Q4 2020 Avid Bioservices Inc Earnings Call
I'd like to have the conference over to 10 brands of Avids Investor Relations Group. Please go ahead.
Thank you good afternoon, and thank you for joining us on today's call. We will have Rick Hancock interim President and CEO, Dan Hart, Chief Financial Officer, Intimately Compton, Chief Commercial Officer commercial officer.
Today, we will be providing an overview of avid bioservices contract development and manufacturing business, including updates on corporate activities and financial results for the quarter ended April Thirtyth 2020. After our prepared remarks, we will welcome your questions before we begin I'd like to caution that comments made during this conference call today June.
Thirtyth 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.
Revise or update any statement made today.
I encourage you to review all at the company's filings with the Securities Exchange Commission concerning these and other matters with that I will turn the call over to Rick Hancock interim President and CEO, Rick. Thank you, Tim and thank you to everyone who's dialed in and to those who are participating today via webcast.
We're addressing the Companys financial and operational performance I'd first like to welcome Nicholas screen to the out his team.
Nick has recently been appointed average new CEO and we're thrilled to have him onboard Nick has more than 30 years of experience in the global pharmaceutical and healthcare services industry with significant expertise in the contract manufacturing of novel pharmaceutical products is global pharmaceutical experience Spence workout.
Having run 31 facilities in nine countries could North America, South America, Europe and Asia throughout his career Nick has held in number of senior management roles for several contract manufacturing organizations and life Science companies, where he is credited with successfully building an expanded.
Those businesses and delivering significant value for customers patients employees and other stakeholders. We're very pleased to have Nick joint Abbott and we believe his experience will be highly valuable as a company grows commercially and operationally.
Nick start date of July Thirtyth 20 twice with his arrival I will no longer be part of the company's day to day operations, but I will continue to support habit as a director on the company's board and I look forward to working with Nick and this team going forward.
I'll now address the quarter.
Its performance during the first fourth quarter, partially offset the lower than expected revenues recorded during the third quarter.
As discussed our last earnings call during the third quarter the company experienced a problem with a specific piece of equipment.
This resulted in a production interruption during the third quarter and a deferral of some revenue for that period.
Well the interruption extended into the fourth quarter additional unplanned revenue generating projects were initiated during the period, allowing the company to exceed its restated annual revenue guidance and end the year with a strong backlog.
We're pleased to report that during the fourth quarter, we identified and mitigated because the equipment problem responsible for this production interruption and we're currently in the process of confirming the successful remediation.
During the quarter, we also expanded our business development team and entered into a co marketing partnership we believe will provide another channel from which to fill capacity.
Based on our customers growing demand in our expanding business development activity. We believe that we will significantly increase capacity utilization 2021 and beyond.
Accordingly, we have entered into a new phase of planning for the expansion that will support our growing business in the years to come.
Tim and I will provide additional details on business development and operations. Following an overview of our fourth quarter and year end financial results for that I'll turn the call over to damn hard Dan.
Thank you Rick.
Before I begin I'd like to recommend the everyone participating on today's call refer to our 10-K filing with the Securities and Exchange Commission, which we filed today.
Additional details.
I'll now discuss our financial results from continuing operations for the fourth quarter and full year ended April Thirtyth 2020.
Our first address the quarter revenues for the fourth quarter fiscal 2020 were 12.6 million, a 26% decrease compared to revenues of $17.1 million recorded during the fourth quarter fiscal 2019.
The year over year decline in revenue was primarily attributable to the interruption of production, which began during the third quarter and continued into the fourth quarter fiscal 2020.
As a result of a problem with the specific piece of equipment.
Despite despite the decline fourth quarter 2020 revenues were stronger than expected primarily due to an increase in customer projects.
Gross margin for the fourth quarter fiscal 2020 was a negative 10% compared to a gross margin of 21% for the fourth quarter fiscal 2019.
The decrease in gross margin for 2020 quarter was primarily attributable to that.
Associated with the production interruption described earlier and increase in depreciation expense from the acquisition of new equipment and a net decrease in revenue.
I will now address operating expenses.
Total SGN expenses for the fourth quarter fiscal 2020 were 3.5 million a slight decline compared to 3.6 million recorded for the fourth quarter of fiscal 2019.
For the fourth quarter fiscal 2020, the company reported a consolidated net loss attributable to common stockholders of 6.2 million or 11 cents per share.
As compared to a consolidated net loss attributable to common stockholders of 1.1 million or two cents per share for the fourth quarter fiscal 2019.
Our backlog at the ended the fourth quarter 2020 was 65 million an increase of 12% compared to 58 million that ended the third quarter fiscal 2020.
And an increase of 41% compared to 46 million at the end of last fiscal year.
This backlog represents a record high for Avenue.
Even when excluding the 8 million of revenue deferred due to the delay of scheduled and process manufacturing runs during the second half fiscal 2020 backlog increased 24% over prior year end.
I'll now provide an overview of our results for the full fiscal 2020.
For the full fiscal year ended April Thirtyth, 2020 revenues were 59.7 million and 11% increase as compared to revenues of 53.6 million during the prior year period.
This increase was primarily the result of continued growth in the number and scope of customer projects.
As a result be our restated revenue guidance for the year.
Gross margin for the year in April Thirtyth, 2020 was 7% decrease compared to 13% in the prior year period.
This decrease was primarily due to the planned growth related costs associated with payroll and related costs.
Increasing depreciation expense from the acquisition of new equipment, and higher facility and the equipment related costs, primarily associated with the production interruption during the second half of the fiscal year.
For the full fiscal year 2020, SGN expenses were 14.5 million, a 13% increase compared to 12.8 million for the prior year.
The increase in SDMA it was due to employee separation related costs.
Recruiting fees increased stock based compensation.
When excluding the separation related expenses as you named increased 3% during 2001 as compared to the prior year.
For the full year 2020, the company recorded a consolidated net loss attributable to common stockholders of 15.2 million or 27 cents per share.
Compared to a constant off consolidated net loss attributable to common stockholders of 8.9 million or 16 cents per share for fiscal 2019.
Our cash and cash equivalent as of April Thirtyth 2020.
Were 36.3 million, a 12% increase as compared to 32.4 million because of the prior fiscal year ended April thirtyth from 2019.
The company also achieved positive free cash flow measured in the change in cash from operations net of capital expenditures of 2 million for fiscal year ended April Thirtyth 20 Twond.
This concludes my financial overview I will now turn the call over to 10 for an update on business development activities and achievements during the quarter.
Thanks, Dan.
From a commercial perspective, the fourth quarter 2020 was one of the company's most successful with the team signing 23 million in project expansion orders with existing customers. While this is a wonderful way to end the year, we have great expectations for 2021 and beyond and are taking be important steps needed to continue this growth momentum.
As I stated during last quarters conference call My first sort of businesses Avon's Chief commercial officer, with the build and industry, leading BDP I'm pleased to report that the during the fourth quarter. We ended <unk> added tremendous depth and strength to our team.
With the addition of two senior directors with proven track records in growing seating ammos, they're responsible for driving business growth in North America, Europe and Asia.
Jason Brady serves as a senior director of business development for the Eastern region of North American as well as Europe and still behind has been named our senior director of business development for the Western region of North America, and Asia Pacific Region.
So looking at comes the avid with 17 years of experience in key business development wells in the CDMO and contract research industries.
During her career she has held positions in increasing responsibility with neither genco VCR grammar bio Nova step Cook Pharmerica Baxter.
There will be has specialized expertise and biologics cell and gene therapy and sterile fill finish services in her new role she had charge with expanding the company's CDMO business with both new and existing clients in Western North America, and the Asia Pacific regions.
Jason is an accomplished field professional with an extensive track record of extinguishing long term business relationships and successfully securing new manufacturing contract with biopharmaceutical clients.
During his career he has held senior sales in commercial positioned with RG Biopharma and Lonza.
In his new role Jason is responsible for driving continued growth and expansion of companies CDMO business and Eastern North America in Europe.
Very pleased to welcome will still be adjacent to the avid team since coming onboard in April they have quickly elevated our level of engagement with both existing and prospective customers and we expect great contribution from both in the future.
Another important commercial development was Avids recent announcement of a co marketing partnership with urgent Biotime and leading CRM BPO focused on accelerating preclinical product development.
It is the attempted to co marketing agreement to provide an integrated sequence to manufacturing service offering to customers.
Origin cell line development expertise integrated with Avids upstream and downstream process development and analytical services will drive efficiencies and reduce overall timeline for delivery of cgmp Joel both drugs substances.
And it's our belief that this partnership will provide customers with the seamless solution to streamline early stage development and manufacturing and enabled a rapid delivery of important therapeutics the patients in need.
We're excited to be a part of the so marketing collaboration and we're already seeing tangible benefits to both companies.
I will now discuss our marketing efforts during the quarter.
And the Arab 19, the way in which we all do business. It changed industry conferences have been important networking and business development events for us in the past have all been canceled postpone converted a virtual formats in person discussions and sales pitches have now been converted to online platforms and while nothing is as value.
The face to face meeting with customers and new products new business prospects.
I've been pleasantly surprised that how effective the virtual four months have been.
No previously scheduled customer prospect meetings have been plus phone or discontinued due to the pandemic in fact without the burden of travel we were able to have more participants on called than we would typically have at a meeting during an industry event.
It is important to note that new prospect customer quality audits are proceeding using both virtual formats and are leveraging local third party auditors and so despite the challenges of doing business. During October 19, our team is extremely busy engage with both current and prospective customers and working diligently to close.
Yes.
This concludes my business overview, and I now hand, the call back over to Rick Rick.
Thank you Tim as a continuation of Tim's comments I'd first like to address Abbott's operations in context of the cobot 19 pandemic since the beginning of the pandemic avid management as closely monitored our production pipeline and the health of our workforce.
We're pleased that today, we have observed no material impact to our production programs.
For our supply chain and our employees remain healthy and highly productive management is taking every precaution and following state and local guidelines to assure the continued safety and well being of our team members and we're hopeful that our operations will remain uninterrupted I'd like to reiterate that no work has been canceled or.
Or delayed due to the pandemic and we currently have no expectations that that will change.
I will now comment further regarding last quarter's equipment issue and production interruption.
Let me first confirmed that the specific piece of equipment and question is now operational. However, this project is being executed in three phases investigation remediation and confirmation to date, we believe that we have Ics system. We have successfully completed the first two stages identifying and remediating the.
Source of the problem.
The company is currently progressing through confirmation stage during which it is running multiple revenue generating production campaigns.
While we are optimistic the company will not be able to confirm the full resolution and took completes the confirmation stage, which we expect will be completed in the coming months.
As we look ahead, we believe that growing customer demand and our expanding business development activity will result in a need for additional capacity.
In recent quarters, we've done much of the ancillary work that is required to support a more comprehensive expansion in the future.
As we've addressed in prior calls.
This work has included the enhancement a key systems and upgrades to general infrastructure.
However, we were now taking additional steps to prepare for the growth opportunities. We see ahead.
While specific kick off date has not been set for this expansion we recognize that construction may take between 18 and 24 months to complete.
For that reason, we are undertaking the pre engineering design and permitting work required to allow us to break ground on this project at the appropriate time.
Given this backdrop I'm very pleased to announce the for fiscal 2021, we expect to record revenue of between 76 and $81 million representing growth of approximately 27% to 36% over fiscal 2020, and as we continue to achieve revenue growth we expect the improvement.
And margins to track accordingly.
In closing I'd like to communicate our strong optimism for fiscal 2021 and beyond.
Despite the challenges of the third and fourth quarters of fiscal 2020, we finished strong with.
With higher revenues than expected and a record breaking backlog of business.
We are preparing to welcome our new CEO, Nick Green and we're confident that he will provide the vision and execution strategy to elevate added to the next level.
Our customer relationships are strong and forecasted demand is growing.
Bind with our expanded business development activity, which we expect to generate an increasing number of projects from both existing and new customers.
We believe that we're on a path to significantly increase capacity utilization.
Accordingly, we are ready to kick off and expansion that will allow us to meet the increasing demand of our ever growing customer list.
This concludes my prepared remarks for today, we can now open the call up to questions operator.
Thank you as a reminder to ask a question you'll need to press Star then one on your touched on telephone to withdraw your question from the Q. Please press the pound key please standby when we compile the Q name roster.
Our first question comes from Matt Hewitt with Craig Hallum Capital Group.
Thank you now.
Good afternoon. Thank you for taking the questions.
The first one if you can help me understand a little bit the guidance for next year. So.
Exiting Q3 would essentially pushed I think because around $8 million from the fourth quarter into roughly the first half of fiscal 21 with the.
Oh performance in Q4.
If some of that getting pulled into the fourth quarter and therefore that 8 million in the first half of 21 is less or just kind of walk me through the puts and takes there.
Hi, Matt Thanks for the question.
So to answer your question, yes, there is a small sliver of 8 million that was pushed when we.
Reiterated our when we receive forecasted our guidance in the third quarter.
However, a majority of the revenues that we saw a for the increase have you in the fourth quarter was from new business from existing customers that we were able to start earlier and or commence with new agreements.
So there is a small sliver of the 8 million that.
In the fourth quarter. However, a good 70% of that will still be in the first half of this next fiscal year.
Okay, Alright, that's helpful and then I guess.
Given the pipeline and and I appreciate that it's building, but given these co bid opportunities how quickly would you anticipate hearing back where they are not you've won any of that business, given where we're at what the pandemic and.
Urge sense of urgency I think everyone is feeling.
Yes and.
Go ahead Jim.
No. Please go ahead.
I was going to say I mean every opportunity is different every timeline is different but we certainly anticipate hearing back from some of the opportunities we have in the queue.
For cobot, probably in the next.
Probably next 90 days.
But there are several opportunities in various in various stages of the sales cycle.
But Matt you're absolutely right there is a tremendous sense of urgency so.
Whereas typically we might engage.
For six months or nine months with a potential new clients.
These opportunities they they do need to get responses very quickly so Tim and his team are.
When we get when these incoming inquiries.
They get on them right away.
Get the.
Get the group all the information that they need budgeting.
Timelines and.
They all are all interested in very aggressive timelines once production begins.
Got it great and then I guess, one last follow up for me and then I'll hop back in the Q.
Regarding the.
The expansion for your capacity expansion, how should we be thinking about the cadence of investment there is from a capex perspective, what are you expecting in fiscal 2001, and maybe when do you start the discussions with potential partners in that investment I know, that's something you've talked about in the past that you might be able to get some of your customers to help.
With that with the cost of that expansion, but when do you start those discussions.
Sure Matt This is Dan.
As far as the capital requirement currently we're doing a a full up design effort. So that we're prepared to start any moment. So with the design efforts typically it's a low outlay of capital expenditures once we once we find the right time and.
Move forward towards building out.
At that time, we'll look at.
Any any financing options that we feel are appropriate.
When the time presents itself. In addition, we'll continue our conversations with customers and order vendors to help with the funding and to participate in funding of the overall buildout.
And I would just to add there's a couple of parts of those conversations with our customers one is.
The opportunity for them to participate in order to reserve slots for the future. The other is just making sure that everything we put in is completely aligned with their current requirements and what they're looking at needing over the next 10 years.
Great. Thanks.
Kind of finalized I would anticipate the overall build out would be somewhere around 30 to 40 million all in with the build and capital equipment.
Which would be over the call it 18 to 24 months.
Okay. That's very helpful. Congratulations on the record bookings. Thank you.
Thank you Matt.
Thank you. Our next question comes from Joe Pankaj Thats with H.C. Wainwright. Your line is now open everyone. Good afternoon. Thanks for taking the question Hope you and your families are all doing well.
And the businesses certainly doing well so glad to hear this.
Just curious big going back to the potential co bid contracts is there the opportunity for exclusive contracts or something similar also to what they're doing in the United Kingdom for example for the Oxford.
Vaccine as well, where they have multiple suppliers.
So the contracts were looking at currently.
Exclusivity is not really a part of it.
The main drivers to get something.
Through proof of concept as quickly as possible and I think whether things that makes avid and attractive partner for these kinds of things as well we don't have the.
The largest scale some of them.
Our requiring very small.
Most is very small amounts of material per dose.
But the fact that we could take something very rapidly from preuss proof of concept to commercial production with our many years of commercial capability.
I just my opinion I think.
The strategy of most of people that were talking to based on where they're getting their funding from.
The goal is to identify something that works either.
Vaccine or therapeutic and then.
Make it as widely available as possible.
Tim Compton do you have anything you want to add.
No I agree with that Rick right now.
Very much timeline, driven and certainly the exclusivity and those types of.
Legal agreements have not been not been engaged discuss on its really about delivering and timeline to deliver.
Got it that's helpful. And then my next question is I know nics not on the phone to answer this directly so I guess I'll ask the question this way.
Can you describe sort of the CEO selection process that you went through and why you decided on Nick obviously, you shared some of his background earlier, which certainly fits for the future, but I guess would you be able to share any aspects of the vision you might have for the company.
You bet Joe.
Great question. So obviously this wasn't a lightning fast process.
But I really think at the end of the day.
We wound up with just the exact ray person to lead to avid for the future.
Based on mix tremendous experience both in the commercial realm operational excellence strategic growth.
So we're very lucky to get Nick and very happy days, joining us and I spoke with them just today and he expressed again how excited he is to get here I think his vision is is really continuation of.
At the senior management team here has been doing making sure that we capitalize on the the very unusually.
Exciting asset that we have here.
Many independent CDMO shows in our space. The can do what we can do again going from.
Proof of concept all the way through to commercialization post commercial support.
So I think he's delighted to get here.
Fast moving nimble company.
And as we pointed out here.
Built up and expanded many companies over his career. So I think is first.
The focus is going to be on operational excellence throughout the organization, making sure that we're running lean.
Looking to build and strengthen with Tim Compton relationships with existing customers and bringing on some more marquee clients and then.
Focusing on the build out and.
Just making sure we capitalize on other growth potential that we have it.
Got it really helpful. Thank you and then my last question is maybe best for Dan.
With regard to gross margins I mean could we expect basically over the next year as you're looking at these.
Expansion plans that gross margins can continue to be choppy before we can start having conversations about normalizing them.
Appreciate the question, Joe and I think the question is spot on our gross margins were depressed in the second half and the overall fiscal year 2020.
Primarily due to the effects that happens and then the second half of the year for the equipment failure.
Going forward. This is a profitable business and we will continue to be trending towards that profitability as we continue to expand not only our current customer base, but new customers and backlog.
That being said as we start to grow we start to reach the capacity that is currently installed prior to any expansion of additional capacity, we should be able to approach the industry standard margins.
For both gross margin and EBITDA margins and as we expand we can continue to expand upon that.
As I said before.
Once we hit the critical mass, which we should be doing here and the near future and in the fiscal 2001, we should start to see if 50% to 70% incremental gross margins dropped straight to the bottom line as we reached that capacity limit.
Got it very very helpful. Thanks, a lot guys appreciate it.
Thanks, Joe.
Thank you and our next question because of Jacob Johnson with Stephens. Your line is now open.
Hey, Thanks first off rack, it's been great working with you congrats on the higher neck and.
I hope you enjoy going back to your role on the board.
Hi, Tom Nobody equipment.
Yes on the equipment issue when did you answered that confirmation stage, what's this process faster than you expected or in line with expectations and then how do volumes in the confirmation stage compared to two one year up and up and running normally.
So.
The remediation took.
Got the amount of time that we expected investigation took quite a while but once we identified the source of the problem. It was pretty clear what we need to do.
We've been going through the confirmation stage for the last few months and hope to have it wrapped up in another couple of months here.
And Jacobs as far as volumes.
Not at full capacity because there is some additional documentation that we do during the process, but it.
It's above call it 50% capacity utilization during the confirmation stage.
Got it thanks, Dan and thanks for that ramp and then on just Covanta, Dan as we think about guidance.
The number of cobot opportunities you're being presented with.
How much.
How much of these opportunities are contemplated in guidance or should we think as they come to fruition that would be additive.
Any any covered related items would be an upside to.
The guide that we have for next year.
There is some with the discussions that we've had that may lead into a covance type product.
I would be baked into the overall number but for the most part anything that's strictly coming in as a cover 19 related what would be upside.
Gotcha.
Thanks for that and then maybe just one last 110, congrats on the business our senior business development hires how we salespeople do you currently have on your team and how many more.
You need to add.
Yes, generally we have to and we don't perceive making any additional add this fiscal year.
Got it thanks for taking the question could.
You bet I would just add to that that.
Our project management team.
As number of people who.
Manage existing clients and as you know a lot of our work comes in from our existing client base. So they worked very closely with Tim and his team and our kind of.
Another very valuable resource for our business development activities.
Thank you at this time I'd like to hand, the call back over to Rick Hancock for any closing remarks.
Thank you operator, and thank you to everyone participating on today's call in closing I wish to reiterate how pleased we are to welcome Nick Green to the avid team with Nicks executive experience and Tim Compton's commercial expertise, we believe we aren't in an unprecedented position from which to grow the business.
In addition, our client discussions and forecasts give us great optimism for fiscal 2021 and beyond we look forward to updating you on these efforts and all our future advanced.
Thank you again for participating today and for your continued support of avid bioservices.
Ladies and gentlemen, thank you for your participation on today's conference. This does conclude your program and you may now disconnect.
Okay.
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