Alpha Teknova Inc

NASDAQ:TKNO

Earnings Call Analysis

Teknova's Q3 2024: Revenue Growth and Cost Management Positioning for Future Stability

In Q3 2024, Teknova achieved a 17% revenue growth, reaching $9.6 million, driven by a strong 229% increase in Clinical Solutions sales. This offset a slight decline in Lab Essentials revenue. Despite a $2.8 million nonrecurring charge affecting gross profit—resulting in margins at just 0.9%—the firm sees a future where gross margins could rebound sharply. Operational expenses dropped to their lowest since 2021, enabling a narrower loss of $7.6 million. Looking ahead, Teknova maintains a revenue forecast of $35 million to $38 million for 2024, with Lab Essentials anticipated to grow about 2%.

Strong Revenue Growth Amidst Operational Challenges

In the third quarter of 2024, Teknova reported a revenue increase of 17%, reaching $9.6 million compared to $8.2 million in the same quarter last year. This growth comes despite challenges faced by some of their biopharma customers, highlighting the resilience and diversity of Teknova's customer base. Notably, no single customer contributes more than 4% of overall revenue, which mitigates the impact of downturns in specific accounts.

Product Performance Breakdown

The company's revenue streams show mixed results; while Lab Essentials revenue slightly declined by 2% year-over-year to $7.2 million due to lower average spend per customer, Clinical Solutions revenue surged by an impressive 229% to $2.0 million. This growth is attributed to an increase in customer numbers and higher purchase volumes from existing clients. As Teknova’s clinical customers continue to progress towards commercialization, they anticipate that average revenue per customer will rise.

Operational Efficiency and Cost Management

Over the last two years, Teknova has taken significant steps to streamline its operations, leading to a reduction in annual operating expenses by over $19 million since 2022. The most recent quarter reflected operating expenses of $7.5 million, the lowest levels seen since the company’s IPO in mid-2021, resulting in a reduced free cash outflow of $2.4 million, a significant improvement from $5.4 million a year prior.

Impact of Inventory Write-downs on Profitability

Despite the revenue growth, gross profit for the quarter was just $0.1 million, a sharp decrease from $1.5 million a year earlier, primarily due to a one-time $2.8 million nonrecurring inventory write-down. Excluding this charge, the gross margin would have impressively been around 29.8%. The inventory write-down stemmed from previous overproduction in anticipation of higher demand, which did not materialize.

2024 and Beyond: Revenue Guidance and Growth Prospects

Looking forward, Teknova has reiterated its 2024 revenue guidance of $35 million to $38 million, signaling expectations for overall revenue to be flat compared to 2023. Within their product lines, they predict approximately 2% growth in Lab Essentials revenue. Notably, the company anticipates achieving approximately 13% average revenue growth over the coming years, leveraging a compounded annual growth rate seen from 2019 to 2023.

Sustainable Growth Strategy and Market Stability

Management expressed confidence in their long-term goal of sustainable above-market growth, particularly as the biopharma market has stabilized and is expected to see modest growth in 2025. They are committed to building a robust pipeline of clinical customers and improving operational efficiencies, which positions the company to support significantly higher revenue levels, potentially reaching around $200 million.

Cash Position and Future Financial Stability

As of September 30, 2024, Teknova holds $31.7 million in cash and short-term investments against $12.1 million in gross debt, providing a solid liquidity position to navigate through the forthcoming growth phases without requiring additional capital raises.

Challenges Ahead: Seasonal Fluctuations and Customer Spending

Despite overall positive outlooks, Teknova is also addressing anticipated seasonality impacts, particularly in the fourth quarter, which typically sees lower revenue due to fewer business days and a significant Clinical Solutions order that has been postponed to 2025. Management emphasized the ongoing efforts to control spending and customer engagement levels, which will be crucial for maintaining momentum as they move into 2025.

Earnings Call Transcript 2024-Q3

[Operator]

Hello, and welcome to Alpha Teknova Third Quarter 2024 Financial Results. [Operator Instructions]

I would now like to hand the conference over to Jennifer Henry, Teknova's Senior Vice President of Marketing. You may begin.

[Jennifer Henry, executive]

Thank you, operator. Welcome to Teknova's third quarter 2024 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 information about the company's financial performance and the effectiveness of its business strategy. 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 on both Teknova's and the SEC's website. 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, executive]

Thanks, Jen. Good afternoon, everyone, and thank you for joining the call today. We reported strong results in the third quarter with 17% revenue growth compared to the same period last year and quarterly free cash outflow of $2.4 million, our lowest level in over 3 years. I am pleased with how we're advancing our strategy while continuing to manage our costs, and I believe we are on track to achieve our long-term goal of sustainable above-market growth.

Let me start by talking about the biopharma market environment. Even though some of our biopharma customers continue to rationalize their clinical pipeline and reduce headcount, we believe the market has now stabilized, and we expect modest growth in 2025. Notwithstanding that market environment, our growth in the third quarter was driven by sales of custom research and clinical-grade reagents to biopharma customers. We are also encouraged by the fact that the number of our active clinical customers again increased in the third quarter. The growth in the number of accounts and our sales to these biopharma customers is encouraging because we expect these customers to increase their annual spend with us as their therapies move closer to commercialization. Outside of sales of custom products to biopharma, we were also pleased with the underlying performance of the broader business.

Our Lab Essentials catalog -- our Lab Essentials catalog sales returned to high single-digit growth, offset primarily by lower sales of custom products to a few large life science tools companies, which we believe were either timing related or account-specific. Our ability to achieve high rates of revenue growth in spite of headwinds associated with a few customers is a testament to the diversity of our business and customer base with no single direct customer representing more than 4% of our total revenue in the trailing 12 months. When it comes to managing our costs, we are seeing the benefit of the difficult decisions we've made over the past 2 years. We have reduced our operating expenses by more than $9 million on an annualized basis since the end of 2023 and $19 million since the end of 2022. Lower operating expenses have combined with operational improvements to deliver our lowest free cash outflow since we began investing in our growth strategy in the first half of 2021.

In summary, I feel confident that we will achieve our long-term goal of sustainable above-market growth for several reasons. First, the biopharma market environment has stabilized in 2024, and we expect modest growth in 2025. Second, we continue to build a strong pipeline of clinical customers, which we expect will drive additional revenue growth as their therapies move towards commercialization. Third, our business is prepared to scale with the infrastructure and facilities in place to support up to approximately $200 million in revenue. Fourth, we have successfully reduced our costs while executing on our core strategy. And finally, we have the liquidity necessary to reach profitability without additional capital.

I will now hand the call over to Matt to provide additional color on the financials.

[Matthew Lowell, executive]

Thanks, Stephen, and good afternoon, everyone. Results for the third quarter of 2024 from a revenue perspective were up 17% from the same quarter prior year. Excluding the impact of a $2.8 million nonrecurring noncash charge that we will discuss in further detail later in our prepared remarks, we delivered solid financial results for the third quarter of 2024. Total revenue for the third quarter of 2024 was $9.6 million, a 17% increase from $8.2 million for the third quarter of 2023 and a level similar to the second quarter of 2024. Lab Essentials products are targeted at the research use only or RUO market and include both catalog and custom products.

Lab Essentials revenue was $7.2 million in the third quarter of 2024, a 2% decrease from $7.3 million in the third quarter of 2023. The decrease in Lab Essentials revenue was attributable to lower average revenue per customer, partially offset by an increased number of customers. Consistent with the last 2 quarters, we saw a sequential increase in the number of Lab Essentials customers during the third quarter. 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 $2.0 million in the third quarter of 2024, a 229% increase from $0.6 million in the third quarter of 2023.

The increase in Clinical Solutions revenue was primarily attributable to an increased number of customers and to a lesser extent, higher average revenue per customer. Consistent with the previous 3 quarters, we saw a sequential increase in the number of Clinical Solutions customers during the third quarter. 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 order size in Clinical Solutions compared to Lab Essentials, there can be quarter-to-quarter revenue lumpiness in this category.

On to the income statement. Gross profit for the third quarter of 2024 was $0.1 million compared to $1.5 million in the third quarter of 2023. Gross margin was 0.9% in the third quarter of 2024, which was down from 18.0% in the third quarter of 2023. The decrease in gross profit percentage was attributable to a $2.8 million nonrecurring noncash charge related to the disposal of expired inventory and write-down of excess inventory created in the second half of 2022 when we increased production in anticipation of persistent high demand. Instead, demand dropped abruptly to which we responded by decreasing production and ending both our second and third shifts. We have now determined that it is appropriate to write down the remaining inventory manufactured during that period to its net realizable value. Excluding the impact of this charge, gross margin would have been 29.8% in the third quarter of 2024.

Operating expenses for the third quarter of 2024 were $7.5 million compared to $10.2 million for the third quarter of 2023. Excluding the nonrecurring charges of $0.4 million recorded in the third quarter of 2023 related to the write-off of at-the-market facility costs, operating expenses were down $2.3 million. The decrease was driven primarily by reduced headcount and spending, in particular on professional fees. Operating expenses continued to decline in the third quarter of 2024 and were at their lowest level since our IPO in the second quarter of 2021. Net loss for the third quarter of 2024 was $7.6 million or $0.15 per diluted share compared to a net loss of $10.2 million or $0.34 per diluted share for the third quarter of 2023. Adjusted EBITDA, a non-GAAP measure, was negative $5.0 million for the third quarter of '24 or negative $2.2 million, excluding the impact of the $2.8 million charge related to inventory compared to negative $5.5 million for the third quarter of 2023.

On to cash flow and balance sheet. Capital expenditures for the third quarter of 2024 were $0.3 million compared to $1.0 million for the third quarter of 2023. In 2023, we completed our large investments in production capacity. In 2024, we are focusing our capital expenditures on projects with a shorter payback period. Although our capital expenditures have been limited in the last 3 quarters, we expect a moderate increase in the last quarter of 2024. Free cash outflow, a non-GAAP measure that we define as cash used in operating activities plus purchases of property, plant and equipment was $2.4 million for the third quarter of 2024 compared to $5.4 million in the third quarter of 2023. This decrease compared to the year ago quarter was due to lower amounts of cash used in operating activities and reduced capital expenditures. Free cash outflow continued to improve in the third quarter of 2024 and was at its lowest level since our IPO in the second quarter of 2021.

Turning to the balance sheet. As of September 30, 2024, we had $31.7 million in cash, cash equivalents and short-term investments and $12.1 million in gross debt.

Moving on to our 2024 guidance and outlook. We reiterate our 2024 total revenue guidance of $35 million to $38 million. At the midpoint, this implies revenue for the year approximately flat when compared to 2023. We typically see revenue soften in the fourth quarter, primarily due to fewer business days. A customer also recently canceled a large Clinical Solutions order that we would have delivered in the fourth quarter, although the customer may reorder in 2025. With respect to product categories, we now expect approximately 2% growth in Lab Essentials revenue for 2024. The company now expects free cash outflow to be less than $16 million for the full year of 2024, down from our previous estimate of $18 million.

The company has continued to manage expenses aggressively while preserving the critical investments we believe will allow us to achieve our long-term growth targets. The company posted third quarter operating expenses of $7.5 million, below our $8.0 million per quarter target, although we do expect these expenses to be somewhat higher in the fourth quarter. We finished the third quarter of 2024 with 165 associates, down 24% from a year ago. As shared during our last earnings call, we continue to believe that we have sufficient liquidity from cash on hand and the availability under our revolver to take us to cash flow positive. This belief relies on the following Q4 financial assumptions. One, revenue grows on average at a minimum of 13% over the next few years. This is the actual compounded annual growth rate of total revenue between 2019 to 2023, excluding the impact of a large order delivered in 2023. This is also similar to the total revenue CAGR from 2009 to 2019.

Second, additional revenue in 2025 and beyond drops through at approximately 70% margin due to the high fixed cost nature of our business. Third, limited increases in operating expenses as the business grows. And fourth, capital expenditures of $2 million per year on average. Relying on these assumptions, we also believe that the company can achieve adjusted EBITDA breakeven when we get to between $50 million to $55 million in annualized revenue and will become cash flow positive shortly thereafter. Revenue growth upside will be possible over the next few years as some of our growing number of Clinical Solutions customers move through later clinical trial phases and ultimately into commercialization.

In summary, we are excited about the future and the company's competitive position in a market with attractive long-term fundamentals.

And with that, I'll turn the call back to Stephen.

[Stephen Gunstream, executive]

Thanks, Matt. Overall, we were pleased with our performance in the third quarter of 2024. We believe the long-term outlook for our end markets remains positive, and we are committed to executing on our growth 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] Our first question comes from the line of Brendan Smith with TD Cowen.

[Chad Wiatrowski, analyst]

This is Chad Wiatrowski on for Brendan. Could you just speak to the ongoing launches of Express-Tek and RUO+? Yes, how are they going? And is that an area where we're going to need any more investment in sales and marketing as they kind of scale?

[Stephen Gunstream, executive]

Yes. Thanks, Chad. So we launched those last quarter. We've seen some nice increase in engagement around some of those orders. If you remember, Express-Tek is the opportunity for customers to essentially jump the line and get their product sooner than they would otherwise, which is already in weeks. And so you're talking about just a handful of weeks to get a GMP product. And many of these are orders that are needed last minute for customers in the moment they're actually doing these builds. And so we've actually executed a couple of these already. These are essentially operating now full speed, and there's some engagement from customers. Many of them are fine with the current turnaround times because we're in that 6-week to 8-week time frame, but this takes us to [ 4-week to 6-week time frame ]. So when they need it, they order and it's a margin increase for us, and we've put the systems in place to make that happen.

Same thing RUO+ has actually been a feature that I've talked to a number of customers about. They've been very responsive to it. They really like the idea that we're manufacturing in the new facility using the same equipment and processes, but do not have the constraint of the GMP change control and otherwise GMP environment. So that we've migrated a number of customers to already. It's a seamless transition to GMP. It's pretty obvious to them when they need RUO+ versus RUO. And so we're seeing success there. So from a marketing sales perspective, it's something we bring up with every single one of our customers. It's a great fit for those in need of speed to jump to Express-Tek, for those in that sort of transitionary preclinical phase to get RUO+, I don't think there's significant more investment needed there. This is conversations we have with customers after we brought them on board.

[Chad Wiatrowski, analyst]

That's helpful color. And then just on gross margin, I appreciate excluding the write-down, gross margins were strong. Are you expecting any additional write-downs? And this happening, did this change your perspective on kind of how you manage inventory going forward?

[Matthew Lowell, executive]

Chad, it's Matt. Yes, to the first part of your question, no, we're not anticipating any future write-downs. If we were, we would have like taking those right now. But -- and obviously, this is a key one here and provided a little bit of explanation in the script about that, and this relates to some production patterns that we had back in 2022 when the market was in a different place.

And to further answer your question, yes, we've done -- since that time frame now, which is now several years ago, we have made changes to how we build inventory inside the company and have different rules basically internally about how much we stock, when to stock at all. And we've implemented those, I would say, in the last couple of quarters here. And that's certainly helping us better manage the inventory going forward.

[Operator]

Our next question comes from the line of Lucas Baranowski with KeyBanc Capital Markets.

[Lucas Baranowski, analyst]

This is Lucas on for Paul Knight at KeyBanc. When you look at cell and gene therapy relative to the rest of your customers, is there any difference in trend you've noticed in terms of revenue growth or pace of recovery with those customers?

[Stephen Gunstream, executive]

Yes. Thanks, Lucas. We obviously look at this really closely. And if you kind of go back through what we just talked about, our third quarter revenue growth was driven largely by biopharma in this case, right? So biopharma encompasses cell and gene therapy as well as CMOs, CDMOs, biotech companies and the like. And particularly, we've seen it in the custom products, right, which is great. That's been our strategy from the beginning. We're getting those customers in and then they're going down that clinical pipeline over time.

Now with respect to cell and gene therapy versus, say, other biotech companies doing monoclonal antibodies, I wouldn't say we've seen something different. I think what we're seeing is a broader stabilization in the space, right? And as you -- if you read through some of the comments we've made here, I feel like we're kind of definitely in the back half of the year, stable, modest growth next year. But I wouldn't say it's specific to, say, a gene therapy versus a different type of therapy. There is maybe a little bit in the life science tools and large pharma that we've seen a slight slowdown from previous year or so. But it seems very account-specific right now. And so that is -- that part actually, if you heard, our catalog business for Lab Essentials actually grew in the high single digits in the third quarter, and we just had a couple of accounts that were down. So if anything we're seeing just a slight pullback from there, but nothing significant.

[Lucas Baranowski, analyst]

Yes, that's excellent color. And then just one last question for me. You've launched a lot of new products in recent quarters, whether it was RUO+ or Express-Tek. Do you feel like you now have all of the products you need in the portfolio or are there others that are still in development?

[Stephen Gunstream, executive]

So yes, Express-Tek and RUO+ are a little bit more almost like service-related products. And so we continue to find those, and they really come, stem from our customers who are saying we would like this really fast or we wish we had something in between RUO and GMP. So we'll always continue to find those and drive operational improvements and add more value to customers. There are some previous products that we developed here around AAV in particular. Those kind of have been put on hold to focus more on short-term investments that -- or investments that have a shorter return on investment given the current -- or in the previous environment. I think there's opportunity here actually for us.

We built the commercial organization, the infrastructure there that we could add more products to our portfolio over time. How we do that, when we do that, I think, is probably much more of a 2025 conversation. But the fact that we're actually in a number of these customers talking to them provides us opportunity to maybe to see what other products they might need to purchase from us and see if we can help them there as well.

[Operator]

Our next question comes from the line of Mark Massaro with BTIG.

[Vidyun Bais, analyst]

This is Vivian on for Mark. I understand it's early to comment on 2025, but you're going off of relatively easy comps, it seems. How do you think you're positioned for acceleration there? I heard you say modest growth in '25. So would getting back to that historical mid-teens growth be the right way to think about it?

[Stephen Gunstream, executive]

Thanks, Vivian. Yes, when we talk about modest growth, we're talking about the market. And as I said, we believe it's stabilized now in the back half of '24. And you're absolutely right. There's some comps that are more sort of favorable compared to Q3, Q4. That said, those have historically been some of our lower quarters just because of the seasonality of the business and the number of business days. We look to next year, obviously, we're not going to give any guidance on that. I think what we'd like to do is get the business back to that historical annual growth rate, and that's in that 12%, 13%. And then over time, we think modest growth next year in 2025, but then the market itself would probably return to normal historical bioprocessing growth rates in 2026. And at that point, maybe there's opportunity for higher growth in the future, and we've certainly set that up now with all these therapeutic companies that we're working with.

[Vidyun Bais, analyst]

Perfect. Makes sense. And then just one on gross margins. Just what additional levers do you think you have to pull for gross margins here? I think you've talked about in the past, 55% gross margins at scale. I heard your comments on any additional revenue coming in at 70% drop down. So could you just discuss the path to getting to that long-term gross margin target?

[Matthew Lowell, executive]

Yes. Sure, Vivian. Thanks. I'll just say that our long-term target, I mean, we think could be 60% plus. And there is a lot of leverage right now in the P&L at gross margin line and all the way to the bottom line, frankly. And it's really because of the high fixed cost structure that we have, and we've done a very good job, I think, of managing any increases or even decreasing that fixed cost structure, I should say. So it's certainly going to be revenue growth on top of that, on top of where we are today to be able to make significant improvement in the gross margins.

Of course, there are other levers, and we're continuing to pursue other production efficiencies through automation or otherwise changing the way that we manufacture our products. There is the potential for some mix changes as we move more towards Clinical Solutions to help with that as well. But the real driver and the primary driver, I would say, is just achieving a higher revenue base, which we think we're now in the right direction towards.

[Operator]

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

[Jacob Johnson, analyst]

Maybe first, just on Clinical Solutions, ticked up sequentially a little bit better than we expected. It sounded like that was kind of new customers, not any lumpy orders, but I just wanted to confirm that. And then just looking to 4Q, you gave us 2% growth for Lab Essentials for the year just -- and a $3 million range for revenue guidance for the year. Just curious how should we think about Clinical Solutions in 4Q? It sounds like maybe that's where we'll see some seasonal weakness, but curious about that.

[Stephen Gunstream, executive]

So why don't I start with the Clinical Solutions side. Yes. I mean it's a combination of new and some larger orders, right? So it's pretty lumpy, Jacob, in general. But it's a combination of the 2. And there's not like a -- not an individual large order that's transforming the quarter, for example, right? And like I said, 4% of our -- our largest customer in the trailing 12 months is only 4% of our revenue. So now we're getting a little bit of a better mixture, but there's always timing on some of these large ones. And I know in the quarter, there were some decent orders in there that we were able to accept and then ship. So -- but absolutely, it's a combination of new and existing there. Nothing specific like we've had in the past, like Q2 2023, nothing of that size. So that's the answer on that piece. Do you want to...

[Matthew Lowell, executive]

I'd just add, looking at Q4 since that's where you were going, we -- and I did mention in the remarks that there was a large order, a Clinical Solutions order that we did have fall out of the quarter and move into next year. So yes, I do expect that Q4, we will see lower Clinical Solutions revenue, just in general and also thanks to that particular situation. But we have pointed out for the back half of the year in general, looking for double-digit growth. And again, just because of this order and the general seasonality in Q4, we would expect Q4 to be lower than we're coming out for Q3. So hopefully, that's helpful color for the year-end.

[Jacob Johnson, analyst]

Yes. Yes. And then just as a follow-up kind of bigger picture question, kind of struck in the comments, you guys are talking about a stable environment and modest growth next year. But you also mentioned customer additions in both segments sequentially. I'm guessing some of that's execution on your part or maybe that's all of it, just kind of the business development efforts. But I guess as we think about growth from here is what I'm trying to get at is, should we think about customer additions being kind of you're able to control that to some degree. Obviously, the macro plays a factor in it. And then kind of what we're really waiting on is kind of spending per customer to pick up and that's reliant on the macro. Is that a fair way to think about it?

[Stephen Gunstream, executive]

Yes. I think there's a lot of intertwined pieces here. So on the market, stable, modest growth next year. Obviously, from my comments, you can see that the growth we had in Q3 was driven by these biopharma customers. So clearly, we're growing faster than market and taking share. And that's not efforts from Q4 specifically. It's efforts in the last 18 months to bring those customers on board, and those are now kind of working their way through the pipeline. When we talk about the future and how the market affects those 2 variables, obviously, if the market picks up, I think we should be able to acquire more customers, but they will also not have as sort of limited pipelines, right?

So it's kind of a double hit there, which would be great, right? And so I'm happy with where we sit because we continue to add customers as we -- as you can see every quarter in Clinical Solutions, which is our goal, getting those customers on board and then supporting them as they go through the clinical trials. On the Lab Essentials side, we really focused a little bit more on the wallet share, the average spend per customer, and we're also seeing that increase now and the number of customers increase. But I think part of that is maybe some customers that fell off during the biotech funding drop in some of the environment that are now starting to come back. So this is kind of why we feel like, hey, things are in a good spot right now from a market perspective relative to where they were before, but it's going to be a build, right? And 2025 is not bounce back. It's 2026 is my guess until we're back to where we were before.

[Operator]

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

[Matthew Larew, analyst]

Maybe going back to the margin question. If I think about the business today versus 2020, nearly doubled in size, obviously, Clinical Solutions now a $7 million business maybe this year versus $1.5 million or under [ $5 million ] at least in 2020. So there's clearly a big drag from the recent capacity expansions on gross margins. And to your point, Matt, we should see some leverage there. We've seen 1,000 basis points of gross margin leverage in the last 4 quarters. And understanding you're not giving guidance, but just to help us think about how much of the drag is related to fixed capacity and how leverage can translate to margin expansion. Could you maybe tie some of those pieces together to help us think about the go-forward expansion opportunity?

[Matthew Lowell, executive]

Yes. I mean you're right. There has been some pretty substantial increases in the margin over the last year. And we've pretty much got the assets in place that we need to be able to grow to a much larger business as we've talked about. In terms of the go-forward opportunity for gross margin, as I said just a few minutes ago, I mean, I think there is a substantial opportunity, especially if you use that 70% metric as an approximation of the drop-through on additional revenue. So I mean, you could almost -- you could use that math essentially to map out what the future progression is going to look like until we reach a point where there's some more step function investments, which I don't think will be for a while. But we've -- and as I said, there even are some margin accelerators possible if there are significant enough movements in terms of potential mix change or other things that we're always working on internally to increase the productivity of our production efforts here. So I do expect to see good margin improvement going into 2025. And I guess it's probably fairly commensurate with that [ 70% ] type metric.

[Matthew Larew, analyst]

Okay. And then last quarter, you spoke to increasing customer engagement, number of active customers increasing, sort of communicated a similar message here. As customers are reengaging or you're reengaging them and they're maybe from an activity perspective more ready to order. Are you finding that the time to order, the competition, if it's an RFP, is anything about either the competitive process or the sales process different, better, worse than sort of when you entered this sort of years-long malaise in the market? Just kind of as a proxy, I guess, we're asking how you feel about the assets, capabilities put in place relative to the competition over the last couple of years.

[Stephen Gunstream, executive]

Yes. If we expand over the last couple of years, it's different. We go back 2 years or 3 years, it was -- customers were finding us, and we were able to deliver for them when others could not. But really, if you go back to even the last year, it has been almost the same in that we found customers and they've told us repeatedly, yes, we love Teknova. We love the story. We love how you fit in our business. But we don't have -- we're not ordering right now. When we do, we're going to call you, right? And we're starting to see some of that dynamic change as you can see from the comments and even from some of the data.

So I still don't feel like there's not some big change in the way they think about how we fit in the space. In fact, feel like there's quite a bit of validation in the fact that we've increased our customer count in Clinical Solutions every year really for the last 3-plus years despite this environment. So I think -- I still think the story is right. The smaller scale, which there's movement, obviously, in cell and gene therapy, but also just movement from going to single-use where people want smaller batches, smaller scale, custom and delivered really quickly, and what we've built, it feels like the right thing for what we expect a lot of these customers are going to want in the future in the bioprocessing space.

[Operator]

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.