Q4 2021 Avid Bioservices Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the avid bio services' fourth quarter fiscal 2021 financial results conference call at this.
Time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time as a reminder, this conference call may be recorded I would.
I'd now like to hand, the call price over to Tim Brons of average of investors Relations group. Please go ahead.
Thank you good afternoon, and thank you for joining us on today's call. We have the Green President and CEO, Dan Hart, Chief Financial Officer, and Timothy Compton, Chief Commercial officer.
Today, we will be providing an overview of avid bio services contract development and manufacturing business, including updates on corporate activities and financial results for the quarter ended April 32021.
After our prepared remarks, we will welcome your questions before.
Before we begin I'd like to caution that comments made during this conference call. Today June 29, 2021 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.
I 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 Nick Green avid <unk> President and CEO.
Thank you Tim and thank you to everyone, who has dialed in and to those who are participating today via webcast.
Since coming on board almost of yet again.
I have been delighted with the way the team has been able to focus on execution on the results and achievements made to date.
And the relatively short amount of time harbinger of successfully brought on multiple new clients and projects spanning early stage development huge commercial manufacturing.
We have significantly increased top line revenues strengthen margins as well as laying a solid foundation for the future and the terms of backlog.
These all culminating in the delivery of operational profitability.
4 consecutive quarters.
The growing demand for our services.
Given our ongoing phased expansions of the <unk> facility.
Furthermore, this growth combined with the strong balance sheet.
The enabled us to invest in additional offerings within our core business such as high throughput capabilities.
Dream downstream on the analytical.
We are also assessing further opportunities both within our core business as well as the net adjacent umbrella synergistic businesses, where we might enhance and broaden our capabilities with the objective of providing more embedded solutions draw the existing and growing customer base.
Kevin I will provide additional details on business development and operations. Following an overview of our fourth quarter financial results and for that I will turn the call over to Dan.
Thank you Nick before I begin in addition to the brief financial overview I'll provide on the call today additional details on our fourth quarter and full fiscal year financial results are included in our press release issued prior to this call and in our form 10-K, which was filed today with the SEC.
I will now provide an overview of our financial results from operations for the fourth quarter and full fiscal year ended April 30 of 2021.
Revenues for the fourth quarter of fiscal 'twenty, 1 were $27.6 million, which more than doubled our revenues of $12.6 million recorded during the prior year fourth quarter, representing a 120% increase during the fiscal 'twenty 1 period.
For the full fiscal year 'twenty, 1 revenues were $95.9 million, a 61% increase as compared to revenues of $59.7 million in the prior year period the.
The increases in revenue for both the fourth quarter and full fiscal year 'twenty, 1 were primarily due to the growth in the number and scope of in process and completed manufacturing runs as well as the increase in the number of process development projects during the periods.
Gross margin for the fourth quarter of fiscal 'twenty, 1 was 29% a significant increase compared to gross margin of negative 10% of the fourth quarter of fiscal 'twenty.
While the previously disclosed non operations related factors strength in the revenues and margins recorded in Q1 and Q2 of fiscal 'twenty 1.
It is important to note that our Q3 and Q4 gross margin were achieved with no such adjustments.
For this reason, we believe the strength of our third quarter and fourth quarter margins, which were 28% and 29% respectively.
Demonstrate the growing efficiencies of our business model gross margin for the full fiscal year of 'twenty, 1 was 31% a significant increase compared to 7% in the prior year period.
The increase of the gross margin during both the fourth quarter and full fiscal year 'twenty..1 we're primarily from the leverage of higher manufacturing and process development revenues during the periods.
Total SG&A expenses for the fourth quarter of fiscal 'twenty, 1 were $5.1 million, an increase of 43% compared to $3.5 million recorded in the fourth quarter of fiscal 'twenty.
For the full fiscal year 'twenty, 1 SG&A expenses were $17.1 million, an 18% increase compared to $14.5 million in the prior year.
The increases in SG&A during the fourth quarter and full fiscal year 'twenty, 1 were primarily due to increases in payroll related costs, including stock based compensation.
During the fourth quarter of 'twenty, 1 avid redeemed its outstanding shares of series E convertible preferred stock this.
Of this redemption resulted in the onetime charges of $3.4 million, which was completely unrelated the operations and recorded as the reduction to net income of triple to common stockholders.
As a result for the fourth quarter of fiscal 'twenty..1 we recorded a net loss attributable to common stockholders of approximately $2.7 million or 4 cents per basic and diluted share as compared to a consolidated net loss attributable to common stockholders of $6.2 million or <unk> 11 per basic and diluted share for the fourth quarter of fiscal 'twenty.
However, when we adjust for the onetime preferred stock redemption charge avid what had recorded a net income attributable to common stockholders of approximately 800000 or 1 cent per basic and diluted share during the fourth quarter of fiscal 'twenty 1.
For the full fiscal year 'twenty, 1 of the company recorded a consolidated net income attributable to common stockholders of $3.3 million or 6 cents per basic and diluted share.
Compared to a consolidated net loss of triple to common stockholders of $15.2 million or 27 per basic and diluted share for fiscal 'twenty.
Excluding the 1 time preferred stock redemption charge, we would have recorded net income of triple its common stockholders of approximately $6.8 million or 12 cents in the 11th.
Per basic and diluted share respectively for the full fiscal year 'twenty 1.
Our cash and cash equivalents as of April 30 of 21 were $169.9 million an increase of $99 million from the end of the third quarter and an increase of $133.7 million from the end of the prior fiscal year.
The increase in cash and cash equivalents over the end of the prior fiscal year is primarily due to the following factors first $31.2 million generated from operations during the fiscal year of which $17.9 million was generated in the fourth quarter.
Secondly, approximately $32.1 million the net proceeds raised during the third quarter from our follow on underwritten equity financing to fund our facility expansions.
And finally, approximately $138.5 million of net proceeds raised during the fourth quarter from our $1.2 5% convertible senior notes offering of which approximately $12.8 million was used the purchased a capped call transactions and our previously discussed use of approximately $45 million of the <unk>.
Offering proceeds in April of 'twenty, 1 to redeem all of our outstanding 10, 5% series E convertible preferred stock.
The redemption of the preferred stock significantly strengthens our balance sheet and will save us $2.5 million annually and dividend payments net of our annual interest payment on convertible notes.
We intend to use the combined net proceeds for our 2 phase facility expansion with the remaining net proceeds for working capital on other general corporate purposes.
We may however, also use the portion of such proceeds for the acquisition of investment in technologies solutions or businesses that complement our business. Although we have no commitments to enter into any such acquisitions or investments at this time.
Our capital expenditures for full fiscal year 'twenty, 1 were $9.9 million, we anticipate spending an additional $50 million to $60 million during the fiscal year 'twenty 2 primarily on our previously discussed facility expansions.
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.
Thank you Dan.
Fiscal 2021 was the great year for avid capped by a strong fourth quarter.
During the fourth quarter of the business development team brought on multiple new customers and projects.
On a new orders totaling approximately $26 million.
The work for these new orders will span all areas of the business from process development to commercial manufacturing during.
During fiscal 2021, the company signed new business orders for approximately $148 million as compared to $80 million during fiscal 2020.
In addition, subsequent to the quarter end, we announced that avid will serve of the commercial manufacturer for the humanized monoclonal antibody portion of the manta.
The recently approved cancer treatment developed by ADC therapeutics.
EBIT has provided clinical manufacturing services to ADC to support development of the product in 2017.
And we will now expand our manufacturing relationship to include commercial manufacturing activities towards the monitor.
Our evolving and expanding relationship with the ADC is an excellent illustration of the value of the early stage customers, which bring with them the opportunity for clinical development and ultimately commercial manufacturing.
We are very pleased to have worked alongside the ADC is the advanced and lots of it through the clinic and we look forward to supporting the commercial efforts.
For the fiscal year 2021, we on boarded a total of 8 new customers.
Significant increase over the prior fiscal year the backlog at the end of fiscal year, 2021 was approximately $118 million and dramatic increase compared to the backlog of approximately $65 million at the end of the prior fiscal year.
We expect the recognized most of the current backlog by the end of fiscal 2022.
Looking ahead, we remain optimistic regarding our opportunity to further grow the business.
Based on market projections and customer estimates, we believe that our ongoing facility expansion has been exceptionally well time to align our spend with growing demand. In fact, we are pleased to report that at present. The BD team is actively pre booking our expanded capacity.
This concludes my business development overview, and I'll now hand, the call back over to Nick.
Thank you Tim.
There are 4 key areas I would like to address as we close out fiscal 2021 and look forward to a new year.
While I don't want to dwell on the past I think it's important to recognize the tremendous performance of the team on the business over the past 12 months.
Fiscal year 2021 sort of deliver on many of the attributes builds as the results of the company significant heritage of commercial money Gotcha.
Revenues increased by 61%.
8 new clients brought on board.
Our team successfully completed the FDA inspections with 2 product approvals with zero for the 83 observations.
Gross margins increased from 7% to more than 30% cash.
Cash generated from operations exceeded $31 million.
And we raised more than the $170 million of net proceeds from our equity and debt offerings to strengthen our balance sheet.
On top of this the company was also able to record 4 consecutive quarters of operational profitability.
On an adjusted EBITDA of approximately $20 million on almost 21% of revenues.
This brings me to the second aspect of the business.
The gross and the business during the bear the clear that in the expansion of our capacity will be needed in the near future. If we were to ensure adequate capacity to onboard new clients and provide the existing clients with available capacity as they successfully navigate the clinical process and increase their needs.
This took the form of the toothpaste approach, which brings short term capacity on line in this fiscal year with a large of bonus of capacity followed shortly thereafter in calendar 2022.
I am delighted to say the both expansions are underway and are currently of proceeding to plan.
Looking forward.
While historically, our annual maintenance shutdowns from Mifid and frankly on our planned back to back in fiscal quarter 2.
This year, we are moving <unk> to the first weeks of fiscal quarter 3 to accommodate the Italians necessary to conduct the phase 1 expansion with our existing <unk> operations.
As we look forward into financial year in terms of 22.
Thanks to the BD efforts and all of those on the supporting team, we have a healthy backlog, which we feel support side of the expected growth of fiscal 'twenty to 'twenty 2 of the.
Between 20, and 22% while revenues of $115 million to $117 million.
And of arriving at this guidance, we were cognizant of the number of factors that we believe of the potential to influence of the business as we expect to come out of the COVID-19 related prices of the.
Past 15 months also.
The first the supply chain.
The impact of Covid and the demands placed on the pharma sector have resulted in not only prices on many key materials, increasing but also the lead times on the availability of key suppliers being the extended all becoming unreliable.
While we have been able to manage this throughout the year last year kind of avoided the any impact on the business. This remains a concern as we enter into financial year 'twenty to 'twenty 2.
Secondly, termite prior communications regarding the expansions you will note that as a result of last year's gross and our expectations for this year on <unk>.
Guidance is encroaching on our previously estimated capacity.
Throughout last year, we worked diligently on improving our efficiency and we all hope that these actions are aligned with the timely delivery of phase 1 will provide some additional headroom as we progress throughout the year.
With some 6 months ago and although we are currently on schedule and we feel that the of the year progresses, we will be in a much better position to guide on the impact of these programs, which we clearly anticipate will be positive.
To this end of key milestone of course will be where we stand when we come out of the mindset shutdown in October.
Finally.
As mentioned earlier during financial year, 2020.1 of the balance sheet has been strengthened and as the result, the substantial positive cash flows generated by the business. The redemption of the preferred shares on the 2 successful financing rounds.
We exited financial year 2021, with approximately $117 million.
Of cash on hand.
The attributes demonstrated by the business during the past 12 months, we believe can bring value to a growing number of customers in the field of biologics.
So let me with me derived from a million cells, but in other adjacencies that would equally value a reliable experienced high quality and customer centric partner.
We are currently in the process of evaluating a number of synergistic opportunities while at this juncture. We remain in the evaluation phase. We believe there are opportunities out there for the avid to broaden our offering as we continue to build our reputation in the field of biologics outsourcing.
This concludes my prepared remarks, with a day and we can now open the call for questions.
Operator.
Sure.
As a reminder, task of question you will need the press star 1 on your telephone withdraw your question press the pound key please standby, while we compile the Q&A roster.
Our first question comes from the line of Sean Dodge from RBC Capital. Your line is now open.
Hey, Good afternoon. This is Thomas Keller on for Sean Thanks for taking the questions.
I guess I'll start off just with the.
Would you guys characterize the development pipeline of your customers right now how many programs are working on how many would you consider.
They are on a later stage with the potential to go commercial versus some of the earlier stage work.
Okay.
Okay.
Okay, Yes.
I'd say that the this is Tim thanks for the question Sean.
Oh I'm sorry, it was the.
Sure.
The top of the sharp the questions on that so I'll comment on is on the shopify.
Our pipeline is really well mix between early phase and late phase as far as new opportunities coming in I would say, it's more weighted towards the early phase, which is nice because we cut we tend to hold on to those opportunities throughout the entire lifecycle of those programs.
But.
As an organization, we really maintained maintain optimism.
Domestic about the.
The future of the pipeline.
Yes. The split is probably roughly 60.40 in terms of Red Oak brought to the break it down by individual clinical phase.
Roughly 60% earlier phase 40% of later phase.
Okay that sounds good. Thank you and then and then 1 more on business development. I know you guys have expanded the team over the past year in it the thing that seems like that's being reflected on the bookings.
Is there more investment you will need to make here to that team or do you pretty much kind of have all the pieces in place to fill all of the upcoming capacity.
Yes, no the teams in place and the obviously performing very well by the numbers you heard today and we don't anticipate needing the onboard anymore of the BD team in the next fiscal year.
Okay that sounds good that's all from me. Thank you.
Thanks, Tom.
Thank you. Our next question comes from the line of Paul Knight from Keybanc. Your line is now open.
How are you could you talk to we mentioned the fifth.
So where the.
Closures and how will that rollout this year in terms of putting that.
Yes.
Down into the <unk>.
The rollout of quarters.
Yes.
In terms of splitting the 2 we've always tried to keep the facilities running so we've always had a phased.
Phased shut down.
With the Franklin initially and then my of it coming on afterwards, the shrunk it comes back up.
So we ended up with the same the same effect. The only thing is I think there'll be a.
The impact across both quarters quarter, 2 and quarter 3 of this year.
Sure. This is all coming quarter too.
Difficult to say I mean, the typically the shutdowns from the lost somewhere in the order of 3 weeks. So I would kind of split the downfall that you've seen in previous quarters and just take off of in each is probably the best proxy I could give it at this stage without getting into a really detailed analysis of it sure.
And on.
Regarding the backlog.
Was there any COVID-19 benefit I know you had a little bit on the prior quarter any in this quarter net.
I'm not so sure there's an enormous amount of same quarter 4.
And if any.
In quarter 4 so I think the answer to that is no.
And could you talk of the industry conditions as the capacity feel pretty tight in the market as of the timelines shortening at all on what's your read on that.
Yes, it's still seeing.
We still hear of cases, where people are short of capacity of that concerned about lead times.
It's always a bit of of difficult.
The thing to assess.
Certainly my competition wouldn't tell me, whether they were full of low they were in terms of Shaw.
But we see of good healthy flow of Rfps looking for looking for capacity. So if the.
If the indicate if the inputs of of opportunities is an indication there is still plenty of demand out there and I think I've seen nothing to suggest that the.
On the capacity issue is.
Used significantly for sure.
I'm sure as we as we go through that will will take away. The obviously the COVID-19 at least we hope you take away some of the Covid impact in terms of the industry as a whole.
I've always been of the view that even when Covid go comes away the because theres been a lack of supply there is a lot of or the therapeutics that are waiting for the capacity that are out there of it.
We certainly hope now starting to come through in the.
And we see those and we see going back to sort of the sort of typical profile, we might've seen pre COVID-19 as I'm sure. We're all looking forward to a life without masks.
Got it okay. Thank you.
Thank you. Our next question comes from the line of Matt Hewitt from Craig Hallum Capital. Your line is now open.
Hi, guys. This is Lucas on for Matt Hewitt.
Just a couple of questions here I guess once the expansions are complete how should we be thinking about the speed of the production ramp for those I mean, just in general terms.
Yes.
Lucas Thanks for the question it's Nick.
<unk>.
I mean, clearly the the first expansion brings on around 50 million of capacity.
At the moment with sort of funding for that to come on out of quarter 4.
Obviously, we're doing everything we kind of in terms of the.
Of accelerating that if there's an opportunity to do that and as I alluded in my remarks earlier that.
As we come out of the October shut down that's really when we will be able to cement the exactly when we feel it's going to.
It's going to come on line and if the Theres an opportunity to bring that into a calendar 'twenty 1 as opposed to kind of into 'twenty 2 as it were.
If you take the the.
The $50 million roughly of that obviously gives us the at least $12 million of upside if we get it on January 1.
Maybe a little bit more north of that in terms of filling it up.
When we give the date it is fully operational.
And as Tim alluded to we are booking into it would be difficult to say at this stage, whether we'd be able to book all of that.
We'll certainly be making every effort to do so.
Thanks, That's really helpful. And then I guess, given the hiring that needs to take place should we be expecting a step up in SG&A. Once the expansions are complete or what all of that fall in the cost of goods sold.
No those are the there is a little increase in the SG&A.
Over the next sort of.
I don't know 12 to 18 months.
We continue to grow as we have in the guided to continue to grow the theres always a little bit of the headwind in terms of the business in terms of bringing in personnel because frankly, we need them in 6 to 9 months ahead of the capacity coming on line to get people trained in the GMP ready as it was so are we.
Do I have the headway.
Headwinds some of that comes into cost of goods with some of it also comes into SG&A.
Okay. Thank you very much that's all I had.
Thanks Lucas.
Yeah.
Thank you. Our next question comes from the line of Jacob Johnson from Stephens, Inc. Your line is now open.
Hey, guys. This is mason on for Jacob just a few quick ones from me.
Starting with the the 22 guide how should we think about the pace of activity. This year are there any specific projects that could be lumpy in any particular quarters.
We're not guiding on the quarters, So I think.
On the.
But I don't know of anything that would immediately standout outside what we just sort of highlighted in the in terms of the shutdowns.
That's the major area of Lumpiness.
He's got a little bit of the of impact of obviously of the Christmas break, but we actually continue to run through that but I guess, it's the market as a whole tends to quieting down a little bit, but it's not overly market as you've seen from our prior quarters. So nothing exceptional the we're expecting as we sit here right now.
Yes.
Got it.
And as we sort of think about growth in 2022, the the year over year growth any color on the main driver of that growth is it.
Mainly existing customers scaling up is it new projects with existing customers customers or new customer programs themselves.
You know I think the probably the best answer to that is all of the above.
We continue to see you know tried to see Oh of commercial clients continue to increase in revenues, but we.
We've seen all 4 modalities of new business and growth new business coming out of new clients coming on board clients.
Moving from 1 phase to the of the commercial clients increasing their demands and then additional programs from existing clients and we've got all of photo of those working last year.
To the extent that we can forecast the web where clients moving their clinical demands on their clinical success, we would expect to see Oh for continuing this year as well.
Got it thanks, that's it from me.
Thanks, Jacob Thanks Kim.
Thank you at this time I would like to hand, the call back over to Nick Green for any closing remarks.
Thank you operator, and thank you to everybody for participating on today's call in closing I'd like to thank all of our employees for their exceptional performance during fiscal 'twenty, 1 the broadest of the position of operational and financial strength.
And I look forward with excitement to the many opportunities that lie ahead as a result.
Our team remains the key to our success and I am grateful for the dedication and unwavering professionalism and thank you to gain so everybody participating on the call and for your continued support of avid biosynthesis.
Okay.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Okay.
Okay.