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Summary of Significant Accounting Policies | 12 Months Ended
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Dec. 31, 2021
Accounting Policies [Abstract] |
Summary of Significant Accounting Policies | Note 2. Summary of Significant Accounting Policies Basis of Accounting, Presentation and Use of Estimates The accompanying financial statements and related notes are prepared in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain amounts of assets and liabilities, and disclosures of assets and liabilities, at the date of each financial statement, and the reported amount of revenues and expenses during the reporting period. Significant items that are subject to such estimates and assumptions include, but are not limited to, the valuation of share-based payment awards, goodwill and intangible assets, and income taxes. Although management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, actual results could differ significantly from the estimates under different assumptions or conditions. Certain prior period amounts have been reclassified to conform to presentation for the current year. Impact of COVID-19 The COVID-19 pandemic continues to impact worldwide economic activity. Teknova continues to closely monitor the impact of the COVID-19 pandemic on all aspects of the Company's business, including how the pandemic will impact customers, employees, suppliers, vendors, business partners and distribution channels. It is not possible to predict the total impact of the COVID-19 pandemic on the Company’s future revenue or profitability, which will depend on future developments that remain uncertain and cannot be predicted with confidence at this time. Segment Reporting Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (CODM) in deciding how to allocate resources to an individual segment and in assessing performance. Teknova’s CODM is its Chief Executive Officer, currently Stephen Gunstream. Teknova has determined that it operates in one reporting unit, one operating segment and one reportable segment, as the CODM reviews financial information presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance. Concentrations of Risk Financial Instruments Teknova’s financial instruments that are exposed to concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company places its cash and cash equivalents with high quality banking institutions. At times, the Company’s cash and cash equivalent balances may exceed the Federal Deposit Insurance Corporation (FDIC) insurance limit. Teknova has never experienced any losses related to its cash and cash equivalent balances. Teknova routinely communicates with its customers regarding payments and has a history of limited write-offs so, as a consequence, the Company believes that its accounts receivable credit risk exposure is limited. Customers For the year ended December 31, 2021, the Company's largest customer was a distributor that accounted for 18% of total revenue. No other customer accounted for more than 10% of total revenue for the year ended December 31, 2021. As of December 31, 2021, the Company's two largest customers, both distributors, made up 16% and 10% of total gross accounts receivable and one direct customer made up 12% of total gross accounts receivable. No other customer accounted for more than 10% of total gross accounts receivable at December, 31, 2021. For the year ended December 31, 2020, the Company's largest customer was a distributor that accounted for 15% of total revenue and the second largest customer accounted for 10% of total revenue. No other customer accounted for more than 10% of total revenue for the year ended December 31, 2020. As of December 31, 2020, two direct customers made up 18% and 16% of total gross accounts receivable and the Company's largest distributors each made up 10% of total gross accounts receivable. No other customer accounted for more than 10% of total gross accounts receivable at December 31, 2020. Suppliers For the year ended December 31, 2021, the Company had three suppliers that accounted for greater than 10% of total inventory purchases, the highest of which accounted for 40% of total inventory purchases followed by suppliers which accounted for 11% and 10% of total inventory purchases, respectively. The amounts due to the Company's largest supplier comprised approximately 20% of total accounts payable as of December 31, 2021. No other supplier accounted for more than 10% of total accounts payable at December 31, 2021. For the year ended December 31, 2020, the Company had four suppliers that accounted for greater than 10% of total inventory purchases, the highest of which accounted for 29% of total inventory purchases followed by suppliers which accounted for 25%, 21% and 11% of total inventory purchases, respectively. The amounts due to the Company's largest supplier comprised approximately 14% of total accounts payable as of December 31, 2020. No other supplier accounted for more than 10% of total accounts payable at December 31, 2020. Cash and Cash Equivalents Teknova’s cash and cash equivalents include cash on hand, cash held in banks, and highly-liquid investments with maturities of three months or less at the date of acquisition. Teknova maintains its cash in bank deposit accounts in financial institutions that are insured by the FDIC up to a balance of $250.0 thousand. Cash equivalents are stated at carrying value, which approximates fair value. Marketable Investments Teknova’s short-term marketable investments consist of corporate debt securities, U.S. treasury bills, and government agency obligations. Teknova believes its short-term debt securities are available for use in its current operations and that the Company has the ability, if necessary, to liquidate any of its short-term debt securities to meet its liquidity needs in the next twelve months. Accordingly, those investments with contractual maturities greater than one-year from the date of purchase are classified as short-term investments on the accompanying balance sheets. Teknova classifies its short-term debt investments as available-for-sale at the time of purchase and evaluates such classification as of each balance sheet date. All short-term debt investments are recorded at estimated fair value. Unrealized gains and losses are reported as a component of other comprehensive income, net of any related tax effect. Unrealized losses are charged against income when a decline in the fair value of an individual security is determined to be other-than-temporary. Realized gains and losses and other-than-temporary impairments on investments are included in interest income (expense), net in the statements of operations and comprehensive income (loss). Fair Value of Financial Instruments The carrying amounts of certain of Teknova’s financial instruments, including cash equivalents, accounts receivable, inventories, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities. Accounts Receivable Accounts receivable are stated at invoice value, less estimated allowances for doubtful accounts. Teknova uses the allowance method to account for uncollectible accounts receivable, calculated by management using the historical average of uncollectible accounts. The Company continually monitors its customer payments and maintains an allowance for estimated losses resulting from its customers’ inability to make required payments. Accounts receivable are considered past due once customer payment terms have been exceeded. Receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received. Inventories Inventory, consisting of raw materials, work in process and finished goods, is stated at the lower of cost or net realizable value, on a first-in, first-out basis. Teknova writes down its inventory for estimated obsolescence or inventory in excess of reasonably expected near-term sales or unmarketable inventory, in an amount equal to the difference between the cost of inventory and the estimated net realizable value, based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by Teknova, additional inventory write-downs may be required. Inventory impairment charges establish a new cost basis for inventory, and charges are not reversed subsequently to income, even if circumstances later suggest that increased carrying amounts are recoverable. Notes Receivable from Related Parties In 2016, Teknova’s founder and former Chief Executive Officer, a current director and stockholder of the Company, executed a promissory note in favor of the Company which was recorded as a note receivable. Teknova recognizes interest income on notes receivable on the accrual method. Teknova evaluates the collectability of both interest and principal on its notes receivable to determine whether the notes receivable are impaired. A note is considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due, according to the existing contractual terms. When a note is considered to be impaired, the amount of loss is calculated by comparing the recorded investment to the fair value of the underlying collateral, less costs to sell. During the years ended December 31, 2021 and 2020, there was no significant uncertainty of collection; therefore, interest income was recognized. As of December 31, 2020, the Company determined that no allowance for collectability was necessary. The note receivable was repaid during the year ended December 31, 2021 and prior to the closing of the IPO. See “Note 14—Related Parties” for further information regarding the Company’s note receivable with its founder and former Chief Executive Officer, a current director and stockholder of the Company. Capitalized Software Implementation Costs Teknova capitalizes certain implementation costs incurred under a cloud computing hosting arrangement. Costs incurred during the application development stage related to the implementation of the hosting arrangement are capitalized and included within other assets on the accompanying balance sheets. Amortization of capitalized implementation costs is recognized on a straight-line basis over the expected term of the associated hosting arrangement when it is ready for its intended use. Costs related to preliminary project activities and post-implementation activities are expensed as incurred. As of December 31, 2021, Teknova had capitalized software implementation costs of $0.1 million. Teknova did not have any capitalized implementation software costs as of December 31, 2020. No amortization expense related to capitalized implementation costs has been recorded as the underlying implementation activities were not complete. Property, Plant and Equipment Teknova records property, plant and equipment at fair value when it is acquired in a business combination or at cost for all other purchases of property, plant and equipment. Property, plant and equipment is depreciated over the estimated useful lives of the assets, using the straight-line method. Any leasehold improvements are amortized on a straight-line basis over the shorter of the estimated useful life of the asset or the estimated remaining life of the lease. Costs for repairs and maintenance that do not significantly increase the value or estimated lives of property, plant and equipment are expensed as incurred. Upon retirement or sale, the cost and related accumulated depreciation are removed from the balance sheets, and the resulting gain or loss is reflected in the statements of operations and comprehensive income (loss). The estimated useful lives of the major classes of property and equipment are as follows:
|  | Estimated Useful Lives
Machinery and equipment |  | 7 years
Office furniture and equipment |  | 3 –7 years
Vehicles |  | 5 years
Leasehold improvements |  | 4 –7 years
Impairment of Long-Lived Assets Teknova evaluates its long-lived assets for impairment when events or changes in circumstances indicate a possible inability to recover carrying amounts. Recoverability is assessed by comparing the carrying value of the assets to estimated undiscounted future cash flows expected to be generated by the assets. Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated during the life of those assets are less than the assets’ carrying amounts. If an asset is impaired, the loss is measured as the amount by which the asset’s carrying value exceeds its fair value. There were no indicators of impairment during the years ended December 31, 2021 and 2020. Goodwill Goodwill is the excess of the Company’s fair value over the Company’s fair value accounting basis of the Company’s net assets and liabilities. Goodwill is not amortized, but is tested for impairment annually as of October 1, or more frequently if events or circumstances indicate that the carrying value may no longer be recoverable and that an impairment may have occurred. Teknova first considers qualitative factors that indicate whether impairment may have occurred. Such indicators may include, macro-economic conditions, such as adverse industry or market conditions and entity-specific events, such as increasing costs, declining financial performance, or loss of key personnel. If the Company’s assessment of such qualitative factors indicates that a reduction in the carrying value is more likely than not to have occurred, Teknova performs a quantitative assessment, comparing the fair value of the Company (in this capacity, the Reporting Unit) to the carrying value, including goodwill, of the Reporting Unit. If the carrying value of the Reporting Unit exceeds its fair value, an impairment has occurred, and an impairment charge is recognized for the difference up to the carrying value of the Reporting Unit’s goodwill. The fair value of the Reporting Unit is a Level 3 measure and is determined using a market and income approach. There was no impairment of goodwill during the years ended December 31, 2021 and 2020. Intangible Assets Teknova’s intangible assets consist of the Teknova trade name and customer relationships. Indefinite-lived intangible assets are not amortized but are tested for impairment at least annually as of October 1, or more frequently if events or circumstances indicate that it is more likely than not that an asset is impaired. If the fair value of the asset is less than its carrying amount, an impairment charge would be recognized in an amount equal to the difference between the carrying amount and the fair value. Finite-lived intangible assets are amortized over the estimated economic useful lives of the assets, which is the period during which expected cash flows support the fair value of such intangible assets. Teknova reviews finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets or an asset group may not be recoverable. When such an event occurs, management determines whether there has been impairment by comparing the anticipated undiscounted future net cash flows to the related assets’ or asset group’s carrying value. There was no impairment of intangible assets during the years ended December 31, 2021 and 2020. Leases The Company’s leases are reviewed and classified as either capital or operating leases at their inception. Teknova may receive renewals or expansion options, rent holidays, and other incentives in certain of its lease agreements. For operating leases, Teknova recognizes lease costs, once control of the leased space is achieved, on a straight-line basis, without regard to deferred payment terms, such as rent holidays, that defer the commencement date of required payments. Additionally, incentives received are treated as reductions of costs over the term of the lease agreements. Debt Issuance Costs Debt issuance costs represent legal, consulting, and other financial costs associated with debt financing and are presented on the balance sheets as a direct reduction from the carrying amount of the related debt instrument. Debt issuance costs on the term debt are amortized to interest expense over the term of the applicable debt agreement using the effective interest rate method. Revenue Recognition We account for revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue From Contracts With Customers (ASC 606). Teknova recognizes revenue for sales of goods through the following steps: ▪ Identification of the contract, or contracts, with a customer, typically a purchase order ▪ Identification of the performance obligations in the contract ▪ Determination of the transaction price ▪ Allocation of the transaction price to the performance obligations in the contract ▪ Recognition of revenue when, or as, the company satisfies a performance obligation Teknova recognizes revenue from the sale of manufactured products and services when control of promised goods or services are transferred to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. Control is transferred when the customer has the ability to direct the use of and obtain benefits from the goods or services. The majority of the Company’s sales agreements contain performance obligations satisfied at a point in time when control is transferred to the customer. Teknova’s sales are made directly to customers or through distributors, generally under agreements with payment terms typically shorter than 90 days and, in no case, exceeding one year. Therefore, Teknova’s contracts do not contain a significant financing component. Sales, value add, and other taxes collected concurrent with revenue are excluded from sales. The Company records amounts billed to customers for shipping and handling in a sales transaction as revenue. Shipping and handling costs are included in general and administrative expenses as revenue is recognized. Shipping and handling charges for the years ended December 31, 2021 and 2020 were $1.1 million and $0.8 million, respectively. Occasionally, Teknova offers rebates, discounts, and returns on its products, however returns and refunds are an extremely rare occurrence and are not explicitly or implicitly part of the purchase order. The Company records rebates, discounts, and returns at the time in which they occur. The difference between recording these as they occur and estimating the amount of consideration in exchange for the transfer of promised goods would not have a material impact on the financial statements. Costs incurred to obtain contracts with customers are expensed immediately, because the amortization period for such costs is one year or less. Teknova does not offer warranties on products. Cost of Sales Cost of sales includes salaries, wages and benefits, raw materials consumption (including direct and indirect material), depreciation, utilities, rent, manufacturing supplies and other production overhead. Research and Development Expenses The Company’s research and development expenses primarily consist of employee-related expenses, including salaries, benefits and stock-based compensation expense for personnel in process engineering and product development functions; expenses related to occupancy costs, laboratory supplies, consulting fees and depreciation associated with various assets used in the research and development of the Company’s products. Sales and Marketing Costs The Company’s sales and marketing expenses primarily consist of employee-related expenses, including salaries and benefits, commissions, advertising, occupancy costs and stock-based compensation expense for sales and marketing employees. The Company expenses advertising and marketing costs as incurred. Advertising and marketing expense for the years ended December 31, 2021 and 2020 was $0.4 million and $0.3 million, respectively, and is included in sales and marketing expenses. General and Administrative Expenses The Company’s general and administrative expenses primarily consist of costs associated with executive and administrative staff, and other expenses such as shipping charges, professional service fees, occupancy costs, IT systems, insurance, depreciation and stock-based compensation expense for executive and administrative staff. Stock-Based Compensation Teknova follows the fair value recognition provisions of ASC 718, Compensation—Stock Compensation. The Company accounts for stock-based compensation expense based on the estimated grant date fair value, using the Black-Scholes option-pricing model, which requires the Company to make a number of assumptions, including expected volatility, the expected risk-free interest rate, the expected term and the expected dividend. Stock-based compensation expense is recognized over the requisite service period of the award, which generally represents the scheduled vesting period. Forfeitures are recognized as they occur. Employee Benefit Plans Teknova has a salary deferral 401(k) plan (the 401(k) Plan) covering substantially all employees. Contributions by the Company to the 401(k) Plan for the years ended December 31, 2021 and 2020 were $0.6 million and $0.4 million, respectively. Contributions payable as of December 31, 2021 and 2020, of $0.3 million and $0.2 million, respectively, are included within accrued liabilities in the accompanying financial statements. Income Taxes Teknova uses the asset and liability method in accounting for its deferred income taxes. Under this method, deferred income taxes are provided for differences between the carrying amounts of assets and liabilities for financial reporting and tax purposes, using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets and liabilities are adjusted for the effects of the changes in tax laws and rates on the date of enactment. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some or all of the deferred tax assets will not be realized. Teknova accounts for unrecognized tax benefits based upon its assessment of whether tax benefits are more likely than not to be sustained upon examination by tax authorities. The Company reports a liability for unrecognized tax benefits taken, or expected to be taken, in a tax return and recognizes associated interest and penalties, if any, in income tax expense. As of December 31, 2021 and 2020, the Company had no liabilities recorded for unrecognized tax benefits. Net Income (Loss) Per Share of Common Stock Basic net income (loss) per share is computed using the two-class method. Diluted net income (loss) per share is computed using the more dilutive of (i) the treasury stock method or if-converted method, or (ii) the two-class method. The two-class method is an earnings allocation formula that determines net income per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings. The treasury stock method uses the number of new shares that may be created by unexercised in-the-money warrants and options, where the exercise price is less than the current share price. The if-converted method calculates the value of convertible securities as if they were converted into new shares. Per share amounts are computed by dividing net income (loss) attributable to common stockholders by the weighted average shares outstanding during each period. The diluted net income (loss) per share is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period. For purposes of this calculation, options to purchase common stock and convertible and redeemable preferred stock are considered common stock equivalents. Accounting Pronouncements Not Yet Adopted In February 2016, the FASB issued ASU No. 2016-02, Leases and its related interpretations, codified as ASC 842 (ASC 842). The new standard requires lessees to generally recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet. The new standard is effective with respect to Teknova beginning January 1, 2022 on a modified retrospective basis, and early adoption is permitted. Teknova expects that most of the operating lease commitments will be subject to the new standard and will be recognized as operating lease liabilities and right-of-use assets of approximately $20 million upon adoption of ASC 842, which will increase the Company’s total assets and total liabilities. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12). ASU 2019-12 removes certain exceptions to the general principles in ASC 740 and clarifies and amends certain guidance to promote consistent application. ASU 2019-02 is effective for the Company’s annual and interim periods beginning after December 15, 2021, with early adoption permitted. Depending on the amendment, adoption may be applied on a retrospective, modified retrospective or prospective basis. Teknova is currently evaluating the impact of the adoption of the standard on the financial statements and does not anticipate the standard to have a significant impact. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326). The standard introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses and will apply to accounts receivable. The new guidance will be effective for Teknova’s annual and interim periods beginning after December 15, 2022. Teknova is currently evaluating the impact of the adoption of the standard on the financial statements and does not anticipate the standard to have a significant impact.

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