Q3 2021 Avid Bioservices Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the avid bio services third quarter fiscal 'twenty 'twenty, One financial result conference call at this time, all participants on a listen only mode.
Later, we'll have a Q&A session and instructions will follow at that time as.
And my mind at this conference maybe recorded.
I would like to turn the call and server Chen Mr. Chen bonds on the average Investor Relations Group. Please go ahead Sir.
Thank you good afternoon, and thank you for joining us on today's call, we have Nick Green, President and CEO, Dan Hart, Chief Financial Officer, and Timothy Compton Chief.
Shall officer did.
Today, we will be providing an overview of avid bio services contract development and manufacturing business <unk>.
<unk> updates on corporate activities and financial results for the quarter ended January 31st 2021. 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 March eight 2021 will contain certain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 concerning the current beliefs 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 statements made today.
And I encourage you to review all of the Companys filings with the Securities and Exchange Commission concerning these and other matters with that I will turn the call over to Nick Green average President and CEO.
Thank you Tim and thank you to everyone, who has dialed in and to those who are participating via webcast.
During the third quarter, we continued to build on the momentum and the first and second quarters of fiscal 2021 during.
During the period average recorded strong revenues and significantly improved margins.
Business development team signed orders with two new customers and we expanded work with multiple existing customers.
These events resulted in significant increase in orders recorded during the quarter and the consequential increase and backlog.
In addition, we continue to make progress with the first phase of the myeloid expansion and initiated the second phase and successfully raise funds required to support these major projects.
Tim and I will provide additional details on business development and operations. Following an overview of our third quarter financial results and for that and I'll turn the call over to Don.
Thank you Nick.
Before I begin and addition to the brief financial overview I'll provide on the call today additional details on our third quarter financial results are included in our press release issued prior to this call and in our form 10-Q, which was filed today with the SEC.
I'll now provide an overview of our financial results from the operations for the third quarter ended January 31 2021.
Revenues for the third quarter of fiscal 'twenty, one were $21 8 million, a 61% increase compared to revenues of $13 6 million recorded during the third quarter of fiscal 'twenty.
The increase from the third quarter revenue was primarily due to the growth and the number and scope of in process and completed manufacturing runs as well as an increase and the number of process development projects during the period.
Gross margin for the quarter was 28% up significantly compared to a gross margin of 6% and the prior year period, primarily from leverage of higher manufacturing and process development revenues.
While previously disclosed non operations factors strength and the margins recorded in Q1 and Q2 of fiscal 'twenty one.
It is important to note that our current quarter margin of 28% was achieved with no such adjustments.
For this reason and we believe that the strength of our third quarter margin and demonstrates the growing efficiencies and our business model.
Total SG&A expenses for the third quarter of fiscal 'twenty, one were $4 million.
And increase compared to $3 million recorded from the third quarter of fiscal 'twenty.
The increase in SG&A was primarily due to increases in payroll related costs, including stock based compensation.
Okay.
For the third quarter of fiscal 'twenty, one we recorded a consolidated net income attributable to common stockholders of approximately $800000 or <unk> per basic and diluted share as compared to a consolidated net loss attributable to common stockholders of $3 5 million or six cents per basic and diluted share for the third quarter.
In fiscal 'twenty.
This marks our third consecutive quarter of profitability.
We are also pleased to report that the company generated cash flow from operating activities of $5 2 million during the quarter and $13 3 million year to date.
Our cash and cash equivalents as of January 31, 2021 were $70 9 million. This balance includes approximately $32 1 million and net proceeds which were raised during the quarter and our follow on underwritten equity financing. This.
This balance is up $35 2 million from the end of the second quarter and up $34 6 million at the end of the prior fiscal year.
Okay.
Based on the consistent growth that we've achieved during the first three quarters of fiscal 'twenty, one and our forecast of our customers and the significant level of our current backlog, which Tim will detail. Shortly we are pleased to report that we are increasing our annual revenue guidance for fiscal 'twenty, one from between 84 and $88 million to between 88 and <unk> 90.
And $1 million.
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 our business development team had an exceptional third quarter. Despite the challenges presented by the pandemic our team remain highly engaged with both existing and prospective customers.
As a result, we signed new orders and 74 million during the period.
These orders include two new customers as well as existing customers that are advancing program.
From one clinical phase to another.
Project signed during the period quarter included profit development technology transfer and cgmp and clinical and commercial manufacturing.
And pulling the whole scope of avid capability.
This tightening along with the Onboarding of a new program for an existing customer and the second quarter demonstrates our ability to support the new and existing customers with their growth demands.
As a result, and these new orders our backlog at the end of the third quarter of fiscal 2020, one grew to $120 million and increase of 78% compared to $67 million at the end of the second quarter of fiscal 2020 one.
We expect to recognize most of this backlog by the end of next fiscal year.
As you may recall from our last earnings webcast.
The second quarter backlog of 67 million was the highest achieved since becoming a pure play CMO.
We have significantly exceeded its benchmark during the third quarter, which we believe is a testament to average growing reputation for excellence our state of the art capability and.
And our exceptional team dedicated to quality and all we do.
We continue efforts to increase visibility and to capitalize on this strong and growing momentum.
This concludes my business development overview, and I'll now hand, the call back over to Nick.
Okay.
Thank you Tim.
As with our financial and business development performance. We have also been very pleased with average operational execution during the third quarter.
As discussed during our second quarter call in late calendar 2020 avid initiated a two phased expansion of the <unk> facility.
The first phase, which is proceeding according to plan and will expand the production capacity of <unk> with no facility.
On the back of what can only be described as a very solid business development effort. We have also initiated the second phase of the expansion.
The additional capacity created by our phase two expansion is expected to add a further 100 million and annual revenue, which on top of phase. One we will create a total revenue capacity and hope to $270 million annually.
As we consider our current backlog and projected customer growth. This expansion will enable us to continue to provide capacity to onboard new customers as well as capacity to accommodate the successful clinical development and commercial growth of our existing customers.
Furthermore, we look forward to incorporating a high level of automation and digitization into phase II as we further focus on commercial manufacture.
As anticipated the Onboarding of new customers is starting to translate into increased activity and the process development group with quarter, three showing a significant increase in revenues.
The combination of growing revenues increased utilization allied with solid operational execution and now demonstrating that our business model can deliver both improved margins and drive profitability.
As 2020 came to a close we were delighted to successfully complete the raise of $34 5 million and gross proceeds to fund the expansion of our state of the art manufacturing facility and <unk>.
To support the continued growth of the business.
We were also very pleased with the enthusiasm and support we received from the financial community.
During this offering and are already putting these funds to good use.
In closing the third quarter was exceptional and all fronts topline revenues with strong operational execution was solid and significant growth and process development activity all contributed to significant improvement and margins and other key financial metrics during the quarter.
And as much as it is difficult to pick any one aspect of the quarter I think the efforts that have resulted in a booking of 74 million and new business during the quarter and resulting in a backlog of $120 million deserves a special mention.
As a result, we are raising our revenue guidance for the second time in 2021 to between 88 and $91 million.
Finally, as we enter the final fiscal quarter of <unk>.
Financial year 2021, I'm also delighted to see the avid team is executing to plan, which is not only driving growth today, but also establishing the foundation necessary for continued growth and the future.
This concludes my prepared remarks, with a day and we can now open the call up for questions.
Operator.
Thank you, ladies and gentlemen, if you like to ask a question. Please press Star then one on your Touchstone telephone again, if he would like to ask a question. Please press Star then one on <unk>.
Last question comes from Matthew and of Craig Hallum Capital. Your line is open.
Good afternoon, and thank you for taking the questions and congratulations on the strong quarter.
Thanks, Matt Thanks, Paul.
A couple of questions first off.
The very strong bookings number and obviously your backlog now how should we be thinking about I guess two different items number one the cadence of those revenues coming on and number two the impact that that will have on gross margins on them over the next few quarters.
Sure Great question Matt.
So as far as the bookings that we have.
As we stated and the prepared remarks, most of those bookings will wind out through the end of next fiscal year.
And as far as gross margins you know as we've kicked off our phase one and phase two expansions of my herd.
I think the margin that we saw a 28% is going to be.
Where we're at until we incrementally add that new capacity once we add the phase one capacity.
Of the <unk> North facility, we'll be able to have some incremental margins of 50% to 70%.
Especially at these revenue levels and the leverage of the overall revenue mix.
And then what's the ultimate Phase III comes online, we'll be able to get to industry standard margins of upwards of 40%.
That's great and I guess.
Sticking with the gross margin theme you mentioned the automation and.
Digitization, how will that impact gross margin is that something that we could see even as you're adding this incremental capacity or is that part of the phase one and phase two and so the benefit really won't be seen until you're done with that phase II.
Yes, yes.
And if the automation.
And is really focused on the my foot south expansions of phase two.
And looking more at commercial manufacturer so.
Obviously, the more you automate the more rigid it becomes so you wanna be automating processes that have got repeatability.
Rather than discrete one off or two or three batches. So.
And so we'll probably see the benefit of that as it comes into phase two.
Okay, and Matt and then maybe one yeah.
Real quick what I'd add to that.
And as we're incrementally adding revenue capacity through our expansion and there'll be a little bit of a step up of costs next fiscal year.
Okay. Good to know and then one last one from me and then I'll hop back into queue.
Thank you for the break down on some of the new customers as far as to new customers and you've got customers.
Adding.
Now new opportunities, but regarding the new customers are those COVID-19 related or are those.
Other market opportunities and how should we be thinking about the.
The broader market I mean are you still seeing incremental demand because you have excess capacity and that's driving customers to your door or are things, maybe stabilizing a little bit on the capacity from thank you.
Yeah. Thanks, Matt This is Tim but we are still seeing increased demand for capacity and this space and we continue to onboard new customers.
The two new customers, we did on board last quarter, we publicly announced that one of those customers as manager and which is obviously COVID-19 related and but also have some non COVID-19 related indications for the program that we're working on there as well.
But we will continue to work to onboard new customers quarter over quarter year over year.
That's great. Thanks, a lot.
Sure.
Thank you. Our next question comes from Jacob Johnson of Stephens. Your line is open.
Hey, Thanks, and congrats on a record backlog maybe following up on that last question just on the Humana and announcement from last month. If you can can you size up what this opportunity could mean for you in terms of near term revenues and then maybe from a longer term perspective.
Obviously, providing services for high profile of COVID-19, and therapeutic has this helped or could this help with business development efforts and price think that this is <unk>.
And as good as any kind of advertisement and she can add.
Yeah and so.
In terms of Jacob.
The backlog on Covid generally that's around 40% I would say of our backlog at the moment.
In terms of how much.
Well that ends up growing towards and the long term I think that's a bit difficult at this moment in time to judge.
Clearly humana and Theyre going for emergency use authorization and and.
We can all see that COVID-19 is a bit of a flexible base too so working out exactly what the future holds and that area is a.
To quantify but.
Nevertheless, it's.
And it's an interesting project.
Tim mentioned I think one of the good things about it.
And I was both COVID-19 and non COVID-19 applications as well.
And and certainly.
We were very very pleased to sign the new manager.
On a piece of our business and this quarter.
Got it.
Makes sense, maybe for Dan can you just talk about that.
How should think about the pace or timing of capex for the phase one and two capacity expansions.
The thing that's going to occur kind of ratably over the next I guess 12 months to 24 months or any kind of commentary you can give us around the pace of capex.
Sure Jacob.
So for phase one as we announced it's going to be roughly $15 million phase two is between 45 and 55.
Uh huh.
I would lean towards a majority of that will occur in fiscal 'twenty two for US we've already started to incur costs for the for the first phase and bringing on some costs now for the second phase, but a majority of those costs are in addition to just general maintenance Capex will occur.
Over fiscal 'twenty two.
Got it.
Helpful. And then maybe last question for Nick you had announced.
That you kicked off phase one.
Capacity expansion a couple of months ago, and then quickly followed it.
Phase two capacity expansion was that the timeline you originally envisioned.
So quickly together or.
Just given what you saw on the backlog.
Did that change your thinking on on when to kick off the phase II capacity expansion.
Yeah, No and I think if we would have if we'd have.
Thought that we were going to do them. Both so quickly would probably announce them both together.
So it's the increase in business and I think we were as Tim sort of alluded to it and I think I also alluded to is that you know we did.
Bookings of 21 and quarter 127 and quarter two from my memory serves me correctly and and.
And then 74 and quarter three which is.
A pretty significant uplift and so you look at our book our backlog today.
I think around 122, which is double last year's total revenue. So very pleased with the the BD efforts with the with our average has been received and the market. The results of that on our backlog and and that really is what spud the need to go with phase two and just to be clear the phase one on phase two.
Going on in parallel as opposed to sequential so they are they are both they are both officially kicked off as it were and the timelines and sticky.
Got it thanks for taking the questions.
Thanks, very much Jacob.
Thank you. Our next question comes from Paul Knight of Keybanc Capital markets. Your line is open.
Hi, Nick based.
Based on the backlog that you want on the quarter.
How should that cadence the for the next.
Few quarters and was there any.
Large deliverable in a given quarter upcoming that we should think about on the.
The burn or the revenue recognition of that backlog.
I don't think it's particularly well first of all Paul Nice day for me, but I don't think it's particularly a phased.
And sort of any lumpy phasing at the moment that we can see them, we certainly obviously starting to push up on.
Quite significantly on the capacity of that facility as we as we start to bring that.
And about production into the plant.
But we're not seeing a particular spike at any point in time.
Just a relatively sort of a smooth growth is what I would the way I would describe it as we stand at this moment in time.
And then regarding you know your contract wins.
Time to market is imperative.
One reason, you're winning projects and growing this backlog and I know, you're you're definitely single use a savvy, but.
What are the reasons behind the backlog build beside you know, obviously, a great mab market.
And I think it goes down to a number of factors I mean, obviously I think we said this earlier on we brought the team together and Tim and these BD team, we brought on a month or so this time last year. So.
And just over 12 months ago now and they are.
Really starting to get some cadence and the marketplace I think the reputation of the business.
Is it is also a growing stronger and stronger.
So there are a number of factors the exit I mean at the end of the day execution is everything and as a contract manufacturer at some time and full inspect delivery.
And the more and more and you do that the more interest you're getting and you're offering and.
One thing that's been really nice this year and I think quarter, three and kind of saw all elements I think.
And we sort of categorize them as five different elements of the business, which as you know new clients coming on board kind of clients moving from one clinical phase to the next clients moving into commercial increased amounts of commercial manufacture and then you know additional assets from existing clients as they broaden their and.
Their interaction with us and so this year, we've seen examples of each one of those five different elements and when they all come together and it starts to result, and the sort of the.
Growth in both revenue and also a backlog that you've seen and the business.
And when do you expect phase one capex to translate into increased revenue from that program.
So the original timeline was quarter one next year so from.
We've said 12 to 15 months to bring it online which is really around January track 2020. Two so we are obviously.
The fact that we've actually.
Accelerated phase two.
We are a we would like to speed that up if it's possible.
And we will be looking at every opportunity we can to bring these expansions on pasta.
If the opportunity exists and just for clarity I said quarter, one and we always have a bit of confusion, sometimes between our fiscal and calendar year and I meant calendar year quarter, one and so.
On January 2022 is kind of our early part of when we looked like bringing it online and unless we can speed that up.
Okay. Thank you.
Thank you.
At this time I'd like to hand, the call back over to Nick Green for any closing remarks.
Thank you operator.
And thank you to everybody participating on today's call and <unk>.
Clothing, you don't need remains for me to think avid the avid team as a whole for their continued diligence and determination and overcoming adversity presented by what is one of the most challenging periods of Covid the Covid pandemic.
We are confident and our team our facilities and our strategy and we look forward to reporting our future successes as we go forward. Thank you again for participating and Nicole and your continued support of avid biosynthesis.
Yeah.
Thank you ladies and gentlemen does that conclude today's conference. Thank you all participating you may all disconnect have a great day.
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