Teknova(TKNO) - 2023 Q3 - Quarterly Report

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) 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) 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] Condensed Balance Sheets (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] Condensed Statements of Stockholders' Equity (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] Condensed Statements of Cash Flows (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] Notes to Unaudited Condensed Financial Statements Provides detailed explanations and disclosures supporting the unaudited condensed financial statements Note 1. Nature of the Business 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] - All products are manufactured and shipped from its Hollister, California headquarters[31] Note 2. Basis of Presentation and Summary of Significant Accounting Policies 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][33][34] - 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][37][39] - The company completed a reduction in workforce of approximately 40 positions on February 1, 2023, incurring $0.7 million in severance costs[41] - 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] - 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][44][46] - The adoption of ASU No. 2016-13 (Credit Losses) effective January 1, 2023, did not have a significant impact on the financial statements[49] Note 3. Revenue Recognition 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] 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 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 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] Note 6. Property, Plant, and Equipment, Net 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] - A $2.2 million impairment charge was recorded in Q2 2023 for certain long-lived assets, which were subsequently sold[60] Note 7. Leases 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] 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] Note 8. Intangible Assets, Net 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] - 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][65] Note 9. Accrued Liabilities 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] Note 10. Long-term Debt, Net 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][70] - 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][72][73][74] - 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] 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] Note 11. Stock-Based Compensation 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][79] 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] Note 12. Income Taxes 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][85] - 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][85] Note 13. Net Loss Per Share 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] - Stock options, restricted stock units, and employee stock purchase rights were excluded from diluted EPS calculation as their effect was anti-dilutive[86][87] Note 14. Related Parties 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][89] - 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] - The company's proprietary manufacturing processes enable high-quality, custom, made-to-order products with short turnaround times[92] - Products fall into two categories: Lab Essentials and Clinical Solutions, offering pre-poured media plates, liquid cell culture media, and molecular biology reagents[93] - The company is ISO 13485:2016 certified, supporting diagnostic and therapeutic applications from research to commercialization[94] - 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] - 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] Impact of Broader Economic Trends on Our Business 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] - Economic uncertainty may cause customers to reduce, delay, or cancel orders, affecting sales timing and volume[98] Results of Operations 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 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) 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][102] - U.S. sales decreased by 24.6% to $7.8 million, while international sales increased by 11.0% to $0.3 million[102] Gross profit (Three Months) 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] Operating expenses (Three Months) 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][108][109] Other (expenses) income, net (Three Months) 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] Provision for (benefit from) income taxes (Three Months) 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] Comparison of the Nine Months Ended September 30, 2023, and Nine Months Ended September 30, 2022 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) 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][116] - U.S. sales decreased by 15.0% to $27.6 million, while international sales increased by 14.3% to $1.2 million[117][118] Gross profit (Nine Months) 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] Operating expenses (Nine Months) 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][124][125] - 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][121][122] Other (expenses) income, net (Nine Months) 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] Provision for (benefit from) income taxes (Nine Months) 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] Liquidity and Capital Resources 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] - 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] - 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][133][160] - 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][133] - An ATM Facility allows for the sale of up to $50.0 million in common stock, subject to limitations[134] 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][141][142] Critical Accounting Policies and Estimates 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] Emerging Growth Company and Smaller Reporting Company 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] - The company is also a 'smaller reporting company,' which provides scaled disclosures until certain market value or revenue thresholds are met[146] Recent Accounting Pronouncements 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] Item 3. 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 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] Item 4. Controls and Procedures 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 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][151] Material Weakness in Internal Control Over Financial Reporting 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] Management's Plan to Remediate the Material Weakness 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] Changes in Internal Control Over Financial Reporting 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] Limitations on Effectiveness of Controls and Procedures 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] PART II. OTHER INFORMATION Contains legal proceedings, risk factors, equity sales, defaults, and exhibits for Alpha Teknova, Inc. Item 1. Legal Proceedings 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] - Future legal proceedings, if adverse, could result in monetary damages or operational limits, negatively impacting the business[158] Item 1A. Risk Factors 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][161] - 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][164] - Alpha Teknova has a history of operating losses and may continue to incur losses, with no assurance of achieving or maintaining profitability[165][166] - 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][169][170] - The company's cash and cash equivalents could be adversely affected if financial institutions holding deposits fail, impacting liquidity[171] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] - There has been no material change in the planned use of proceeds from the IPO[173] Item 3. Defaults Upon Senior Securities Alpha Teknova reports no defaults upon senior securities during the period - There were no defaults upon senior securities[175] Item 4. Mine Safety Disclosures This item is not applicable to Alpha Teknova - This item is not applicable to the company[176] Item 5. Other Information Alpha Teknova reports no other information for this item - No other information is reported for this item[177] Item 6. Exhibits 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][179] - Certifications from the Principal Executive Officer and Principal Financial Officer are also included[181]