Hello, and thank you for standing by. Welcome to Teknova's Fourth Quarter 2023 Financial Results Conference Call. I would now like to hand the conference over to Jennifer Henry. You may begin.

Thank you, operator. Welcome to Teknova's Fourth Quarter and Full Year 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.

Thank you, Jen. Good afternoon, and thank you, everyone, for joining us for our fourth quarter and full year 2023 earnings call. Teknova is a leading producer of critical reagents for the life sciences industry that accelerate the introduction of novel therapy, vaccines and molecular diagnostics that will help people live longer, healthier lives. We manufacture high-quality custom agents with short turnaround times and are able to scale with our customers as they advance their products from discovery to commercialization. In 2021, we presented a strategy to position the company for long-term growth by attracting and onboarding custom RUO and GMP customers developing novel therapies, vaccines, and diagnostics. I'm pleased to say that now, despite a persistently adverse market environment since early 2022, we have executed on that vision and see early indicators of return on our investments. Most notably, we have grown our clinical customer base with annual Clinical Solutions revenue greater than $5,000 from 13 in 2020 to 34 in 2023. Twenty-eight of our clinical customers are biopharma-related, 18 of which operate in the cell and gene therapy market segment. In fact, we believe three of our cell and gene therapy customers intend to purchase from us for Phase III clinical trials in 2024. While executing our growth strategy, we also took care to nurture our diversified picks and shovels business that supports the broader life sciences industry. Our base of over 2,500 customers not only creates additional revenue opportunities but also serves as a solid foundation in challenging market environments. Over the past year, we have improved our customer on-time delivery metrics and raised our customer Net Promoter Score to industry-leading levels. We also enacted measures in early 2023 to increase production efficiency by eliminating low-value SKUs, which resulted in the highest average annual revenue per customer in our Lab Essentials product category in the last three years. In addition, we again demonstrated the stickiness of our business with our customer retention rate, which remained greater than 95% in 2023 for customers spending more than $10,000 annually with us. While we are excited about our progress, we expect 2024 to continue to be challenging with no or modest revenue growth year-over-year. This is in part due to a Clinical Solutions customer shipment in the second quarter of 2023 that was unusually large, making for a difficult comparison. We also expect that early-stage biotech customers will continue to preserve capital. Considering this backdrop, we made the difficult decision to reduce expenses through personnel and other cost reductions in mid-January of this year, which we believe will deliver approximately $8 million in OpEx savings on an annualized basis beginning in the second quarter of this year. The resulting expense reduction will put us in a stronger cash position and lower our adjusted EBITDA breakeven revenue to between approximately $50 million and $55 million annually. We carried out our January reduction in force, which affected approximately 15% of our associates in a way that preserved our core differentiating ability to produce custom research and clinical grade reagents in weeks instead of months. Specifically, we removed layers of management, R&D roles associated with novel product introduction and roles supporting custom production automation. I want to take a moment here to thank all of those individuals affected directly or indirectly by our RIF. Many of these talented associates were critical to building the infrastructure and foundation we have today and positioning Teknova for long-term success. We remain optimistic about our long-term prospects and expect 2025 will be the year in which many of our investments will produce even greater financial returns. In the near term, we will continue to onboard new target customers to advance our core strategy while continuing to manage expenses aggressively. I will now hand the call over to Matt to talk through the financials.

Thanks, Stephen, and good afternoon, everyone. Results for the fourth quarter of 2023 from a revenue perspective were similar to prior year as anticipated given ongoing challenges in our markets over the past year. Overall, we delivered solid financial results for the full year of 2023. Total revenue for the fourth quarter of both 2023 and 2022 was flat at $7.9 million and $36.7 million for the full year 2023, an 11% decrease from $41.4 million for the full year 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 $6.7 million in the fourth quarter of 2023, a 4% decrease from $6.9 million in the fourth quarter of 2022. For the full year, Lab Essentials revenue was $28.8 million in 2023, a 9% decrease from $31.8 million in 2022. The decrease in Lab Essentials' revenue for the full year was driven by a 13% decrease in the number of customers, 2,822, primarily resulting from an SKU rationalization program that was somewhat offset by a 5% increase in the average revenue per customer to $10,206. As a reminder, we also had a large customer migrate from Lab Essentials in 2022 to Clinical Solutions in 2023, which lowered the reported Lab Essentials growth rate. Clinical Solutions products are made according to good manufacturing practices, or GMP, quality standards and are primarily used by our customers as components or inputs in the development and manufacture of diagnostic and therapeutic products. Clinical Solutions revenue was $0.9 million in the fourth quarter of 2023, a 14% increase from $0.8 million in the fourth quarter of 2022. For the full year, Clinical Solutions revenue was $6.7 million in 2023, a 20% decrease from $8.4 million in 2022. We added Clinical Solutions customers in 2023, growing from 25 customers in 2022 to 34 that spend more than $5,000 annually. Average revenue per customer in 2023 decreased 41% to $198,000. We expect revenue per customer to increase over time as customers 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 larger average orders in Clinical Solutions compared to Lab Essentials, there can be quarter-to-quarter revenue lumpiness in this category. Gross profit for the fourth quarter of 2023 was $1.3 million compared to $2.1 million in the fourth quarter of 2022 and $10.3 million for the full year 2023 compared to $17.5 million for the full year 2022. Gross margin was 17.0% in the fourth quarter of 2023, which is down from 26.7% in the fourth quarter of 2022 and 28.1% for the full year 2023, which is down from 42.2% for the full year 2022. The decrease in gross profit percentage for the fourth quarter 2023 was primarily driven by increased overhead costs that were partially offset by reduced headcount. However, gross margin for the fourth quarter 2023 was similar on a sequential basis from the third quarter of 2023. The decrease in gross profit percentage for the full year 2023 was primarily driven by the decrease in revenue and the associated lower absorption of fixed manufacturing costs, and to a lesser extent, by increased overhead costs that were partially offset by reduced headcount. Operating expenses for the fourth quarter of 2023 were $12.2 million compared to $16.3 million for the fourth quarter of 2022. Excluding the nonrecurring charges of $0.3 million related to a loss contingency accrual, the noncash trade name impairment charge of $2.2 million in the fourth quarter 2023 and the noncash long-lived asset impairment charge of $4.2 million recorded in the fourth quarter of 2022, operating expenses were down $2.4 million. The decrease was driven primarily by reduced headcount and spending, in particular in professional fees. Operating expenses for 2023 were $45.9 million compared to $67.1 million in 2022. The decrease was primarily related to a one-time $16.6 million noncash goodwill impairment charge, coupled with reduced headcount and spending, in particular, professional fees. Net loss for the fourth quarter 2023 was $10.7 million or $0.26 per diluted share compared to a net loss of $13.3 million or $0.47 per diluted share for the fourth quarter 2022. Net loss for the full year 2023 was $36.8 million or $1.16 per diluted share compared to a net loss of $47.5 million or $1.69 per diluted share for the full year 2022. Adjusted EBITDA, a non-GAAP measure, was negative $5.4 million for the fourth quarter 2023 compared to negative $8.1 million for the fourth quarter 2022. Adjusted EBITDA for the full year 2023 was negative $19.2 million compared to negative $21.9 million for the full year 2022. Capital expenditures for the fourth quarter of 2023 were $0.3 million compared to $4.7 million for the fourth quarter of 2022. Capital expenditures for the full year 2023 were $7.9 million compared to $28.1 million for the full year 2022. This marks the sixth straight quarter of sequential decreases in capital expenditures, and we have now completed the initial capital investment necessary to utilize our new manufacturing 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 $3.1 million for the fourth quarter 2023 compared to negative $12.8 million from the fourth quarter 2022. Free cash flow for the full year 2023 was negative $26.6 million compared to $55.5 million for the full year 2022. This decrease compared to prior periods for both the quarter and full year was due to lower cash used in operating activities and a decrease in capital expenditures. As of December 31, 2023, we had $28.6 million in cash and cash equivalents and $12.1 million in gross debt. For the outlook, we are providing 2024 total revenue guidance of $35 million to $38 million. At the midpoint, this implies a revenue forecast that is approximately flat compared to 2023. We are currently expecting approximately 10% growth in Lab Essentials revenue with the difference coming from Clinical Solutions revenue. While we are encouraged by improvements in the sales funnel, our order book and the quality of ongoing discussions with customers, the underlying market environment remains challenging, in particular, with constrained spending by our early-stage biopharma customer segment. As Stephen explained, in January of this year, we decided to pare back certain investments and carried out a reduction in workforce, including management roles. The one-time cost of severance and related benefits associated with this RIF was approximately $1.2 million, which will be recognized in the first quarter of 2024. We do not believe these changes will affect our ability to grow revenue and meet our financial and strategic goals. The company posted operating expenses, excluding nonrecurring charges, below $10 million for the third quarter in a row, reflecting steps we took during 2023 aimed at reducing operating expenses, which resulted in total annualized cost savings of more than $9 million compared to the fourth quarter of 2022, excluding nonrecurring charges. In total, the savings generated by the most recent RIF and other associated cost-saving measures are expected to reach approximately $8 million on an annualized basis, which builds upon the savings realized in 2023. Similarly, the company saw a reduction in free cash outflow during the fourth quarter of 2023. This marks the sixth straight quarter of lower cash outflow. In fact, the company is pleased to report that free cash outflow for the full year 2023 of $26.6 million was significantly below our initial guidance of approximately $30 million. As we turn to 2024, the company expects free cash outflow of less than $18 million. Depending on our top-line growth in 2025, we may be able to achieve positive adjusted EBITDA and free cash flow during that year by continuing to manage our costs and with access to a modest amount of additional capital, if necessary. We are pleased to announce a new amendment to our credit facility. The update primarily reflects changes to our minimum net revenue covenants, minimum cash covenants and restrictions on access to our revolver. The new lower minimum net revenue covenants, including a year-end level of $34.0 million for 2024, should give us improved operating flexibility. Our minimum cash covenant is increasing marginally from $9 million to $10 million. Lastly, we will now be able to utilize our revolver as soon as trailing 12-month revenue exceeds $38 million, down from a trigger of $45 million previously. We believe that we have already made the step-up investments needed to execute our growth strategy, including our new GMP production facility. We believe there is significant margin expansion potential when top line growth resumes. Due to the high percentage of fixed costs associated with our business in both COGS and OpEx, we estimate that each additional dollar of revenue drops through at a marginal rate of profitability of at least 70%. In short, we are excited about the future and the company's competitive positioning in a market with attractive fundamentals. With that, I'll turn the call back to Stephen.

Thanks, Matt. Overall, we were pleased with our fourth quarter and full year 2023 performance and the progress we made against our strategic priorities. We believe the long-term outlook for our end markets remains positive, and we are committed to executing on our strategy to help customers accelerate the introduction of novel therapies, diagnostics and other products that improve human health. We will now take your questions.

Our first question comes from the line of Mark Massaro with BTIG. Your line is open.

Thank you for your questions. Stephen, it seems you may have lost connection after sharing the guidance. Could you repeat what you mentioned about expecting improvements in sales conditions but facing constrained spending from some of your earlier-stage clients? When I review the guidance, it shows a range from minus 5% to plus 4%, which is quite flat at the midpoint. It would be helpful to get a clearer picture of what you're observing in the end markets and what factors could lead to exceeding $38 million or dropping below $35 million.

Great. I appreciate your patience, Mark. Can you hear me? Alright. I want to share my perspective on the market and what we are observing. First, we are starting to see some positive changes in the overall sector. For instance, some of our customers from 2022 who didn't place significant orders in 2023 are now reaching out again. Some have already ordered, while others are planning to do so this year. Currently, our book-to-bill ratio is over one, which is encouraging. Additionally, biotech funding appears to be on the rise again. A critical factor we monitor closely is how this funding relates to our sales. Over the past few years, we've observed biotech funding increase and then decrease. Notably, there's usually about a four-quarter delay from when funding increases to when we see a corresponding rise in revenue. While we are witnessing some hopeful signs now, the immediate impact on our sales might not be as significant due to the sales cycle and the time it takes to utilize that funding. If we are to see any improvement, it is likely to happen in the latter half of this year, possibly by year-end, which could help us exceed the $38 million mark. However, predicting this is challenging, especially considering the fluctuations we've experienced over the past couple of years. Conversely, if there is a shift in the funding landscape or a renewed focus on conserving capital, we could find ourselves closer to the lower end of our guidance. Nonetheless, it seems we are beginning to see some shifts in the sector and in customer behaviors.

Okay. That's very helpful. Maybe on the competitive front, can you just speak to the demand that you're seeing and any changes to companies perhaps doing this themselves, potentially taking things in-house versus sending them out to you? And then relative to some of the other send-out providers, are you seeing any change in dynamics on the competition front?

So I think to answer the first part of that question, no, we have not seen inclination to keep some of the products we make in-house. So that hasn't changed. I think the big challenge in the last couple of years has really just been access to capital and then rationalization of pipelines, particularly in this early stage. And so we mentioned that in 2020, we had 13 customers. 2023 now we have 34 that are buying clinical products. Obviously, most of those are in the early stages, although I did mention that we have three now ongoing into Phase III, which is great news for us. On the competitive standpoint, I would say the answer is no, we haven't seen a change there. We have worked hard to convert some of these customers. We've been successful at taking some share of critical customers from some of the other players in the space, and it really just comes down to the fact that we can deliver these custom products in a handful of weeks versus many months. And so we're seeing some great responses there, and we're moving our focus to be much more obviously on the conversion side than on finding the new opportunities, primarily because we have a lot of those customers actually already buying from us, and it's a matter of timing and when they spend that money.

Okay. Great. And then if I could sneak one more in. Your business touches a lot of other sectors that we track or follow. You talked about how 18 out of 28 biopharma are coming from cell and gene therapy. So maybe can you give us a perspective given that you have such a diversified business, what some of the growth areas are? If we think about the high end of your guidance, where do you think the biggest sources of demand might come from? And then on the other hand, where do you think some of the sources of more soft spending might come from?

Yes. So if you think about across all of the life sciences, right? So we do serve a lot of the tools players as well. So those areas that I know you know are pretty hot right now, whether it's facial or liquid biopsy, single cell that whole segment is doing quite well as well as sort of a new sequencing technologies out there. We are suppliers to many of those companies. And as those continue to grow, we'll see some benefits from that. From the rest of the sector, right, the early-stage pharma still, I think, is having challenges raising capital. I think there are some outcomes that are people waiting for. I think the late stage has been easier as of late, and so hopefully, that trickles down towards those early stages when you get the rest of these things go into the pipeline.

Our next question comes from the line of Jacob Johnson with Stephens. Your line is open.

Good afternoon, everyone. Stephen, regarding the three cell and gene therapy customers in Phase III, I understand you may not want to disclose too much about individual customers, but this seems like a significant opportunity for you as the volumes increase. I'm curious if you could provide some insight into the size of a Phase III customer. Additionally, on the guidance for Clinical Solutions, I realize it’s a challenging comparison, but the outlook seems rather subdued. Why aren't we observing greater benefits from those three customers in cell and gene therapy?

Yes, I can provide some insight. Not all customers have placed their orders yet, so I'm unsure of the exact figures. They're discussing when to order, likely towards the latter part of this year. Timing is a crucial factor here. If they place orders in the fourth quarter, delivery might be pushed to the first quarter, depending on their requirements. I'm cautious about making annual commitments for orders that have not arrived yet. I expect the amounts to vary, potentially reaching hundreds of thousands of dollars for some orders based on the clinical trial size. We typically excel in collecting the downstream processing reagents associated with these products. We're optimistic about these opportunities, but there's still work to do on both sides to get these orders in for this year. Regarding guidance, you are correct. We have a Clinical Solutions customer from 2023, the same one we mentioned about the second quarter last year, which significantly contributed to our Clinical Solutions in 2023. We need to compensate for that as we move into 2024. That customer remains with us, and we are still providing some products for them, but the volume isn't as robust. We hope for their success in clinical trials, as that would present a substantial revenue opportunity for them in 2025.

Got it. For the follow-up, Matt, can you clarify if the $8 million in cost savings is entirely from operating expenses? Also, do you have any insights on when we can expect to realize those savings throughout the year as we plan our models?

Sure, Jacob. Yes, I would say that the vast majority of that $8 million is operating expenses. Thus, we summarize it as operating expense savings. Of course, we are continuing to analyze the cost of goods sold and are looking for and achieving cost savings there as well, which is factored into the margin expectations. We disclosed in January that the savings specifically from the headcount reductions was $6.4 million. There are some additional factors that contribute to the $8 million annualized. Due to the payouts and timing of everything, we expect to see a full quarter of that reflected in Q2 results at this point.

Our next question comes from the line of Steven Mah with TD Cowen. Your line is open.

Great. Thanks for the questions. On the gross margins, how should we think about the gross margin recovery? Is Q4 the low point at 17%? And maybe then give us a sense of when we should expect gross margins to level out and maybe inflect up? Or maybe to ask a little differently, how should we think about gross margins in 2024 versus 2023?

Yes, good question, Steve. First of all, Q4 was very similar to Q3. The revenue was comparable, the gross margin outcome was alike, and the type of costs we had were also similar. So, this result was not unexpected. I believe that as we begin to see revenue recover, we will also see an improvement in margins. Over time, there is significant potential for this improvement, especially due to the high fixed cost nature of our manufacturing operations, particularly with the new facility fully operational from a cost perspective in the second half of last year. I expect the gross margin to align closely with revenue; as revenues increase, the margin should rise as well. It's difficult to predict exactly where the overall numbers for 2024 will land because 2023 was quite variable, with margins fluctuating between 17%, 18%, and even reaching 44% in one quarter, ultimately averaging 28% for the year. There may be some volatility in that gross margin line, but I anticipate an improvement from the 28% over the year. Moving into 2024, I don't expect dramatic changes yet since we are still addressing some headwinds, but I do see year-on-year improvement as quarterly revenues rise. Does that clarify things?

Yes, that's very helpful. I appreciate that. And then a question on the total revenue guide. Is that conservative given your prior comments on you're seeing maybe some green shoots and a potential recovery in R&D spend? And then similarly, on the clinical guide, if I'm doing my math right, there is a fairly significant step down. And I appreciate it, it's from smaller orders from newer customers, but maybe give us a sense on maybe how long it takes for a customer to typically ramp on the clinical side.

Yes. I’d like to refer back to what Stephen mentioned earlier. One challenge we are encountering in our clinical solutions segment is related to a substantial order we received in Q2 of last year. When we adjust for that, the situation may not be as unfavorable as our guidance indicates because we need to compensate for that order. We are taking a cautious approach regarding our expectations for market recovery in the clinical area. There is a lengthy lead time for acquiring new clients, despite the fact that we have significantly increased our customer base. Due to the regulatory and quality assurance processes, it typically takes about 12 months for this business to start ramping up. We believe this is a sensible starting point. However, depending on how the market evolves and how quickly customers progress through their processes, we might see some positive developments. For now, we are confident that this is the appropriate position.

Yes. To add to that, Steve, the sales cycle here involves both onboarding customers and our focus on that effort, which has been quite successful with 34 customers gained in 2023. However, the time it takes for them to generate significant revenue after onboarding is largely determined by their clinical trials and the number of trials we are involved in. We've observed that, despite acquiring these customers and becoming their primary vendor, it usually requires an additional 6 to 12 months to ramp up to substantial revenue. We are actively managing this process daily, though it is taking more time than we anticipated. The positive aspect is that once we establish these relationships, they tend to be quite durable. Overall, we're optimistic about our customer acquisition strategy and believe this will unfold positively in the next 18 months.

Okay. Great. That's super helpful. If I can just sneak one last one in. On the GMP facility, can you give us a sense of your audit schedule and the calendar backlog?

Yes. So fortunately, we don't have a backlog. We've got the facility up and running. It is revenue generating on a daily basis right now, which is great to see. We continue to host customers for supplier qualifications, what I would call it. They come out here, they tour the facility, audit our quality systems and meet the team and then give us the green light, the internal team there, the green light to start ordering from us. And so we still have a number of those lined up already for Q1 that we're finishing up and expect filling up Q2 as well. So there is no backlog on the facility or even that schedule because we get them in as fast as we can. You know that's a critical bridge to cross in order to generate additional revenue.

Our next question comes from the line of Matt Larew with William Blair. Your line is open.

Hi. This is Madeline Mollman on for Matt. I was wondering if we could touch on the decline in Lab Essentials customers. I know you mentioned that there are a couple of SKU rationalizations, things like that. But I was wondering if you could provide any more color on what you think might be driving that.

Yes, absolutely. So there are two things really driving this. First is the SKU rationalization. We took a look at the beginning of last year, recognized that the business has been around for a long time. There are a number of products that we made sporadically, very small batches, very costly to make that were really for a handful of customers, if not only one customer, generating very little revenue. And so we made the decision then to rationalize SKUs and migrate customers to some of our other catalog products. And of course, there are handfuls of customers, as you can see from the change there, that aren't going to order again. What you can see, though, is that the revenue did not shift dramatically, and that is exactly what we are intending there. So we're a much more efficient organization. I think we'll see that as we scale up in revenue, you'll start to see that, like Matt talked about the contribution margin dropping about 70% as we go forward. So that's one piece of two that is causing this. The other part, as we did a lot of account hygiene management, where we cleaned up the way we count unique customers and make sure that many companies may have multiple accounts, we make sure we're not double counting and things like that. And it's not that we're double counting before, but just the way that we set up our system now to have ten organizations and truly treat everyone at the same address as a single account. So you'll see in our supplementary slides that we've actually restated history as well, so you can see the trends and growth and things like that.

Great. And then continuing on the theme of customers, I think something we've heard a lot this last couple of months is an effort by companies to get a little bit closer to their customers, whether that be through surveys, through working more closely with their customers. I was wondering if there were any tools or processes that you added internally to kind of better get an insight into what your customers were thinking when it comes to forecasting.

We've implemented several tools, particularly for forecasting, which usually take the form of quality and supply agreements with our larger customers. For other customers, it's crucial for us to ensure they are satisfied with our service levels, as our business model relies on repeat orders. Over the past couple of years, we've been monitoring our Net Promoter Score from the perspective of our customers, conducting these surveys a few times each year. We've noticed a significant improvement, reaching what I believe are industry-leading scores in the 60s. This success is attributed to our commitment to timely delivery and high customer service standards. We maintain strong relationships with our customers, allowing us to gauge overall satisfaction, whether it pertains to $50 catalog items or $100,000 orders.

Our next question comes from the line of Paul Knight with KeyBanc. Your line is open.

Hi, Steve, we've had maybe up to four approvals here and in 4Q one in the cell and gene therapy. Will you benefit from these? Or what are you seeing here in Q1?

I believe we will gain from this as it will highlight the value of these products, assisting other companies in raising funds and investing in the sector. We have three products entering Phase III this year. The ones that were not approved did not participate in that specific manufacturing process. Overall, I anticipate a record year for cell and gene therapies, which is beneficial for us. Our performance is closely linked to biotech funding in this area, so any advancements in that sector will likely influence our revenue within a four-quarter lag period.

We've seen clinical trials in cell and gene therapy increase in the latter part of '24. Are you seeing that? And are you seeing that really from the more well-funded, larger biopharmas? What are your thoughts there?

Yes, Paul, I believe you're referring to the second half of '23. Currently, smaller midsized biotech companies in earlier stages are facing more challenges in securing funding compared to larger firms or those further along with substantial clinical trial data. This remains a significant issue, and I hope to see improvement over the year. In the meantime, we are directing our efforts towards larger companies and those in later stages, which is helping to build our pipeline.

So we have $12 million in a term loan outstanding. We have a revolver that I mentioned that we will get availability to once our trailing 12 revenue hits $38 million. That is up to $5 million. It's based on borrowing base of accounts receivable. So it sort of depends on what our receivable levels are, but it's up to $5 million.

Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. That concludes today's conference call. Thank you for your participation. You may now disconnect.

Thank you.

Thank you.