncertainty, inflation, global economic and financial-market volatility, and potential supply-chain disruption. Certain raw materials depend on a limited supplier base; suppliers representing at least 10% of inventory purchases collectively accounted for 80% of Q1 2022 purchases.
- Purchase orders may be changed, delayed, or canceled, and quarterly results may fluctuate. Other risks include customer concentration, competition, product quality and regulatory requirements, execution of capacity expansion, and reliance on key personnel.
- The company reported no material legal proceedings. Management concluded disclosure controls were effective and said the previously reported material weakness in financial close and reporting controls had been remediated as of March 31, 2022.
Most important facts for investors to verify
- Whether Clinical Solutions growth is sustainable and how customer concentration affects future revenue and receivables.
- Whether gross margins can recover as overhead and labor costs rise and manufacturing capacity expands.
- The pace, remaining cost, and operational impact of the new facility and other capital projects, given Q1 operating cash use and capital spending.
- Availability and conditions for each staged advance under the May 2022 amended credit facility, covenant compliance, interest-rate exposure, and resulting debt-service obligations.
- Whether management’s estimate that liquidity is sufficient for at least 24 months remains supportable under actual growth, investment, and cash-burn trends.
- Whether the remediated internal controls remain effective, and whether supplier, product-quality, or regulatory issues affect operations.