NASDAQ:TKNO Alpha Teknova Q3 2023 Earnings Report $6.64 +0.21 (+3.25%) As of 01:51 PM Eastern This is a fair market value price provided by Polygon.io. Learn more. Earnings HistoryForecast Alpha Teknova EPS ResultsActual EPS-$0.34Consensus EPS -$0.28Beat/MissMissed by -$0.06One Year Ago EPSN/AAlpha Teknova Revenue ResultsActual Revenue$8.17 millionExpected Revenue$8.10 millionBeat/MissBeat by +$70.00 thousandYoY Revenue GrowthN/AAlpha Teknova Announcement DetailsQuarterQ3 2023Date11/9/2023TimeN/AConference Call DateThursday, November 9, 2023Conference Call Time5:30PM ETUpcoming EarningsAlpha Teknova's Q1 2025 earnings is scheduled for Monday, May 12, 2025, with a conference call scheduled on Thursday, May 8, 2025 at 5:00 PM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfilePowered by Alpha Teknova Q3 2023 Earnings Call TranscriptProvided by QuartrNovember 9, 2023 ShareLink copied to clipboard.There are 8 speakers on the call. Operator00:00:00Hello, and welcome to the Alpha Technova, Inc. 3rd Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. You would then hear an automated message advising your hand is raised. Operator00:00:26I would now like to hand the conference over to Jennifer Henry, Senior Vice President of Marketing. You may begin. Speaker 100:00:33Thank you, operator. Welcome to Technova's Q3 of 2023 Earnings Conference Call. With me on today's call are Steven Gundstream, Technova's President and Chief Executive Officer and Matt Lowell, Technova's Chief Financial Officer, who will make prepared remarks and then take your questions. As a reminder, the forward looking statements that we make During this call, including those regarding business goals and expectations for the financial performance of the company, are subject to risks and uncertainties that may cause actual events or results to differ. Additional information concerning these risk factors is included in the press Today's comments reflect the company's current views, which could change as a result of new information, future events or other factors, and the company does not obligate or commit itself to update its forward looking statements except as required by law. Speaker 100:01:32The company's management believes that in addition to GAAP results, non GAAP financial measures can provide meaningful insight when evaluating the company's financial performance the effectiveness of its business strategies. We will therefore use non GAAP financial measures of certain of our results during this call. Reconciliations of GAAP to non GAAP financial measures are included in the press release that we issued this afternoon, which is posted to Technova's website atwww.sec.gov/edgar. Non GAAP financial measures The non GAAP financial measures in this presentation may differ from similarly named non GAAP financial measures used by other companies. Please also be advised that the company has posted a supplemental slide deck to accompany today's prepared remarks. Speaker 100:02:30It can be accessed On the Investor Relations section of Technova's website and on today's webcast. And now, I will turn the call over to Stephen. Speaker 200:02:39Thank you, Jim. Good afternoon and thank you everyone for joining us for our Q3 of 2023 earnings call. TEGNOVA is a leading producer of critical reagents for the life sciences industry to accelerate the novel therapies, Vaccines and molecular diagnostics that will help people live longer, healthier lives. We manufacture high quality customer agents with short turnaround times And are positioned to scale with our customers as they advance their products from discovery to commercialization. We had a solid third quarter, both financially and operationally against the backdrop of a difficult market. Speaker 200:03:16Our ability to deliver in these challenging conditions It's a testament to the dedication of our very talented team and the diversity of our market segments. Also during the Q3, We raised $22,900,000 of capital through a registered direct offering and concurrent private placement and we paid down $10,000,000 of long term debt. We remain optimistic about the potential of our target markets and are pleased with the progress we've made executing our growth strategy in the Q3. As we reported during our Q2 update, our new facility has been certified for GMP grade production. We are enthusiastic About the potential this multiyear investment will unlock further business. Speaker 200:03:57During Q3, we extended the types of products available for both research Clinical grade production, which now include single use bags and assortment of bottles, giving us the ability to serve nearly all bioprocessing and diagnostic customers In addition, since the beginning of June, we have been qualified by 12 high profile customers, 8 of which are companies involved in cell and gene therapy development. We have been very encouraged by their reaction to our new GMP facility and Technova's transformation. The response to the qualification audit and our conversations with these customers have increased our confidence that the facility investments we have made will begin to bear fruit in mid to late As a reminder, we believe this new facility plus our existing operating infrastructure But give us the capacity to deliver approximately $200,000,000 in annual product revenue when fully utilized. Next, on the R and D front, I'm pleased to say our new product introductions are progressing ahead of schedule. In September, we added the 3rd serotype of our AEX buffer screening kit by extending the portfolio to include AAV6 and we launched a suite of reagents to support the plasmid bioproduction workflow. Speaker 200:05:15Our AAV product pipeline, which we just introduced earlier this spring, now encompasses more than In late October, we presented 3 posters at the European Society of Gene and Cell Therapy, including data for a new reagent kit to Streamline TCR analytics for empty full capsid analysis. The full launch of this kit is expected in Q4. Through our new product offerings, we expect to become an even more valued supplier to our customers as they advance their therapies towards commercialization. Needless to say, along with many others in the life sciences, we Found ourselves confronting a challenging and dynamic market environment in Q3. I'm proud to note we continue to deliver against our operational plan during the quarter and successfully managed our expenses. Speaker 200:06:14Our total employee count at the end of the third quarter was 2 Associates reduced from our high of more than 300 last year. I'm very grateful for the effort of our past and present employees who worked tirelessly to put us in a position for success going forward. In the near term, we continue to see emerging biotech historically one of our larger growth segments focused on conserving capital by delaying, reducing or canceling clinical trials. That said, we have seen an increase in the total number of We are very optimistic as we look into 2024. As we turn to our revenue outlook for the remainder of We expect the market conditions we observed in Q3 to persist and therefore expect to finish at the low end of our revenue guidance of $37,000,000 to $40,000,000 Even so, we believe we will outperform our previously communicated free cash outflow target and now expect free cash outflow of less than $30,000,000 for fiscal 2023. Speaker 200:07:24I will now hand the call over to Matt for a discussion of the financials. Speaker 300:07:29Thank you, Stephen, and good afternoon, everyone. Starting with revenue. Total revenue was $8,200,000 for the Q3 of 2023, The 24% decline from $10,700,000 in the Q3 of 2022. Excluding 2 large non bio At customer deliveries in the Q3 of 2022, underlying growth was approximately 5%. Lab Essentials products are targeted at the research use only or RUO market and include both catalog and custom products. Speaker 300:08:03Lab Essentials revenue was $7,300,000 in the Q3 of 2023, a 23% decrease from 9,500,000 in the Q3 of 2022. The decline was attributable to a lower number of customers and to a lesser extent lower average revenue per customer. Excluding 2 large customer deliveries in the Q3 of 2022, Lab Essentials revenue grew approximately 11%. Clinical Solutions products are made according to Quality standards and are used by our revenue our customers primarily as components for inputs in the development and manufacture of diagnostic and therapeutic products. Clinical Solutions revenue With $600,000 in the 3rd quarter, a 35% decline from $900,000 in the Q3 of 2022. Speaker 300:09:04The decline in clinical solutions revenue was attributable to lower average revenue per customer, partially offset by a higher number of customers. We expect revenue per customer to increase over time as they ramp up their purchase volumes. However, this metric can be affected by the mix of newer clinical Just as a reminder, due to the larger average orders in Clinical Solutions Compared to Lab Essentials, there can be quarter to quarter revenue lumpiness in this category. On to the income statement, gross profit for the Q3 of 2023 was $1,500,000 compared to $4,800,000 in the Q3 of 2022. Gross margin was 18 0.0 percent of revenue in the Q3 of 2023, which is down from 44.6% of revenue in the Q3 of 2022. Speaker 300:10:04The decrease in gross profit percentage was primarily driven by the decrease in revenue And the associated lower absorption of fixed manufacturing costs and to a lesser extent increased overhead costs, which were partially offset by reduced headcount. Operating expenses for the Q3 Of 2023 were $10,200,000 compared to $27,700,000 for the Q3 of 2022. Excluding the non recurring non cash charges of $400,000 in the Q3 of 2023 Related to the write off of ATM facility offering costs and the $16,600,000 Goodwill impairment charge recorded in the Q3 2022, operating expenses were down $1,300,000 in the 3rd and spending primarily in professional fees. During the Q3, we raised $22,900,000 of capital We are registered direct offering and concurrent private placement, and we paid down $10,000,000 of long term debt. As a result, we wrote off ATM facility offering costs of $400,000 because We do not expect to use this facility in the near term. Speaker 300:11:38Net loss for the Q3 of 2023 was $10,200,000 or $0.34 per diluted share compared to a net loss of $22,500,000 or $0.80 or diluted share for the Q3 of 2022. The company recorded minimal non current tax expense this quarter against its pre tax losses due to increases in our valuation allowances against incremental net operating loss carry forwards. Adjusted EBITDA, a non GAAP measure, was negative $5,500,000 for the Q3 of 2023, compared to negative $4,600,000 for the Q3 of 2022. The increase in the Q3 of 2023 was somewhat offset by higher depreciation add backs. On to cash flow and balance sheet. Speaker 300:12:42Capital expenditures for the Q3 of 2023 were $1,000,000 compared to 6 $600,000 for the Q3 of 2022. This marks the 5th straight quarter of sequential decreases in capital expenditures. We have now completed the initial capital investment necessary to utilize our new manufacturing facility. Free cash flow, a non GAAP measure that we define as cash used in operating activities less purchases of property, plant and equipment, Was negative $5,400,000 for the Q3 of 2023 compared to negative $14,900,000 for the Q3 of 2022. This decrease compared to the prior year period was due to both lower cash used in operating activities and a decrease Turning to the balance sheet. Speaker 300:13:37As of September 30, 2023, we had $32,100,000 in cash and cash equivalents and $12,100,000 in gross debt. And now on to our 2023 guidance and outlook. We now anticipate that fiscal year 2023 total revenue will be at the low end of our previously communicated range of $37,000,000 to $40,000,000 We expect the challenging market conditions we have seen during 2023 to persist at least through year end. On the other hand, we now anticipate free cash outflow to be less than $30,000,000 for 2023, despite a revenue outlook significantly below where it The company continues to manage expenses aggressively while preserving the critical investments we believe will allow us to achieve Our long term growth targets. At the end of September, the company had 2 16 associates down from 232 at the end of the Q2 of 2023 and 290 at the end of fiscal year 2022. Speaker 300:14:48The company posted operating expenses excluding non maturing charges below $10,000,000 for the Q2 in a row. To that end, we have taken a number of steps during the fiscal year aimed at reducing operating expenses, which have resulted In total annualized cost savings of more than $8,000,000 compared to Q4 of 2022, excluding non recurring charges. Similarly, the company saw a reduction in free cash outflow during the Q3 of 2023. This marks the 5th straight quarter of lower cash outflow and is consistent with the company's expectations for the year despite our lower revenue outlook. As we anticipate operating expenses and capital expenditures to remain at lower levels. Speaker 300:15:33Based on our guidance, we expect less than our growth strategy and believe there is significant margin expansion potential when top line growth resumes. Speaker 200:15:52We also strengthened our balance sheet with the additional capital raised in the Q3. With that, I'll turn the call back over to Stephen. Thanks, Matt. Overall, we were pleased with our performance in the Q3 of 2023. The long term outlook for our end markets is positive. Speaker 200:16:10We are committed to executing on our strategy to help our customers accelerate the introduction of novel therapies, diagnostics and other products that improve human health. We will now take your questions. Operator00:16:23Thank you. Our first question comes from the line of Jacob Johnson with Stephens. Your line is open. Speaker 400:16:52Hey, good afternoon, guys. Maybe first just on the macro and guidance, you're pointing to the lower end now. Is this just a function of kind of the persistence of the macro headwinds, and a lack of improvement? Or are there any areas where you've seen Headwinds intensify. Operator00:17:14Yes. Speaker 200:17:14Thanks, Jacob. I would say we're not seeing headwinds intensify. I think it's a persistence Of improvement of a lack of improvement. Specifically, we actually have seen some orders slide out, but the good news there is we're actually seeing additional orders. So I think there's some positives here, but we are pretty cautious about it given the fact that this has been an extended period and there's lots of discussions. Speaker 200:17:39On the positive side, like I mentioned in the transcript there, we have an increase in clinical customers and just that the order of dollar amount is lower. And then if you really look at our apples to apples comparison from a quarter to quarter perspective against last year, if you remove those orders which are non biotech related, We did have a positive growth of 5% and 11% in Lab Essentials. And then like I said, we are starting to get I feel for that the orders are starting to potentially pick up and then a lot of customers are saying, hey, we're ready in Q1 for some orders. But we are want to be very cautious about given the fact that even and they don't totally know their funding environment going forward. Speaker 400:18:23Thanks for that, Steven. And then maybe for the follow-up, just on the AAV buffer kits, it's Good to see you continue to build out that offering. And I know it's kind of a screening opportunity that gets you in the door with customers. And From kind of revenue perspective, I think it's somewhat limited in the near term. But is there any way to quantify kind of The interest level in that, the number of customers you're asking for those kids, just or maybe just anecdotes about as we think about how traction of that offering is going. Speaker 200:18:55Yes. So, yes, I'm really happy with the team. I mean, we have a team that's super efficient here and has done a great job developing products. That AEX buffer screening kit that you mentioned has been very popular, lots of conversations, a number of orders there from multiple companies in the AAV space. It's a combination of 2 things. Speaker 200:19:131 is, do we have the stereotypes they're interested in? We've talked about AAV9, which is In that one, we're still working on. It's a very complicated one to purify. But we've had a number try it. And the goal here is not necessarily right away near term revenue as you mentioned, it's to get them into the right buffer and then have them scale up. Speaker 200:19:31So I can tell you of the customers that have tried it, Within about a month or so, one of our customers has actually now ordered for delivery by next year, A larger scale of one of those buffers. That kind of gives us the idea that this is actually working the way we want it to. And that will pay off, obviously, as they take those platforms, Those new therapies down the pipeline. I also want to point out that we have the AEX fiber screening kit, but also a number of other products Which we've launched that are catalog products for us that are that help complete the entire AAV manufacturing process end to end, including now plasmids, which we launched this last quarter. And then, we are doing some work on reagents to help streamline And simplify the analytical side on empty full ratios, this quarter we'll be launching a product that Sets up the workflow for digital PCR that we're seeing great results for internally, but then also externally, we've had a couple Customers give that as early access and they've given us some great feedback. Speaker 200:20:33So again, real happy with the progress we've made in developing that pipeline. But yes, these are things that it's about getting our customers Into these products and then helping them get down that pipeline. Speaker 400:20:43Got it. That's really helpful context. I'll leave it there. Thanks, Steven. Speaker 200:20:47Thanks, Jacob. Operator00:20:49Thank you. Please stand by for our next question. Our next question comes from the line of Steven Ma with TD Cowen. Your line is open. Speaker 500:21:06Great. Thanks for taking the questions. A question for you, Matt. On the gross margins, Which were impacted by the absorption of the fixed costs of the new GMP facility. How should we think about when Gross margin low point will be hit or maybe this is a low point? Speaker 500:21:24And when do you think the gross margins are going to start inflecting and starting to grow? Speaker 300:21:32Yes. Thanks, Steve. Yes, the gross margins have been impacted here recently as we've Added additional depreciation in particular from the bringing on the remainder of the facility in Q3 For GMP production, I would say that it's hard to say if we're actually at a low point. I mean, there's certainly possible that It could be lower, but when we start seeing the revenue growth, we have a very high fixed cost ratio in our cost structure, Not just depreciation, but other costs, which will allow that to leverage up pretty quickly. And maybe just as a reference point, think about What we saw in Q2, when we had a much higher quarter and more GMP revenue, we had quite significantly higher gross margins. Speaker 300:22:20But Of course, we've added additional costs and depreciation since then. So but I do think that once we see the revenue growth resuming, we'll See some pretty good leverage there. Speaker 500:22:35Okay, got it. Okay, yes. Yes, that makes sense. It's highly dependent on the product mix. Yes. Speaker 300:22:42Mix and total volume. Speaker 500:22:44Yes. That makes sense. And then, yes, just wanted to dig in a little bit More on the operating expenses, it's down significantly. You guys had a pretty significant reduction in force. Are there going to be any more cost cutting efforts? Speaker 500:23:02Or do you think the company is now right sized? And then Should we think about the OpEx run rate going forward Speaker 300:23:11as this quarter, Q3 or how should we Speaker 500:23:14think about that For the balance of the year and then also into 2024? Thank you. Speaker 300:23:20Yes. As it relates to operating expenses, As we mentioned in the remarks, we've worked really hard there during the course of the year to bring that down substantially, again over $9,000,000 in annualized savings On a run rate basis, so we're always looking to manage, obviously manage but reduce costs Where we can, I would say we've done the lion's share of that through the risk that you mentioned earlier this year and other things that we've done since then? So, I do expect a slightly downward trend on those as we move forward, But nothing is substantial as you've seen from the beginning of the year until now. So, it's really important for us to make sure that we maintain That we've made that we think are going to be key drivers of growth and be able to support that growth, which will come back. So we're being very careful to find the right balance of maintaining the investments while also taking out any excess Costs that are needed for the short term. Speaker 300:24:26So that's kind of where we're at. And so I think the outlook is sort of flattish to slightly down looking outward. And Obviously, a lot is also going to depend on when the revenue comes back and how we think about costs in the future. Speaker 500:24:41Okay, great. Yes, thanks for taking the questions. Appreciate it. Operator00:24:45Thank you. Please stand by for our next question. Our next question comes from the line of Matt Larew with William Blair. Your line is open. Speaker 600:25:01Hi, good evening. Thanks for Speaker 200:25:03the update Speaker 600:25:04on the customers who've been in to your new GMP facility and it sounds like they've done audits and have qualified the facility. You talked about sort of a full fall audit Calendar and just curious as you're now kind of peeking into winter, at least for those of us in the Midwest and in the spring sort of what the pipeline of audit And then sort of beyond that, Stephen, you referenced sort of scaling into production list customers next year. Could you just maybe give us a sense like are there break points along the way as they move from qualification to full production that Either reflect the level of commitment to working with you or give you some higher level of certainty that, sort of businesses is afoot, Anything sort of at least internally that you track? Speaker 200:25:55Yes, great. So certainly in winter, we're starting to book audits Into 2024 right now, just based on request and continue to build out that calendar. So it looks pretty good from that perspective. Obviously, the feedback has been really positive from the customers that have seen the facility. So the pipeline, I'm pretty happy with the work that the team in the field is doing, but also just our Current customers going through there and being really excited about what we've built. Speaker 200:26:27Now for the next year production piece, right, and that What you're alluding to is the timing from that qualification until really they start ramping the scale. And that is a delay. It's less so a delay for existing customers that have ordered us before and have bought GMT grade products from us than those that were converting from other companies. And there For example, we have one that we've been working with that has we've done a number of pilots with where we will actually make their products In our facility, then we'll ship it to them and then they will test at a very small batch sizes to make sure it's meeting what they need and with from their current supplier And comparing the 2 and then start migrating and then we tend to do an audit and then they host them and then we start planning a transition and that period can be Sometimes if they're in herginine, it can be quick. But at this point in time, with the current environment, they tend to be much more selective at timing of those things and they take more of a So that ramp up can take some time when you are shifting from a new customer and that's we've been doing quite a bit of that Fairly recently. Speaker 200:27:33So that gives us a little bit of confidence as we move into 2024, particularly the back half. Speaker 600:27:40Okay. And then given you have the benefit of sort of going last year within earnings season, we've heard Sort of two sides of the coin from companies throughout the churning season about sequential improvement or not throughout the month In the Q3 and then October. And so just curious if you could sort of give a sense of the latest. We obviously saw the year over year declines and sequential declines in revenue. But from an order perspective, just kind of curious What's the more recent trends have been? Speaker 200:28:14Yes. I'm not I don't think we're in a position to say we're at the bottom, but I can tell you that it feels like we're At or near the bottom for our perspective. I just the question is about how fast it ramps back up more than anything else. We have been I've been pretty encouraged by the orders recently. And like I For us, when I look at it, obviously, I have a lot more insight than you get to on the customer perspective. Speaker 200:28:36But I know we had 2 really large orders last year That were very unique one time orders outside of this biopharma space. When you take when you remove those, you really start to see, hey, this underlying growth is there for Q3. And so to me that is a actual financial metric of where we are. And I do think that the biotech funding has Seems to have stabilized, right? And so, and that is typically for us 3, 4 quarter Leading indicator as we've looked through the data. Speaker 200:29:08So starting to feel good about those are all positive signs and then the conversations are also pretty positive. It's just it's really a question of seeing the timing of those orders and whether or not there'll be additional pushes out as we get into next year and how fast that ramps. Speaker 600:29:26Okay. And then sorry, just one more. I'm just trying to wrap my head around the gross margin. So having been out to the facilities, I certainly I appreciate that there's more dollars and sophistication built into the new facility relative to legacy ones. Matt, is there anything different about Any of the depreciation schedules or any of the accounting with respect to the new facility compared to the last facility? Speaker 600:29:50Just we need to be aware of as we're thinking about Building out depreciation going forward? Speaker 300:29:56Yes, it's a good question. I would say that generally Speaking, we have pretty long lives associated with these assets, maybe on average compared Our legacy facilities because of the quality of the equipment and other improvements that we made in this versus our other facilities. So The depreciation is spread out a bit longer on average than the others. And of course, on the others, those have been depreciating for a while in some cases. So that's roll off or it will be rolling off. Speaker 300:30:30So if I had to make any high level observations, those would be it. But I would also just say that we have been absorbing this depreciation into gross margins. And I think as we ramp up production with sellable products and making inventory out of that facility, we'll be able to absorb some of that More into inventory as well, but right now it's been kind of directly hitting our margins. So we're getting the worst of it right now In terms of impact, but as I mentioned earlier, it's going to be the revenue growth coming back where we get that absorption that's really going to See those come back higher and where they used to be. Speaker 600:31:15All right. Thank you. Operator00:31:18Thank you. Please stand by for our next question. Our next question comes from the line of Anna Snukulski with KeyBanc. Your line is open. Speaker 700:31:33Hi, this is Anna on for Paul Knight. My question is about revenue per customer. Do you still see a 1.4 Increase in revenue in 2024? And if so, what would be the reason for that increase? Is it just customers moving towards commercialization? Speaker 700:31:51Or what are you seeing with that? Speaker 300:31:55Maybe just to make sure we clarify the question. You're asking if we are expecting to see Looking to see average revenue per customer climb next year? Is that or did I misunderstand? Speaker 700:32:06No. Yes, that is my question. Thank you. Speaker 300:32:09Okay. Well, I would just say this, I mean, it's a little bit different for our lab essentials versus Our clinical solutions, right? So as we ramp up the more the smaller part of our business, the clinical solutions business, there's going to be Actually revenue per customer may stay flat or go down. That's not necessarily a bad thing. It just means that we're bringing on more customers that are younger in their cycle, Maybe haven't gone through that clinical pipeline or just ramping up with us for whatever reason. Speaker 300:32:40So I wouldn't expect necessarily to See higher revenue per customer on the clinical solution side. On the Lab Essentials side, we haven't seen strong Trends there in terms of average revenue per customer going upwards. In this particular quarter, we did have a year on year decrease in that metric, as I mentioned In the remarks, and that was not because we're not seeing good increase in customer average customer volumes. It was due to the fact that last year we had 2 very large orders shipped, which skewed the average revenue per customer metrics. So it's a little bit of Technical answer there, but we have in general been seeing pretty steady increases in average revenue per customer on the Lab Essentials side and are certainly expecting that going forward depending on the rate at which depends on the health of the overall market and when kind of More normalized revenue ordering or order patterns return next year. Speaker 300:33:40It will be dependent on that. Speaker 700:33:43Thank you. Speaker 300:33:46Thanks. Operator00:33:47Thank you. Please stand by for our next question. Our next question comes from the line of Mark Massaro with BTIG. Your line is open. Speaker 700:34:02Hey, guys. This is Vivien on for Mark. Thanks for taking the questions. Can I just on the narrowing of the guide, you're Assuming that the current funding environment continues, can you just remind us what percentage of your customer base you feel you have visibility on? And just how would you characterize your customer base as far as the percentage of smaller emerging biopharma? Speaker 700:34:24Thanks. Speaker 200:34:27Okay. So I think the question is around what percent of our what visibility we have and particularly you're interested in the biopharmacy side. Is that accurate? Yes. Okay. Speaker 200:34:36So we don't typically disclose the exact percentage of the biopharma. I could say that generally biopharma is probably about half of it, of which Half of that is emerging biotech, let's just say, put it in that ballpark, right. And we have seen a significant decline there. There's 2 pieces of this that make me confident. 1 is, obviously, that is related to the funding. Speaker 200:35:01We can see that directly. The other piece is that we have the rest of our business, which is actually growing quite nicely. As this stabilizes, that's why we're pretty confident about where we sit long term as we onboard these customers. Speaker 700:35:19Okay, perfect. And then just to dig into OpEx a little bit more, can you guys discuss how you're thinking about Cash utilization after the financing, and just what you're prioritizing as areas of investment, maybe on the commercial org versus where you might look to pull back. Speaker 300:35:41Let me take a stab at that one. So in terms of OpEx, as we discussed a little bit, right now, we feel comfortable with the investments that Maybe highlighted one area, which is in the commercial side and the team that we've built there and the other investments that we've made, branding, website, etcetera. And then we've also been spending in OpEx on our new product development team. And Stephen alluded to some of the product launches that we have made and plan to make there. So we're continuing to invest as we see those is critical Building awareness and relationships with companies in our target market. Speaker 300:36:22So we're not pulling back anywhere there. We have over the course of this year, as I mentioned, with over $9,000,000 in annualized savings, we have reduced in many different areas We were to do so or there were capabilities that might not be needed to execute on the near term priorities. So that's where we've and obviously that's in areas of G and A, in some cases in the manufacturing itself And also sprinkled throughout the organization engineering and some other areas. So Those are the tough decisions that we've had to make and that we continue to make. As I said, we Are not expecting dramatic reductions in OpEx going forward, in order to preserve those investments, But we feel confident that we're making the right decisions there. Speaker 700:37:21Welcome. Thanks for taking the questions. Speaker 300:37:24Thank Speaker 700:37:25you. Operator00:37:26Thank you. I'm showing no further questions in the queue. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallAlpha Teknova Q3 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Quarterly report(10-Q) Alpha Teknova Earnings HeadlinesAlpha Teknova, Pluristyx launch proprietary PluriFreeze cryopreservation systemMarch 20, 2025 | markets.businessinsider.comTeknova and Pluristyx Launch Proprietary PluriFreeze™ Cryopreservation System to Accelerate the Development of Cell TherapiesMarch 19, 2025 | markets.businessinsider.comThe Exact July Date the AI Correction Will End?AI stocks have cooled off—but Jeff Brown, the tech expert who picked Nvidia before it soared 222x, says one date in July could spark the next boom. It involves Elon Musk, a hidden supplier, and a “guaranteed” trigger event. You don’t want to miss this.April 24, 2025 | Brownstone Research (Ad)Teknova and Pluristyx Launch Proprietary PluriFreeze™ Cryopreservation System to Accelerate the Development of Cell TherapiesMarch 19, 2025 | globenewswire.comTeknova, Pluristyx announce collaboration over next-generation cell therapiesMarch 11, 2025 | markets.businessinsider.comTeknova and Pluristyx Announce Collaboration to Streamline the Manufacture of Next-Generation Cell TherapiesMarch 11, 2025 | globenewswire.comSee More Alpha Teknova Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Alpha Teknova? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Alpha Teknova and other key companies, straight to your email. Email Address About Alpha TeknovaAlpha Teknova (NASDAQ:TKNO) produces critical reagents for the research, discovery, development, and commercialization of novel therapies, vaccines, and molecular diagnostics in the United States and internationally. The company offers pre-poured media plates for cell growth and cloning; liquid cell culture media and supplements for cellular expansion; and molecular biology reagents for sample manipulation, resuspension, and purification. It provides lab essentials which provides chemical formulations for use in biological research and drug discovery; and clinical solutions, a custom product used in the development and production of protein therapies, gene therapies, mRNA vaccines, and diagnostic kits. The company serves its products to life sciences market, including pharmaceutical and biotechnology companies, contract development and manufacturing organizations, in vitro diagnostic franchises, as well as academic and government research institutions. 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There are 8 speakers on the call. Operator00:00:00Hello, and welcome to the Alpha Technova, Inc. 3rd Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. You would then hear an automated message advising your hand is raised. Operator00:00:26I would now like to hand the conference over to Jennifer Henry, Senior Vice President of Marketing. You may begin. Speaker 100:00:33Thank you, operator. Welcome to Technova's Q3 of 2023 Earnings Conference Call. With me on today's call are Steven Gundstream, Technova's President and Chief Executive Officer and Matt Lowell, Technova's Chief Financial Officer, who will make prepared remarks and then take your questions. As a reminder, the forward looking statements that we make During this call, including those regarding business goals and expectations for the financial performance of the company, are subject to risks and uncertainties that may cause actual events or results to differ. Additional information concerning these risk factors is included in the press Today's comments reflect the company's current views, which could change as a result of new information, future events or other factors, and the company does not obligate or commit itself to update its forward looking statements except as required by law. Speaker 100:01:32The company's management believes that in addition to GAAP results, non GAAP financial measures can provide meaningful insight when evaluating the company's financial performance the effectiveness of its business strategies. We will therefore use non GAAP financial measures of certain of our results during this call. Reconciliations of GAAP to non GAAP financial measures are included in the press release that we issued this afternoon, which is posted to Technova's website atwww.sec.gov/edgar. Non GAAP financial measures The non GAAP financial measures in this presentation may differ from similarly named non GAAP financial measures used by other companies. Please also be advised that the company has posted a supplemental slide deck to accompany today's prepared remarks. Speaker 100:02:30It can be accessed On the Investor Relations section of Technova's website and on today's webcast. And now, I will turn the call over to Stephen. Speaker 200:02:39Thank you, Jim. Good afternoon and thank you everyone for joining us for our Q3 of 2023 earnings call. TEGNOVA is a leading producer of critical reagents for the life sciences industry to accelerate the novel therapies, Vaccines and molecular diagnostics that will help people live longer, healthier lives. We manufacture high quality customer agents with short turnaround times And are positioned to scale with our customers as they advance their products from discovery to commercialization. We had a solid third quarter, both financially and operationally against the backdrop of a difficult market. Speaker 200:03:16Our ability to deliver in these challenging conditions It's a testament to the dedication of our very talented team and the diversity of our market segments. Also during the Q3, We raised $22,900,000 of capital through a registered direct offering and concurrent private placement and we paid down $10,000,000 of long term debt. We remain optimistic about the potential of our target markets and are pleased with the progress we've made executing our growth strategy in the Q3. As we reported during our Q2 update, our new facility has been certified for GMP grade production. We are enthusiastic About the potential this multiyear investment will unlock further business. Speaker 200:03:57During Q3, we extended the types of products available for both research Clinical grade production, which now include single use bags and assortment of bottles, giving us the ability to serve nearly all bioprocessing and diagnostic customers In addition, since the beginning of June, we have been qualified by 12 high profile customers, 8 of which are companies involved in cell and gene therapy development. We have been very encouraged by their reaction to our new GMP facility and Technova's transformation. The response to the qualification audit and our conversations with these customers have increased our confidence that the facility investments we have made will begin to bear fruit in mid to late As a reminder, we believe this new facility plus our existing operating infrastructure But give us the capacity to deliver approximately $200,000,000 in annual product revenue when fully utilized. Next, on the R and D front, I'm pleased to say our new product introductions are progressing ahead of schedule. In September, we added the 3rd serotype of our AEX buffer screening kit by extending the portfolio to include AAV6 and we launched a suite of reagents to support the plasmid bioproduction workflow. Speaker 200:05:15Our AAV product pipeline, which we just introduced earlier this spring, now encompasses more than In late October, we presented 3 posters at the European Society of Gene and Cell Therapy, including data for a new reagent kit to Streamline TCR analytics for empty full capsid analysis. The full launch of this kit is expected in Q4. Through our new product offerings, we expect to become an even more valued supplier to our customers as they advance their therapies towards commercialization. Needless to say, along with many others in the life sciences, we Found ourselves confronting a challenging and dynamic market environment in Q3. I'm proud to note we continue to deliver against our operational plan during the quarter and successfully managed our expenses. Speaker 200:06:14Our total employee count at the end of the third quarter was 2 Associates reduced from our high of more than 300 last year. I'm very grateful for the effort of our past and present employees who worked tirelessly to put us in a position for success going forward. In the near term, we continue to see emerging biotech historically one of our larger growth segments focused on conserving capital by delaying, reducing or canceling clinical trials. That said, we have seen an increase in the total number of We are very optimistic as we look into 2024. As we turn to our revenue outlook for the remainder of We expect the market conditions we observed in Q3 to persist and therefore expect to finish at the low end of our revenue guidance of $37,000,000 to $40,000,000 Even so, we believe we will outperform our previously communicated free cash outflow target and now expect free cash outflow of less than $30,000,000 for fiscal 2023. Speaker 200:07:24I will now hand the call over to Matt for a discussion of the financials. Speaker 300:07:29Thank you, Stephen, and good afternoon, everyone. Starting with revenue. Total revenue was $8,200,000 for the Q3 of 2023, The 24% decline from $10,700,000 in the Q3 of 2022. Excluding 2 large non bio At customer deliveries in the Q3 of 2022, underlying growth was approximately 5%. Lab Essentials products are targeted at the research use only or RUO market and include both catalog and custom products. Speaker 300:08:03Lab Essentials revenue was $7,300,000 in the Q3 of 2023, a 23% decrease from 9,500,000 in the Q3 of 2022. The decline was attributable to a lower number of customers and to a lesser extent lower average revenue per customer. Excluding 2 large customer deliveries in the Q3 of 2022, Lab Essentials revenue grew approximately 11%. Clinical Solutions products are made according to Quality standards and are used by our revenue our customers primarily as components for inputs in the development and manufacture of diagnostic and therapeutic products. Clinical Solutions revenue With $600,000 in the 3rd quarter, a 35% decline from $900,000 in the Q3 of 2022. Speaker 300:09:04The decline in clinical solutions revenue was attributable to lower average revenue per customer, partially offset by a higher number of customers. We expect revenue per customer to increase over time as they ramp up their purchase volumes. However, this metric can be affected by the mix of newer clinical Just as a reminder, due to the larger average orders in Clinical Solutions Compared to Lab Essentials, there can be quarter to quarter revenue lumpiness in this category. On to the income statement, gross profit for the Q3 of 2023 was $1,500,000 compared to $4,800,000 in the Q3 of 2022. Gross margin was 18 0.0 percent of revenue in the Q3 of 2023, which is down from 44.6% of revenue in the Q3 of 2022. Speaker 300:10:04The decrease in gross profit percentage was primarily driven by the decrease in revenue And the associated lower absorption of fixed manufacturing costs and to a lesser extent increased overhead costs, which were partially offset by reduced headcount. Operating expenses for the Q3 Of 2023 were $10,200,000 compared to $27,700,000 for the Q3 of 2022. Excluding the non recurring non cash charges of $400,000 in the Q3 of 2023 Related to the write off of ATM facility offering costs and the $16,600,000 Goodwill impairment charge recorded in the Q3 2022, operating expenses were down $1,300,000 in the 3rd and spending primarily in professional fees. During the Q3, we raised $22,900,000 of capital We are registered direct offering and concurrent private placement, and we paid down $10,000,000 of long term debt. As a result, we wrote off ATM facility offering costs of $400,000 because We do not expect to use this facility in the near term. Speaker 300:11:38Net loss for the Q3 of 2023 was $10,200,000 or $0.34 per diluted share compared to a net loss of $22,500,000 or $0.80 or diluted share for the Q3 of 2022. The company recorded minimal non current tax expense this quarter against its pre tax losses due to increases in our valuation allowances against incremental net operating loss carry forwards. Adjusted EBITDA, a non GAAP measure, was negative $5,500,000 for the Q3 of 2023, compared to negative $4,600,000 for the Q3 of 2022. The increase in the Q3 of 2023 was somewhat offset by higher depreciation add backs. On to cash flow and balance sheet. Speaker 300:12:42Capital expenditures for the Q3 of 2023 were $1,000,000 compared to 6 $600,000 for the Q3 of 2022. This marks the 5th straight quarter of sequential decreases in capital expenditures. We have now completed the initial capital investment necessary to utilize our new manufacturing facility. Free cash flow, a non GAAP measure that we define as cash used in operating activities less purchases of property, plant and equipment, Was negative $5,400,000 for the Q3 of 2023 compared to negative $14,900,000 for the Q3 of 2022. This decrease compared to the prior year period was due to both lower cash used in operating activities and a decrease Turning to the balance sheet. Speaker 300:13:37As of September 30, 2023, we had $32,100,000 in cash and cash equivalents and $12,100,000 in gross debt. And now on to our 2023 guidance and outlook. We now anticipate that fiscal year 2023 total revenue will be at the low end of our previously communicated range of $37,000,000 to $40,000,000 We expect the challenging market conditions we have seen during 2023 to persist at least through year end. On the other hand, we now anticipate free cash outflow to be less than $30,000,000 for 2023, despite a revenue outlook significantly below where it The company continues to manage expenses aggressively while preserving the critical investments we believe will allow us to achieve Our long term growth targets. At the end of September, the company had 2 16 associates down from 232 at the end of the Q2 of 2023 and 290 at the end of fiscal year 2022. Speaker 300:14:48The company posted operating expenses excluding non maturing charges below $10,000,000 for the Q2 in a row. To that end, we have taken a number of steps during the fiscal year aimed at reducing operating expenses, which have resulted In total annualized cost savings of more than $8,000,000 compared to Q4 of 2022, excluding non recurring charges. Similarly, the company saw a reduction in free cash outflow during the Q3 of 2023. This marks the 5th straight quarter of lower cash outflow and is consistent with the company's expectations for the year despite our lower revenue outlook. As we anticipate operating expenses and capital expenditures to remain at lower levels. Speaker 300:15:33Based on our guidance, we expect less than our growth strategy and believe there is significant margin expansion potential when top line growth resumes. Speaker 200:15:52We also strengthened our balance sheet with the additional capital raised in the Q3. With that, I'll turn the call back over to Stephen. Thanks, Matt. Overall, we were pleased with our performance in the Q3 of 2023. The long term outlook for our end markets is positive. Speaker 200:16:10We are committed to executing on our strategy to help our customers accelerate the introduction of novel therapies, diagnostics and other products that improve human health. We will now take your questions. Operator00:16:23Thank you. Our first question comes from the line of Jacob Johnson with Stephens. Your line is open. Speaker 400:16:52Hey, good afternoon, guys. Maybe first just on the macro and guidance, you're pointing to the lower end now. Is this just a function of kind of the persistence of the macro headwinds, and a lack of improvement? Or are there any areas where you've seen Headwinds intensify. Operator00:17:14Yes. Speaker 200:17:14Thanks, Jacob. I would say we're not seeing headwinds intensify. I think it's a persistence Of improvement of a lack of improvement. Specifically, we actually have seen some orders slide out, but the good news there is we're actually seeing additional orders. So I think there's some positives here, but we are pretty cautious about it given the fact that this has been an extended period and there's lots of discussions. Speaker 200:17:39On the positive side, like I mentioned in the transcript there, we have an increase in clinical customers and just that the order of dollar amount is lower. And then if you really look at our apples to apples comparison from a quarter to quarter perspective against last year, if you remove those orders which are non biotech related, We did have a positive growth of 5% and 11% in Lab Essentials. And then like I said, we are starting to get I feel for that the orders are starting to potentially pick up and then a lot of customers are saying, hey, we're ready in Q1 for some orders. But we are want to be very cautious about given the fact that even and they don't totally know their funding environment going forward. Speaker 400:18:23Thanks for that, Steven. And then maybe for the follow-up, just on the AAV buffer kits, it's Good to see you continue to build out that offering. And I know it's kind of a screening opportunity that gets you in the door with customers. And From kind of revenue perspective, I think it's somewhat limited in the near term. But is there any way to quantify kind of The interest level in that, the number of customers you're asking for those kids, just or maybe just anecdotes about as we think about how traction of that offering is going. Speaker 200:18:55Yes. So, yes, I'm really happy with the team. I mean, we have a team that's super efficient here and has done a great job developing products. That AEX buffer screening kit that you mentioned has been very popular, lots of conversations, a number of orders there from multiple companies in the AAV space. It's a combination of 2 things. Speaker 200:19:131 is, do we have the stereotypes they're interested in? We've talked about AAV9, which is In that one, we're still working on. It's a very complicated one to purify. But we've had a number try it. And the goal here is not necessarily right away near term revenue as you mentioned, it's to get them into the right buffer and then have them scale up. Speaker 200:19:31So I can tell you of the customers that have tried it, Within about a month or so, one of our customers has actually now ordered for delivery by next year, A larger scale of one of those buffers. That kind of gives us the idea that this is actually working the way we want it to. And that will pay off, obviously, as they take those platforms, Those new therapies down the pipeline. I also want to point out that we have the AEX fiber screening kit, but also a number of other products Which we've launched that are catalog products for us that are that help complete the entire AAV manufacturing process end to end, including now plasmids, which we launched this last quarter. And then, we are doing some work on reagents to help streamline And simplify the analytical side on empty full ratios, this quarter we'll be launching a product that Sets up the workflow for digital PCR that we're seeing great results for internally, but then also externally, we've had a couple Customers give that as early access and they've given us some great feedback. Speaker 200:20:33So again, real happy with the progress we've made in developing that pipeline. But yes, these are things that it's about getting our customers Into these products and then helping them get down that pipeline. Speaker 400:20:43Got it. That's really helpful context. I'll leave it there. Thanks, Steven. Speaker 200:20:47Thanks, Jacob. Operator00:20:49Thank you. Please stand by for our next question. Our next question comes from the line of Steven Ma with TD Cowen. Your line is open. Speaker 500:21:06Great. Thanks for taking the questions. A question for you, Matt. On the gross margins, Which were impacted by the absorption of the fixed costs of the new GMP facility. How should we think about when Gross margin low point will be hit or maybe this is a low point? Speaker 500:21:24And when do you think the gross margins are going to start inflecting and starting to grow? Speaker 300:21:32Yes. Thanks, Steve. Yes, the gross margins have been impacted here recently as we've Added additional depreciation in particular from the bringing on the remainder of the facility in Q3 For GMP production, I would say that it's hard to say if we're actually at a low point. I mean, there's certainly possible that It could be lower, but when we start seeing the revenue growth, we have a very high fixed cost ratio in our cost structure, Not just depreciation, but other costs, which will allow that to leverage up pretty quickly. And maybe just as a reference point, think about What we saw in Q2, when we had a much higher quarter and more GMP revenue, we had quite significantly higher gross margins. Speaker 300:22:20But Of course, we've added additional costs and depreciation since then. So but I do think that once we see the revenue growth resuming, we'll See some pretty good leverage there. Speaker 500:22:35Okay, got it. Okay, yes. Yes, that makes sense. It's highly dependent on the product mix. Yes. Speaker 300:22:42Mix and total volume. Speaker 500:22:44Yes. That makes sense. And then, yes, just wanted to dig in a little bit More on the operating expenses, it's down significantly. You guys had a pretty significant reduction in force. Are there going to be any more cost cutting efforts? Speaker 500:23:02Or do you think the company is now right sized? And then Should we think about the OpEx run rate going forward Speaker 300:23:11as this quarter, Q3 or how should we Speaker 500:23:14think about that For the balance of the year and then also into 2024? Thank you. Speaker 300:23:20Yes. As it relates to operating expenses, As we mentioned in the remarks, we've worked really hard there during the course of the year to bring that down substantially, again over $9,000,000 in annualized savings On a run rate basis, so we're always looking to manage, obviously manage but reduce costs Where we can, I would say we've done the lion's share of that through the risk that you mentioned earlier this year and other things that we've done since then? So, I do expect a slightly downward trend on those as we move forward, But nothing is substantial as you've seen from the beginning of the year until now. So, it's really important for us to make sure that we maintain That we've made that we think are going to be key drivers of growth and be able to support that growth, which will come back. So we're being very careful to find the right balance of maintaining the investments while also taking out any excess Costs that are needed for the short term. Speaker 300:24:26So that's kind of where we're at. And so I think the outlook is sort of flattish to slightly down looking outward. And Obviously, a lot is also going to depend on when the revenue comes back and how we think about costs in the future. Speaker 500:24:41Okay, great. Yes, thanks for taking the questions. Appreciate it. Operator00:24:45Thank you. Please stand by for our next question. Our next question comes from the line of Matt Larew with William Blair. Your line is open. Speaker 600:25:01Hi, good evening. Thanks for Speaker 200:25:03the update Speaker 600:25:04on the customers who've been in to your new GMP facility and it sounds like they've done audits and have qualified the facility. You talked about sort of a full fall audit Calendar and just curious as you're now kind of peeking into winter, at least for those of us in the Midwest and in the spring sort of what the pipeline of audit And then sort of beyond that, Stephen, you referenced sort of scaling into production list customers next year. Could you just maybe give us a sense like are there break points along the way as they move from qualification to full production that Either reflect the level of commitment to working with you or give you some higher level of certainty that, sort of businesses is afoot, Anything sort of at least internally that you track? Speaker 200:25:55Yes, great. So certainly in winter, we're starting to book audits Into 2024 right now, just based on request and continue to build out that calendar. So it looks pretty good from that perspective. Obviously, the feedback has been really positive from the customers that have seen the facility. So the pipeline, I'm pretty happy with the work that the team in the field is doing, but also just our Current customers going through there and being really excited about what we've built. Speaker 200:26:27Now for the next year production piece, right, and that What you're alluding to is the timing from that qualification until really they start ramping the scale. And that is a delay. It's less so a delay for existing customers that have ordered us before and have bought GMT grade products from us than those that were converting from other companies. And there For example, we have one that we've been working with that has we've done a number of pilots with where we will actually make their products In our facility, then we'll ship it to them and then they will test at a very small batch sizes to make sure it's meeting what they need and with from their current supplier And comparing the 2 and then start migrating and then we tend to do an audit and then they host them and then we start planning a transition and that period can be Sometimes if they're in herginine, it can be quick. But at this point in time, with the current environment, they tend to be much more selective at timing of those things and they take more of a So that ramp up can take some time when you are shifting from a new customer and that's we've been doing quite a bit of that Fairly recently. Speaker 200:27:33So that gives us a little bit of confidence as we move into 2024, particularly the back half. Speaker 600:27:40Okay. And then given you have the benefit of sort of going last year within earnings season, we've heard Sort of two sides of the coin from companies throughout the churning season about sequential improvement or not throughout the month In the Q3 and then October. And so just curious if you could sort of give a sense of the latest. We obviously saw the year over year declines and sequential declines in revenue. But from an order perspective, just kind of curious What's the more recent trends have been? Speaker 200:28:14Yes. I'm not I don't think we're in a position to say we're at the bottom, but I can tell you that it feels like we're At or near the bottom for our perspective. I just the question is about how fast it ramps back up more than anything else. We have been I've been pretty encouraged by the orders recently. And like I For us, when I look at it, obviously, I have a lot more insight than you get to on the customer perspective. Speaker 200:28:36But I know we had 2 really large orders last year That were very unique one time orders outside of this biopharma space. When you take when you remove those, you really start to see, hey, this underlying growth is there for Q3. And so to me that is a actual financial metric of where we are. And I do think that the biotech funding has Seems to have stabilized, right? And so, and that is typically for us 3, 4 quarter Leading indicator as we've looked through the data. Speaker 200:29:08So starting to feel good about those are all positive signs and then the conversations are also pretty positive. It's just it's really a question of seeing the timing of those orders and whether or not there'll be additional pushes out as we get into next year and how fast that ramps. Speaker 600:29:26Okay. And then sorry, just one more. I'm just trying to wrap my head around the gross margin. So having been out to the facilities, I certainly I appreciate that there's more dollars and sophistication built into the new facility relative to legacy ones. Matt, is there anything different about Any of the depreciation schedules or any of the accounting with respect to the new facility compared to the last facility? Speaker 600:29:50Just we need to be aware of as we're thinking about Building out depreciation going forward? Speaker 300:29:56Yes, it's a good question. I would say that generally Speaking, we have pretty long lives associated with these assets, maybe on average compared Our legacy facilities because of the quality of the equipment and other improvements that we made in this versus our other facilities. So The depreciation is spread out a bit longer on average than the others. And of course, on the others, those have been depreciating for a while in some cases. So that's roll off or it will be rolling off. Speaker 300:30:30So if I had to make any high level observations, those would be it. But I would also just say that we have been absorbing this depreciation into gross margins. And I think as we ramp up production with sellable products and making inventory out of that facility, we'll be able to absorb some of that More into inventory as well, but right now it's been kind of directly hitting our margins. So we're getting the worst of it right now In terms of impact, but as I mentioned earlier, it's going to be the revenue growth coming back where we get that absorption that's really going to See those come back higher and where they used to be. Speaker 600:31:15All right. Thank you. Operator00:31:18Thank you. Please stand by for our next question. Our next question comes from the line of Anna Snukulski with KeyBanc. Your line is open. Speaker 700:31:33Hi, this is Anna on for Paul Knight. My question is about revenue per customer. Do you still see a 1.4 Increase in revenue in 2024? And if so, what would be the reason for that increase? Is it just customers moving towards commercialization? Speaker 700:31:51Or what are you seeing with that? Speaker 300:31:55Maybe just to make sure we clarify the question. You're asking if we are expecting to see Looking to see average revenue per customer climb next year? Is that or did I misunderstand? Speaker 700:32:06No. Yes, that is my question. Thank you. Speaker 300:32:09Okay. Well, I would just say this, I mean, it's a little bit different for our lab essentials versus Our clinical solutions, right? So as we ramp up the more the smaller part of our business, the clinical solutions business, there's going to be Actually revenue per customer may stay flat or go down. That's not necessarily a bad thing. It just means that we're bringing on more customers that are younger in their cycle, Maybe haven't gone through that clinical pipeline or just ramping up with us for whatever reason. Speaker 300:32:40So I wouldn't expect necessarily to See higher revenue per customer on the clinical solution side. On the Lab Essentials side, we haven't seen strong Trends there in terms of average revenue per customer going upwards. In this particular quarter, we did have a year on year decrease in that metric, as I mentioned In the remarks, and that was not because we're not seeing good increase in customer average customer volumes. It was due to the fact that last year we had 2 very large orders shipped, which skewed the average revenue per customer metrics. So it's a little bit of Technical answer there, but we have in general been seeing pretty steady increases in average revenue per customer on the Lab Essentials side and are certainly expecting that going forward depending on the rate at which depends on the health of the overall market and when kind of More normalized revenue ordering or order patterns return next year. Speaker 300:33:40It will be dependent on that. Speaker 700:33:43Thank you. Speaker 300:33:46Thanks. Operator00:33:47Thank you. Please stand by for our next question. Our next question comes from the line of Mark Massaro with BTIG. Your line is open. Speaker 700:34:02Hey, guys. This is Vivien on for Mark. Thanks for taking the questions. Can I just on the narrowing of the guide, you're Assuming that the current funding environment continues, can you just remind us what percentage of your customer base you feel you have visibility on? And just how would you characterize your customer base as far as the percentage of smaller emerging biopharma? Speaker 700:34:24Thanks. Speaker 200:34:27Okay. So I think the question is around what percent of our what visibility we have and particularly you're interested in the biopharmacy side. Is that accurate? Yes. Okay. Speaker 200:34:36So we don't typically disclose the exact percentage of the biopharma. I could say that generally biopharma is probably about half of it, of which Half of that is emerging biotech, let's just say, put it in that ballpark, right. And we have seen a significant decline there. There's 2 pieces of this that make me confident. 1 is, obviously, that is related to the funding. Speaker 200:35:01We can see that directly. The other piece is that we have the rest of our business, which is actually growing quite nicely. As this stabilizes, that's why we're pretty confident about where we sit long term as we onboard these customers. Speaker 700:35:19Okay, perfect. And then just to dig into OpEx a little bit more, can you guys discuss how you're thinking about Cash utilization after the financing, and just what you're prioritizing as areas of investment, maybe on the commercial org versus where you might look to pull back. Speaker 300:35:41Let me take a stab at that one. So in terms of OpEx, as we discussed a little bit, right now, we feel comfortable with the investments that Maybe highlighted one area, which is in the commercial side and the team that we've built there and the other investments that we've made, branding, website, etcetera. And then we've also been spending in OpEx on our new product development team. And Stephen alluded to some of the product launches that we have made and plan to make there. So we're continuing to invest as we see those is critical Building awareness and relationships with companies in our target market. Speaker 300:36:22So we're not pulling back anywhere there. We have over the course of this year, as I mentioned, with over $9,000,000 in annualized savings, we have reduced in many different areas We were to do so or there were capabilities that might not be needed to execute on the near term priorities. So that's where we've and obviously that's in areas of G and A, in some cases in the manufacturing itself And also sprinkled throughout the organization engineering and some other areas. So Those are the tough decisions that we've had to make and that we continue to make. As I said, we Are not expecting dramatic reductions in OpEx going forward, in order to preserve those investments, But we feel confident that we're making the right decisions there. Speaker 700:37:21Welcome. Thanks for taking the questions. Speaker 300:37:24Thank Speaker 700:37:25you. Operator00:37:26Thank you. I'm showing no further questions in the queue. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.Read morePowered by