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Operator: Good day, and welcome to the Teknova First Quarter 2023 Financial Results Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker, Senior Vice President of Marketing at Teknova, Jennifer Henry. Please go ahead.

Jennifer Henry: Thank you, operator. Welcome to Teknova’s First Quarter of 2023 Earnings Conference Call. With me on today’s call are Stephen Gunstream, Teknova’s President and Chief Executive Officer; and Matt Lowell, Teknova’s Chief Financial Officer, who will make prepared remarks and then take your questions. As a reminder, the forward-looking statements that we make during this call, including those regarding business goals and expectations for the financial performance of the company, are subject to risks and uncertainties that may cause actual events or results to differ. Additional information concerning these risk factors is included in the press release the company issued earlier today and they are more fully described in the company’s various filings with the SEC.

Today’s comments reflect the company’s current views, which could change as a result of new information, future events or other factors, and the company does not obligate or commit itself to update its forward-looking statements, except as required by law. The company’s management believes that, in addition to GAAP results, non-GAAP financial measures can provide meaningful insight when evaluating the company’s financial performance and the effectiveness of its business strategies. We will therefore use non-GAAP financial measures of certain of our results during this call. Reconciliations of GAAP to non-GAAP financial measures are included in the press release that we issued this afternoon, which is posted to Teknova’s website and at www.sec.gov/edgar.

Non-GAAP financial measures should always be considered only as a supplement to and not as a substitute for or as superior to financial measures prepared in accordance with GAAP. The non-GAAP financial measures in this presentation may differ from similarly named non-GAAP financial measures used by other companies. Please also be advised that the company has posted a supplemental slide deck to accompany today’s prepared remarks. It can be accessed on the Investor Relations section of Teknova’s website and on today’s webcast. And now I will turn the call over to Stephen.

Stephen Gunstream: Thank you, Jen. Good afternoon, and thank you, everyone, for joining us for our first quarter of 2023 earnings call. Teknova is a leading producer of critical reagents for the life sciences industry to accelerate the introduction of novel therapies, vaccines and molecular diagnostics that will help people live longer, healthier lives. We manufacture high-quality custom reagents with short turnaround times and are positioned to scale with our customers as they advance their products from discovery to commercialization. We had a good start to the year. Our team continued to manage in a dynamic environment by delivering results in line with our plan, including increasing revenue sequentially by 16%. We are particularly pleased that we are not only tracking well to our expected financial metrics for the year, but we are also executing on our key initiatives on or ahead to plan to position the company for sustainable accelerated growth.

First, we saw an increase in Clinical Solutions customers in the first quarter and believe the growth demonstrates the stabilization in overall demand from our customers, and we remain optimistic about the long-term potential of our target markets. We also continue to see strength in our commercial funnel and remain confident in our top line guidance for the full year. Second, our new state-of-the-art modular manufacturing facility is on track for GMP-grade production by mid-2023. In addition, we are encouraged by early indications of interest from certain of our customers who have begun to schedule audits for early in the third quarter. We believe this new facility plus our existing operating infrastructure will give us the capacity to deliver approximately $200 million in annual product revenue when fully utilized.

Third, on the R&D front, I am pleased to say our new product pipeline is progressing ahead of schedule. In March, we announced a collaboration with Sartorius BIA separations to help our customers improve AAV purification processes. Building on this news, last week, we launched our first ever set of proprietary reagents, which we believe can save months of development time for gene therapy customers as they develop their AAV bioprocessing workflows. As customers incorporate these proprietary reagents into their clinical production processes, we expect to become an even more critical supplier as they advance their therapies towards commercialization. Lastly, we are tracking well to our cost reduction plans. Operational expenses were down sequentially when excluding onetime costs.

And while cash outflow in the quarter was approximately $12 million, the corresponding expenses were planned and primarily related to the completion and qualification of our new facility. Thus, we are tracking towards our previously communicated total cash outflow target of approximately $30 million for fiscal 2023. I will now hand the call over to Matt for a discussion of the financials.

Matthew Lowell: Thanks, Stephen, and good afternoon, everyone. Total revenue was $9.1 million for the first quarter of 2023, an 18% decline from $11.1 million in the first quarter of 2022, reflecting the continued headwinds associated with lower demand from early-stage biopharma customers, which we first observed in the third quarter of 2022. Lab Essentials products are targeted at the research use only or RUO market and include both catalog and custom products. Lab Essentials revenue was $7.3 million in the first quarter of 2023, a 4% increase from $7.0 million in the first quarter of 2022. Growth for the first quarter was primarily driven by higher average revenue per customer, partially offset by a decreased number of customers.

Clinical Solutions products are made according to good manufacturing practices, or GMP, quality standards primarily used by our customers as components or inputs in the development and manufacture of diagnostic and therapeutic products. Clinical Solutions revenue was $1.6 million in the first quarter, a 58% decrease from $3.8 million in the first quarter of 2022. The decrease in Clinical Solutions revenue was attributable to lower average revenue per customer, partially offset by an increased number of customers. We expect revenue per customer to increase over time as they ramp up their purchase volumes. However, this metric can be affected by the mix of newer clinical customers who typically order less. Just as a reminder, due to the large average order sizes in clinical solutions compared to Lab Essentials, there can be quarter-to-quarter revenue lumpiness in this category.

Gross profit for the first quarter of 2023 was $2.4 million compared to $5.3 million in the first quarter of 2022. Gross margin was 26.6% of revenue in the first quarter of 2023, which is down from 48% of revenue in the first quarter of 2022. The lower gross margin for the first quarter of 2023 compared to the first quarter of 2022 was primarily driven by a decrease in revenue and the associated lower absorption of fixed manufacturing labor and overhead costs, including depreciation from our new facility. Operating expenses for the first quarter of 2023 were $11.4 million compared to $11.2 million for the first quarter of 2022. Excluding the onetime nonrecurring charge related to the reduction of workforce of $0.7 million incurred during the first quarter of 2023, operating expenses decreased compared to the first quarter of 2022.

The decrease was driven by reduced spending, primarily in professional fees and occupancy costs, partially offset by higher wages and stock-based compensation expense. The reduction in workforce of approximately 40 positions is expected to generate annualized savings of approximately $4 million. Net loss for the first quarter of 2023 was $8.8 million or $0.31 per diluted share compared to a net loss of $5.5 million or $0.20 per diluted share for the first quarter of 2022. The company recorded minimal tax benefit this quarter against its pretax losses as it is currently recording valuation allowances against incremental net operating loss carryforwards. Adjusted EBITDA, a non-GAAP measure, was negative $6.1 million for the first quarter of 2023 compared to negative $4.3 million for the first quarter of 2022.

However, adjusted EBITDA increased by more than $2 million sequentially. Capital expenditures for the first quarter of 2023 were $4.3 million compared to $5.9 million for the first quarter of 2022. This marks the third straight quarter of declining capital expenditures. Most of the spending in the first quarter of 2023 went towards the completion and qualification of our new GMP production facility. Free cash flow, a non-GAAP measure which we define as cash provided by or used in operating activities, less purchases of property, plant and equipment, was negative $12.0 million for the first quarter of 2023 compared to negative $11.1 million for the first quarter of 2022. This decrease compared to the prior year period was primarily due to higher cash used in operating activities, partially offset by a decrease in capital expenditures.

Turning to the balance sheet. As of March 31, 2023, we had $30.2 million in cash and cash equivalents and $22.1 million in gross debt. Now on to our 2023 guidance and outlook. We are reiterating 2023 total revenue guidance of $42 million to $46 million. At the midpoint, this assumes revenue growth of approximately 6% compared to 2022. With respect to product categories, we continue to expect Lab Essentials revenue to be roughly flat compared to 2022 and Clinical Solutions revenue to grow between 20% to 50% compared to 2022. This product category growth guidance includes the assumption that a significant customer shifts from Lab Essentials to Clinical Solutions products in 2023. The company continues to aggressively manage expenses. At the end of March, the company had 251 associates, down from 290 at the end of 2022.

Excluding nonrecurring charges, the company posted operating expenses below $11 million for the first time since 2021, which did not reflect the full benefit of the reduction in force completed in February. Similarly, the company saw a reduction in free cash outflow during the first quarter of 2023. This marks the third straight quarter of lower cash outflow and is consistent with the company’s expectations for the year as we anticipate operating losses and capital expenditures to continue to trend downward over the course of the year. In addition to cash on hand, we have access to our revolver up to $5 million and ATM facility up to $14.5 million. Further, we believe we have already made the step-up investments needed to execute our growth strategy and can scale without significant additional investment.

With that, I will turn the call back to Stephen.

Stephen Gunstream: Thanks, Matt. Overall, we’re pleased with our performance in the first quarter of 2023. The long-term outlook for our end markets remains positive. We are committed to executing on our strategy to help our customers accelerate the introduction of novel therapies, diagnostics and other products that improve human health. We will now take your questions.

Operator: [Operator Instructions] One moment for our first question. That will come from the line of Jacob Johnson with Stephens.

Operator: One moment for our next question. And that will come from the line of Matt Larew with William Blair.

Operator: One moment for our next question. That will come from the line of Steven Mah with TD Cowen.

Operator: I’m showing no further questions in the queue at this time. This concludes today’s program. Thank you all for participating. You may now disconnect.