Q3 2020 Earnings Call
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Good day, ladies and gentlemen.
And welcome to the avid Bioservices third quarter 2020 financial results Conference call. At this time, all participants are not listen only mode. Later, well conduct the question and answer session and instructions will follow at that time.
As a reminder, this conference maybe recorded I would now like the hand the conference over to.
Bonds of Avids Investor Relations Group. Please go ahead.
Thank you good afternoon, and thank you for joining us on today's call. We have Rick Hancock interim President and CEO, Dan Hart, Chief Financial Officer, and Timothy Compton, Chief Commercial officer.
Today, we will be providing an.
Where do you have avid bioservices contract development and manufacturing business, including updates on corporate activities and financial results for the quarter ended January 31st 2020.
After our prepared remarks, we will welcome your questions.
Before we begin I'd like to caution that comments made during this conference.
Friends call today March 10th 2020 will contain certain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Concerning the current belief of the company, which involves a number of assumptions risks and uncertainties.
Actual results could differ from these statements.
And the company undertakes no obligation to revise or update any statement made today.
Encourage you to review all of the company's filings with the Securities and Exchange Commission concerning these and other matters with that I will turn the call over to Rick Hancock interim President and CEO Rick.
Jim and thank you.
Good day, everyone, who dialed in into those who are participating today via webcast. During the third quarter added strength in both its project pipeline and backlog. However, the company also faced production challenges during the quarter related to a problem with the specific piece of equipment, which resulted in termination of.
Process manufacturing runs in the postponement of several other manufacturing runs scheduled to commence during the third quarter.
There were now implementing the necessary corrections the temporary production interruptions resulted in lower revenue and profits for the third quarter.
We expect it to also.
Back revenues and profits for the fourth quarter fiscal 2020.
Despite this challenge how did make progress with a number of operational projects during the period, which I'll discuss shortly on the business development front, we're very pleased to welcome Timothy Compton to the avid team as our Chief commercial officer.
During the third quarter two minutes team continued to expand our pipeline of business and our regional outreach.
Tim and I will provide additional details on business development and operations. Following an overview of the third quarter indictment financial results for that I'll turn the call over to damn hard. Thank you Rick.
Before I begin I'd like to recommend the everyone participating on today's call referred to our 10-Q filing with the Securities and Exchange Commission, which we filed today for additional details.
I'll now discuss our financial results from continuing operations for the third quarter and first nine months of fiscal 2020 ended January 31st.
2020.
Well first address our third quarter results revenue for the third quarter fiscal 2020 were 13.6 million. While these revenues are lower than anticipated for the period. There are consistent with revenues of 13.8 million recorded during the third quarter of fiscal 2019.
Despite the interruption.
Oh production during the third quarter of fiscal 2020.
Total revenues remained in line with the prior year period, due primarily to an increasing the number of in process and completed manufacturing runs offset by decrease in process development revenue as compared to the third quarter fiscal 2019.
Gross.
For the third quarter of 2020 was 6% decrease as compared to the 15% gross margin in the prior year period. The decrease in gross margin for the 2020 quarter was primarily attributable to the costs associated with the production interruption described earlier.
An increase in depreciation expense from the acquisition of new equipment.
And a net decrease in revenue.
I'll now discuss operating expenses.
Total SGN expenses for the third quarter fiscal 2020 were $3 million compared to $3.2 million for the third quarter of fiscal 2019.
This decrease was primarily due to a decrease in accrued bonuses.
For fiscal year, 2020, partially offset by an increase in employee separation related costs.
Well the third quarter of fiscal 2020, the company recorded a consolidated net loss attributable to common stockholders of 3.5 million.
Our six cents a sure.
Let's compare to a consolidated net loss attributable to common stockholders.
2.6 million or five cents sure from third quarter fiscal 2019.
Our backlog ended the third quarter 2020 was 58 million an increase of 12% compared to the 52 million at the end of the second quarter of fiscal 2020.
And an increase of 26% compared to the 46 million.
And at the end of last fiscal year.
This increase in backlog compared to both the third quarter in the first nine months of fiscal 2019 is primarily due to the increased demand future manufacturing runs, including 3.1 million a third quarter revenue deferred due to the delay of in process manufacturing runs.
I'll now provide.
Irvine, an overview of our results for the first nine months of fiscal 2020.
For the nine months ended January 31, 2020 revenues were 47.2 million, a 29% increase as compared to revenues of 36.5 million during the prior year period.
This significant increase is primarily the result of continued growth in the number and so.
Scope customer projects.
Gross margin for the nine months ended January 31, 2020 was 11% up slightly compared to 10% in the prior year period.
This increase was primarily due to an increase in manufacturing runs partially offset by costs associated with payroll and related costs.
Higher.
City and equipment related cost primarily associated with the production interruption during the third quarter.
An increase in depreciation expense from the acquisition of new equipment.
In general equipment repairs and maintenance costs.
For the first nine months of fiscal 2020, SGN expenses were $11 million, a 19% increase.
Fair to 9.3 million for the first nine months in fiscal 2019.
The increase in yesterday was primarily attributable to employee separation related expenses increased stock based compensation.
When excluding the separation related expenses as you know increased 10% during the first nine months of fiscal 2020 as compared to the prior.
Carrier.
For the first nine months of fiscal 2020 of the company reported consolidated net loss attributable to common stockholders of 9.3 million or 17 cents per share compared to a consolidated net loss attributable to common stockholders.
8.2 million or 15 cents per share.
For the first nine.
Months in fiscal 2019.
Our cash and cash equivalents as of January 31, 2020, or 30.7 million as compared to 32.4 million as of the prior fiscal year ended April 32019.
We continue to have a strong balance sheet and wish to reiterate that we do not anticipate and need to raise.
Raise additional funds until such time that we initiate the expansion of our facilities.
Despite the strength of our backlog the interruption in production during the third quarter will also impact revenues and profits for the fourth quarter fiscal 2020.
As a result, we're restating our revenue guidance for fiscal year 2022 between 55.
And $59 million versus our prior revenue guidance of 64 to 67 million.
Well, we expect lower revenues and profits in the second half of fiscal 2020 than originally projected we anticipate the impact of the production interruption will be contained to fiscal 2020.
This concludes my financial overview.
I'll now turn the call over to Tim for an update on business development activities and achievements for the quarter.
Thanks, Dan Hello, everyone I'm very happy to be participating my first earnings call with avid bioservices.
My first few weeks it that would have an exciting unproductive and yet I look forward to sharing our progress with you.
Before I provide an overview of the quarters activities I'd like to find my near term goals and objectives of Chief commercial officer.
My first order business will be to build and industry, leading BD team and we're well on our way to achieving that goal.
Beyond hiring I am also focused on closing potential new business that is currently in place.
So this and I'm working closely with our project management and operations team to ensure that we are highly responsive and coordinated and providing potential new customers with business winning proposal.
[noise] building upon the solid foundation that avid has established I plan to expand the team and our commitment to our customer base.
Closer.
And to work within the organization to improve our sales process and ultimately reduce the sales cycle.
And also the strategy in place accelerate new business wins, leveraging targeted marketing campaign [laughter] industry conferences and thought leadership in fiscal 2021.
Another important tool and driving business.
Is the company's website avid recently launched a new website, which we've continued to update with new and relevant content to optimize our visibility in the marketplace.
And we are pleased to report that the new website has already generated qualified sales leads.
I'll now turn to the third quarter and our efforts during the period.
During the quarter.
Our team at a strong presence at several key industry conferences with the goals of expanding avids visibility meeting with potential new customers engaging with existing customers seeking manufacturing support for new projects.
As a result during the quarter, we signed agreements had one new customer and multiple additional manufacturing campaigns with existing customers.
These project raises growth scope from process development, the cgmp manufacturing, taking advantage of new tire breadth of services here it out of it.
As we've disclosed in prior calls one of our recently Onboarded clients is one of the world's leading pharmaceutical companies. We're very pleased to announce at one of the project expansion order to signed during the third quarter is for.
Multiple additional clinical cgmp manufacture to run for this company within our Myford facility at our largest scale.
We believe that when existing customers expand their business was AVOD. They are validating the skill of our team and the quality of our services, while we continue to aggressively pursue new customer projects.
Were equally pleased to expand the scope of work with our current customers.
This concludes my business overview, I'll now hand, the call back over to Rick Rick.
Thank you Tim first I'd like to welcome Tim to the avid team as we mentioned in January Tim has extensive experience in commercial operations, including.
Sales team management business development marketing and corporate development. It is new role he will be responsible for driving the continued growth of avid CDMO business, including the ongoing expansion of the company's commercial and clinical client base, we're very happy to have Tim leading our commercial effort and we.
Look forward to his contributions.
Oh pivot now to our ongoing search for permanent CEO for the company. We continue to screen highly qualified candidates, we hope to fill the position. Soon however, as we said previously we must be delivery nurse search and take the time required to identify the ideal leader for this growing organization.
Asian.
We continue to make this surgery priority there will reporting our progress is warranted.
Turning now to the business, while we're disappointed that the quarters operational setback will negatively impact our fiscal 2020 results the fundamentals of the business remains strong.
We anticipate that.
We will be able to recover these lost 2020 revenue in fiscal 2021, and we remain optimistic about avids growth potential.
With respect to operations, we continue to make progress with projects to enhance our myford facility and plan for the future expansion of the facility in order to support the growth.
We anticipate and physical 2021 and beyond.
These improvements include installing the pharmaceutical grade water system, and upgrading key I T systems and general infrastructure.
We expect the installation and validation of the water system to take place in late calendar 2020.
And the ITC system enhancements.
In general infrastructure upgrades to be completed by the end of fiscal 2021.
In closing I'd like to begin state that we are disappointed with the results for the third quarter impact we expect in the fourth quarter.
The results of the production interruption was that we were unable to complete several.
Scheduled production runs with the resulting negative impact on revenue and profits.
We are now using all conceivable internal and external resources to make the Nexus aerie correction to fully resolved this issue.
Once these remediations are completed we will perform additional testing.
And to assure that the equipment is improper working order. It is our expectation that this problem will be behind us soon and as such we anticipate that the impact will be contain two fiscal 2020.
Looking to the future, we believe that we're well positioned for growth.
To that end, we have hired experienced.
Commercial leadership, and we're conducting the upgrades and enhancements required to support the needs of our client and we continue to strategically planned for the starts stated the art expansion that will support a growing customer base and sustainable revenue growth.
This concludes my prepared remarks for today.
We can now open the call it two questions operator.
Thank you asked the question at this time, you'll need to press Star then one on your telephone to withdraw your question. Please press the pound.
Please standby, while we composite Q in Iraq.
Our first question comes.
On the line of Matt Hewitt with Craig Hallum Capital. Your line is now open.
Good afternoon. Thank you for taking the questions in a welcome Tim.
Thanks, Thanks, Matt Yeah, a couple of questions, if we could get a little bit more color on the the the production.
Issue is this I guess along those lines number one its a piece of equipment is this an old piece of equipment or a new piece of equipment and if it's an old piece of equipment how quickly could it be replaced and then number two along those same why and what kind of impact because they'd have with your customers. What can you what are you doing too.
Sure them that you can get this resolves the that you're not losing business.
You bet, so Matt I'm unable to speak in in great detail about the a the piece of equipment based on we don't have permission from our our client to talk specifically about.
At that but I can tell you that were working extremely closely with.
With our clients cooperatively and very transparently to resolve this issue I believe that we have.
Initiated a the corrections.
As I stated the once all the.
These are in place it'll take a bit of time to verify that everything has been completed properly and that the piece of equipment is in a good working order.
So we need to go through a number of steps to assure that and then it can be released back into production.
All of this is being done.
And in cooperation.
With our clients and as I stated just want to repeat.
None of the work that.
That fell out this quarter has been canceled it will all be made up as soon as the equipment repairs are completed.
Thank you and then I guess it.
The fruit for you does pose any challenges as you're trying to sign new business or is this kind of.
Are these types of issues kind of status quo for the industry and therefore, they understand they see the progress that you're making on on the remediation front and therefore.
Or maybe it really doesn't impact signing new business.
Yeah, It's really how you how do you get through these challenges and to date and in the future. We don't see any issues with the Onboarding new clients with our with our current operations.
Okay, maybe one last one of them I'll hop back into queue.
Obviously corona viruses on everybody's mind.
Mind. These days what type of impacts if any are you seeing from the situation are you seeing customers, but possibly shifting business from one region to another or are you seeing new business opportunities as a result, as they're looking for.
For either treatments and or other drugs. So just anything along those lines will be helpful. Thank you.
You bet. Thank you for the questions.
One to one thing that we're seeing a immediately is a number of conferences. We were planning on attending had been canceled.
This is a beginning of conference season, and and one by one or they've been falling off a de cat probably being the largest.
So we're just getting on the on the phone with people that we were planning to meet within person so not losing.
The the contact time with our clients in terms of supply chain, we haven't seen a great effect at this point, we're monitoring that very carefully.
We hold inventories of a lot of critical materials.
For several quarters advance.
So that that's not a oh, we don't do adjust on time delivery, because we know that some of these things.
Do take a while to produce so we haven't seen a big impact there in terms of disruptions to our clients or two to orders that they're placing nothing.
As occurred to date.
We are.
In a constant contact with them.
Clients are still traveling to our site.
For a person in the plant to monitor their production and the development activities, so that hasn't changed.
Changed yet of course, the health and safety of our workforce is our our number one concern. So weve established our policy regarding employees and ER and we're addressing all of their questions, but but here in Orange County.
I haven't been.
Impacted to any great extent, so far.
Great. Thank you.
Thank you Matt.
Our next question comes from the line of Jacob Johnson.
Your line is now.
Hey, thanks.
First just on the equipment Dan did you say there was about a 3 million dollar impact on the third quarter.
Yes, there is a 3.1 million dollar impact to the third quarter got it and then I mean, as we think about the fourth quarter and maybe all of fiscal 20, I think it's about eight to 9 million reduction in guidance.
Is it fair to say sort of the balance of the reduction was due to the head when do you expect in the fourth quarter.
Jack up that's right yet so that's.
That's what we're seeing currently and as Rick noted in our prepared remarks that we're currently.
Working on corrections to the critical piece of equipment.
That being said you know with revenues are looking like they're also going to be impacted for the fourth quarter just for edification.
And or our cash flow. In addition to that will also be affected. So we're looking at you know a $67 million cash burn for the quarter.
Got it got it that's helpful.
I guess the question no question for Tim.
Hi, Thanks for all all the.
Color I'm on the strategy going forward I guess it gets two questions here first it sounds like you're there's additional focus on on web sales any other sort of big strict big or small strategic shifts are now that you're in charge of business development and then it also sounds like you're adding salespeople.
Yeah. What are these people going to be focused on where their customers or areas where were you felt you were under penetrated a previously.
Yeah to answer the first question just religious to remain customer focus is the big strategy.
And getting the brand and ER visibility in the marketplace.
And then one great way to do that is with additional sales people on the ground and so our salespeople are going to be focused on.
Spreading the word of the brand of AVOD also getting in front of customers and and new customers. Most importantly.
Got it at our portfolio.
Got it a and then maybe just last question.
Question here.
Good to see added the customer in the quarter and 20 million to the backlog.
I don't know if you want to answer this or not but but could you tell us how much of that 20 million addition, look lets from that one customer.
No, we're not going to breakout.
The differences and.
The backlog Jacob I can appreciate the question.
But we are seeing a significant growth from our existing customers so quarter over quarter.
Got it thanks for taking my question guys.
Thank you.
Our next question comes from the line Paul Knight.
And in my summary, Scott Your line is now open.
You know rig is this equipment failure on due to something that you put in that no <unk> and also is there an F.D.A. issue, where they have to come in and inspect facility.
It's not a new piece of equipment.
But.
Everything we do here is a regulated by the FDA had and quite a number of other international regulatory agencies. So anytime we do something it's all done in preparation the uptake and can arrive anytime for a either.
Scheduled or unscheduled visit so any repairs that we make any modifications to equipment and processes ought to be heavily documented and ER and verifications performed so along with any work that we're doing a there's a very significant quality.
Regulatory oversight.
And that consumes a quite a bit of time and resources, but.
Don't do anything without operations and quality going hand in hand, and thoroughly documenting and having that prepared.
For either our clients review for any outside regulatory agencies.
Okay and.
I guess, you've got customer on its to go through here in the current quarter right.
Correct.
And then 10 or could you talk <unk> lastly.
And then I guess, it's really the audits it take as much time is actually fixing equipment right.
Hi, This is Rick I'll I'll chime in on that one so audits are typically a one to three day exercises.
The team is a very very good at performing them.
They're very efficient so often if people plan a three day audit we get through it in a day and a half just because there's a back room that is a pulling up documents as quickly as people asked for them and all the paperwork.
Because usually in very very good order, so the audits themselves or don't take a a terribly.
Long time, there's typically follow up so maybe in the audit they might have they we show them everything that we have in that maybe there's some data we needed to gather to follow.
Sean So after the audit maybe theres, another a week or so correspondence to wrap them up.
The work itself.
It takes a certain amount of time and then the verification, sometimes we need to do runs just to verify that everything's working properly and document.
All that and produce reports that takes a significant amount of time.
Okay, and then a Tim a welcome aboard the question I am for you is this customer that you landed in the quarter does that bring customer count to 22 with this customer a major biopharmaceutical that we're was it does.
Smaller one and then lastly, we understand from other coverage that the monoclonal market is very strong or are you finding it a pretty a positive selling environment.
[noise], yes. It is a it is a very positive selling environment and we've got a lot.
Of activity going on going to to respond to other clients that we haven't our Q already in the sales cycle and add new clients the sales cycle.
The new onboard a client I can't speak to the size, but but they do have a pipeline of opportunities in their.
In the organization.
This is Rick.
Just to clarify our active client base right now is a 14 active customers okay bear in mind. Thanks.
With multiple projects right.
That's correct that's correct of those 12 have significant pipelines and.
We either have or or working with the clients to to obtain additional molecules in their pipeline.
Okay.
And water customers, saying, they like about AVOD versus your competition.
Yes.
Jim I'll, let you you tackle that one.
Yeah sure well they certain like like our collaborative approach they like our the like our location the use of getting to a tough in California.
And our partner as well as our project management team and our regulatory that's record I think we've got probably one of the best a regulatory compliance records in the industry and.
We certainly recognize for that.
Okay, Yeah, if I could just add a couple of things there I think one of things that I hear frequently as a.
We're relatively a small and nimble company for somebody who has capabilities from early stage development all the way through.
Commercial with as Tim said, a tremendous commercial and regulatory track record. So for people who want to move quickly you know from the very first a time, Tim engages them in setting up confidentiality agreements, we turned that around very quickly.
All of our management.
Team here in house, including our council, so whether its Oh first confidentiality agreement to a very complex multi year contracts, we turn that around much more rapidly than our competitors.
Based on our scale were easy to work with.
And I think it really comes down to technical expertise and quality and regulatory track record.
Okay. Thank you.
Oh.
Thank you. Our next question comes on line of Joe Munda with first analysis. Your line is now open.
Good afternoon, guys. Thanks for taking the.
A question can you give me okay.
Yes, Joe Thank you.
So first off you talked about the you're anticipating lost revenue coming back in 2021 can you give us some sense of of what that.
Were you anticipate that look like is it going to come all in one quarter income evenly throughout the year.
Any thoughts there would be great.
Well Joe I appreciate the question right now it depends on the overall production.
Scheduled because we do have a lot of other clients going through the production schedule, but we anticipate hitting those runs early in the year and being through those are definitely.
For the first half of next year.
Yeah.
Okay.
And then maybe you could talk a little bit there's definitely an uptick here in inventory and a are can you give us some background or color as to the increase there.
Sure some of the.
The inventory buildup is you know just based on the in process runs.
Were deferred so we have that inventory on hand as of the ended the quarter and we saw an increase in and our a our because we bill a portion of.
Our contractual.
Ships with with clients when we sign them upfront. So we had some signings near the end of the the third quarter, which kind of ticked up they are into the quarter.
Okay.
That's helpful. And then in terms of you know your commentary around this piece of machinery, Hey, you know.
Owned by the customer would be easy a piece of equipment. That's being used just by this one that being used just solely for this one customer or multiple customers using this piece of machinery.
[noise]. So it is a piece of equipment that we own and or it can be used for multiple customers.
Okay, and but only one customers being impacted by this.
I'm, sorry, I can't comment on that I apologize, Okay. That's fine and then flipping gears here switching gears to the new customer.
You have I.
Campaign here to get the word out I'm curious how did you landed new customer how did you come in.
Sure Jim do you want to address that one.
Yes, sure this new customer was into Q pardon me, joining and but customers could come in from all different a.
Angles.
Trade shows a website of course, our BD team and their network and I'm in fact as as I mentioned during early fall. We're already getting qualified leads from our new website and some of those qualified leads are already leading to generating Andy AIDS in having discussions about how we can support.
To those customers. So there's a lot of different avenues that come in.
This said the new customer just come and I'm, not I'm, not sure earlier, where which which avenue that one came in as was in the queue before I joined but but nonetheless, we did get them over the goal on and signed on with the company.
You bet. So this would be for a tim's time so.
This was a client, but actually I contacted us.
Became aware of our capabilities or through our previous web site and we had some discussions, but then or they needed to do more development work and it went quiet for a for some time and then Tim came on board he was able.
To reengage.
This customer and a couple others that has also gone dormant as well and convert them back into active discussions.
Gotcha.
I guess my last question I mean, you touched a little bit on it but CEO search.
You know any thoughts.
On potentially a timeline being.
Carry into.
Fiscal 21 year or do you hope to have somebody in the role.
Within the next month.
I'm very hopeful that we'll have somebody in the roll the next two three months.
Okay.
Thank you.
Thank you thanks, Joe.
At this time.
All back.
For any closing remarks.
Thank you operator, and thank you to everyone participating on today's call again, while we're disappointed with the quarter's financial results and the impact of will have on this.
Fiscal 2020, we remain highly optimistic regarding the business overall.
Health of the biologic CDMO industry is robust and growing and we continue to build visibility in the sector or client relationships remain strong as evidenced by our consistent ability to bring an additional work from these customers.
The increase our business to pipeline and backlog we have brought in strong leadership for our commercial group and we are building an exceptional business development team.
And finally, we remain excited for the expansion of our stated the arc facilities.
We believe will be driven by the growth in demand for Avids.
As we look forward to updating you on these efforts.
And our future advancements. Thank you again for participating today and for your continued support of avid bioservices.
[noise], ladies and gentlemen, this concludes today's conference call. Thank you for.
You may now disconnect have a great day.
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