Exhibit 99.1 Teknova Reports Fourth Quarter and Full Year 2023 Financial Results Full year 2023 total revenue was $36.7 million, down 11% year-over-year Achieved 36% annual growth in the number of Clinical Solutions customers in 2023 Company provides 2024 revenue guidance of $35-38 million HOLLISTER, Calif., March 11, 2024 – Alpha Teknova, Inc. ("Teknova" or the "Company") (Nasdaq: TKNO), a leading producer of critical reagents for the discovery, development, and commercialization of novel therapies, vaccin ...

PART I. FINANCIAL INFORMATION Presents the unaudited condensed financial statements and management's discussion and analysis for Alpha Teknova, Inc. [Item 1. Condensed Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Condensed%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed financial statements for Alpha Teknova, Inc., including the Statements of Operations, Balance Sheets, Statements of Stockholders' Equity, and Statements of Cash Flows for the periods ended September 30, 2023, and 2022. It also includes detailed notes explaining the company's business, accounting policies, revenue recognition, concentrations of risk, inventory, property, plant, and equipment, leases, intangible assets, accrued liabilities, long-term debt, stock-based compensation, income taxes, net loss per share, and related party transactions [Condensed Statements of Operations (Unaudited)](index=5&type=section&id=Condensed%20Statements%20of%20Operations%20(Unaudited)) Provides an overview of the company's revenues, expenses, and net loss for the specified interim periods Metric (in thousands) | Metric (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue | $8,169 | $10,692 | $28,817 | $33,529 | | Gross profit | $1,472 | $4,770 | $8,961 | $15,366 | | Loss from operations | $(8,762) | $(22,954) | $(24,705) | $(35,423) | | Net loss | $(10,153) | $(22,474) | $(26,124) | $(34,174) | | Net loss per share | $(0.34) | $(0.80) | $(0.91) | $(1.22) | - The company experienced a significant decrease in revenue for both the three and nine months ended September 30, 2023, compared to the same periods in 2022, leading to reduced gross profit and continued net losses[16](index=16&type=chunk) [Condensed Balance Sheets (Unaudited)](index=6&type=section&id=Condensed%20Balance%20Sheets%20(Unaudited)) Presents the company's financial position, including assets, liabilities, and stockholders' equity at specific interim dates Metric (in thousands) | Metric (in thousands) | As of Sep 30, 2023 | As of Dec 31, 2022 | | :-------------------- | :----------------- | :----------------- | | Total current assets | $51,078 | $61,140 | | Total assets | $138,385 | $152,261 | | Total current liabilities | $8,339 | $10,875 | | Total liabilities | $38,733 | $52,376 | | Total stockholders' equity | $99,652 | $99,885 | - Total assets and total liabilities decreased from December 31, 2022, to September 30, 2023, while stockholders' equity remained relatively stable[19](index=19&type=chunk) [Condensed Statements of Stockholders' Equity (Unaudited)](index=7&type=section&id=Condensed%20Statements%20of%20Stockholders'%20Equity%20(Unaudited)) Details changes in the company's equity accounts, including common stock and accumulated deficit, over the interim periods Metric (in thousands, except shares) | Metric (in thousands, except shares) | Balance at Jan 1, 2023 | Balance at Sep 30, 2023 | | :----------------------------------- | :--------------------- | :---------------------- | | Common Stock Shares | 28,179,423 | 40,727,780 | | Additional Paid-in Capital | $154,891 | $180,782 | | Accumulated Deficit | $(55,006) | $(81,130) | | Total Stockholders' Equity | $99,885 | $99,652 | - The company issued **12,386,478 shares** through equity financing, net of issuance costs, contributing **$22.562 million** to additional paid-in capital during the nine months ended September 30, 2023. Despite this, the accumulated deficit increased significantly due to net losses[25](index=25&type=chunk) [Condensed Statements of Cash Flows (Unaudited)](index=9&type=section&id=Condensed%20Statements%20of%20Cash%20Flows%20(Unaudited)) Summarizes the cash inflows and outflows from operating, investing, and financing activities for the interim periods Metric (in thousands) | Metric (in thousands) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(15,922) | $(19,371) | | Net cash used in investing activities | $(7,622) | $(23,419) | | Net cash provided by financing activities | $13,420 | $5,127 | | Net decrease in cash and cash equivalents | $(10,124) | $(37,663) | - Net cash used in operating activities decreased, while net cash provided by financing activities increased significantly in 2023, primarily due to proceeds from equity financing, partially offsetting the cash used in operations and investing[28](index=28&type=chunk) [Notes to Unaudited Condensed Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Condensed%20Financial%20Statements) Provides detailed explanations and disclosures supporting the unaudited condensed financial statements [Note 1. Nature of the Business](index=11&type=section&id=Note%201.%20Nature%20of%20the%20Business) Describes Alpha Teknova's core business activities, products, and target markets within the life sciences industry - Alpha Teknova, Inc. (Teknova) produces critical reagents for life sciences, including pre-poured media plates, liquid cell culture media, and molecular biology reagents. The company serves pharmaceutical, biotechnology, CDMOs, IVD franchises, and academic/government research institutions with catalog and custom products[30](index=30&type=chunk) - All products are manufactured and shipped from its Hollister, California headquarters[31](index=31&type=chunk) [Note 2. Basis of Presentation and Summary of Significant Accounting Policies](index=11&type=section&id=Note%202.%20Basis%20of%20Presentation%20and%20Summary%20of%20Significant%20Accounting%20Policies) Outlines the accounting principles used and key policies, including going concern considerations and recent equity transactions - The unaudited condensed financial statements are prepared in accordance with U.S. GAAP and SEC rules for interim reporting, consistent with the 2022 annual financial statements[32](index=32&type=chunk)[33](index=33&type=chunk)[34](index=34&type=chunk) - Management has identified conditions that raise substantial doubt about the company's ability to continue as a going concern for the next twelve months, citing limited capital resources, net losses (**$10.2 million** for Q3 2023, **$26.1 million** for 9M 2023), accumulated deficit (**$81.1 million**), and potential non-compliance with debt covenants[36](index=36&type=chunk)[37](index=37&type=chunk)[39](index=39&type=chunk) - The company completed a reduction in workforce of approximately **40 positions** on February 1, 2023, incurring **$0.7 million** in severance costs[41](index=41&type=chunk) - On March 30, 2023, the company entered into an At-the-Market (ATM) Facility to sell up to **$50.0 million** of common stock. Costs of **$0.4 million** related to the ATM Facility were written off in Q3 2023[42](index=42&type=chunk) - On September 15, 2023, the company completed a Registered Direct Offering and a concurrent PIPE Private Placement, selling **12,386,478 shares** of common stock at **$1.85 per share**, generating aggregate gross proceeds of **$22.915 million**[43](index=43&type=chunk)[44](index=44&type=chunk)[46](index=46&type=chunk) - The adoption of ASU No. 2016-13 (Credit Losses) effective January 1, 2023, did not have a significant impact on the financial statements[49](index=49&type=chunk) [Note 3. Revenue Recognition](index=13&type=section&id=Note%203.%20Revenue%20Recognition) Explains the company's policy for recognizing revenue from its product categories and across geographic regions - Revenue is recognized when control of promised goods or services is transferred to customers, typically at the point of shipment[50](index=50&type=chunk) Revenue by Product Category (in thousands) | Product Category | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Lab Essentials | $7,274 | $9,470 | $22,112 | $24,838 | | Clinical Solutions | $597 | $919 | $5,859 | $7,673 | | Other | $298 | $303 | $846 | $1,018 | | **Total Revenue** | **$8,169** | **$10,692** | **$28,817** | **$33,529** | Revenue by Geographic Region (in thousands) | Geographic Region | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :---------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | United States | $7,827 | $10,384 | $27,628 | $32,489 | | International | $342 | $308 | $1,189 | $1,040 | | **Total Revenue** | **$8,169** | **$10,692** | **$28,817** | **$33,529** | [Note 4. Concentrations of Risk](index=14&type=section&id=Note%204.%20Concentrations%20of%20Risk) Identifies significant customer and supplier concentrations that could impact the company's financial performance Key Customer Concentrations (Revenue %) | Customer Type | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Distributor B | 20% | 14% | 18% | 14% | Key Customer Concentrations (Accounts Receivable %) | Customer Type | As of Sep 30, 2023 | As of Dec 31, 2022 | | :------------ | :----------------- | :----------------- | | Distributor B | 28% | 17% | | Direct A | 12% | * | Key Supplier Concentrations (Inventory Purchases %) | Supplier Type | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Distributor A | 46% | 37% | 39% | 36% | | Direct C | 13% | * | 10% | * | Key Supplier Concentrations (Accounts Payable %) | Supplier Type | As of Sep 30, 2023 | As of Dec 31, 2022 | | :------------ | :----------------- | :----------------- | | Distributor A | 12% | 11% | [Note 5. Inventories, Net](index=14&type=section&id=Note%205.%20Inventories,%20Net) Details the composition and valuation of the company's inventory, including finished goods, work in process, and raw materials Inventories, Net (in thousands) | Category | As of Sep 30, 2023 | As of Dec 31, 2022 | | :-------------- | :----------------- | :----------------- | | Finished goods, net | $8,155 | $8,368 | | Work in process | $58 | $186 | | Raw materials, net | $3,255 | $3,693 | | **Total inventories, net** | **$11,468** | **$12,247** | - Total inventories decreased by **$0.779 million** from December 31, 2022, to September 30, 2023, primarily due to reductions in finished goods, work in process, and raw materials[57](index=57&type=chunk) [Note 6. Property, Plant, and Equipment, Net](index=15&type=section&id=Note%206.%20Property,%20Plant,%20and%20Equipment,%20Net) Provides a breakdown of the company's tangible long-lived assets and related depreciation and impairment information Property, Plant, and Equipment, Net (in thousands) | Category | As of Sep 30, 2023 | As of Dec 31, 2022 | | :------------------------ | :----------------- | :----------------- | | Machinery and equipment | $29,475 | $19,433 | | Leasehold improvements | $24,609 | $12,093 | | Construction in progress | $3,015 | $23,714 | | **Total property, plant, and equipment, net** | **$51,579** | **$51,577** | - Total property, plant, and equipment remained stable, but there was a significant shift from construction in progress to machinery and equipment and leasehold improvements, indicating completion of capital projects[58](index=58&type=chunk) - A **$2.2 million** impairment charge was recorded in Q2 2023 for certain long-lived assets, which were subsequently sold[60](index=60&type=chunk) [Note 7. Leases](index=15&type=section&id=Note%207.%20Leases) Describes the company's operating lease arrangements for facilities and equipment, including lease terms and expenses - The company leases office, warehouse, manufacturing space, and equipment, with remaining lease terms ranging from one to 14 years. All leases are operating leases[61](index=61&type=chunk) Operating Lease Expense (in thousands) | Period | Operating Lease Expense | | :------------------------ | :---------------------- | | 3 Months Ended Sep 30, 2023 | $0.7 | | 3 Months Ended Sep 30, 2022 | $0.8 | | 9 Months Ended Sep 30, 2023 | $2.2 | | 9 Months Ended Sep 30, 2022 | $2.5 | - As of September 30, 2023, the weighted-average remaining lease term was **9.0 years** with a weighted-average discount rate of **5.0%**[62](index=62&type=chunk) [Note 8. Intangible Assets, Net](index=16&type=section&id=Note%208.%20Intangible%20Assets,%20Net) Presents the company's intangible assets, such as customer relationships and tradename, along with their amortization Intangible Assets, Net (in thousands) | Category | Gross (Sep 30, 2023) | Accumulated Amortization (Sep 30, 2023) | Net (Sep 30, 2023) | Net (Dec 31, 2022) | | :------------------- | :------------------- | :-------------------------------------- | :----------------- | :----------------- | | Customer relationships | $9,180 | $5,403 | $3,777 | $4,637 | | Tradename | $12,919 | $0 | $12,919 | $12,919 | | **Total intangible assets** | **$22,099** | **$5,403** | **$16,696** | **$17,556** | - Net intangible assets decreased slightly from **$17.556 million** to **$16.696 million**, primarily due to amortization of customer relationships[64](index=64&type=chunk) - Amortization expense was **$0.3 million** for the three months and **$0.9 million** for the nine months ended September 30, 2023 and 2022. The remaining weighted-average useful life of definite-lived intangible assets is **3.3 years**[64](index=64&type=chunk)[65](index=65&type=chunk) [Note 9. Accrued Liabilities](index=16&type=section&id=Note%209.%20Accrued%20Liabilities) Details the company's short-term obligations, including payroll, property, plant, and equipment accruals, and deferred revenue Accrued Liabilities (in thousands) | Category | As of Sep 30, 2023 | As of Dec 31, 2022 | | :---------------------------- | :----------------- | :----------------- | | Payroll-related | $3,068 | $2,796 | | Property, plant, and equipment | $110 | $1,966 | | Deferred revenue | $24 | $198 | | Insurance premiums and accrued interest | $709 | $0 | | Other | $1,236 | $1,243 | | **Total current accrued liabilities** | **$5,147** | **$6,203** | - Total current accrued liabilities decreased by **$1.056 million**, primarily due to a significant reduction in accrued property, plant, and equipment, partially offset by new accrued insurance premiums[66](index=66&type=chunk) [Note 10. Long-term Debt, Net](index=17&type=section&id=Note%2010.%20Long-term%20Debt,%20Net) Outlines the company's credit facility, term loan, and revolving loan, including amendments and financial covenants - The company's credit facility includes a **$52.135 million** Term Loan and a **$5.0 million** Revolver, maturing on May 1, 2027[68](index=68&type=chunk)[70](index=70&type=chunk) - Multiple amendments to the Credit Agreement (Amendment No. 1, 2, 3, and 4) adjusted interest rates, prepayment fees, borrowing availability, financial covenants (minimum net revenue and cash), and exit fees[71](index=71&type=chunk)[72](index=72&type=chunk)[73](index=73&type=chunk)[74](index=74&type=chunk) - Amendment No. 4, effective September 19, 2023, waived a revenue covenant violation, reduced future minimum net revenue requirements, and lowered the minimum cash covenant from **$10.0 million** to **$9.0 million**. As a condition, the company prepaid **$10.0 million** of the Term Loan, resulting in an **$0.8 million** loss on extinguishment of debt[74](index=74&type=chunk) Debt, Net (in thousands) | Category | As of Sep 30, 2023 | As of Dec 31, 2022 | | :---------------------------- | :----------------- | :----------------- | | Debt | $12,135 | $22,135 | | Cumulative accretion of exit fee | $1,192 | $161 | | Unamortized debt discount and debt issuance costs | $(159) | $(320) | | **Debt, net** | **$13,168** | **$21,976** | - Scheduled maturities show no payments in 2023 or 2024, with payments resuming in 2025 (**$3.539 million**), 2026 (**$6.068 million**), and 2027 (**$2.528 million**)[75](index=75&type=chunk) [Note 11. Stock-Based Compensation](index=18&type=section&id=Note%2011.%20Stock-Based%20Compensation) Explains the company's equity incentive plans and the associated stock-based compensation expense - The company maintains equity incentive plans for stock options, restricted stock units (RSUs), and an Employee Stock Purchase Plan (ESPP)[76](index=76&type=chunk)[79](index=79&type=chunk) Stock Option Activity (9 Months Ended Sep 30, 2023) | Metric | Number of Shares | Weighted Average Exercise Price per Share | | :---------------------- | :--------------- | :---------------------------------------- | | Outstanding at Jan 1, 2023 | 3,846,532 | $7.02 | | Granted | 604,835 | $5.05 | | Exercised | (51,774) | $1.47 | | Forfeited | (263,348) | $10.24 | | Expired | (42,807) | $15.33 | | Outstanding at Sep 30, 2023 | 4,093,438 | $6.51 | | Exercisable at Sep 30, 2023 | 2,008,038 | $5.66 | Stock-Based Compensation Expense (in thousands) | Category | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Cost of sales | $36 | $45 | $112 | $108 | | Research and development | $43 | $40 | $120 | $153 | | Sales and marketing | $168 | $126 | $492 | $351 | | General and administrative | $788 | $757 | $2,391 | $2,077 | | **Total** | **$1,035** | **$968** | **$3,115** | **$2,689** | - Total stock-based compensation expense increased to **$1.035 million** for the three months and **$3.115 million** for the nine months ended September 30, 2023, compared to the prior year periods[81](index=81&type=chunk) [Note 12. Income Taxes](index=20&type=section&id=Note%2012.%20Income%20Taxes) Discusses the company's provision for income taxes and effective tax rates for the interim periods - The company recorded a non-significant provision for income taxes for the three and nine months ended September 30, 2023, compared to income tax benefits of **$0.4 million** and **$1.1 million** for the same periods in 2022[84](index=84&type=chunk)[85](index=85&type=chunk) - Effective tax rates were **(0.1%)** and **0.0%** for the three and nine months ended September 30, 2023, respectively, primarily due to operating losses not expected to produce a benefit[84](index=84&type=chunk)[85](index=85&type=chunk) [Note 13. Net Loss Per Share](index=20&type=section&id=Note%2013.%20Net%20Loss%20Per%20Share) Presents the calculation of basic and diluted net loss per share for the interim periods Net Loss Per Share (in thousands, except share and per share data) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net loss | $(10,153) | $(22,474) | $(26,124) | $(34,174) | | Weighted average shares (basic & diluted) | 29,956,930 | 28,090,267 | 28,810,068 | 28,059,897 | | **Net loss per share (basic & diluted)** | **$(0.34)** | **$(0.80)** | **$(0.91)** | **$(1.22)** | - Net loss per share improved for both the three and nine months ended September 30, 2023, compared to 2022, despite increased weighted average shares outstanding[87](index=87&type=chunk) - Stock options, restricted stock units, and employee stock purchase rights were excluded from diluted EPS calculation as their effect was anti-dilutive[86](index=86&type=chunk)[87](index=87&type=chunk) [Note 14. Related Parties](index=21&type=section&id=Note%2014.%20Related%20Parties) Discloses transactions and relationships with related parties, including lease agreements - The company previously leased property from Meeches LLC, a related party controlled by founders Ted and Irene Davis. The lease was terminated on May 16, 2023, with an escrow agreement for early termination consideration[88](index=88&type=chunk)[89](index=89&type=chunk) - Lease payments to Meeches were **$0.1 million** for the nine months ended September 30, 2023, and **$0.2 million** for the nine months ended September 30, 2022[88](index=88&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Alpha Teknova's financial condition and results of operations for the three and nine months ended September 30, 2023, compared to the same periods in 2022. It covers an overview of the business, the impact of broader economic trends, detailed analysis of revenue, gross profit, operating expenses, and other income/expenses, as well as a discussion of liquidity, capital resources, and critical accounting policies [Overview](index=22&type=section&id=Overview) Provides a high-level summary of Alpha Teknova's business, products, and recent financial performance - Alpha Teknova produces critical reagents for life sciences, serving over **3,000 customers** across pharmaceutical, biotech, CDMOs, IVD, and research institutions[92](index=92&type=chunk) - The company's proprietary manufacturing processes enable high-quality, custom, made-to-order products with short turnaround times[92](index=92&type=chunk) - Products fall into two categories: Lab Essentials and Clinical Solutions, offering pre-poured media plates, liquid cell culture media, and molecular biology reagents[93](index=93&type=chunk) - The company is ISO 13485:2016 certified, supporting diagnostic and therapeutic applications from research to commercialization[94](index=94&type=chunk) - Revenue decreased by **$2.5 million (23.6%)** to **$8.2 million** for the three months ended September 30, 2023, and by **$4.7 million (14.1%)** to **$28.8 million** for the nine months ended September 30, 2023, compared to the prior year periods[96](index=96&type=chunk) - Operating loss for the three months ended September 30, 2023, was **$8.8 million**, compared to **$6.3 million** (excluding goodwill impairment) in the prior year. For the nine months, operating loss was **$22.5 million** (excluding long-lived asset impairment) compared to **$18.8 million** (excluding goodwill impairment) in the prior year[97](index=97&type=chunk) [Impact of Broader Economic Trends on Our Business](index=23&type=section&id=Impact%20of%20Broader%20Economic%20Trends%20on%20Our%20Business) Discusses how general economic conditions, such as inflation and interest rates, affect the company's operations and sales - General inflation and rising interest rates negatively impact the business by increasing cost of sales and operating expenses[98](index=98&type=chunk) - Economic uncertainty may cause customers to reduce, delay, or cancel orders, affecting sales timing and volume[98](index=98&type=chunk) [Results of Operations](index=23&type=section&id=Results%20of%20Operations) Analyzes the company's financial performance by comparing key metrics across different reporting periods [Comparison of the Three Months Ended September 30, 2023, and Three Months Ended September 30, 2022](index=23&type=section&id=Comparison%20of%20the%20Three%20Months%20Ended%20September%2030,%202023,%20and%20Three%20Months%20Ended%20September%2030,%202022) Compares the company's financial results for the three-month periods ended September 30, 2023, and 2022 Key Financials (3 Months Ended Sep 30, in thousands) | Metric | 2023 | 2022 | $ Change | % Change | | :------------------------ | :-------- | :-------- | :-------- | :--------- | | Revenue | $8,169 | $10,692 | $(2,523) | (23.6)% | | Cost of sales | $6,697 | $5,922 | $775 | 13.1% | | Gross profit | $1,472 | $4,770 | $(3,298) | (69.1)% | | Research and development | $1,397 | $1,925 | $(528) | (27.4)% | | Sales and marketing | $2,412 | $2,397 | $15 | 0.6% | | General and administrative | $6,138 | $6,502 | $(364) | (5.6)% | | Goodwill impairment | $0 | $16,613 | $(16,613) | (100.0)% |\ | Loss from operations | $(8,762) | $(22,954) | $14,192 | (61.8)% | | Net loss | $(10,153) | $(22,474) | $12,321 | (54.8)% | [Revenue (Three Months)](index=24&type=section&id=Revenue) Analyzes revenue performance for the three months ended September 30, 2023, compared to the prior year Revenue by Product Category (3 Months Ended Sep 30, in thousands) | Product Category | 2023 | 2022 | $ Change | % Change | | :--------------- | :----- | :----- | :------- | :------- | | Lab Essentials | $7,274 | $9,470 | $(2,196) | (23.2)% | | Clinical Solutions | $597 | $919 | $(322) | (35.0)% | | Other | $298 | $303 | $(5) | (1.7)% | | **Total Revenue** | **$8,169** | **$10,692** | **$(2,523)** | **(23.6)%** | - Lab Essentials revenue decreased by **23.2%** due to fewer customers and lower average revenue per customer. Clinical Solutions revenue decreased by **35.0%** due to lower average revenue per customer, partially offset by an increased number of customers[101](index=101&type=chunk)[102](index=102&type=chunk) - U.S. sales decreased by **24.6%** to **$7.8 million**, while international sales increased by **11.0%** to **$0.3 million**[102](index=102&type=chunk) [Gross profit (Three Months)](index=24&type=section&id=Gross%20profit) Examines gross profit and gross profit percentage for the three months ended September 30, 2023, compared to the prior year Gross Profit (3 Months Ended Sep 30, in thousands) | Metric | 2023 | 2022 | $ Change | % Change | | :-------------- | :----- | :----- | :------- | :------- | | Cost of sales | $6,697 | $5,922 | $775 | 13.1% | | Gross profit | $1,472 | $4,770 | $(3,298) | (69.1)% | | Gross profit % | 18.0% | 44.6% | | | - Gross profit percentage significantly decreased from **44.6%** to **18.0%**, primarily due to decreased revenue and lower absorption of fixed manufacturing costs, partially offset by reduced headcount[104](index=104&type=chunk) [Operating expenses (Three Months)](index=24&type=section&id=Operating%20expenses) Reviews operating expenses, including R&D, sales and marketing, G&A, and impairment charges, for the three months ended September 30, 2023, compared to the prior year Operating Expenses (3 Months Ended Sep 30, in thousands) | Expense Category | 2023 | 2022 | $ Change | % Change | | :------------------------ | :-------- | :-------- | :-------- | :--------- | | Research and development | $1,397 | $1,925 | $(528) | (27.4)% |\ | Sales and marketing | $2,412 | $2,397 | $15 | 0.6% | | General and administrative | $6,138 | $6,502 | $(364) | (5.6)% | | Amortization of intangible assets | $287 | $287 | $0 | 0.0% | | Goodwill impairment | $0 | $16,613 | $(16,613) | (100.0)% | | **Total operating expenses** | **$10,234** | **$27,724** | **$(17,490)** | **(63.1)%** | - Total operating expenses decreased significantly due to the absence of a **$16.6 million** goodwill impairment charge incurred in Q3 2022. R&D and G&A expenses also decreased due to reduced headcount and professional fees[106](index=106&type=chunk)[108](index=108&type=chunk)[109](index=109&type=chunk) [Other (expenses) income, net (Three Months)](index=25&type=section&id=Other%20(expenses)%20income,%20net) Details other non-operating income and expenses, including interest and debt extinguishment losses, for the three months ended September 30, 2023, compared to the prior year Other (Expenses) Income, Net (3 Months Ended Sep 30, in thousands) | Category | 2023 | 2022 | $ Change | % Change | | :---------------------------- | :-------- | :------ | :-------- | :---------- | | Interest (expense) income, net | $(791) | $70 | $(861) | (1230.0)% | | Loss on extinguishment of debt | $(824) | $0 | $(824) | (100.0)% | | Other income, net | $233 | $36 | $197 | 547.2% | | **Total other (expenses) income, net** | **$(1,382)** | **$106** | **$(1,488)** | **(1403.8)%** | - Total other expenses, net, increased significantly due to an **$0.8 million** loss on extinguishment of debt and higher interest expense from increased rates and lower capitalized interest. This was partially offset by higher interest income from short-term investments[110](index=110&type=chunk) [Provision for (benefit from) income taxes (Three Months)](index=25&type=section&id=Provision%20for%20(benefit%20from)%20income%20taxes) Discusses the income tax provision or benefit for the three months ended September 30, 2023, compared to the prior year Provision for (Benefit from) Income Taxes (3 Months Ended Sep 30, in thousands) | Metric | 2023 | 2022 | $ Change | % Change | | :----------------------------------- | :--- | :----- | :------- | :---------- | | Provision for (benefit from) income taxes | $9 | $(374) | $383 | (102.4)% | | Effective tax rate | (0.1)% | 1.6% | | | - The company recorded a non-significant income tax provision in Q3 2023, compared to a **$0.4 million** benefit in Q3 2022, primarily due to operating losses not expected to produce a benefit[112](index=112&type=chunk) [Comparison of the Nine Months Ended September 30, 2023, and Nine Months Ended September 30, 2022](index=26&type=section&id=Comparison%20of%20the%20Nine%20Months%20Ended%20September%2030,%202023,%20and%20Nine%20Months%20Ended%20September%2030,%202022) Compares the company's financial results for the nine-month periods ended September 30, 2023, and 2022 Key Financials (9 Months Ended Sep 30, in thousands) | Metric | 2023 | 2022 | $ Change | % Change | | :------------------------ | :-------- | :-------- | :-------- | :--------- | | Revenue | $28,817 | $33,529 | $(4,712) | (14.1)% | | Cost of sales | $19,856 | $18,163 | $1,693 | 9.3% | | Gross profit | $8,961 | $15,366 | $(6,405) | (41.7)% | | Research and development | $4,256 | $5,867 | $(1,611) | (27.5)% | | Sales and marketing | $6,929 | $6,592 | $337 | 5.1% | | General and administrative | $19,426 | $20,856 | $(1,430) | (6.9)% | | Long-lived assets impairment | $2,195 | $0 | $2,195 | 100.0% | | Goodwill impairment | $0 | $16,613 | $(16,613) | (100.0)% | | Loss from operations | $(24,705) | $(35,423) | $10,718 | (30.3)% | | Net loss | $(26,124) | $(34,174) | $8,050 | (23.6)% | [Revenue (Nine Months)](index=26&type=section&id=Revenue) Analyzes revenue performance for the nine months ended September 30, 2023, compared to the prior year Revenue by Product Category (9 Months Ended Sep 30, in thousands) | Product Category | 2023 | 2022 | $ Change | % Change | | :--------------- | :------ | :------ | :------- | :------- | | Lab Essentials | $22,112 | $24,838 | $(2,726) | (11.0)% | | Clinical Solutions | $5,859 | $7,673 | $(1,814) | (23.6)% | | Other | $846 | $1,018 | $(172) | (16.9)% | | **Total Revenue** | **$28,817** | **$33,529** | **$(4,712)** | **(14.1)%** | - Lab Essentials revenue decreased by **11.0%** due to fewer customers, partially offset by higher average revenue per customer. Clinical Solutions revenue decreased by **23.6%** due to lower average revenue per customer, partially offset by an increased number of customers[115](index=115&type=chunk)[116](index=116&type=chunk) - U.S. sales decreased by **15.0%** to **$27.6 million**, while international sales increased by **14.3%** to **$1.2 million**[117](index=117&type=chunk)[118](index=118&type=chunk) [Gross profit (Nine Months)](index=27&type=section&id=Gross%20profit) Examines gross profit and gross profit percentage for the nine months ended September 30, 2023, compared to the prior year Gross Profit (9 Months Ended Sep 30, in thousands) | Metric | 2023 | 2022 | $ Change | % Change | | :-------------- | :------ | :------ | :------- | :------- | | Cost of sales | $19,856 | $18,163 | $1,693 | 9.3% | | Gross profit | $8,961 | $15,366 | $(6,405) | (41.7)% | | Gross profit % | 31.1% | 45.8% | | | - Gross profit percentage decreased from **45.8%** to **31.1%**, primarily due to decreased revenue and lower absorption of fixed manufacturing costs, partially offset by reduced headcount[119](index=119&type=chunk) [Operating expenses (Nine Months)](index=27&type=section&id=Operating%20expenses) Reviews operating expenses, including R&D, sales and marketing, G&A, and impairment charges, for the nine months ended September 30, 2023, compared to the prior year Operating Expenses (9 Months Ended Sep 30, in thousands) | Expense Category | 2023 | 2022 | $ Change | % Change | | :------------------------ | :-------- | :-------- | :-------- | :--------- | | Research and development | $4,256 | $5,867 | $(1,611) | (27.5)% | | Sales and marketing | $6,929 | $6,592 | $337 | 5.1% | | General and administrative | $19,426 | $20,856 | $(1,430) | (6.9)% | | Amortization of intangible assets | $860 | $861 | $(1) | (0.1)% | | Long-lived assets impairment | $2,195 | $0 | $2,195 | 100.0% | | Goodwill impairment | $0 | $16,613 | $(16,613) | (100.0)% | | **Total operating expenses** | **$33,666** | **$50,789** | **$(17,123)** | **(33.7)%** | - Total operating expenses decreased by **33.7%** due to the absence of a **$16.6 million** goodwill impairment charge in 2023, partially offset by a **$2.2 million** long-lived asset impairment charge[120](index=120&type=chunk)[124](index=124&type=chunk)[125](index=125&type=chunk) - R&D and G&A expenses decreased due to reduced headcount, professional fees, and occupancy costs, while sales and marketing expenses increased due to higher labor and stock-based compensation[120](index=120&type=chunk)[121](index=121&type=chunk)[122](index=122&type=chunk) [Other (expenses) income, net (Nine Months)](index=28&type=section&id=Other%20(expenses)%20income,%20net) Details other non-operating income and expenses, including interest and debt extinguishment losses, for the nine months ended September 30, 2023, compared to the prior year Other (Expenses) Income, Net (9 Months Ended Sep 30, in thousands) | Category | 2023 | 2022 | $ Change | % Change | | :---------------------------- | :-------- | :------ | :-------- | :---------- | | Interest (expense) income, net | $(1,006) | $85 | $(1,091) | (1283.5)% | | Loss on extinguishment of debt | $(824) | $0 | $(824) | (100.0)% | | Other income, net | $417 | $36 | $381 | 1058.3% | | **Total other (expenses) income, net** | **$(1,413)** | **$121** | **$(1,534)** | **(1267.8)%** | - Total other expenses, net, increased significantly due to higher interest expense from increased debt and rates, and an **$0.8 million** loss on extinguishment of debt. This was partially offset by higher interest income[126](index=126&type=chunk) [Provision for (benefit from) income taxes (Nine Months)](index=28&type=section&id=Provision%20for%20(benefit%20from)%20income%20taxes) Discusses the income tax provision or benefit for the nine months ended September 30, 2023, compared to the prior year Provision for (Benefit from) Income Taxes (9 Months Ended Sep 30, in thousands) | Metric | 2023 | 2022 | $ Change | % Change | | :----------------------------------- | :--- | :------- | :------- | :---------- | | Provision for (benefit from) income taxes | $6 | $(1,128) | $1,134 | (100.5)% | | Effective tax rate | (0.0)% | 3.2% | | | - The company recorded a non-significant income tax provision in 9M 2023, compared to a **$1.1 million** benefit in 9M 2022, primarily due to operating losses not expected to produce a benefit[127](index=127&type=chunk) [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) Evaluates the company's ability to generate and manage cash flows, including financing sources, working capital, and debt covenants - Primary financing sources include a **$99.1 million** IPO in June 2021 and **$22.915 million** gross proceeds from a registered direct offering and private placement in September 2023[128](index=128&type=chunk) - As of September 30, 2023, the company had limited capital resources, with **$42.7 million** in working capital and **$32.1 million** in cash and cash equivalents, and an accumulated deficit of **$81.1 million**[130](index=130&type=chunk) - The company's ability to continue as a going concern is in substantial doubt due to ongoing net losses and potential non-compliance with debt covenants, requiring additional capital or operational adjustments[131](index=131&type=chunk)[133](index=133&type=chunk)[160](index=160&type=chunk) - The Amended Credit Agreement includes minimum net revenue and cash covenants. While compliant as of September 30, 2023, the company anticipates potential non-compliance with the trailing twelve months revenue covenant due to unfavorable market conditions and lowered revenue projections[132](index=132&type=chunk)[133](index=133&type=chunk) - An ATM Facility allows for the sale of up to **$50.0 million** in common stock, subject to limitations[134](index=134&type=chunk) Cash Flows (9 Months Ended Sep 30, in thousands) | Activity | 2023 | 2022 | | :------------------------ | :-------- | :-------- | | Net cash used in operating activities | $(15,922) | $(19,371) | | Net cash used in investing activities | $(7,622) | $(23,419) |\ | Net cash provided by financing activities | $13,420 | $5,127 | | **Net decrease in cash and cash equivalents** | **$(10,124)** | **$(37,663)** | - Net cash used in operating activities decreased in 2023, primarily due to lower net loss and non-cash adjustments. Net cash used in investing activities decreased due to lower purchases of property, plant, and equipment. Net cash provided by financing activities increased significantly due to equity financing proceeds[139](index=139&type=chunk)[141](index=141&type=chunk)[142](index=142&type=chunk) [Critical Accounting Policies and Estimates](index=30&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Identifies and discusses the accounting policies and estimates that require significant judgment and could materially impact financial results - There have been no material changes to the company's critical accounting estimates since the 2022 Annual Report on Form 10-K[144](index=144&type=chunk) [Emerging Growth Company and Smaller Reporting Company](index=31&type=section&id=Emerging%20Growth%20Company%20and%20Smaller%20Reporting%20Company) Explains the company's status as an emerging growth company and smaller reporting company, and the associated regulatory exemptions - The company qualifies as an 'emerging growth company' under the JOBS Act, allowing exemptions from certain reporting requirements and the option to delay adopting new accounting standards[145](index=145&type=chunk) - The company is also a 'smaller reporting company,' which provides scaled disclosures until certain market value or revenue thresholds are met[146](index=146&type=chunk) [Recent Accounting Pronouncements](index=31&type=section&id=Recent%20Accounting%20Pronouncements) Refers to disclosures regarding recently issued accounting standards and their potential impact on the company's financial statements - A description of recent accounting pronouncements is disclosed in Note 2 to the condensed financial statements[147](index=147&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Alpha Teknova is not required to provide quantitative and qualitative disclosures about market risk for this reporting period - The company is exempt from providing quantitative and qualitative disclosures about market risk as it qualifies as a smaller reporting company[148](index=148&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) This section addresses the effectiveness of Alpha Teknova's disclosure controls and procedures and internal control over financial reporting. Management concluded that disclosure controls were not effective due to an un-remediated material weakness in accounting for income taxes. The company is implementing measures to remediate this weakness [Evaluation of Disclosure Controls and Procedures](index=31&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Assesses the effectiveness of the company's disclosure controls and procedures as of the end of the reporting period - Management, including the CEO and CFO, concluded that disclosure controls and procedures were not effective as of September 30, 2023, due to a previously disclosed material weakness in internal control over financial reporting[149](index=149&type=chunk)[151](index=151&type=chunk) [Material Weakness in Internal Control Over Financial Reporting](index=32&type=section&id=Material%20Weakness%20in%20Internal%20Control%20Over%20Financial%20Reporting) Identifies and describes any material weaknesses in the company's internal control over financial reporting - A material weakness in accounting for income taxes was identified during the 2022 fiscal year audit, stemming from a lack of appropriate tax resources. This material weakness remained un-remediated as of September 30, 2023[152](index=152&type=chunk) [Management's Plan to Remediate the Material Weakness](index=32&type=section&id=Management's%20Plan%20to%20Remediate%20the%20Material%20Weakness) Outlines the steps management is taking to address and resolve the identified material weakness in internal control - Management is taking measures to remediate the material weakness by engaging accounting personnel/consultants with specific income tax accounting experience and implementing additional controls and procedures[153](index=153&type=chunk) [Changes in Internal Control Over Financial Reporting](index=32&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) Reports any changes in internal control over financial reporting that occurred during the reporting period - There were no changes in internal control over financial reporting during the quarter ended September 30, 2023, that materially affected or are reasonably likely to materially affect internal control over financial reporting[154](index=154&type=chunk) [Limitations on Effectiveness of Controls and Procedures](index=32&type=section&id=Limitations%20on%20Effectiveness%20of%20Controls%20and%20Procedures) Acknowledges the inherent limitations of internal controls and the reasonable assurance they provide - Management acknowledges that controls and procedures can only provide reasonable assurance of achieving control objectives, and judgment is applied in evaluating benefits versus costs[155](index=155&type=chunk) PART II. OTHER INFORMATION Contains legal proceedings, risk factors, equity sales, defaults, and exhibits for Alpha Teknova, Inc. [Item 1. Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) Alpha Teknova is not currently a party to any material legal proceedings. However, the company acknowledges that it may become involved in various legal actions in the ordinary course of business, which could be time-consuming, costly, and potentially adverse to its financial condition and operating results - The company is not currently involved in any material legal proceedings[158](index=158&type=chunk) - Future legal proceedings, if adverse, could result in monetary damages or operational limits, negatively impacting the business[158](index=158&type=chunk) [Item 1A. Risk Factors](index=33&type=section&id=Item%201A.%20Risk%20Factors) This section highlights key risks and uncertainties affecting Alpha Teknova's business, including substantial doubt about its ability to continue as a going concern, potential non-compliance with debt covenants, historical and future operating losses, and the impact of potential stock sales on market price. These factors could materially affect the company's financial condition and operations - Conditions and events raise substantial doubt about the company's ability to continue as a going concern, requiring additional capital or operational changes[160](index=160&type=chunk)[161](index=161&type=chunk) - The company may be unable to comply with trailing twelve months revenue covenants under the Amended Credit Agreement, which could lead to acceleration of debt obligations and potential foreclosure on assets[162](index=162&type=chunk)[164](index=164&type=chunk) - Alpha Teknova has a history of operating losses and may continue to incur losses, with no assurance of achieving or maintaining profitability[165](index=165&type=chunk)[166](index=166&type=chunk) - Sales of a substantial number of common stock shares, including those held by affiliates or issued under equity plans, could significantly reduce the market price of the stock[167](index=167&type=chunk)[169](index=169&type=chunk)[170](index=170&type=chunk) - The company's cash and cash equivalents could be adversely affected if financial institutions holding deposits fail, impacting liquidity[171](index=171&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=36&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section confirms that there were no unregistered sales of equity securities during the reporting period. It also states that there has been no material change in the planned use of proceeds from the initial public offering (IPO) as previously disclosed - No unregistered sales of equity securities occurred during the period[172](index=172&type=chunk) - There has been no material change in the planned use of proceeds from the IPO[173](index=173&type=chunk) [Item 3. Defaults Upon Senior Securities](index=36&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) Alpha Teknova reports no defaults upon senior securities during the period - There were no defaults upon senior securities[175](index=175&type=chunk) [Item 4. Mine Safety Disclosures](index=36&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to Alpha Teknova - This item is not applicable to the company[176](index=176&type=chunk) [Item 5. Other Information](index=36&type=section&id=Item%205.%20Other%20Information) Alpha Teknova reports no other information for this item - No other information is reported for this item[177](index=177&type=chunk) [Item 6. Exhibits](index=36&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q, including corporate documents, securities purchase agreements, registration rights agreements, and amendments to credit and security agreements, along with certifications - The exhibits include corporate governance documents (Certificate of Incorporation, Bylaws), securities agreements (Registered Direct Offering, PIPE Private Placement, Registration Rights Agreement), and amendments to the Credit and Security Agreement (Term Loan and Revolving Loan)[178](index=178&type=chunk)[179](index=179&type=chunk) - Certifications from the Principal Executive Officer and Principal Financial Officer are also included[181](index=181&type=chunk)

Financial Data and Key Metrics Changes - Total revenue for Q3 2023 was $8.2 million, a 24% decline from $10.7 million in Q3 2022. Excluding two large non-biotech customer deliveries in Q3 2022, underlying growth was approximately 5% [8][59] - Gross profit for Q3 2023 was $1.5 million compared to $4.8 million in Q3 2022, with gross margin at 18.0%, down from 44.6% in the prior year [9][80] - Net loss for Q3 2023 was $10.2 million or $0.34 per diluted share, compared to a net loss of $22.5 million or $0.80 per diluted share in Q3 2022 [81] - Adjusted EBITDA was negative $5.5 million for Q3 2023, compared to negative $4.6 million in Q3 2022 [60] Business Line Data and Key Metrics Changes - Lab Essentials revenue was $7.3 million in Q3 2023, a 23% decrease from $9.5 million in Q3 2022, attributed to a lower number of customers and lower average revenue per customer [79] - Clinical solutions revenue was $0.6 million in Q3 2023, a 35% decline from $0.9 million in Q3 2022, due to lower average revenue per customer, partially offset by a higher number of customers [58] Market Data and Key Metrics Changes - The company has been qualified by 12 high-profile customers since June, with eight involved in cell and gene therapy development, indicating a positive market response [5] - The company expects market conditions observed in Q3 to persist, anticipating total revenue for fiscal 2023 to be at the low end of the guidance range of $37 million to $40 million [7][61] Company Strategy and Development Direction - The company is focused on executing its growth strategy to help customers accelerate the introduction of novel therapies and diagnostics [14] - Significant investments have been made in a new GMP facility, which is expected to unlock potential for future growth, with capacity to deliver approximately $200 million in annual product revenue when fully utilized [76][54] - The company is committed to managing expenses while preserving critical investments for long-term growth [12][13] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism for 2024, noting an increase in clinical customers and positive feedback from recent audits [56][71] - The company believes it is near the bottom of the current market conditions, with signs of order increases and stabilization in biotech funding [41][85] - Management highlighted the importance of maintaining investments while managing costs to support future growth [37][116] Other Important Information - The company raised $22.9 million in capital through a registered direct offering and paid down $10 million of long-term debt during Q3 2023 [10][75] - Operating expenses for Q3 2023 were $10.2 million, significantly reduced from $27.7 million in Q3 2022, driven by reduced headcount and spending [59] Q&A Session Summary Question: What is the outlook for revenue per customer in 2024? - Management indicated steady increases in average revenue per customer on the lab essentials side, but noted that newer clinical customers may lead to flat or declining revenue per customer in that segment [28][44] Question: What percentage of the customer base has visibility, particularly in biopharma? - Management stated that biopharma constitutes about half of the customer base, with emerging biotech making up a significant portion, and noted a decline in that segment due to funding issues [31][47] Question: Are there plans for further cost-cutting efforts? - Management confirmed that while they have made significant reductions in operating expenses, they do not anticipate dramatic cuts going forward to preserve critical investments [105][115] Question: What is the status of the new GMP facility and customer audits? - Management reported positive feedback from customers who have audited the new facility, with a pipeline of audits extending into 2024 [70][91]

Financial Data and Key Metrics Changes - Total revenue for Q2 2023 was $11.5 million, a slight decline from $11.7 million in Q2 2022, attributed to lower demand from early-stage biopharma customers, partially offset by a large order delivery [12][19] - Gross profit for Q2 2023 was $5.1 million, compared to $5.2 million in Q2 2022, with a gross margin of 43.9%, down from 44.9% in the previous year [25] - Net loss for Q2 2023 was $7.2 million or $0.25 per diluted share, compared to a net loss of $6.2 million or $0.22 per diluted share in Q2 2022 [28] - Adjusted EBITDA was negative $2.3 million for Q2 2023, an improvement from negative $4.9 million in Q2 2022 [29] - Free cash outflow was $6.2 million for Q2 2023, down from $16.8 million in Q2 2022, marking the fourth consecutive quarter of lower cash outflow [49] Business Line Data and Key Metrics Changes - Lab Essentials revenue was $7.6 million in Q2 2023, a 10% decrease from $8.4 million in Q2 2022, due to a decreased number of customers, partially offset by higher average revenue per customer [23] - Clinical Solutions revenue was $3.7 million in Q2 2023, a 24% increase from $2.9 million in Q2 2022, driven by an increased number of customers [45] Market Data and Key Metrics Changes - The company expects a mid-single digit percentage year-on-year decline in top-line revenue for 2023, with a return to year-on-year growth anticipated in Q4 2023 [42] - The emerging biotech segment, historically a growth driver, is currently focused on conserving capital by delaying or canceling clinical trials, though this is viewed as a temporary situation [41] Company Strategy and Development Direction - The company is committed to executing its long-term growth strategy, focusing on accelerating the introduction of novel therapies and diagnostics [20][32] - The new GMP-grade modular manufacturing facility is expected to unlock significant potential for the business, with a capacity to deliver approximately $200 million in annual product revenue when fully utilized [21][40] - The company is diversifying its offerings beyond early-stage biopharma to include life science tools and diagnostics [55] Management's Comments on Operating Environment and Future Outlook - Management remains optimistic about the long-term potential of target markets despite current challenges in the biotech sector [20] - The company has seen positive early feedback on its new product line, with expectations for increased customer engagement as they ramp up purchase volumes [22][45] - Management anticipates that operating expenses will remain stable or decrease, allowing for growth without significant additional investments [75] Other Important Information - The company had $23.7 million in cash and cash equivalents and $22.1 million in gross debt as of June 30, 2023 [30] - The company has reclassified some long-term debt into the current portion due to covenant compliance issues, but no notices have been issued by lenders [76] Q&A Session Summary Question: Insights on macro landscape and growth drivers - Management acknowledged the difficult market backdrop but highlighted the company's ability to deliver and the diversity of market segments [38] Question: Sales cycle for converting facility audits to customers - Management indicated that the sales cycle is lengthy, typically taking 12 to 24 months for customers to scale up after initial engagement [70] Question: Guidance on Clinical Solutions revenue - Management noted that while Q2 saw a boost from a large order, Q3 and Q4 are expected to return to more normal levels, with smaller orders and delays being observed [101][102] Question: Impact of new GMP facility on business - Management expressed confidence that the new facility will attract both large and small customers, enhancing the company's ability to meet diverse needs [82][96]

Filing Information This section provides the basic filing and cautionary information for Alpha Teknova, Inc.'s Form 10-Q [Report Details](index=1&type=section&id=Report%20Details) Alpha Teknova, Inc.'s Form 10-Q provides basic filing information, registration details, and filer status - The registrant is Alpha Teknova, Inc., a Delaware corporation, with its **common stock** traded on The Nasdaq Stock Market LLC under the symbol TKNO[2](index=2&type=chunk)[3](index=3&type=chunk) Filer Status | Status | Indication | | :------------------------ | :--------- | | Large accelerated filer | ☐ | | Accelerated filer | ☐ | | Non-accelerated filer | ☒ | | Smaller reporting company | ☒ | | Emerging growth company | ☒ | - As of August 9, 2023, the company had **28,341,302** shares of **common stock outstanding**[4](index=4&type=chunk) [Cautionary Note Regarding Forward-Looking Statements](index=2&type=section&id=CAUTIONARY%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) The Form 10-Q highlights forward-looking statements subject to substantial risks, with actual results potentially differing - The report contains forward-looking statements regarding financial condition, **results of operations**, plans, objectives, future performance, and business, identifiable by words like 'may,' 'will,' 'expects,' 'plans,' 'anticipates,' and 'potential'[5](index=5&type=chunk) - Key risks include the company's history of **losses** and ability to continue as a **going concern**, ability to meet guidance, future financial performance, expansion capabilities, liquidity, legal proceedings, and the impact of global economic conditions and competition[6](index=6&type=chunk)[11](index=11&type=chunk) - The outcome of these forward-looking statements is subject to risks, uncertainties, assumptions, and other factors detailed in the 'Risk Factors' section of the Annual Report on Form 10-K and this 10-Q[8](index=8&type=chunk) PART I. FINANCIAL INFORMATION This part presents Alpha Teknova, Inc.'s unaudited condensed financial statements and management's analysis [Item 1. Condensed Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Condensed%20Financial%20Statements%20(Unaudited)) Alpha Teknova, Inc.'s unaudited condensed financial statements for Q2 2023 and 2022 present key financial positions [Condensed Statements of Operations (Unaudited)](index=5&type=section&id=Condensed%20Statements%20of%20Operations%20(Unaudited)%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030,%202023%20and%202022) Condensed Statements of Operations present key financial figures Condensed Statements of Operations (Unaudited) - Three Months Ended June 30 | Metric (in thousands) | 2023 | 2022 | Change ($) | Change (%) | | :-------------------- | :--- | :--- | :--------- | :--------- | | Revenue | $11,527 | $11,690 | $(163) | -1.4% | | Cost of sales | $6,461 | $6,443 | $18 | 0.3% | | Gross profit | $5,066 | $5,247 | $(181) | -3.4% | | Total operating expenses | $12,063 | $11,873 | $190 | 1.6% | | Loss from operations | $(6,997) | $(6,626) | $(371) | 5.6% | | Net loss | $(7,154) | $(6,203) | $(951) | 15.3% | | Net loss per share | $(0.25) | $(0.22) | $(0.03) | 13.6% | Condensed Statements of Operations (Unaudited) - Six Months Ended June 30 | Metric (in thousands) | 2023 | 2022 | Change ($) | Change (%) | | :-------------------- | :--- | :--- | :--------- | :--------- | | Revenue | $20,648 | $22,837 | $(2,189) | -9.6% | | Cost of sales | $13,159 | $12,241 | $918 | 7.5% | | Gross profit | $7,489 | $10,596 | $(3,107) | -29.3% | | Total operating expenses | $23,432 | $23,065 | $367 | 1.6% | | Loss from operations | $(15,943) | $(12,469) | $(3,474) | 27.9% | | Net loss | $(15,971) | $(11,700) | $(4,271) | 36.5% | | Net loss per share | $(0.57) | $(0.42) | $(0.15) | 35.7% | [Condensed Balance Sheets (Unaudited)](index=6&type=section&id=Condensed%20Balance%20Sheets%20(Unaudited)%20at%20June%2030,%202023%20and%20December%2031,%202022) Condensed Balance Sheets present key financial figures Condensed Balance Sheets (Unaudited) - Key Figures (in thousands) | Item | June 30, 2023 | December 31, 2022 | Change ($) | Change (%) | | :-------------------------------- | :------------ | :---------------- | :--------- | :--------- | | Cash and cash equivalents | $23,710 | $42,236 | $(18,526) | -43.9% | | Total current assets | $43,113 | $61,140 | $(18,027) | -29.5% | | Total assets | $132,548 | $152,261 | $(19,713) | -13.0% | | Current debt, net | $22,162 | $0 | $22,162 | N/A | | Total current liabilities | $28,652 | $10,875 | $17,777 | 163.5% | | Total liabilities | $46,340 | $52,376 | $(6,036) | -11.5% | | Total stockholders' equity | $86,208 | $99,885 | $(13,677) | -13.7% | [Condensed Statements of Stockholders' Equity (Unaudited)](index=7&type=section&id=Condensed%20Statements%20of%20Stockholders'%20Equity%20(Unaudited)%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030,%202023%20and%202022) Condensed Statements of Stockholders' Equity present key financial figures Changes in Stockholders' Equity (in thousands) - Three Months Ended June 30, 2023 | Item | Additional Paid-in Capital | Accumulated Deficit | Stockholders' Equity | | :------------------------------------ | :------------------------- | :------------------ | :------------------- | | Balance at April 1, 2023 | $155,910 | $(63,823) | $92,087 | | Stock-based compensation | $1,070 | — | $1,070 | | Issuance of common stock (options/ESPP) | $205 | — | $205 | | Net loss | — | $(7,154) | $(7,154) | | Balance at June 30, 2023 | $157,185 | $(70,977) | $86,208 | Changes in Stockholders' Equity (in thousands) - Six Months Ended June 30, 2023 | Item | Additional Paid-in Capital | Accumulated Deficit | Stockholders' Equity | | :------------------------------------ | :------------------------- | :------------------ | :------------------- | | Balance at January 1, 2023 | $154,891 | $(55,006) | $99,885 | | Stock-based compensation | $2,080 | — | $2,080 | | Issuance of common stock (options/ESPP) | $214 | — | $214 | | Net loss | — | $(15,971) | $(15,971) |\ | Balance at June 30, 2023 | $157,185 | $(70,977) | $86,208 | [Condensed Statements of Cash Flows (Unaudited)](index=9&type=section&id=Condensed%20Statements%20of%20Cash%20Flows%20(Unaudited)%20for%20the%20Six%20Months%20Ended%20June%2030,%202023%20and%202022) Condensed Statements of Cash Flows present key financial figures Condensed Statements of Cash Flows (Unaudited) - Six Months Ended June 30 (in thousands) | Activity | 2023 | 2022 | Change ($) | | :------------------------------------ | :----- | :----- | :--------- | | Net cash used in operating activities | $(11,540) | $(11,039) | $(501) | | Net cash used in investing activities | $(6,650) | $(16,837) | $10,187 | | Net cash (used in) provided by financing activities | $(205) | $5,092 | $(5,297) | | Net decrease in cash and cash equivalents | $(18,395) | $(22,784) | $4,389 | | Cash, cash equivalents, and restricted cash at end of period | $23,841 | $64,734 | $(40,893) | [Notes to Unaudited Condensed Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Condensed%20Financial%20Statements) This section provides detailed notes to the unaudited condensed financial statements [Note 1. Nature of the Business](index=10&type=section&id=Note%201.%20Nature%20of%20the%20Business) Note 1 outlines Alpha Teknova, Inc.'s business as a producer of critical reagents for life sciences - **Alpha Teknova, Inc.** produces critical reagents for discovery, development, and commercialization of novel therapies, vaccines, and molecular diagnostics[29](index=29&type=chunk) - Product offerings include pre-poured media plates, liquid cell culture media and supplements, and molecular biology reagents[29](index=29&type=chunk) - The company serves life sciences markets, including pharmaceutical, biotechnology, CDMOs, in vitro diagnostics, and academic/government research institutions, offering both catalog and custom products[29](index=29&type=chunk) [Note 2. Basis of Presentation and Summary of Significant Accounting Policies](index=10&type=section&id=Note%202.%20Basis%20of%20Presentation%20and%20Summary%20of%20Significant%20Accounting%20Policies) Note 2 details the basis of presentation and summary of significant accounting policies - The unaudited condensed financial statements are prepared in accordance with U.S. GAAP and SEC interim reporting rules, consistent with the 2022 annual financial statements[31](index=31&type=chunk)[32](index=32&type=chunk) - Management's assessment indicates **substantial doubt** about the Company's ability to continue as a **going concern** for the next twelve months due to limited capital resources, **net losses** (**$7.2 million** for Q2, **$16.0 million** for YTD), **accumulated deficit** (**$71.0 million**), and outstanding borrowings (**$22.1 million**)[35](index=35&type=chunk)[36](index=36&type=chunk) - The company implemented a **workforce reduction** of approximately **40 positions** on February 1, 2023, incurring **$0.7 million** in severance and termination benefits, recorded in general and administrative expenses[40](index=40&type=chunk) - An At-the-Market (ATM) Facility was established on March 30, 2023, with Cowen and Company, LLC, allowing the company to sell up to **$50.0 million** in **common stock**[41](index=41&type=chunk) Cash, Cash Equivalents, and Restricted Cash (in thousands) | Item | June 30, 2023 | December 31, 2022 | | :------------------------------------ | :------------ | :---------------- | | Cash and cash equivalents | $23,710 | $42,236 | | Restricted cash included in other current assets | $131 | — | | Total cash, cash equivalents, and restricted cash | $23,841 | $42,236 | [Note 3. Revenue Recognition](index=12&type=section&id=Note%203.%20Revenue%20Recognition) Note 3 details revenue recognition policies and revenue by product category and geographic region - **Revenue** is recognized when control of promised goods or services is transferred to customers, typically at a point in time upon shipment[45](index=45&type=chunk) Revenue by Product Category (in thousands) | Product Category | Q2 2023 | Q2 2022 | YTD 2023 | YTD 2022 | | :--------------- | :------ | :------ | :------- | :------- | | Lab Essentials | $7,581 | $8,393 | $14,838 | $15,368 | | Clinical Solutions | $3,653 | $2,943 | $5,262 | $6,755 | | Other | $293 | $354 | $548 | $714 | | **Total Revenue** | **$11,527** | **$11,690** | **$20,648** | **$22,837** | Revenue by Geographic Region (in thousands) | Geographic Region | Q2 2023 | Q2 2022 | YTD 2023 | YTD 2022 | | :---------------- | :------ | :------ | :------- | :------- | | United States | $11,075 | $11,285 | $19,801 | $22,105 | | International | $452 | $405 | $847 | $732 | | **Total Revenue** | **$11,527** | **$11,690** | **$20,648** | **$22,837** | [Note 4. Concentrations of Risk](index=12&type=section&id=Note%204.%20Concentrations%20of%20Risk) Note 4 details customer and supplier concentrations of risk Customer Concentrations (Revenue %) | Customer | Q2 2023 | Q2 2022 | YTD 2023 | YTD 2022 | AR June 30, 2023 | AR Dec 31, 2022 | | :--------------- | :------ | :------ | :------- | :------- | :--------------- | :-------------- | | Distributor B | **16%** | **14%** | **17%** | **13%** | **17%** | **17%** | | Direct Customer A | **24%** | <10% | **13%** | <10% | **26%** | <10% | Supplier Concentrations (Inventory Purchases %) | Supplier | Q2 2023 | Q2 2022 | YTD 2023 | YTD 2022 | AP June 30, 2023 | AP Dec 31, 2022 | | :--------------- | :------ | :------ | :------- | :------- | :--------------- | :-------------- | | Distributor A | **37%** | **39%** | **37%** | **35%** | **15%** | **11%** | | Direct Supplier A | **14%** | <10% | **12%** | **12%** | <10% | <10% | | Direct Supplier C | **13%** | <10% | <10% | <10% | <10% | <10% | | Direct Supplier D | **11%** | <10% | <10% | <10% | <10% | <10% | [Note 5. Inventories, Net](index=13&type=section&id=Note%205.%20Inventories,%20Net) Note 5 details the composition of inventories, net Inventories, Net (in thousands) | Inventory Type | June 30, 2023 | December 31, 2022 | | :------------- | :------------ | :---------------- | | Finished goods, net | $8,344 | $8,368 | | Work in process | $108 | $186 | | Raw materials, net | $3,566 | $3,693 | | **Total inventories, net** | **$12,018** | **$12,247** | [Note 6. Property, Plant, and Equipment, Net](index=13&type=section&id=Note%206.%20Property,%20Plant,%20and%20Equipment,%20Net) Note 6 details property, plant, and equipment, net, including depreciation and impairment Property, Plant, and Equipment, Net (in thousands) | Asset Category | June 30, 2023 | December 31, 2022 | | :--------------- | :------------ | :---------------- | | Machinery and equipment | $18,211 | $19,433 | | Office furniture and equipment | $739 | $628 | | Vehicles | $292 | $229 | | Leasehold improvements | $12,865 | $12,093 | | Less—Accumulated depreciation | $(5,406) | $(4,520) | | Construction in progress | $26,160 | $23,714 | | **Total property, plant, and equipment, net** | **$52,861** | **$51,577** | - **Depreciation expense** was **$1.0 million** for Q2 2023 (vs **$0.5 million** in Q2 2022) and **$1.9 million** for YTD 2023 (vs **$1.0 million** in YTD 2022)[53](index=53&type=chunk) - The company recorded a **$2.2 million impairment charge** related to certain long-lived assets for the three and six months ended June 30, 2023, due to changes in market price, continued **losses**, and expected early disposal[55](index=55&type=chunk) [Note 7. Leases](index=13&type=section&id=Note%207.%20Leases) Note 7 details the company's operating leases and related expenses - The company leases office, warehouse, manufacturing space, and equipment with remaining lease terms of one to **14 years**, all classified as **operating leases**[56](index=56&type=chunk)[57](index=57&type=chunk) - **Operating lease expense** was **$0.7 million** for Q2 2023 (vs **$0.8 million** in Q2 2022) and **$1.5 million** for YTD 2023 (vs **$1.6 million** in YTD 2022)[58](index=58&type=chunk) Maturities of Operating Lease Liabilities at June 30, 2023 (in thousands) | Period | Amount | | :--------------- | :----- | | Remainder of 2023 | $1,293 | | 2024 | $2,601 | | 2025 | $2,354 | | 2026 | $2,413 | | 2027 | $2,416 | | Thereafter | $11,917 | | **Total lease payments** | **$22,994** | | Less: imputed interest | $(4,921) | | **Present value of lease liabilities** | **$18,073** | [Note 8. Intangible Assets, Net](index=14&type=section&id=Note%208.%20Intangible%20Assets,%20Net) Note 8 details intangible assets, net, including customer relationships and tradename Intangible Assets, Net (in thousands) | Asset Type | Gross (June 30, 2023) | Accumulated Amortization (June 30, 2023) | Net (June 30, 2023) | Net (Dec 31, 2022) | | :-------------------- | :-------------------- | :--------------------------------------- | :------------------ | :----------------- | | Customer relationships | $9,180 | $5,116 | $4,064 | $4,637 | | Tradename | $12,919 | — | $12,919 | $12,919 | | **Total intangible assets** | **$22,099** | **$5,116** | **$16,983** | **$17,556** | - **Amortization expense** was **$0.3 million** for Q2 2023 and Q2 2022, and **$0.6 million** for YTD 2023 and YTD 2022[60](index=60&type=chunk) - The remaining weighted-average useful life of definite-lived **intangible assets** (**customer relationships**) was **3.5 years** as of June 30, 2023[61](index=61&type=chunk) [Note 9. Accrued Liabilities](index=15&type=section&id=Note%209.%20Accrued%20Liabilities) Note 9 details the composition of accrued liabilities Accrued Liabilities (in thousands) | Item | June 30, 2023 | December 31, 2022 | | :-------------------- | :------------ | :---------------- | | Payroll-related | $2,321 | $2,796 | | Property, plant, and equipment | $655 | $1,966 | | Deferred revenue | $36 | $198 | | Other | $646 | $1,243 | | **Total current accrued liabilities** | **$3,658** | **$6,203** | [Note 10. Debt, Net](index=15&type=section&id=Note%2010.%20Debt,%20Net) Note 10 details the company's debt, net, including credit facility terms and covenant compliance - The company has a **$57.135 million credit facility** with MidCap Financial Trust, consisting of a **$52.135 million Term Loan** and a **$5.0 million Revolver**[63](index=63&type=chunk)[64](index=64&type=chunk) - Interest rates for the **Term Loan** and **Revolver** are based on Term SOFR plus applicable margins (**7.00%** and **4.00%** respectively), with a Term SOFR floor of **4.50%** as per Amendment No. 2[68](index=68&type=chunk) - The company was in compliance with financial covenants as of June 30, 2023, but determined it was in **non-compliance** with the trailing twelve months minimum **net revenue** covenant as of July 31, 2023, making it unlikely to comply for the remainder of 2023[70](index=70&type=chunk) - **Non-compliance** with the **revenue** covenant constitutes an **event of default**, giving the lender the right to **accelerate debt repayment** of the outstanding **Term Loan** balance, leading to reclassification of long-term **debt** to current[70](index=70&type=chunk) Debt, Net (in thousands) | Item | June 30, 2023 | December 31, 2022 | | :------------------------------------ | :------------ | :---------------- | | Debt | $22,135 | $22,135 | | Cumulative accretion of exit fee | $335 | $161 | | Unamortized debt discount and debt issuance costs | $(308) | $(320) | | **Debt, net** | **$22,162** | **$21,976** | [Note 11. Stock-Based Compensation](index=16&type=section&id=Note%2011.%20Stock-Based%20Compensation) Note 11 details the company's stock-based compensation plans and related expenses - The company maintains equity incentive plans (**stock options**, **restricted stock units**) and an **Employee Stock Purchase Plan** (ESPP) with various vesting schedules[72](index=72&type=chunk)[76](index=76&type=chunk) Stock Option Activity - Six Months Ended June 30, 2023 (in thousands, except per share data) | Item | Number of Shares | Weighted Average Exercise Price per Share | | :-------------------------- | :--------------- | :-------------------------------------- | | Outstanding at January 1, 2023 | 3,846,532 | $7.02 | | Granted | 548,152 | $5.37 | | Exercised | (51,774) | $1.47 | | Forfeited | (181,786) | $10.33 | | Expired | (29,701) | $16.14 | | Outstanding at June 30, 2023 | 4,131,423 | $6.66 | Stock-Based Compensation Expense (in thousands) | Expense Category | Q2 2023 | Q2 2022 | YTD 2023 | YTD 2022 | | :-------------------- | :------ | :------ | :------- | :------- | | Cost of sales | $40 | $44 | $76 | $63 |\ | Research and development | $40 | $48 | $77 | $113 | | Sales and marketing | $172 | $126 | $324 | $225 | | General and administrative | $818 | $716 | $1,603 | $1,320 | | **Total stock-based compensation expense** | **$1,070** | **$934** | **$2,080** | **$1,721** | - **Unrecognized compensation expense** for **stock options** was **$8.7 million** at June 30, 2023, expected to be recognized over **3.02 years**[77](index=77&type=chunk) [Note 12. Income Taxes](index=18&type=section&id=Note%2012.%20Income%20Taxes) Note 12 details the company's income tax provision and effective tax rates - For Q2 2023, the company recorded an insignificant **provision for income taxes** (**$15 thousand**) compared to a **$0.4 million benefit** in Q2 2022, with **effective tax rates** of **0.2%** and **6.0%** respectively[81](index=81&type=chunk) - For YTD 2023, the **benefit from income taxes** was insignificant (**$-3 thousand**) compared to a **$0.8 million benefit** in YTD 2022, with **effective tax rates** of **0.0%** and **6.1%** respectively[82](index=82&type=chunk) - The **effective tax rates** differ from the federal statutory rate primarily due to **operating losses** not expected to produce a benefit[81](index=81&type=chunk)[82](index=82&type=chunk) [Note 13. Net Loss Per Share](index=18&type=section&id=Note%2013.%20Net%20Loss%20Per%20Share) Note 13 details the calculation of net loss per share, both basic and diluted Net Loss Per Share - Basic and Diluted | Metric | Q2 2023 | Q2 2022 | YTD 2023 | YTD 2022 | | :------------------------------------ | :------ | :------ | :------- | :------- | | Net loss (in thousands) | $(7,154) | $(6,203) | $(15,971) | $(11,700) | | Weighted average shares (in thousands) | 28,272 | 28,058 | 28,227 | 28,044 | | **Net loss per share** | **$(0.25)** | **$(0.22)** | **$(0.57)** | **$(0.42)** | - **Stock options**, **restricted stock units**, and employee stock purchase rights were excluded from diluted EPS calculation as their effect was **anti-dilutive** for all periods presented[83](index=83&type=chunk) [Note 14. Related Parties](index=18&type=section&id=Note%2014.%20Related%20Parties) Note 14 identifies related parties and transactions - Meeches LLC, controlled by founders Ted and Irene Davis, is identified as a related party[85](index=85&type=chunk) - The company terminated its Mansfield lease with Meeches on May 16, 2023, and entered into an escrow agreement with the new property owner for early termination consideration[86](index=86&type=chunk) [Note 15. Subsequent Events](index=19&type=section&id=Note%2015.%20Subsequent%20Events) Note 15 details subsequent events, including credit agreement amendments and financing agreements - On July 13, 2023, the company entered into Amendment No. 3 to the **Credit Agreement**, increasing the Permitted Debt definition to **$1.1 million** to allow for D&O liability insurance financing[87](index=87&type=chunk) - A financing agreement for D&O liability insurance was also entered into on July 13, 2023, for **$1.2 million** in premiums, taxes, and fees, plus **7.74%** annual interest, payable in ten monthly installments[88](index=88&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Alpha Teknova's financial condition and operational results for Q2 2023, including business and liquidity [Overview](index=20&type=section&id=Overview) This section provides an overview of Alpha Teknova's business and operations - **Alpha Teknova** produces critical reagents for novel therapies, vaccines, and molecular diagnostics, serving over **3,000** customers in the life sciences market[92](index=92&type=chunk) - The company's proprietary manufacturing processes enable high-quality, custom, made-to-order products with short turnaround times across all stages of customer product development[92](index=92&type=chunk) - **Revenue** for Q2 2023 was **$11.5 million** (down **$0.2 million** YoY) and for YTD 2023 was **$20.6 million** (down **$2.2 million** YoY); **operating losses** were **$7.0 million** for Q2 2023 and **$15.9 million** for YTD 2023[96](index=96&type=chunk)[97](index=97&type=chunk) [Impact of Broader Economic Trends on Our Business](index=21&type=section&id=Impact%20of%20Broader%20Economic%20Trends%20on%20Our%20Business) This section analyzes the impact of broader economic trends on the company's business - General inflation and rising interest rates negatively impact the business by increasing **cost of sales** and **operating expenses**[98](index=98&type=chunk) - These economic factors may cause customers to reduce, delay, or cancel orders, affecting sales timing and volume[98](index=98&type=chunk) [Results of Operations](index=21&type=section&id=Results%20of%20Operations) This section compares Alpha Teknova's operational results for the reported periods [Comparison of the Three Months Ended June 30, 2023 and Three Months Ended June 30, 2022](index=21&type=section&id=Comparison%20of%20the%20Three%20Months%20Ended%20June%2030,%202023%20and%20Three%20Months%20Ended%20June%2030,%202022) This section compares financial performance for the three months ended June 30, 2023 and 2022 Revenue by Product Category (Q2 YoY Change, in thousands) | Product Category | 2023 | 2022 | $ Change | % Change | | :--------------- | :--- | :--- | :------- | :------- | | Lab Essentials | $7,581 | $8,393 | $(812) | -9.7% | | Clinical Solutions | $3,653 | $2,943 | $710 | 24.1% | | Other | $293 | $354 | $(61) | -17.2% | | **Total Revenue** | **$11,527** | **$11,690** | **$(163)** | **-1.4%** | - **Gross profit percentage** decreased to **43.9%** in Q2 2023 from **44.9%** in Q2 2022, primarily due to increased overhead costs, partially offset by a higher percentage of **Clinical Solutions revenue**[104](index=104&type=chunk) Operating Expenses (Q2 YoY Change, in thousands) | Expense Category | 2023 | 2022 | $ Change | % Change | | :-------------------- | :--- | :--- | :------- | :------- | | Research and development | $1,464 | $1,929 | $(465) | -24.1% | | Sales and marketing | $2,174 | $2,598 | $(424) | -16.3% | | General and administrative | $5,943 | $7,059 | $(1,116) | -15.8% | | Long-lived assets impairment | $2,195 | — | $2,195 | 100.0% | | **Total operating expenses** | **$12,063** | **$11,873** | **$190** | **1.6%** | - **Interest expense, net**, increased significantly to **$(308) thousand** in Q2 2023 from **$28 thousand** in Q2 2022, driven by increased **debt** and higher interest rates[109](index=109&type=chunk) [Comparison of the Six Months Ended June 30, 2023 and Six Months Ended June 30, 2022](index=24&type=section&id=Comparison%20of%20the%20Six%20Months%20Ended%20June%2030,%202023%20and%20Six%20Months%20Ended%20June%2030,%202022) This section compares financial performance for the six months ended June 30, 2023 and 2022 Revenue by Product Category (YTD YoY Change, in thousands) | Product Category | 2023 | 2022 | $ Change | % Change | | :--------------- | :--- | :--- | :------- | :------- | | Lab Essentials | $14,838 | $15,368 | $(530) | -3.4% | | Clinical Solutions | $5,262 | $6,755 | $(1,493) | -22.1% | | Other | $548 | $714 | $(166) | -23.2% | | **Total Revenue** | **$20,648** | **$22,837** | **$(2,189)** | **-9.6%** | - **Gross profit percentage** decreased to **36.3%** in YTD 2023 from **46.4%** in YTD 2022, primarily due to increased overhead costs and lower absorption of fixed manufacturing costs[117](index=117&type=chunk) Operating Expenses (YTD YoY Change, in thousands) | Expense Category | 2023 | 2022 | $ Change | % Change | | :-------------------- | :--- | :--- | :------- | :------- | | Research and development | $2,859 | $3,942 | $(1,083) | -27.5% | | Sales and marketing | $4,517 | $4,195 | $322 | 7.7% | | General and administrative | $13,288 | $14,354 | $(1,066) | -7.4% | | Long-lived assets impairment | $2,195 | — | $2,195 | 100.0% | | **Total operating expenses** | **$23,432** | **$23,065** | **$367** | **1.6%** | - **Interest expense, net**, increased to **$(215) thousand** in YTD 2023 from **$15 thousand** in YTD 2022, primarily due to increased **debt** and higher interest rates[123](index=123&type=chunk) [Liquidity and Capital Resources](index=26&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses Alpha Teknova's liquidity and capital resources - The company's primary source of financing is its June 2021 IPO, which generated **$99.1 million** in net proceeds[125](index=125&type=chunk) - As of June 30, 2023, the company has **limited capital resources**, incurred **net losses** of **$7.2 million** (Q2) and **$16.0 million** (YTD), and has an **accumulated deficit** of **$71.0 million**, raising **substantial doubt** about its ability to continue as a **going concern**[127](index=127&type=chunk) - The company was in **non-compliance** with the trailing twelve months minimum **net revenue** covenant as of July 31, 2023, which constitutes an **event of default** under the Amended **Credit Agreement** and could lead to **accelerate debt repayment**[129](index=129&type=chunk) Net Cash Flows (in thousands) - Six Months Ended June 30 | Activity | 2023 | 2022 | | :------------------------------------ | :----- | :----- | | Net cash used in operating activities | $(11,540) | $(11,039) | | Net cash used in investing activities | $(6,650) | $(16,837) | | Net cash (used in) provided by financing activities | $(205) | $5,092 | | **Net decrease in cash and cash equivalents** | **$(18,395)** | **$(22,784)** | [Critical Accounting Policies and Estimates](index=28&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section outlines Alpha Teknova's critical accounting policies and estimates - There have been no **material changes** to the company's critical accounting estimates since its 2022 Annual Report on Form 10-K[141](index=141&type=chunk) [Emerging Growth Company and Smaller Reporting Company](index=28&type=section&id=Emerging%20Growth%20Company%20and%20Smaller%20Reporting%20Company) This section describes Alpha Teknova's status as an emerging growth and smaller reporting company - The company qualifies as an 'emerging growth company' under the JOBS Act, allowing exemptions from certain reporting requirements, including reduced financial data, auditor attestation, and executive compensation disclosures[142](index=142&type=chunk)[143](index=143&type=chunk) - The company has elected to delay adopting new or revised accounting standards until they apply to private companies[142](index=142&type=chunk) - The company is also a 'smaller reporting company,' which provides scaled disclosures until certain market value and **revenue** thresholds are met[145](index=145&type=chunk) [Recent Accounting Pronouncements](index=29&type=section&id=Recent%20Accounting%20Pronouncements) This section details recent accounting pronouncements relevant to the company - A description of recent accounting pronouncements is disclosed in Note 2, Basis of Presentation and Summary of Significant Accounting Policies, to the condensed financial statements[146](index=146&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=29&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Alpha Teknova, Inc. is not required to provide market risk disclosures - The company is a smaller reporting company and is **not required** to provide information on market risk[147](index=147&type=chunk) [Item 4. Controls and Procedures](index=29&type=section&id=Item%204.%20Controls%20and%20Procedures) Evaluation of Alpha Teknova's disclosure controls identified a material weakness in income tax accounting, with a remediation plan [Evaluation of Disclosure Controls and Procedures](index=29&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section evaluates the effectiveness of Alpha Teknova's disclosure controls and procedures - Management concluded that **disclosure controls and procedures** were **not effective** as of June 30, 2023, due to a previously disclosed **material weakness** in **internal control over financial reporting**[148](index=148&type=chunk) [Material Weakness in Internal Control Over Financial Reporting](index=29&type=section&id=Material%20Weakness%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section addresses the identified material weakness in internal control over financial reporting - A **material weakness** was identified in accounting for income taxes due to errors and insufficient tax resources commensurate with the complexity of the process, which remained unremediated as of June 30, 2023[149](index=149&type=chunk) [Management's Plan to Remediate the Material Weakness](index=29&type=section&id=Management's%20Plan%20to%20Remediate%20the%20Material%20Weakness) This section outlines management's plan to remediate the material weakness - Management is taking measures to remediate the **material weakness** by engaging accounting personnel/consultants with specific income tax accounting experience and implementing additional controls and procedures[150](index=150&type=chunk) [Changes in Internal Control Over Financial Reporting](index=29&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section reports on changes in internal control over financial reporting - There were no changes in **internal control over financial reporting** during the quarter ended June 30, 2023, that materially affected or are reasonably likely to materially affect **internal control over financial reporting**[151](index=151&type=chunk) [Limitations on Effectiveness of Controls and Procedures](index=29&type=section&id=Limitations%20on%20Effectiveness%20of%20Controls%20and%20Procedures) This section discusses inherent limitations on the effectiveness of controls and procedures - Management acknowledges that controls and procedures, regardless of design, can only provide reasonable assurance of achieving control objectives due to resource constraints and the need for judgment[152](index=152&type=chunk) PART II. OTHER INFORMATION This part covers legal proceedings, risk factors, equity sales, and other required disclosures [Item 1. Legal Proceedings](index=31&type=section&id=Item%201.%20Legal%20Proceedings) Alpha Teknova, Inc. is not a party to material legal proceedings, but acknowledges litigation's unpredictable and costly nature - The company is **not a party** to any **material legal proceedings** at this time[155](index=155&type=chunk) - **Legal proceedings** are inherently unpredictable and expensive, potentially leading to monetary damages or operational limits if determined adversely[155](index=155&type=chunk) [Item 1A. Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) Updated risk factors highlight substantial doubt about Alpha Teknova's going concern status due to capital and debt issues - The company has identified conditions that raise **substantial doubt** about its ability to continue as a **going concern**, including **insufficient capital resources** to meet obligations over the next twelve months[158](index=158&type=chunk)[159](index=159&type=chunk) - **Non-compliance** with the minimum **net revenue** covenant as of July 31, 2023, constitutes an **event of default** under the Amended **Credit Agreement**, potentially allowing lenders to **accelerate debt repayment**[160](index=160&type=chunk)[162](index=162&type=chunk) - The company has incurred significant **operating losses** in the past and may continue to do so, with **net losses** of **$7.2 million** (Q2 2023) and **$16.0 million** (YTD 2023)[163](index=163&type=chunk)[164](index=164&type=chunk) - Sales of a **substantial number** of outstanding **common stock** shares, particularly by affiliates, could significantly reduce the market price of the stock[165](index=165&type=chunk)[167](index=167&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=34&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Alpha Teknova, Inc. reports no unregistered equity sales, with IPO proceeds use consistent with prior disclosures - There were no unregistered sales of equity securities[170](index=170&type=chunk) - The planned use of proceeds from the IPO has no **material changes** from previous disclosures[171](index=171&type=chunk) [Item 3. Defaults Upon Senior Securities](index=34&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) Alpha Teknova, Inc. reports no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[173](index=173&type=chunk) [Item 4. Mine Safety Disclosures](index=34&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to Alpha Teknova, Inc - This item is **not applicable** to the company[174](index=174&type=chunk) [Item 5. Other Information](index=34&type=section&id=Item%205.%20Other%20Information) Alpha Teknova, Inc. reports no other information required under this item - There is no other information to report under this item[175](index=175&type=chunk) [Item 6. Exhibits](index=34&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including corporate governance and credit agreements - The exhibits include the Amended and Restated Certificate of Incorporation and Bylaws, Form of **Common Stock** Certificate, Investors' Rights Agreement, Amendment No. 3 to the Amended and Restated **Credit and Security Agreement** (**Term Loan** and **Revolving Loan**), Amended **Alpha Teknova, Inc.** 2021 **Employee Stock Purchase Plan**, and various certifications[176](index=176&type=chunk) Signatures The Form 10-Q report is signed by Alpha Teknova Inc.'s CEO and CFO on August 11, 2023 [Signatures](index=36&type=section&id=Signatures) The Form 10-Q report is signed by Alpha Teknova Inc.'s CEO and CFO on August 11, 2023 - The report was signed by Stephen Gunstream, President and Chief Executive Officer, and Matthew Lowell, Chief Financial Officer, on August 11, 2023[181](index=181&type=chunk)

Alpha Teknova, Inc. (NASDAQ:TKNO) Q1 2023 Earnings Conference Call May 10, 2023 5:30 PM ET Company Participants Jennifer Henry - Senior Vice President of Marketing Stephen Gunstream - President & Chief Executive Officer Matthew Lowell - Chief Financial Officer Conference Call Participants Jacob Johnson - Stephens Madeline Mollman - William Blair Steven Mah - TD Cowen Operator Good day, and welcome to the Teknova First Quarter 2023 Financial Results Call. [Operator Instructions] Please be advised that today' ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-40538 ALPHA TEKNOVA, INC. (Exact name of registrant as specified in its charter) Delaware 94-3368109 (State or other jurisdiction ...

PART I [Item 1. Business](index=7&type=section&id=Item%201.%20Business) Alpha Teknova produces critical reagents for life sciences, specializing in custom, high-quality products for pharmaceutical, biotech, and research sectors, with key offerings in Lab Essentials and Clinical Solutions - Alpha Teknova is a leading producer of critical reagents for research, discovery, development, and commercialization of novel therapies, vaccines, and molecular diagnostics, serving over **3,000 active customers**[20](index=20&type=chunk) - The company's proprietary manufacturing processes enable the production and delivery of high-quality, custom, made-to-order products with **short turnaround times** and at scale[20](index=20&type=chunk)[21](index=21&type=chunk) - Achieved an annual customer retention rate of approximately **96%** for customers purchasing over **$10,000 annually** in 2022, representing about **90% of average annual revenue**[24](index=24&type=chunk) [Overview](index=7&type=section&id=Overview) The company excels in rapid custom formulation manufacturing, offering diverse product types across high-growth market segments like cell and gene therapy - Alpha Teknova specializes in manufacturing customer-specified formulations, capable of moving new custom products into production within weeks, significantly faster than traditional suppliers[21](index=21&type=chunk) - The company offers three primary product types: pre-poured media plates, liquid cell culture media and supplements, and molecular biology reagents, supporting customers from discovery to commercialization[22](index=22&type=chunk) - The company participates in high-growth market segments such as cell and gene therapy, mRNA vaccines, synthetic biology, and molecular diagnostics and genomics[25](index=25&type=chunk)[26](index=26&type=chunk) [Our Portfolio](index=8&type=section&id=Our%20Portfolio) The portfolio includes Lab Essentials and Clinical Solutions, offering pre-poured media, cell culture media, and molecular biology reagents [Product Categories](index=8&type=section&id=Product%20Categories) Product categories include Lab Essentials and Clinical Solutions, with Sample Transport production ceased due to market changes Product Categories Revenue Contribution | Product Category | 2022 Revenue Contribution | Description | | :--------------- | :------------------------ | :---------- | | Lab Essentials | ~77% of total revenue | Highly complex chemical formulations for biological research and drug discovery, including catalog and customer-specified solutions | | Clinical Solutions | ~20% of total revenue | Custom products used in the production of protein therapies, gene therapies, mRNA vaccines, and diagnostic kits, enabled by ISO 13485:2016 certification | | Sample Transport | Insignificant | Ceased production in 2021 due to declining COVID-19 testing demand and increased market supply | [Product Types](index=9&type=section&id=Product%20Types) Primary product types are pre-poured media plates, liquid cell culture media, and molecular biology reagents, crucial for biopharmaceutical development - The three primary product types are pre-poured media plates (Lab Essentials only), liquid cell culture media and supplements, and molecular biology reagents, all used across biopharmaceutical and diagnostic development[33](index=33&type=chunk)[35](index=35&type=chunk)[37](index=37&type=chunk)[39](index=39&type=chunk) - Cell culture media and supplements are critical for expanding cells in controlled conditions and are key inputs for mRNA vaccine and cell/gene therapy production[37](index=37&type=chunk) - Molecular biology reagents simplify biological protocols and are crucial subcomponents in diagnostic kits and manufacturing processes for various life science applications[39](index=39&type=chunk) [Competitive Strengths](index=12&type=section&id=Competitive%20Strengths) The company's strengths include custom chemical formulation expertise, high quality, rapid delivery, and strong positioning in the cell and gene therapy market - Expertise in complex, custom chemical formulation manufacturing, supported by a proprietary production system and a product database of thousands of formulations, enables rapid customization[40](index=40&type=chunk) - Quality and regulatory expertise (**ISO 13485:2016 certification**) drives deep customer relationships, as custom and GMP-grade components are often validated into customers' long-lifecycle products[42](index=42&type=chunk) - Industry-leading delivery time for custom products, with approximately **75% of custom RUO products shipped within three weeks**, and the ability to scale production volumes significantly[43](index=43&type=chunk) - Well-positioned in the evolving cell and gene therapy market as a leading provider of research and GMP-grade bacterial cell culture media and specialized chromatography solutions[46](index=46&type=chunk) [Our Markets](index=15&type=section&id=Our%20Markets) The company benefits from demand for customized products in high-growth markets like cell and gene therapy, molecular diagnostics, and genomics - The company benefits from favorable industry preferences for customized products, high quality, and short turnaround times in high-growth areas like cell and gene therapy, mRNA vaccines, and molecular diagnostics/genomics[49](index=49&type=chunk) Investment Capital in Cell and Gene Therapies | Year | Investment Capital (Billions USD) | | :--- | :------------------------------- | | 2019 | $9.8 | | 2020 | $19.9 | | 2021 | $23.1 | - The global molecular diagnostics market is estimated to grow from **$14.1 billion in 2020 to $18.0 billion by 2024**, and the global genomics market from **$23.5 billion in 2021 to $62.9 billion by 2028**, driving demand for the company's reagents[54](index=54&type=chunk) [Our Strategy](index=16&type=section&id=Our%20Strategy) Strategy focuses on increasing product integration, superior customer service, expanding R&D in high-growth segments, and selective international expansion - Strategy focuses on increasing product integration into customer workflows, providing superior customer service through operational excellence, expanding R&D and commercial scale in high-growth segments, and selectively expanding geographically[55](index=55&type=chunk)[56](index=56&type=chunk)[58](index=58&type=chunk)[60](index=60&type=chunk) Average Customer Spend by Product Type (2022) | Product Type | Average Spend (vs. Catalog) | | :----------- | :-------------------------- | | Custom Products | 18 times more | | GMP-grade Products | 156 times more | - The company aims to increase the proportion of customers purchasing custom and GMP-grade products by building lasting relationships as product development matures[55](index=55&type=chunk) - In 2022, over **96% of total revenue** was generated within the U.S., indicating substantial opportunity for international expansion, particularly in Europe[60](index=60&type=chunk) [Competition](index=17&type=section&id=Competition) The company operates in a highly competitive market against large and niche players, differentiated by custom formulations and rapid delivery - Operates in a highly competitive environment against large, well-capitalized life science companies (e.g., Thermo Fisher, Millipore, Cytiva, Lonza) and smaller niche competitors[61](index=61&type=chunk)[62](index=62&type=chunk) - Differentiated by its ability to offer customer-specified RUO and GMP formulations with short turnaround times, flexible volumes, and a strong brand reputation[62](index=62&type=chunk) [Government Regulation](index=18&type=section&id=Government%20Regulation) Products are marketed as ancillary reagents, maintaining ISO 13485:2016 certification and complying with environmental, health, and safety regulations - Products are marketed as ancillary reagents for research or further manufacturing, exempt from U.S. Federal Food, Drug and Cosmetic Act (FDCA) regulation[64](index=64&type=chunk) - Voluntarily maintains a quality system compliant with **ISO 13485:2016** standards to meet rigorous customer quality requirements, especially for 'Clinical Solutions' or 'GMP-grade' products[65](index=65&type=chunk)[66](index=66&type=chunk) - Compliance with environmental, health, and safety laws is maintained, but changes in regulations could increase costs or liabilities[68](index=68&type=chunk)[71](index=71&type=chunk) [Intellectual Property](index=19&type=section&id=Intellectual%20Property) The company primarily relies on trade secrets and contractual protections for intellectual property, not currently owning issued patents - Relies primarily on trade secrets, know-how, confidential information, and contractual protections (confidentiality and non-disclosure agreements) to safeguard intellectual property[72](index=72&type=chunk)[73](index=73&type=chunk) - Does not currently own issued patents but may pursue additional intellectual property protection in the future[74](index=74&type=chunk) [Human Capital](index=19&type=section&id=Human%20Capital) As of December 31, 2022, the company had 290 employees, none unionized, with objectives focused on recruitment, retention, and incentivization Employee Count by Organization (as of Dec 31, 2022) | Organization | Number of Employees | | :----------- | :------------------ | | Operations | 159 | | Administrative | 72 | | Sales and Marketing | 32 | | Engineering and R&D | 27 | | **Total** | **290** | - None of the employees are represented by a labor union or subject to a collective bargaining agreement[75](index=75&type=chunk) - Human capital objectives include identifying, recruiting, retaining, incentivizing, and integrating employees, with equity incentive plans used for motivation[77](index=77&type=chunk) [Facilities](index=20&type=section&id=Facilities) Headquarters and primary manufacturing are in Hollister, California, with 235,600 sq ft including clean rooms, and a warehouse in Mansfield, Massachusetts - Headquarters and primary manufacturing operations are located in Hollister, California, encompassing approximately **235,600 square feet** across eight locations[78](index=78&type=chunk) - The Hollister campus includes dedicated space for product formulation, dispensing, manufacturing, packaging, quality control, and **12,500 square feet of clean room space**[78](index=78&type=chunk) - Also leases approximately **23,400 square feet of warehouse space** in Mansfield, Massachusetts, from a company controlled by its founders[79](index=79&type=chunk) [Corporate Information](index=20&type=section&id=Corporate%20Information) Incorporated in Delaware in 2019, the company completed its IPO in June 2021, with Telegraph Hill Partners remaining the controlling stockholder - Incorporated in Delaware in **2019** as Alpha Teknova, Inc., following its founding in **1996**[81](index=81&type=chunk) - Completed its initial public offering (IPO) in **June 2021**, with common stock trading on the Nasdaq Global Market under the symbol 'TKNO'[81](index=81&type=chunk) - Telegraph Hill Partners Management Company LLC (THP) remains the controlling stockholder post-IPO[81](index=81&type=chunk) [Item 1A. Risk Factors](index=19&type=section&id=Item%201A.%20Risk%20Factors) The company faces risks including historical losses, fluctuating results, manufacturing challenges, customer dependence, intense competition, regulatory scrutiny, supply chain disruptions, and intellectual property concerns - The company has incurred net losses of **$47.5 million in 2022** and **$9.8 million in 2021**, and may incur future losses, impacting profitability[85](index=85&type=chunk) - Operating results may fluctuate significantly due to factors like changes in funding, customer demand, competition, and global economic conditions, making them difficult to predict[86](index=86&type=chunk)[87](index=87&type=chunk) - Dependence on a limited number of customers, with the largest distributor accounting for **15% and 18% of total revenue in 2022 and 2021**, respectively, poses a risk if these relationships are not maintained[113](index=113&type=chunk) - The company faces intense competition from larger, well-capitalized life science, pharmaceutical, and biotechnology companies, some of whom are also customers[115](index=115&type=chunk) [Risk Factor Summary](index=5&type=section&id=Risk%20Factor%20Summary) Investment in common stock is speculative due to operating losses, manufacturing challenges, customer dependence, competition, IP, debt, THP control, and internal control weaknesses - Summary of principal factors making an investment in common stock speculative or risky, including past and potential future operating losses, fluctuating operating results, and challenges in manufacturing capacity and efficiency[17](index=17&type=chunk)[18](index=18&type=chunk) - Highlights dependence on a limited number of customers, intense competition, and risks associated with future strategic investments, acquisitions, and marketing effectiveness[18](index=18&type=chunk) - Mentions risks related to intellectual property protection, credit agreement restrictions, control by Telegraph Hill Partners, and material weaknesses in internal control over financial reporting[19](index=19&type=chunk) [Risks Related to Our Business and Strategy](index=19&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Strategy) Business risks include potential operating losses, manufacturing scaling challenges, customer and supplier dependence, data privacy compliance, and asset impairment charges - Past operating losses and potential future losses are expected due to increased operating expenses for business growth and public company costs[85](index=85&type=chunk) - Efforts to increase manufacturing capacity and efficiency, including automation and facility expansion, could be disruptive and may not yield anticipated benefits in the expected timeframe[89](index=89&type=chunk)[90](index=90&type=chunk) - The business is highly dependent on customer spending and demand, which can be adversely affected by economic conditions, funding changes, and customer product success[105](index=105&type=chunk)[107](index=107&type=chunk)[108](index=108&type=chunk) - Reliance on a stable and adequate supply of quality raw materials from a limited number of suppliers (**63% of purchases from three suppliers in 2022**) creates supply chain risk[125](index=125&type=chunk) - Subject to stringent and evolving data privacy and information security laws (e.g., CCPA, CPRA), with non-compliance potentially leading to enforcement actions, fines, and reputational damage[154](index=154&type=chunk)[157](index=157&type=chunk)[160](index=160&type=chunk) - The company recorded a **$16.6 million goodwill impairment charge** and a **$4.2 million long-lived assets impairment charge** in 2022 due to market price decline and cessation of certain machinery use[188](index=188&type=chunk)[190](index=190&type=chunk) [Risks Related to Our Intellectual Property](index=43&type=section&id=Risks%20Related%20to%20Our%20Intellectual%20Property) Intellectual property risks include reliance on trade secrets without patents, potential infringement claims, and challenges in enforcing confidentiality agreements - Success depends on protecting intellectual property, primarily through trade secrets and confidentiality agreements, as the company does not currently own issued patents[203](index=203&type=chunk)[206](index=206&type=chunk) - Risk of third-party claims of infringement or misappropriation of intellectual property, which could lead to costly litigation, substantial damages, or inability to commercialize products[210](index=210&type=chunk)[214](index=214&type=chunk)[215](index=215&type=chunk) - Confidentiality agreements may be difficult to enforce, and trade secrets could be unintentionally or willfully disclosed, harming competitive position[207](index=207&type=chunk)[209](index=209&type=chunk)[220](index=220&type=chunk) [Risks Related to Our Indebtedness](index=48&type=section&id=Risks%20Related%20to%20Our%20Indebtedness) Indebtedness under the Amended Credit Agreement could impair liquidity, impose operating restrictions, and lead to accelerated repayment upon covenant non-compliance - Existing indebtedness under the Amended Credit Agreement (up to **$57.135 million**) could divert funds, impair liquidity, and necessitate refinancing or asset disposal if cash flow is insufficient[229](index=229&type=chunk) - Covenants in the Amended Credit Agreement impose significant operating and financial restrictions, limiting actions like incurring additional debt, making acquisitions, or paying dividends[235](index=235&type=chunk) - Failure to comply with debt covenants could lead to acceleration of repayment and foreclosure on assets[236](index=236&type=chunk) [Risks Related to Our Common Stock](index=49&type=section&id=Risks%20Related%20to%20Our%20Common%20Stock) Risks include Telegraph Hill Partners' control, 'controlled company' status reducing stockholder protections, no dividend plans, and a material weakness in income tax accounting - Telegraph Hill Partners (THP) controls approximately **62.1% of voting power**, enabling control over corporate decisions and potentially conflicting interests with other stockholders[237](index=237&type=chunk) - As a 'controlled company' under Nasdaq rules, the company relies on exemptions from certain corporate governance requirements, reducing protections for stockholders[241](index=241&type=chunk)[242](index=242&type=chunk) - The company has no current plans to pay regular cash dividends and is prohibited from doing so under the Amended Credit Agreement, meaning investment return depends solely on stock price appreciation[277](index=277&type=chunk) - The company identified a material weakness in internal control over financial reporting for income taxes in 2022, which remained unremediated as of December 31, 2022[250](index=250&type=chunk) [General Risk Factors](index=59&type=section&id=General%20Risk%20Factors) General risks include U.S. export controls, fluctuating effective tax rates, and cash balances exceeding FDIC insurance limits - Subject to U.S. export controls and sanctions regulations, with violations potentially leading to substantial fines, penalties, and reputational harm[286](index=286&type=chunk) - Fluctuations in effective tax rates and adverse outcomes from tax return examinations could negatively impact operating results and financial condition[287](index=287&type=chunk)[288](index=288&type=chunk)[289](index=289&type=chunk) - The company's cash balances at third-party financial institutions may exceed FDIC insurance limits, posing a risk if these institutions fail[297](index=297&type=chunk) [Item 1B. Unresolved Staff Comments](index=62&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reported no unresolved staff comments from the SEC - No unresolved staff comments were reported[304](index=304&type=chunk) [Item 2. Properties](index=62&type=section&id=Item%202.%20Properties) Information regarding the company's commercial, office, manufacturing, and warehouse space is incorporated by reference from Item 1. Business – Facilities - Details on commercial, office, manufacturing, and warehouse space are provided in Item 1. Business – Facilities[305](index=305&type=chunk) [Item 3. Legal Proceedings](index=62&type=section&id=Item%203.%20Legal%20Proceedings) The company is not currently involved in material legal proceedings, but future litigation could be costly and impact operations or reputation - The company is not a party to any material legal proceedings at this time[306](index=306&type=chunk) - Future legal proceedings, regardless of merit, could result in costly litigation, damage to reputation, diversion of management time, and potential monetary damages or operational limits[306](index=306&type=chunk) [Item 4. Mine Safety Disclosures](index=62&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - This item is not applicable[307](index=307&type=chunk) PART II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=63&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Common stock trades on Nasdaq under 'TKNO', with 5 record holders as of March 28, 2023; no dividends have been paid or are planned due to debt restrictions - Common stock is listed on the Nasdaq Global Market under the symbol '**TKNO**'[310](index=310&type=chunk) - As of **March 28, 2023**, there were **5 holders of record** of the company's common stock[311](index=311&type=chunk) - The company has not paid any dividends since its inception and does not intend to declare or pay cash dividends in the foreseeable future, with current credit agreements prohibiting cash dividends without prior written consent from the lender[312](index=312&type=chunk) [Item 6. [Reserved]](index=62&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=64&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Revenue grew **12.3% to $41.4 million** in 2022, but operating loss significantly increased to **$49.7 million** due to higher expenses and impairment charges, while liquidity is managed through cash and credit facilities amid economic uncertainties Key Financial Highlights (2022 vs. 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | $ Change | % Change | | :----------------------- | :------------------ | :------------------ | :------- | :------- | | Revenue | $41,420 | $36,893 | $4,527 | 12.3% | | Gross profit | $17,476 | $17,621 | $(145) | (0.8)% | | Loss from operations | $(49,659) | $(12,008) | $(37,651) | 313.5% | | Net loss | $(47,468) | $(9,803) | $(37,665) | 384.2% | - Operating expenses significantly increased by **126.6% to $67.1 million** in 2022, primarily due to goodwill impairment (**$16.6 million**), long-lived assets impairment (**$4.2 million**), and higher R&D, sales & marketing, and G&A costs[327](index=327&type=chunk)[336](index=336&type=chunk)[337](index=337&type=chunk)[338](index=338&type=chunk)[339](index=339&type=chunk)[340](index=340&type=chunk) - The company is closely monitoring increased economic uncertainty, including inflation and rising interest rates, which negatively impact cost of sales and operating expenses and may reduce customer demand[325](index=325&type=chunk) [Overview](index=64&type=section&id=Overview) Alpha Teknova produces critical reagents for life sciences, with **$41.4 million revenue in 2022**, driven by Lab Essentials and Clinical Solutions, supported by ISO 13485:2016 certification - Alpha Teknova produces critical reagents for life sciences, serving over **3,000 customers** in biopharmaceutical, diagnostics, and research sectors[319](index=319&type=chunk) - Primary product categories are Lab Essentials and Clinical Solutions, with Sample Transport production ceased in 2021[320](index=320&type=chunk) - Achieved **ISO 13485:2016 certification in 2017**, enabling manufacturing for diagnostic and therapeutic applications[321](index=321&type=chunk) - Revenue in 2022 was **$41.4 million**, a **12.3% increase from 2021**, with over **96% from U.S. customers**[323](index=323&type=chunk) [Key Developments](index=65&type=section&id=Key%20Developments) Key developments include amended credit agreements, new product launches, a new manufacturing facility, workforce reduction, and an at-the-market stock offering - Entered into Amended and Restated Credit and Security Agreements in **May 2022**, providing up to **$57.135 million** in loan commitments, with subsequent amendments in **November 2022 and March 2023**[325](index=325&type=chunk) - Launched a new WFI Quality Water product line and an early access program for novel gene therapy bioprocessing products in late 2022[325](index=325&type=chunk) - New state-of-the-art manufacturing facility became operational for research-grade products in **December 2022**[325](index=325&type=chunk) - Reduced workforce by approximately **40 positions in February 2023**, estimating **$4 million in annual cost savings**[325](index=325&type=chunk) - Entered into a Sales Agreement with Cowen and Company, LLC in **March 2023** for an at-the-market offering program of up to **$50.0 million in common stock**[325](index=325&type=chunk) [Impact of Broader Economic Trends on Our Business](index=65&type=section&id=Impact%20of%20Broader%20Economic%20Trends%20on%20Our%20Business) Inflation, rising raw material prices, and increased interest rates negatively impact costs and customer demand, while COVID-19 effects are continuously monitored - General inflation, rising raw material prices, and increased salaries negatively impact cost of sales and operating expenses[325](index=325&type=chunk) - Rising interest rates may cause customers to reduce, delay, or cancel orders, impacting sales[325](index=325&type=chunk) - The company continues to monitor and manage its response to the ongoing COVID-19 pandemic's impact on its business, employees, suppliers, and distribution channels[326](index=326&type=chunk) [Results of Operations](index=66&type=section&id=Results%20of%20Operations) Analysis of revenue, gross profit, operating expenses, other income/expenses, and income tax benefit for the reporting periods [Revenue](index=66&type=section&id=Revenue) Revenue increased by **12.3% to $41.4 million** in 2022, driven by Lab Essentials and Clinical Solutions, primarily from U.S. customers Revenue by Product Category (in thousands) | Product Category | 2022 | 2021 | $ Change | % Change | | :--------------- | :-------- | :-------- | :-------- | :------- | | Lab Essentials | $31,772 | $27,184 | $4,588 | 16.9% | | Clinical Solutions | $8,445 | $6,793 | $1,652 | 24.3% | | Sample Transport | $6 | $1,530 | $(1,524) | (99.6)% | | Other | $1,197 | $1,386 | $(189) | (13.6)% | | **Total Revenue** | **$41,420** | **$36,893** | **$4,527** | **12.3%** | - Increase in Lab Essentials and Clinical Solutions revenue was primarily due to higher average revenue per customer, with the average number of customers remaining consistent[329](index=329&type=chunk)[330](index=330&type=chunk) - Sample Transport revenue became insignificant in 2022 due to declining COVID-19 testing demand and increased market supply[331](index=331&type=chunk) Revenue by Geographic Region (in thousands) | Geographic Region | 2022 | 2021 | $ Change | % Change | | :---------------- | :-------- | :-------- | :------- | :------- | | United States | $40,103 | $35,808 | $4,295 | 12.0% | | International | $1,317 | $1,085 | $232 | 21.4% | | **Total Revenue** | **$41,420** | **$36,893** | **$4,527** | **12.3%** | [Gross profit](index=67&type=section&id=Gross%20profit) Gross profit decreased slightly to **$17.5 million** in 2022, with the gross profit percentage declining to **42.2%** due to higher labor and supply costs Gross Profit (in thousands) | Metric | 2022 | 2021 | $ Change | % Change | | :--------------- | :-------- | :-------- | :------- | :------- | | Cost of sales | $23,944 | $19,272 | $4,672 | 24.2% | | Gross profit | $17,476 | $17,621 | $(145) | (0.8)% | | Gross profit % | 42.2% | 47.8% | | | - Gross profit percentage decreased from **47.8% in 2021 to 42.2% in 2022**, primarily due to higher labor costs and supplies as a percentage of revenue[334](index=334&type=chunk) [Operating expenses](index=68&type=section&id=Operating%20expenses) Total operating expenses surged by **126.6% to $67.1 million** in 2022, driven by increased headcount, professional fees, and significant goodwill and long-lived asset impairment charges Operating Expenses (in thousands) | Expense Category | 2022 | 2021 | $ Change | % Change | | :------------------------- | :-------- | :-------- | :-------- | :------- | | Research and development | $7,737 | $4,312 | $3,425 | 79.4% | | Sales and marketing | $9,151 | $3,777 | $5,374 | 142.3% | | General and administrative | $28,298 | $20,392 | $7,906 | 38.8% | | Amortization of intangible assets | $1,148 | $1,148 | $0 | 0.0% | | Goodwill impairment | $16,613 | $0 | $16,613 | 100.0% | | Long-lived assets impairment | $4,188 | $0 | $4,188 | 100.0% | | **Total Operating Expenses** | **$67,135** | **$29,629** | **$37,506** | **126.6%** | - Significant increases in R&D, sales & marketing, and G&A expenses were driven by increased headcount, professional fees, supplies, and stock-based compensation to support growth strategy[336](index=336&type=chunk)[337](index=337&type=chunk)[338](index=338&type=chunk) - Goodwill impairment of **$16.6 million** and long-lived assets impairment of **$4.2 million** were recorded in 2022, with no comparable charges in 2021[339](index=339&type=chunk)[340](index=340&type=chunk) [Other income (expenses), net](index=68&type=section&id=Other%20income%20(expenses),%20net) Total other income, net, was **$0.3 million** in 2022, a significant improvement from a net expense in 2021, primarily due to capitalized interest Other Income (Expenses), Net (in thousands) | Category | 2022 | 2021 | $ Change | % Change | | :------------------------- | :------ | :------ | :------- | :--------- | | Interest income (expense), net | $213 | $(589) | $802 | (136.2)% | | Other income (expense), net | $55 | $(40) | $95 | (237.5)% | | **Total** | **$268** | **$(629)** | **$897** | **(142.6)%** | - Total other income, net, was **$0.3 million** in 2022, primarily due to capitalized interest of **$1.6 million**, compared to a net expense of **$0.6 million** in 2021[341](index=341&type=chunk)[532](index=532&type=chunk) [Benefit from income taxes](index=69&type=section&id=Benefit%20from%20income%20taxes) The income tax benefit decreased in 2022 due to operating losses not expected to be benefited and the goodwill impairment charge Benefit from Income Taxes (in thousands) | Metric | 2022 | 2021 | $ Change | % Change | | :---------------------- | :-------- | :-------- | :------- | :------- | | Benefit from income taxes | $(1,923) | $(2,834) | $911 | (32.1)% |\ | Effective tax rate | 3.9% | 22.4% | | | - The decrease in income tax benefit in 2022 was attributable to operating losses not expected to be benefited and the goodwill impairment charge disallowed for tax purposes[343](index=343&type=chunk) [Liquidity and Capital Resources](index=69&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity is supported by **$50.3 million** in working capital and a **$57.135 million** credit facility, with cash flows from operating, investing, and financing activities detailed [Credit Facility](index=69&type=section&id=Credit%20Facility) As of December 31, 2022, the company had **$50.3 million** in working capital and a **$57.135 million** credit facility with Term SOFR-based interest rates and amended revenue requirements - As of **December 31, 2022**, the company had **$50.3 million in working capital**, including **$42.2 million in cash and cash equivalents**[345](index=345&type=chunk) - Entered into an Amended and Restated Credit and Security Agreement in **May 2022**, providing a **$57.135 million credit facility**, including a **$52.135 million term loan** and a **$5.0 million revolving loan**[348](index=348&type=chunk) - The credit facility's interest rates are based on Term SOFR plus an applicable margin, with a Term SOFR floor of **4.50% as of March 28, 2023**, and an exit fee of **8.50% of the total principal amount**[352](index=352&type=chunk)[353](index=353&type=chunk) - Amendment No. 2 (**March 2023**) reduced minimum net revenue requirements for future periods (e.g., **$42.0 million for 2023**) and removed Clinical Solutions revenue contingencies for future borrowings[353](index=353&type=chunk) [Operating Activities](index=71&type=section&id=Operating%20Activities) Net cash used in operating activities significantly increased in 2022 to **$(27.4) million**, primarily due to a higher net loss and increased inventories Net Cash Used in Operating Activities (in thousands) | Year | Net Cash Used in Operating Activities | | :--- | :------------------------------------ | | 2022 | $(27,400) | | 2021 | $(9,069) | - Net cash used in operating activities increased significantly in 2022, primarily due to a higher net loss (**$47.5 million**) and an increase in inventories (**$7.6 million**), partially offset by non-cash adjustments like goodwill and long-lived asset impairments[358](index=358&type=chunk) [Investing Activities](index=71&type=section&id=Investing%20Activities) Net cash used in investing activities increased to **$(28.1) million** in 2022, primarily driven by **$28.1 million** in purchases of property, plant, and equipment Net Cash Used in Investing Activities (in thousands) | Year | Net Cash Used in Investing Activities | | :--- | :------------------------------------ | | 2022 | $(28,149) | | 2021 | $(17,521) | - Net cash used in investing activities increased in 2022, primarily driven by purchases of property, plant, and equipment totaling **$28.1 million**[360](index=360&type=chunk) [Financing Activities](index=71&type=section&id=Financing%20Activities) Net cash provided by financing activities was **$10.3 million** in 2022, mainly from long-term debt, significantly lower than **$110.8 million** in 2021 from IPO proceeds Net Cash Provided by Financing Activities (in thousands) | Year | Net Cash Provided by Financing Activities | | :--- | :---------------------------------------- | | 2022 | $10,267 | | 2021 | $110,793 | - Net cash provided by financing activities in 2022 was **$10.3 million**, mainly from long-term debt proceeds (**$10.1 million**), stock option exercises, and ESPP issuances[363](index=363&type=chunk) - In 2021, financing activities provided **$110.8 million**, primarily from IPO net proceeds (**$102.7 million**) and previous long-term debt proceeds[364](index=364&type=chunk) [Critical Accounting Policies and Estimates](index=72&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Key accounting policies and estimates cover revenue recognition, goodwill, intangible assets, income taxes, stock-based compensation, and the impact of new accounting pronouncements, considering the company's emerging growth status [Revenue Recognition](index=72&type=section&id=Revenue%20Recognition) Revenue is recognized under ASC 606 upon transfer of control, typically at shipment, with estimates and assumptions impacting financial results - Revenue is recognized in accordance with **ASC 606** when control of promised goods or services is transferred to customers, typically at a point in time upon shipment[367](index=367&type=chunk)[368](index=368&type=chunk) - Estimates and assumptions are made for revenue recognition, and changes in these could impact financial results[196](index=196&type=chunk) [Goodwill](index=72&type=section&id=Goodwill) Goodwill is tested annually for impairment, with a **$16.6 million** impairment charge recorded in 2022 based on fair value assessments - Goodwill is tested for impairment annually (**October 1**) or more frequently if indicators arise, using qualitative and quantitative assessments[370](index=370&type=chunk)[371](index=371&type=chunk) - A **$16.6 million goodwill impairment charge** was recorded in 2022, based on fair value determined by income and market approaches using Level 3 inputs[373](index=373&type=chunk)[374](index=374&type=chunk) [Intangible Assets and Other Long-Lived Assets](index=73&type=section&id=Intangible%20Assets%20and%20Other%20Long-Lived%20Assets) Definite-lived intangible and other long-lived assets are reviewed for impairment, with a **$4.2 million** impairment charge recorded in 2022 for certain manufacturing machinery - Definite-lived intangible assets and other long-lived assets are reviewed for impairment when circumstances indicate carrying amounts may not be recoverable, comparing carrying value to undiscounted future cash flows[376](index=376&type=chunk) - Indefinite-lived intangible assets are tested for impairment annually; no impairment was found for these in 2022 or 2021[377](index=377&type=chunk)[500](index=500&type=chunk) - A **$4.2 million impairment charge** was recorded for long-lived assets in 2022 due to ceasing use of certain manufacturing machinery and equipment[190](index=190&type=chunk)[533](index=533&type=chunk) [Income Taxes](index=73&type=section&id=Income%20Taxes) Deferred income taxes are accounted for using the asset and liability method, requiring significant judgments and estimates that could impact financial results - Deferred income taxes are accounted for using the asset and liability method, based on differences between financial reporting and tax purposes[379](index=379&type=chunk) - Significant judgments and estimates are required in determining the provision for income taxes, and changes in tax laws or estimates could impact deferred tax assets and liabilities[380](index=380&type=chunk) [Stock-Based Compensation](index=74&type=section&id=Stock-Based%20Compensation) Stock-based compensation expense is recognized at fair value using the Black-Scholes model, totaling **$3.7 million** in 2022, with **$10.1 million** unrecognized as of December 31, 2022 - Stock-based compensation expense is recognized based on the fair value of awards using the Black-Scholes option-pricing model, requiring assumptions for volatility, risk-free interest rate, expected term, and dividend yield[382](index=382&type=chunk)[385](index=385&type=chunk) Stock-Based Compensation Expense (in thousands) | Category | 2022 | 2021 | | :------------------------- | :------ | :------ | | Cost of sales | $147 | $7 | | Research and development | $187 | $157 | | Sales and marketing | $504 | $66 | | General and administrative | $2,873 | $1,321 | | **Total** | **$3,711** | **$1,551** | - Unrecognized compensation expense for stock options was **$10.1 million** at December 31, 2022, to be recognized over a weighted-average period of **3.11 years**[568](index=568&type=chunk) [Accounting Pronouncements Not Yet Adopted](index=74&type=section&id=Accounting%20Pronouncements%20Not%20Yet%20Adopted) The company is evaluating ASU No. 2016-13, effective January 1, 2023, but does not anticipate a significant impact on its financial statements - The company is evaluating the impact of **ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326)**, effective **January 1, 2023**, but does not anticipate a significant impact[384](index=384&type=chunk)[521](index=521&type=chunk) [Emerging Growth Company and a Smaller Reporting Company](index=74&type=section&id=Emerging%20Growth%20Company%20and%20a%20Smaller%20Reporting%20Company) Qualifies as an 'emerging growth company' and 'smaller reporting company', allowing for reduced disclosure and delayed adoption of new accounting standards - Qualifies as an 'emerging growth company' and 'smaller reporting company', allowing for reduced disclosure requirements and delayed adoption of new accounting standards[385](index=385&type=chunk)[386](index=386&type=chunk)[388](index=388&type=chunk) - Has elected to take advantage of the extended transition period for complying with new or revised accounting standards[387](index=387&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=73&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Alpha Teknova is not required to provide quantitative and qualitative disclosures about market risk - The company is a smaller reporting company and is not required to provide information on market risk[388](index=388&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=73&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) The required financial statements and supplementary data are presented in Part IV, Item 15(a)(1) and 15(a)(2) of this Annual Report on Form 10-K - Financial statements and supplementary data are located in Part IV, Item 15(a)(1) and 15(a)(2)[389](index=389&type=chunk) [Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=73&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reported no changes in or disagreements with accountants on accounting and financial disclosure - No changes in or disagreements with accountants on accounting and financial disclosure were reported[390](index=390&type=chunk) [Item 9A. Controls and Procedures](index=73&type=section&id=Item%209A.%20Controls%20and%20Procedures) Disclosure controls were ineffective as of December 31, 2022, due to a material weakness in income tax accounting, though financial statements are fairly stated; remediation efforts are underway, building on prior successful remediation - Management, with CEO and CFO participation, evaluated disclosure controls and procedures as of **December 31, 2022**, and concluded they were not effective[391](index=391&type=chunk)[394](index=394&type=chunk) - A material weakness was identified in internal control over financial reporting for income taxes, specifically lacking appropriate tax resources[397](index=397&type=chunk) - Despite the material weakness, management concluded that the audited financial statements are fairly stated in all material respects[395](index=395&type=chunk) - The company is implementing a remediation plan for the current material weakness, including engaging accounting personnel/consultants with income tax experience and adopting additional control procedures[403](index=403&type=chunk) - A prior year material weakness related to the financial close and reporting process for complex, non-routine transactions was remediated during **Q1 2022**[400](index=400&type=chunk)[402](index=402&type=chunk) [Evaluation of Disclosure Controls and Procedures](index=75&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) CEO and CFO evaluated disclosure controls as of December 31, 2022, concluding they were not effective due to a material weakness - CEO and CFO evaluated disclosure controls and procedures as of **December 31, 2022**, and found them not effective due to a material weakness in internal control over financial reporting[391](index=391&type=chunk)[394](index=394&type=chunk) [Internal Control Over Financial Reporting](index=76&type=section&id=Internal%20Control%20Over%20Financial%20Reporting) Internal control over financial reporting was ineffective as of December 31, 2022, due to a material weakness in income tax accounting; auditor attestation is not required - Management concluded that internal control over financial reporting was not effective as of **December 31, 2022**[396](index=396&type=chunk) - A material weakness was identified in the accounting for income taxes due to a lack of appropriate tax resources[397](index=397&type=chunk) - The independent registered public accounting firm is not required to attest to the effectiveness of internal control over financial reporting as the company is an 'emerging growth company'[398](index=398&type=chunk) [Remediation of the Prior Year Material Weakness](index=76&type=section&id=Remediation%20of%20the%20Prior%20Year%20Material%20Weakness) A prior material weakness in financial close and reporting for complex transactions was remediated in Q1 2022 through hiring expertise and implementing controls - A material weakness in the financial close and reporting process for complex, non-routine transactions (specifically the THP Transaction in **2019**) was identified in prior years[400](index=400&type=chunk) - Remediation involved hiring accounting employees and consultants with technical experience and implementing additional controls, completed during **Q1 2022**[402](index=402&type=chunk) [Remediation of the Current Year Material Weakness](index=77&type=section&id=Remediation%20of%20the%20Current%20Year%20Material%20Weakness) The 2022 material weakness in income tax accounting is being remediated by engaging specialized personnel and implementing new control procedures - The material weakness identified in 2022 related to income tax accounting is currently being remediated through engaging specialized personnel and implementing new control procedures[403](index=403&type=chunk) [Item 9B. Other Information](index=75&type=section&id=Item%209B.%20Other%20Information) Recent developments include a lease extension, an amended credit agreement with adjusted terms, and an at-the-market sales agreement for up to **$50.0 million** in common stock - Entered into a First Amendment to Lease Agreement in **January 2023**, extending the lease for 2320 Technology Parkway (new manufacturing facility) from **5 to 12 years**, with an option for an additional **5 years**[404](index=404&type=chunk) - Executed Amendment No. 2 to the Credit Agreement on **March 28, 2023**, increasing the applicable margin for Term Loan and Revolver, raising the Term SOFR floor to **4.50%**, and increasing the exit fee to **8.50%**[406](index=406&type=chunk)[410](index=410&type=chunk) - Amendment No. 2 also removed Clinical Solutions revenue requirements for future borrowings and reduced trailing twelve-month net revenue requirements (e.g., **$42.0 million for 2023**)[408](index=408&type=chunk)[409](index=409&type=chunk) - Entered into an ATM Sales Agreement with Cowen and Company, LLC on **March 30, 2023**, to sell up to **$50.0 million of common stock**, with a commission of up to **3% of gross sales proceeds**[412](index=412&type=chunk)[413](index=413&type=chunk) [Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=77&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to the company - This item is not applicable[421](index=421&type=chunk) PART III [Item 10. Directors, Executive Officers and Corporate Governance](index=78&type=section&id=Item%2010.%20Directors,%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's definitive proxy statement for the 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the definitive proxy statement for the **2023 Annual Meeting of Stockholders**[424](index=424&type=chunk) [Item 11. Executive Compensation](index=78&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the company's definitive proxy statement for the 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the definitive proxy statement for the **2023 Annual Meeting of Stockholders**[425](index=425&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=78&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership of certain beneficial owners and management, and related stockholder matters, is incorporated by reference from the company's definitive proxy statement for the 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the definitive proxy statement for the **2023 Annual Meeting of Stockholders**[426](index=426&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=78&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions,%20and%20Director%20Independence) Information regarding certain relationships and related transactions, and director independence, is incorporated by reference from the company's definitive proxy statement for the 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the definitive proxy statement for the **2023 Annual Meeting of Stockholders**[427](index=427&type=chunk) [Item 14. Principal Accounting Fees and Services](index=78&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information regarding principal accounting fees and services is incorporated by reference from the company's definitive proxy statement for the 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the definitive proxy statement for the **2023 Annual Meeting of Stockholders**[428](index=428&type=chunk) PART IV [Item 15. Exhibits, Financial Statement Schedules](index=79&type=section&id=Item%2015.%20Exhibits,%20Financial%20Statement%20Schedules) This section details financial statements, schedules, and a comprehensive exhibit index, with financial statements beginning on page F-1 and schedules omitted or included elsewhere - Financial Statements are listed in the 'Index to Financial Statements' starting on page **F-1**[430](index=430&type=chunk) - All financial statement schedules are omitted as not applicable or included in the Financial Statements or Notes[431](index=431&type=chunk) - A detailed Exhibit Index is provided, incorporating by reference or filing various documents such as the Common Stock Sales Agreement, corporate governance documents, equity incentive plans, and credit agreements[432](index=432&type=chunk)[435](index=435&type=chunk)[436](index=436&type=chunk)[437](index=437&type=chunk)[438](index=438&type=chunk) [Item 16. Form 10-K Summary](index=82&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item indicates that no Form 10-K Summary is provided - No Form 10-K Summary is provided[441](index=441&type=chunk)

Alpha Teknova, Inc. (NASDAQ:TKNO) Q4 2022 Results Conference Call March 15, 2023 5:00 PM ET Company Participants Jen Henry - Senior Vice President of Marketing Stephen Gunstream - President & Chief Executive Officer Matt Lowell - Chief Financial Officer Conference Call Participants Joseph Flanagan - Cowen Matt Larew - William Blair Hannah Hefley - Stephens Operator Thank you for standing by, and welcome to Teknova's Fourth Quarter and Full Year 2022 Financial Results Call. At this time, all participants are ...

PART I. FINANCIAL INFORMATION [Condensed Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Condensed%20Financial%20Statements%20(Unaudited)) Net loss significantly increased in Q3 and nine months 2022 due to a **$16.6 million** goodwill impairment, with cash and assets declining and liabilities rising Condensed Statements of Operations Highlights (in thousands) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | **Revenue** | $10,692 | $9,392 | $33,529 | $26,783 | | **Gross Profit** | $4,770 | $4,263 | $15,366 | $12,642 | | **Goodwill Impairment** | $16,613 | $0 | $16,613 | $0 | | **Loss from Operations** | $(22,954) | $(3,888) | $(35,423) | $(7,241) | | **Net Loss** | $(22,474) | $(3,251) | $(34,174) | $(6,156) | | **Net Loss Per Share** | $(0.80) | $(0.12) | $(1.22) | $(0.51) | Condensed Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | **Cash and cash equivalents** | $49,855 | $87,518 | | **Total Current Assets** | $70,067 | $101,204 | | **Goodwill** | $0 | $16,613 | | **Total Assets** | $160,272 | $166,511 | | **Total Liabilities** | $48,276 | $23,308 | | **Total Stockholders' Equity** | $111,996 | $143,203 | - Net cash used in operating activities increased to **$19.4 million** for the nine months ended Sep 30, 2022, from **$6.0 million** in the prior year period, primarily due to a higher net loss[129](index=129&type=chunk)[131](index=131&type=chunk)[132](index=132&type=chunk) - Net cash used in investing activities increased to **$23.4 million** from **$10.1 million** year-over-year, driven by purchases of property, plant and equipment[129](index=129&type=chunk)[133](index=133&type=chunk)[134](index=134&type=chunk) - Net cash from financing activities was **$5.1 million**, primarily from long-term debt proceeds, a significant decrease from **$110.8 million** in the prior year which included IPO proceeds[129](index=129&type=chunk)[136](index=136&type=chunk)[137](index=137&type=chunk) [Note 1. Nature of the Business](index=10&type=section&id=Note%201.%20Nature%20of%20the%20Business) Alpha Teknova provides critical reagents for biopharmaceutical products, manufacturing under Research Use Only (RUO) and Good Manufacturing Practice (GMP) standards - The company provides critical reagents for biopharmaceutical products, including drug therapies, vaccines, and molecular diagnostics[27](index=27&type=chunk) - Teknova manufactures products in both Research Use Only (RUO) and the more stringent Good Manufacturing Practice (GMP) categories, holding an ISO 13485:2016 certification since 2017[29](index=29&type=chunk) [Note 3. Revenue Recognition](index=11&type=section&id=Note%203.%20Revenue%20Recognition) Revenue is recognized upon goods transfer, with total revenue for the nine months ended September 30, 2022, reaching **$33.5 million**, primarily from Lab Essentials and Clinical Solutions in the United States Revenue by Business Line (in thousands) | Business Line | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | | Lab Essentials | $24,838 | $20,440 | | Clinical Solutions | $7,673 | $4,354 | | Sample Transport | $6 | $1,035 | | Other | $1,012 | $954 | | **Total Revenue** | **$33,529** | **$26,783** | Revenue by Geographic Region (in thousands) | Geographic Region | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | | United States | $32,489 | $25,890 | | International | $1,040 | $893 | | **Total Revenue** | **$33,529** | **$26,783** | [Note 8. Goodwill and Intangible Assets, Net](index=13&type=section&id=Note%208.%20Goodwill%20and%20Intangible%20Assets%2C%20Net) An interim goodwill impairment test in Q3 2022, triggered by stock price decline, resulted in a full **$16.6 million** impairment charge, reducing goodwill to zero - A significant decline in the company's common stock price and market capitalization triggered an interim goodwill impairment test in Q3 2022[51](index=51&type=chunk) - The company determined that its goodwill was fully impaired and recorded an impairment charge of **$16.6 million** during the three months ended September 30, 2022[55](index=55&type=chunk) - As of September 30, 2022, the carrying amount of goodwill was reduced to zero from **$16.6 million** at the end of 2021[51](index=51&type=chunk) [Note 10. Long-Term Debt, Net](index=15&type=section&id=Note%2010.%20Long-Term%20Debt%2C%20Net) As of September 30, 2022, net long-term debt increased to **$16.9 million** from **$11.9 million** at year-end 2021, under a credit facility with MidCap Financial Trust - In May 2022, the company entered into an Amended and Restated Credit and Security Agreement with MidCap for a **$57.135 million** credit facility[59](index=59&type=chunk)[60](index=60&type=chunk) Long-Term Debt, Net (in thousands) | Component | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Long-term debt | $17,135 | $12,000 | | **Long-term debt, net** | **$16,878** | **$11,870** | [Note 15. Subsequent Events](index=18&type=section&id=Note%2015.%20Subsequent%20Events) On November 8, 2022, the credit agreement was amended to replace LIBOR with SOFR, increase the exit fee to **7%**, and reduce the TTM net revenue covenant for December 31, 2022, to **$38.0 million** - On November 8, 2022, the credit agreement was amended, replacing the LIBOR-based interest rate with a SOFR-based rate effective December 1, 2022[77](index=77&type=chunk) - The amendment reduced the trailing twelve-month net revenue covenant for the period ending December 31, 2022, from **$42.5 million** to **$38.0 million**[77](index=77&type=chunk) - The exit fee on the term loan was increased from **5% to 7%** of the total aggregate principal amount[77](index=77&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Revenue grew in Q3 and nine months 2022, but operating losses widened significantly due to a **$16.6 million** goodwill impairment and increased expenses, impacting liquidity [Results of Operations](index=20&type=section&id=Results%20of%20Operations) Q3 and nine-month 2022 revenue increased, but operating losses significantly widened due to a **$16.6 million** goodwill impairment and surging operating expenses Q3 2022 vs Q3 2021 Revenue by Product (in thousands) | Product Category | Q3 2022 | Q3 2021 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Lab Essentials | $9,470 | $7,195 | $2,275 | 31.6% | | Clinical Solutions | $919 | $1,690 | $(771) | (45.6)% | | Sample Transport | $0 | $73 | $(73) | (100.0)% | | **Total Revenue** | **$10,692** | **$9,392** | **$1,300** | **13.8%** | Nine Months 2022 vs 2021 Revenue by Product (in thousands) | Product Category | Nine Months 2022 | Nine Months 2021 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Lab Essentials | $24,838 | $20,440 | $4,398 | 21.5% | | Clinical Solutions | $7,673 | $4,354 | $3,319 | 76.2% | | Sample Transport | $6 | $1,035 | $(1,029) | (99.4)% | | **Total Revenue** | **$33,529** | **$26,783** | **$6,746** | **25.2%** | - The company ceased production of Sample Transport medium in 2021 due to a decline in market demand for COVID-19 testing and an increase in market supply[92](index=92&type=chunk)[107](index=107&type=chunk) - A goodwill impairment charge of **$16.6 million** was the primary driver of the significant increase in operating loss for both the three and nine-month periods ended September 30, 2022[99](index=99&type=chunk)[103](index=103&type=chunk)[116](index=116&type=chunk) [Liquidity and Capital Resources](index=25&type=section&id=Liquidity%20and%20Capital%20Resources) Cash and cash equivalents significantly decreased to **$49.9 million** by September 30, 2022, due to operating activities and capital expenditures, requiring potential future financing - As of September 30, 2022, the company had **$49.9 million** in cash and cash equivalents and **$57.7 million** in net working capital[120](index=120&type=chunk) - A significant use of cash is the construction of a new manufacturing, warehouse, and distribution facility in Hollister, California[120](index=120&type=chunk)[121](index=121&type=chunk) - In November 2022, the company amended its credit agreement, replacing LIBOR with SOFR, increasing the exit fee to **7%**, and reducing the TTM net revenue covenant for Dec 31, 2022, to **$38.0 million**[126](index=126&type=chunk) - Management believes existing liquidity sources are sufficient to fund requirements for at least the next 24 months, but acknowledges that additional financing may be needed to execute its business strategy[127](index=127&type=chunk)[128](index=128&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=28&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Alpha Teknova is not required to provide quantitative and qualitative disclosures about market risk - As a smaller reporting company, Alpha Teknova is not required to provide quantitative and qualitative disclosures about market risk[143](index=143&type=chunk) [Controls and Procedures](index=28&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective as of September 30, 2022, having remediated a prior material weakness and implemented a new ERP system - Management concluded that disclosure controls and procedures were effective as of September 30, 2022[146](index=146&type=chunk) - A previously identified material weakness in the financial close and reporting process for complex transactions was remediated as of March 31, 2022[147](index=147&type=chunk)[148](index=148&type=chunk)[150](index=150&type=chunk) - During the quarter ended September 30, 2022, the company implemented a new enterprise resource planning (ERP) system to enhance internal controls and support business scaling[149](index=149&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=30&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently a party to any material legal proceedings, though it may become involved in ordinary course legal matters - As of the report date, the company is not a party to any material legal proceedings[154](index=154&type=chunk) [Risk Factors](index=31&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks including a history of operating losses, a **$16.6 million** goodwill impairment, customer and supplier dependence, restrictive debt covenants, and 'controlled company' governance - The company has a history of operating losses, including a net loss of **$22.5 million** in Q3 2022 and **$34.2 million** for the first nine months of 2022, and may not achieve or maintain profitability[156](index=156&type=chunk) - A significant goodwill impairment charge of **$16.6 million** was recorded in Q3 2022 due to a decline in market capitalization, and future impairments of intangible assets are possible[252](index=252&type=chunk) - The business is dependent on a limited number of customers, with those accounting for over **10%** of revenue representing **42%** of total revenue in Q3 2022[179](index=179&type=chunk) - The company is a 'controlled company' under Nasdaq rules due to THP's majority ownership, which exempts it from certain corporate governance requirements, such as having a majority-independent board[300](index=300&type=chunk) - The Amended Credit Agreement contains restrictive covenants that could limit operational flexibility, and failure to comply could lead to acceleration of debt[297](index=297&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=68&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities in the reported period, and the planned use of IPO proceeds has not materially changed - There were no unregistered sales of equity securities in the reported period[352](index=352&type=chunk) - The planned use of proceeds from the IPO has not materially changed from what was disclosed in the final prospectus[353](index=353&type=chunk) [Other Information](index=68&type=section&id=Item%205.%20Other%20Information) On November 8, 2022, the company amended its credit agreement, replacing LIBOR with SOFR, increasing the exit fee to **7%**, and reducing the TTM net revenue covenant to **$38.0 million** - On November 8, 2022, the company amended its Credit Agreement with MidCap[357](index=357&type=chunk) - The amendment replaced the LIBOR-based interest rate with a SOFR-based rate, increased the exit fee to **7%**, and gave lenders discretion over a **$10.0 million** borrowing tranche for H1 2023[358](index=358&type=chunk)[359](index=359&type=chunk) - The minimum net revenue requirement for the twelve months ending December 31, 2022, was reduced from **$42.5 million** to **$38.0 million**[360](index=360&type=chunk)