Conference Transcript - TKNO 2026-03-19

Operator

Good afternoon, and welcome to the Sidodian Company March Virtual Investor Conference. The next company up to present is TechNova. We have with us the CEO, Stephen Gunstream, the CFO, Matt Lall. It'll be a 30-minute presentation. There should be about five or 10 minutes at the end for questions. So if you do have a question, you can type it into that Q&A box at the bottom of your screen, and we'll get to it as time permits. So with that out of the way, it's all yours, Stephen and Matt.

Stephen Gunstream, CEO

Thanks, Jim. Really appreciate the time today. We're happy to talk to you about TechNova. We really feel like we're at an inflection point in the business. It's been a challenging, you know, last four or five years, but we put ourselves, I think, in a great position for long-term growth here. So real quickly, a background on the company. This is a company that is not new. This is our 30th year anniversary. and we are well known for being the key providers of discovery development and commercialization regions for next generation therapeutics and diagnostics we finished 2025 with 40.5 million in revenue seven percent growth we have over 3 000 active customers these are active customers that purchase products every year from us and when just to put in perspective like Amgen is one of those 3,000, right? So lots and lots of end users at the end of the day. Over the last five years, we've really taken a business that was grown through the years by providing great quality products for discovery and built out the capability to support these clinical therapeutics and diagnostics. And you can see that in our clinical customer growth of 25%. We're now supporting 60 clinical customers, over 70 therapies in clinical trials. and 24% of our revenue is from cell engine therapy. So excited about the business. I think this is a turning point for us. We have some big milestones coming up in 26, 27 around supporting commercialized therapeutics and diagnostics about turning adjusted EBITDA positive. And I'm just really excited about where we sit as this market starts to cover. So we support three primary products at the market. The first is Agriplates. you can see that picture there those look like petri dishes and that's that's exactly right this is for growing bacteria or fungus very often used in discovery processes when you're trying to express a protein or environmental monitoring in clean rooms the second is liquid microbial culture media and supplements this is the liquid version of growing bacteria so if you're manufacturing plasmids for example you put bacteria in a bioreactor and you need the food to feed that bacteria that's what we sell obviously in bottles and bags and tubes and the last piece here and the largest portion of our business in molecular biology reagents think about your seventh grade chemistry class acids bases buffers different solutions to purify dna or purify rna or proteins or manipulate different reagents and things along the way widely used across both the therapeutic diagnostic market segments. From an end market perspective, 50% of our business is sold to biopharma. This includes CDMOs, biotech, large pharma. You can see over a thousand counts in this space. The majority of our revenue actually comes from biopharma. We have about 400 accounts and tools and diagnostics, right? So that represents about 30% of our business. And then remaining uh 15 is a long tail of customers for everything from academic um and to food to um animal health right across the board uh in this long tail of customers and then we have five percent of what we call non-product revenue that's more freight shipping stability studies service fees expedite fees that sort of thing you'll see in our revenue you know we have a disaggregation that separates what's called lab essentials from clinical solutions lab essentials represents what we call research use only products those are products for use in research not for use of manufacturing therapeutics and diagnostics for commercial use that is the majority of a business about 75 percent within there the largest portion that about 80 percent of that 75 percent or 60 percent of our total revenue is what we call catalog products these are products that we inventory and ship within the next day when a customer orders. This supports the broad base of customers, a very diverse segment for us, and is very repeatable and predictable as you'll see going forward here in a minute. The remaining 15% in that 75% is custom products for research use only. This supports where we do some private labeling from some tools customers. We do some private labeling for other types of diagnostic customers are using this in a laboratory developed tests and like the other 25 percent is made up of that other category the non-product piece but also 20 in clinical solutions unlike the lab essentials business 90 of this clinical solutions is custom so this is where customers give us their formulation and ask us to make it in our production under a gmp environment so they can use it for manufacturing say their therapeutic we have a small portion that is catalogued here these are standardized reagents that just go into their their clinical workflow all the time but the majority of that business is a custom so ultimately why do we win why why are we positioned uh for uh against some of our competitors here i mean the first piece here is this this link between research and uh commercial therapeutics we have this broad base of predictable stable and growing uh lab essentials business with this catalog portion right that's where we get these lots of orders every day ship them out they're like 50 75 dollars per unit here and that provides us foundation but we can take those customers and migrate them to custom products or to gmp products you can see on this on the left hand side here that as you do that their average spend goes up significantly so this allows us in door and helps them go from you know discovery through development to commercialization uh the second piece is our batch sizes right we do lots of work orders every day right so we can do small batches and can do it cost effectively the industry has been set up in the space for large batch production of the same product and so you do 10 000 liters and then you get the exact same thing out the door in the new areas of diagnostics or therapeutics what you need us much more smaller custom batches of products, right? Less than 1,000 or 2,000 liters, all the way down to even the hundreds of liters, right? And so this custom piece of the smaller batch size allows us to serve this better than some of the larger players in the space, which are very good to do the big stuff, but they cannot do the small batch stuff. And that ties to the last piece here, speed of turnaround time. If you order a custom formulation in 100 liters, you might be waiting 12 or 16 weeks from some of the other players where we will get it in production within a week and so that is a big game changer for these customers whether they're working on a clinical trial or a diagnostic you know the fact that we can reproducibly make their product specifically to them and get that out the door is one of our biggest differentiators and so why why can we do this and others do not um i have two pieces here i'm going to start on the left this really comes back to how many batches we do a day right i have a graph here where the y-axis is cost per liter the x-axis is the batch size right and what you see really clearly is the number of batches today per day will drive down the overall cost per liter significantly particularly as you get to small batch sizes and the way we operate where we can make these catalog products and hundreds of leaders all the time and then if someone needs a custom product we can slot that in use the same people use the same overhead the same facilities the same qc to make that happen really drives down our costs and makes it much more affordable for us to present that product to them and others in the space on the right hand side i've kind of laid out hey this is how we do this right it's really hard to set up a business to scale this way sure a small company can take some custom orders but can they do 40 work orders a day and do it effectively and and then having that demand for all those small orders actually gives you a big advantage so the first piece here is around dynamic capacity i think this is a really important one that's often missed with our business the fact that we make these products that go to inventory and custom products using the same overhead in many cases allows us to say okay we get this big custom order in instead of manufacturing these products that go into stock we're going to use that manufacturing resources to actually make these custom products and swap seamlessly between these two pieces right that That allows us to do full manufacturing utilization during that time without having to create a new overhead, right? So you can imagine if you were just running this custom, it would be very hard, almost impossible to be profitable, especially at small scale, with the fact that we have this dynamic capacity between catalog and custom products as an asset. From a how-do-you-scale perspective, those next two bullet points are critical. We built our own IT systems, right, from the ground up that will scale all the way to 200 million of revenue. So that's everything from customization of ERPs and manufacturing execution softwares and everything like that so that we can actually scale this. We also have our own internal engineering team to make this happen as well. In the integrated supply chain, right, it is Thursday today. We don't know exactly what we're making on Monday. You can imagine how hard that would be to set up. So we need to have all of the right raw materials on site. Luckily, we have that catalog business to help us with that, but then to source them, get them to the right location and out the door. So this supply chain automatically running is critical. The last piece here I just want to touch on is around the know-how. You need to know how to make these formulations if you don't know what's coming in. So we can look at a formulation, we can automatically route it through production, knowing that hey this product needs to be mixed at a certain temperature this one needs to be done in a glass vessel versus a bioreactor based on the formulation and that comes from 30 years of know-how so this is why we think that we're in a great position as we start to scale and support these customers now i want to transition to sort of what are the key takeaways like where are we now and why are we so excited over the next couple years the first piece here is that we are already now a critical supplier to gmp of gmp reagents for therapies and diagnostics um the second piece underneath that we are supported by this great lab essentials business that is not only diverse but it's growing it's grown 11 since 2008 and then as we grow we're going to drop significant leverage to our pnl and then lastly here then we have some catalysts that are creating some tail lens so quickly i just want to touch on this this is the number of clinical customers that we've onboarded since 2020. So we've gone from 13 to 60 with a 25% growth between 24 and 25. Purple represents the therapeutic companies. Orange is the non-therapeutic, more diagnostic or private label. This is looking at those therapeutic companies specifically. We're supporting over 70 therapies and clinical trials. As you can see on the top here, what this illustrates is that from phase one to commercialization, we expect about a 30-fold increase in purchases from a specific therapy along the way. On the bottom shows where the therapies we support sit, right? So we have five in phase two or phase three, of which we expect at least one to be a commercial by the end of 2027. And you can see that scale is about a 10-fold increase when that happens. We have 12 in phase one and well over 55 in the preclinical. So these are moving down. We used to only have three in phase two or three and last year and 10 in phase one so we're seeing the right momentum here and as of course as more of these go through commercialization we'll see some some growth the other clinical customers like I said do a lot of private label we do some work in liquid biopsy and cancer screening we do some private label of products that are using bioprocessing for their therapeutic customers and so you know this is also very exciting and market for us where we're getting some diversity in that clinical solutions business. Now, just to touch on the Lab Essentials piece, right? I think this, like I said, may be unrecognized in the space that how diverse this business is. I said over 3,000 customers, but from a concentration perspective, the top 10 of our customers represent only 18% of our revenue. This is very rare in this space. So we don't have a single customer over 5% of our revenue here. And then on the right-hand side, you can see the different end markets we serve and the length of tenure these customers have been with us. Most of these well over 10 years with us, right? So this is not new. We're not adding, you know, big customers right away. We built this block by block, and it's growing, right? So I'm just going to jump to this slide. This is the revenue since 2008 of this Lab Essentials business. You can see we've grown on an average 11%, and it's relatively consistent. The one piece, obviously, in the pandemic, we had a big surplus here. That said, you can see the last couple of years, we are back on to that 11%-ish growth over time and expect that to continue. So, very excited about these two pieces. I'm going to hand it to Matt here to talk through how our P&L changes as our revenue increases.

Matt Lowell, CFO

Thank you, Stephen. Yes, we're very excited. we've been spending the last several years building some substantial capabilities. And because those things are largely built at this point, it gives us a significant opportunity to get towards profitability and then become profitability in the near future. So one of those investments, the most significant we have is that we've built a brand new GMP production facility. And you can see a picture of our colleagues here celebrating a win on the right. But the great thing about this facility is that it can, this, along with the other facilities that we already have, can allow us to grow to about $200 million in revenue without very limited additional capital investment. But it's not just the hard assets, the buildings, the clean rooms, everything else, which are very important, but all the infrastructure around it, in particular, the IT infrastructure and other customizations that we've done in the facility to be able to do many batches a day, as Stephen was mentioning earlier. So a substantial investment that is basically completed. Go to the next slide, Stephen. So a little bit of the numbers here to show our journey, and this starts in 2022, and the last year is 2025. We have effectively held our revenue constant through a very difficult period in this market. The biotech funding had dried up starting in 2022, and in spite of that, through our efforts, we have been able to maintain this business that grew substantially during the COVID period. At the same time, we've also worked very tirelessly to pull costs out of the business during this difficult period. And in particular, with the dotted line there, you can see that's the number of people we have to run the business has dropped by about 50 percent from roughly 300 to roughly 150. So that has narrowed the losses substantially, a $7 million adjusted EBITDA loss in 2025. but that puts us in a great position as we look forward and anticipate future growth in 26 and 27. In fact, we've laid out there that we do expect to be adjusted EBITDA positive by the end of 2027. And specifically, we've called out that revenue range to be between 52 and 57 million on an annualized basis, or said differently, 13 to $14 million revenue quarters will be about the time that we turn adjusted EBITDA positive. So the main thing to think about is, if you want to go to the next slide, Stephen, is the fact that each new dollar of revenue results in about 70% of that revenue dropping through as profit to the bottom line, and gross margin in particular, which is what we focused on in this slide. In the graph, you can see the historical 27% margin in 2024, 25% was a significant boost to 33%. But as we grow the revenue further, because of this 70% metric that's been proven out already, we will be at 55% to 60% when we double this business to roughly $80 million, right? And even as we may expect further growth for there with the leverage we have, we'll be at 65% plus as the company scales. So we're very excited about this push towards profitability and it will come quickly because of this high fixed costs that we have and high contribution margin going forward lastly we'll just talk about a couple of the catalysts beyond what we've already discussed and one of the big ones is the fact that we're making an additional investment in this business for the first time in several years we're investing rather than cutting costs and we believe it's the right time to do so because of the positive trends in the market, in particular with biotech funding and other conversations we've been having with customers. So we're putting $2 million to work, which is a reasonable size investment for us. We're putting it into resources in the field, first and foremost, that will allow us to expand the number of companies we can engage with. Secondly, we're putting money into promotion and promoting our brand through marketing activities, including things like attending more trade shows as we targeted a broader customer base that is a good match with our capabilities and lastly we are investing in some resources and tools to help once those leads come in to qualify them and convert them so that we have the best chance of success when our sales force interacts with those and we've got some cool things going including an ai based tool so that may have some impact in 2026 more likely in 27 but that is an upside if some of it, we see that benefit happening sooner than later. Next one, Stephen, and then this chart on the right, the purple bar show biotech funding, and the orange line shows a portion of our revenue that is very closely tied to biotech funding, and that's the biopharma revenue that we have of custom products. And generally, there's about a three to four quarter lag. When funding goes up in the industry, we will see that three to four quarters later in our revenue line. And that's been a pretty good predictor in the past when it goes up or down. And as you may be aware, Q4 2025, as shown in the chart, was a very strong biotech funding quarter. And it's continued here through Q1. We don't have a full quarter yet, but it's been another strong quarter. So if this persists, this could be an upside as well. We haven't baked that into our guidance, but I think if what happens, what we expect happens, happens, then it'll be a positive for our business also in 2026. And lastly, and this is for 2026 or beyond, we are taking now that we're in a stronger position to look at M&A opportunities and collaborations as well. There are some potential products that we could add to our portfolio, some of which are listed here, that would be additive to the story. In addition, there's a possibility of geographic expansion because we are 95% of our revenue in the U.S. There are some nice opportunities, particularly in Europe. So it could be some other businesses that represent these product or geographic fits that we'll look at, but only if it makes sense. We are not compelled to do this, but if it makes sense, the right value is there and it doesn't push out our timeline to cash flow positive, we will look at these transactions. And this is our team. And these are the people that make it happen, extremely important. And I think importantly, this team has been together for three to four years already through this difficult period, and we have a wide range of expertise, and we're all very excited about the future. So just to conclude the deck here, Stephen highlighted the two aspects of our business, this very steady research-based catalog business is the foundation, and that's growing at a healthy clip. And on top of that, we have this exciting clinical solutions business, which the number of clinical solutions customers keeps growing, creating further future potential as they move down through clinical trials and spend more with us. And as these things work together in tandem, these are our financial targets that we have on the right-hand side. We believe that 20 to 25 percent top-line growth is well within reach, 60 to 65 percent gross margins, and 25 to 30 percent adjusted EBIT margin.

Operator

So happy to talk more about the business, but thank you for your interest here great thanks for the update um so so the biopharma customers if if those products get fda approved and into the market those custom products is that a clinical solution product or a lab essential product yeah clinical solution products the clinical solutions represent um all of our products made under gmp so those would need to be made under gb and that'll being clinical solutions and is that a more profitable product for you than than the um lab products yes i would say generally so um the unit economics and the clinical solutions products

Matt Lowell, CFO

are are better than the the lab essentials although the lab essential certainly has a healthy profit margin too but on the margin yes and i assume if a product goes into production the order to you goes up by a magnitude of 10 at least right yeah it's about a tenfold increase from phase two, phase three to the commercial.

Stephen Gunstream, CEO

And that's, you know, often these clinical trials are for small numbers of patients, 20, 30. And then, of course, they're treating much larger population patients. We expect about a tenfold increase.

Operator

And just, I'm sorry, I don't remember. How many products do you have in phase two and phase three at this point?

Stephen Gunstream, CEO

We have five therapies we're supporting in phase two or phase three.

Operator

And we expect to be supporting a commercial therapy sometime in 2027 all right so because i'm looking at your guidance for uh 2026 you know you know mid single digit top line growth but then you think you'll hit break even by the end of 2027 and you know to get to that 55 million dollar runway you know you're looking at 20 plus percent growth in 27. is that assuming some of these products getting to the to the clinical stage or Yeah, I do.

Matt Lowell, CFO

There's a couple of reasons why we think that's going to happen, Jim. I mean, the first thing is just about the guidance in 26. Yeah, we basically assume that growth will be similar to 2025 growth, but there are some upsides to 2026 itself, which is that our commercial investment pays off sooner. And also that this biotech funding, if it persists where it is, that could also impact us in 26. But 27 is certainly going to be a bigger growth year for the reasons we just talked about, both biotech funding and the investment, but also due to the fact that we have at least one customer that's going to turn to a commercial phase customer in 27, where we see those volumes multiplying significantly. So yeah, it seems like a large percentage. Obviously, we're a small company, so the dollars numbers don't need to be that huge to get to those kind of numbers, particularly when you have some that may, you know, see a tenfold increase. So we're feeling pretty good about that growth for both this year and 27.

Operator

And now that you have your production facility complete, I assume that that revenue, the majority of that extra revenue just drops right down to the bottom line?

Matt Lowell, CFO

Yeah, we'll use that 70% rule. I mean, certainly it's going to vary. There's going to be some higher and lower than that 70%. But I mean, we do have some variable costs, but there's a very high fixed cost. So yes, it'll be highly profitable revenue as it comes in.

Operator

And the biotech farmer funding, you measure just the number of IPOs, or how do you measure that?

Stephen Gunstream, CEO

Yeah, there's a lot of reports out there that combine biotech funding from IPO, private placements, but also venture capital private you know all the pieces together for biotech for funding uh and and so we just track that on a monthly basis and like matt said q4 was a great uh increase and but we really need to see this sustainable right and it needs to be lots of companies but so far q1 also looks like that so we're pretty confident it's going to continue through the through the rest of the year well the fact you're investing that extra two million dollars i think means that you're fairly confident that that's sustainable um you know can you give us a sense you said part of that we'll go to an expanded sales force you know how big is your sales force now and how big would will it be once you expand it yeah we've already done the expansion so we decided to do this in the fall and so we actually started the new individuals in january um it's it's a pretty small sales force in the field we don't need many people less than 10 in the field um they're very focused on the target opportunities that are out there we have a team internally that does a lot more of what we call the farming right the customer service and then managing existing customers identifying which customers then can be migrated to that customer gmp um and so this is a you know this is a just a couple individuals that have a ton of experience in the space um around tools diagnostics and large pharma and the fact you're u.s based is that a competitive advantage and you know because of the tariffs is that helpful it can be i mean certainly there's lots of lots of groups that want to buy from a U.S.-based manufacturer, and so we are one of those. The onshore is probably more of a tailwind if and when that happens, right? We're starting to see some movement there in building facilities, but it'll take a little bit of time until the actual orders start rolling in from some of the onshore of the manufacturing therapies.

Operator

I think about $20 million you have cash on hand, plus your line of credit. Is that enough to get you through cash break even?

Matt Lowell, CFO

Yes, yes, Jim, we believe so. We have the $21 million at the end of the year in cash and liquid securities. We have, as you mentioned, a $5 million unused line of credit also. But with this kind of profitability, the 70% drop through the growth rates we're expecting, especially heading into next year, we feel confident we have the capital to get to cash feel positive with our organic strategy if we have some kind of a an m a deal that works out that would be a separate consideration but to just execute our organic story which is very strong yes we do all right you know the revenue growth you're anticipating is that mostly from going deeper into the existing customer base you have or is that the growing customers overall ask that again i'm sorry is there what so do you do you expect to get to those you know

Stephen Gunstream, CEO

those higher revenue numbers by selling more to your existing customer base or by adding new customers yeah i mean i think you know in the u.s we actually cover almost all customers to a certain extent so it's a little bit more migrating so it's more new clinical customers right so getting to the right gmp customers and then onboarding them and going down that that pipeline but also don't forget that lab essentials business has been growing 11 so the combination the clinical solutions ramping up and that baseline growth 11 that's why we think we did the 20 to 25 percent growth that lab essential business is primarily a catalog business you know how do you grow it so so consistently yeah so it's a it is 80 of that is catalog and we are differentiated in that catalog business by the breadth of portfolio we offer so we offer all the formulations uh customers would want and whatever size they would want and that has to do with our manufacturing capability but a lot of the growth also comes from these private label and the other customization we do in that remaining 20 of that lab essentials business right where you know we're benefiting from being a supplier to cancer screening companies or to spatial genomic companies or to enzymes being used in sequencing or sequencing companies right so we tend to get into these uh these sort of high growth areas early stage and then expand within there and that that has proven you know since 2008 is a great great business uh proposition and the sales team you have you have on hand now i mean is that primarily selling clinical solutions products or yeah i mean i think um they do they do both they they absolutely do both i mean they're really looking at these higher value opportunities and not the say the small academic and others that will buy maybe a couple thousand dollars a year that is done through our distributor partners in the us they're more focused on these custom larger value order opportunities whether it's a tools diagnostics or clinical solutions but i will say historically the last three years been much more focused on the therapeutic side hence the investment now more in the tools diagnostic side because i think there's a big opportunity there for us right all right we are at time i is there any closing comment you want to make yeah i think you've heard it we're excited we think this is a good business we've worked very hard to put ourselves in this situation and uh i'm excited to enjoy the next couple of years of seeing the strategy come to fruition and and i just want to thank you again jim and sedoti for the support we have a great line of meetings this week and and always appreciate uh coming to the the show yeah thank you i mean were with us a few months ago and you know you're back there you can definitely see significant progress you know in that time so look forward to uh seeing you again getting another update Thank you, Jim.

Operator

Thank you, everyone.