Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Reported $73 million in revenue for Q2 2024, showing solid financial performance.
- Cash on hand at the end of the quarter was $573 million, indicating strong liquidity.
- Successful launch of new products, including catalog mRNA offerings and IVT enzymes, which exceeded sales expectations.
- Completion of key milestones at the Flanders facilities, enhancing manufacturing capabilities and operational risk mitigation.
- Strong market response to new product introductions, reflecting effective innovation and customer engagement.
Negative Points
- GAAP net loss before non-controlling interests was $14 million for Q2 2024, compared to a net loss of $12 million in Q2 2023.
- Adjusted EBITDA margin was 23%, trailing internal expectations and showing volatility over the past six quarters.
- Higher start-up costs and preparedness expenses tied to the Flanders facility impacted profitability.
- Decline in Biologic Safety Testing segment revenue, particularly due to unexpected drops in China.
- Incremental expenses in R&D efforts and collaborations, such as with Johns Hopkins, added to operational costs.
Q & A Highlights
Q: Were there any one-time or lumpy orders in the quarter, and why should we expect a continued decline in revenue in the third quarter?
A: Yes, there were some high-volume CleanCap orders that contributed to the quarter's results. We expect a sequential decline in the third quarter due to the absence of these large orders. However, we are hopeful for a recovery from this low point.
Q: Can you remind us how much of the Biologic Safety Testing (BST) segment's performance is tied to China?
A: Over 80% of our BST results are tied to China. The drop in Q2 was a surprise, but we have had steady quarters prior to this. The exposure is now in the tens of millions for BST.
Q: What are you seeing from pharma customers in terms of their discovery R&D spend versus later-stage projects?
A: We have seen some reprioritization across the sector, with companies shifting focus from one area to another. However, the fundamental backdrop remains positive, and we see positive dynamics in terms of monitoring program stores.
Q: How are you approaching the strategy of winning customers early in discovery and then shifting them to GMP as they move along their pipelines?
A: It's still early days in mRNA, and many programs started in-house. We see opportunities as programs modernize, and we offer our well-traveled clean script process to bring efficiency to those programs.
Q: What are you assuming in your back half guide in terms of early-stage biotech contributions, and can you comment on the pricing environment?
A: We are not expecting substantial growth in early-stage biotech contributions for the rest of the year's guidance. Pricing is a function of each individual program, and we take price opportunities where possible, but there is no specific target number that would be in jeopardy.
Q: Can you quantify the OpEx change from Q2 to the second half of the year?
A: On an adjusted EBITDA impacting basis, OpEx will go down from current levels as many of the startup costs and professional fees are behind us.
Q: How important is it to your customers that NTPs are manufactured in the U.S., and are you seeing this bear fruit?
A: It has become a significant strategic advantage to have our manufacturing in the U.S. Customers are showing tremendous interest in the origin story of the supply chain, which we believe will be a substantial change moving forward.
Q: Do you have the capacity built out at Flanders 2 where you want it, or are you still building out additional clean room capacity?
A: We are at the tail end of the capital side, with no more substantial CapEx needed to turn on the multiple suites. Our job now is to scale in from a labor and overhead perspective as we fill the factory.
Q: Can you describe your recently announced agreements with large CDMOs and how they influence your adjusted EBITDA margins going forward?
A: These relationships are strategic and symbiotic, helping CDMOs provide the best technology and end products to their customers. Economically, it boils down to volume, and we do not see the underlying margins differing much from historical margins.
Q: Can you characterize the size of the markets you are accessing with new products relative to CleanCap?
A: We are focused on covering fundamental elements of the IBT workflow and bringing next-generation mRNA solutions. Our innovation aims to improve mRNA purity, yield, and cost for customers, making us a one-stop shop for all inputs to the IBT workflow.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
