Q1 2022 Avid Bioservices Inc Earnings Call
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Good day, ladies and gentlemen, and welcome to the added vials Everything's first quarter fiscal two.
<unk> thousand 22 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 now like turn the conference over to Tim Brons of average Investor Relations Group. Please go ahead.
Thank you good afternoon, and thank you for joining us on today's call, we have Nick Green, President and CEO, and Dan Hart Chief Financial 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 July 31.2021.
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 September eight 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.
<unk> results could differ from these statements and the company undertakes no obligation to revise or update any statements made today.
I encourage you to review all of the Companys filings with the Securities and Exchange Commission concerning these and other matters.
Our earnings press release, and this call will include discussion of certain non-GAAP information you can find our earnings press release, including relevant non-GAAP reconciliations on our corporate website at avid bio dot com.
With that I will turn the call over to Nick Green Abbott's, President and CEO.
Thank you Tim and thank you to everyone, who has dialed in today and for those who are participating via webcast.
On the heels of a strong fourth quarter and full fiscal year 2021, we are pleased to announce another robust quarter.
During the first quarter of fiscal 'twenty, two we recorded an increase in revenues compared to the prior year period exceeding estimates for both revenues and earnings per share.
Our margins are significantly improved during the first quarter, reflecting the efficiencies of our business model and our ability to see and leverage our existing fixed costs.
And business development, we continue to expand and diversify our pipeline with the signing of multiple orders during the period.
And as always our BD team remains highly engaged in the pursuit of multiple new business opportunities.
Finally, with respect to operations both phase one on phase two of our expansion projects remain on track.
I will provide additional details on business development and operations. Following an overview of our first quarter financial results and for that I'll turn the call over to Don.
Thank you Nick before I begin in addition to the brief financial overview I'll provide on the call today additional details on our first 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 operations for the quarter ended July 31.2021.
Revenues for the first quarter of fiscal 'twenty, two were $38 million, representing a 21% increase compared to $29.0 million recorded in the prior year period.
The increase in revenues during the first quarter was primarily due to the growth in the number and scope of in process and completed manufacturing runs as well as an increase in the number of process development projects during the 'twenty two period.
Gross margin for the first quarter of fiscal 2022 was 37% compared to a gross margin of 34% in the first quarter of fiscal 2021.
The increase in margin was primarily from higher manufacturing and process development revenues during the period as well as the receipt of a $6.0 million dollar fee for Unutilized reserve capacity from a customer during the quarter.
Similar to the $4.0 million dollar fee from our customer received during the first quarter of fiscal 2020 one.
As such the gross margin percentages for both the current year and prior year periods were strengthened by these unused reserve capacity fees.
These fees improved margins by approximately 7% and 9% for the first quarter of fiscal 2022 and fiscal 2021, respectively.
While we believe the positive trend in our gross margin demonstrates the growing efficiencies of our business model, we do expect to increase hiring in the coming months to support our growing manufacturing capacity and this may impact margins in future quarters.
Total SG&A expenses for the first quarter of fiscal 2022 were $9.0 million, an increase of 17% compared to $11.0 million recorded in the first quarter of fiscal 2021.
The increase in SG&A during the quarter was primarily due to increases in stock based compensation and consulting fees, partially offset by a decrease in payroll and benefit related expenses.
For the first quarter of fiscal 2022, we recorded net income attributable to common stockholders of approximately $9.0 million or 10 cents per basic and diluted share as compared to a net income attributable to common stockholders of $3.3 million or <unk> <unk> per basic and diluted share for the first quarter of fiscal 2021.
The increase in net income during the 'twenty 'twenty two period is partially due to the accumulated preferred dividends included in net income attributable to common stockholders for the prior year period.
This represents the company's fifth consecutive quarter of operational profitability and during the quarter, we achieved adjusted EBITDA of approximately $9.7 million or 32% of revenues.
Our cash and cash equivalents as of July 31, 2021 were $166.0 million compared to $178.0 million as of the prior fiscal year ended April 30th 2021.
We are reiterating our plans to spend approximately $50 million to $60 million during the fiscal year 2022, primarily on our previously discussed facility expansions.
This concludes my financial overview I'll now turn the call back over to Nick for an update on business development and operations activities and achievements for the quarter.
Thanks, John.
I would first like to acknowledge the appointment of average newest director Doctor ester Alegria during the first quarter Doctor Alegria joined the avid board, bringing nearly 30 years of biopharmaceutical experience.
We welcomed Doctor Alegria drive it and we are thrilled to have the benefit of her experience and expertise on our board.
I would now like to address another recent appointment while avid has not experienced any pandemic related supply chain delays to date. It is important to recognize that uncertainty remains in the supply market and we are cognizant of the impact it may have on timing on the pricing of materials in the future.
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In light of this uncertainty and as we continue to expand our manufacturing capacity. We have recently added a new and important position to average management team.
I am pleased to announce that we have recently hired Joseph Scott is the company's first vice president of supply chain.
Joes experience in supply chain at both Gilead and Biogen will be invaluable as he and his team manage the complexities associated with sourcing and procuring critical materials as well as managing inventory and supply logistics as the company continues to grow and expand and we are very pleased to welcome Joe to the avid team.
Addressing another personnel matter last month, our chief commercial officer, Tim Compton left avid to rejoin an organization that he had been integral in building in the past.
We understand that this opportunity was unique and one that he felt he could not pass up.
Our search for Tim's replacement is ongoing and given the company's continued performance. We believe we're in a position to select from a number of highly talented and industry respected candidates.
While Tim will be missed rest assured that the rest of the company's BD team is continuing to execute in an extremely effective manner.
During the first quarter the company signed new project orders totaling approximately $23 million from new and existing customers.
<unk>, the previously announced commercial manufacture of the humanized monoclonal antibody portion of the Atlanta.
Our recently approved cancer treatment developed by a D C therapeutics.
I've. It has provided a chemical manufacturing services to a D. C to support development of this product since 2017, and we are excited to see the manufacturing relationship expand to include commercial manufacturing activities for the Atlanta.
Worked for projects signed during the first quarter will span all areas of the business from process development to commercial manufacturing and the resultant backlog at quarter end was approximately $110 million.
We expect to recognize most of the current backlog over the next 12 months.
And on that note I'd like now to address the operations at avid gives.
Given the company's significant growth achieved during fiscal 'twenty wrong in.
Both revenue and number of clients. It became clear last year that the expansion of our activities was required if we were to be able to provide capacity for both new and existing clients.
Capacity availability, we feel is critical not only to onboard new clients, but also to ensure that existing clients that their manufacturing partner will not impact that timelines as a result of failing to have adequate capacity as.
As we stand today, we are more than halfway through phase, one and I am delighted to report that both phase one and phase two remain on track.
We fully expect to have phase one mechanically compete as we enter the annual.
So chegg to have the equipment validated and operational at the hour.
Outside of the new Yeah in January.
Achieving approximately 31 million in revenue also require seamless execution on behalf of all of our operational teams.
The efforts of our facilities maintenance supply chain and manufacturing teams along with all of those who support them should be applauded for converting a healthy order book into revenue at close to capacity during the quarter.
Quarter, two and quarter three operations include annual shutdowns for the Franklin and Myford facilities.
As we speak I am pleased to say that the Franklin shutdown is already complete and manufacturing operations have restarted and we look forward to an efficient and effective shutdown and restart of my third in fiscal Q3.
As we now have the first quarter behind us and we are well into the second quarter. We believe we are on track to achieve our stated full year 'twenty two guide revenue guidance of between $232 million.
This represents a year over year growth rate of approximately 20% to 22% despite.
Despite the annual shutdowns numerous factors contribute to our confidence in reaching this milestone, including continued demand from new and existing customers.
And a substantial backlog, which we expect to continue to grow over coming months.
With a successful fundraising completed in December of last year.
In March of this year, we are very well capitalized with approximately $160 million of cash on hand.
These proceeds support our expansion and enhancement efforts and will allow the company to explore value, creating opportunities for organic and inorganic growth in the future.
We are fortunate to be able to leverage this position of financial strength and we are grateful to have the support of our investors. During this exciting period of growth.
Looking ahead, we are focused on the continued expansion and diversification of our client base.
Successfully executing our market shut down.
Completing both phases of facility expansion and hiring exceptional talent to support our growing capacity and customer demand.
We are making consistent progress with each of these efforts and we believe we are well positioned to continue to strengthen and elevate the avid organization and brand.
This concludes my prepared remarks for today, we can now open the call for questions operator.
Okay.
Thank you.
As a reminder to ask a question you will need to press star one on your telephone to it.
Sorry, your question press the pound key.
Please standby, while we compile the Q&A roster.
Our first question comes from Sean Dodge with RBC capital markets. You May proceed with your question.
Yes, Thanks Ed.
Yes, good afternoon, congratulations on a strong quarter.
Maybe starting with the expansion.
Nick you said that the first day on track to come online in January.
Any update you can share on how.
How fast you think you can ramp.
Revenue in that new space to the $50 million run rate you are targeting and then how much visibility you have as we sit here now on the project needed to do that I guess.
The $110 million backlog, what proportion of that is booked into the new space series is is that not necessarily the right way of thinking about it.
Thanks, very much Sean I mean, I think to be Frank with you we're already booking.
Projects that will go into that expansion, but it does provide us with an ability to go.
Both ways. So we're basically adding a second DSP suite.
So it's not difficult for us to actually move something that would initially have been in one suite and put it into the news right now.
That's kind of something that we can do just to make ourselves more efficient and effective.
I guess, what youre trying to get out as you know can we get could we get up to 50 million of revenue from it out of the gate.
Potentially yes, we could I think you know again, it's unlikely that we're going to have claw.
<unk> fully booked into their right out of the gate and fell at the first four months of the last four months of this year does it work so well.
We will be putting projects actively through it.
And just depending on how kind of the last the next few months goes in terms of which projects and what where they will say it will depend on whether we were able to to.
To squeeze coming in there.
And hopefully put ourselves with a bit of headroom as we mentioned earlier on to hopefully improve our our forecast but at this stage. We remain very much we're everywhere, which is 100.1500 17 as well.
Where we feel is reasonable at this moment.
Okay. That's great. Thanks, and then.
With the revenue concentration wrong halos and are there any updates you can share there about visibility you have on on revenue coming from them for fiscal 2022, and anything you can give us for direction.
I guess the guidance assume halos iman.
Flat for this year.
It's not my position to comment on how those items business. So I can't really guide you to where that what they're taking from us.
I think we can.
<unk> consistently said that I think is that you know.
We'd like to see.
We'd like to see <unk> continue to grow as a business as a revenue, but reduces the percentage of our overall business and our.
I would kind of think we're probably somewhere in that sort of ballpark just in terms of where we're heading this year, so far but bearing in mind we are.
At the end of quarter one.
Sure, Okay fair enough, thanks, and congratulations again.
Thanks, very much I appreciate it.
Hi.
Thank you. Our next question comes from Jacob Johnson with Stephens. You May proceed with your question.
Hey, Thanks, and congrats on that.
Just first question you mentioned that you've got a bunch of candidates for the CCA overall seem to be a desirable position.
Any thoughts on kind of on the timing of when we may see a down somebody put in that position.
You need to fill relatively soon or.
You take your time to find the right person.
I mean, we.
We could always take time, I think to be honest as Jakob them and it's a it's a strategic position that is true.
<unk> commercial officer.
I'm, hoping they're not doing too much door locking in our day to day sales so.
That's really down to the BD group.
So.
I don't think it impacts us on the on an immediate short term, but clearly.
I think we valued what Tim data and and I'm standing in between in that in some regards so I think that maybe the team would probably prefer to have his replacement sooner rather than later.
As of today.
So.
We're not in an urgent rush, we have we can see some good candidates out there, but just want to make sure that you know we learned the one that's going to do the job and also fit very well with the with the culture and the dynamics of the organization. So yeah.
Yeah.
I wouldn't expect it to be too long.
I'd, probably avoid putting an exact date on it right now.
Got it got it that makes sense and then the next last quarter and I think in your commentary today you talked about.
Inorganic opportunities may be called on synergistic last quarter can you can you give any update on how that effort is progressing and when you say synergistic opportunities should we think about this as youre looking to add additional capability.
Or could it just be as simple as adding additional capacity to sell these elsewhere.
Yeah. So.
I understand the I guess the desire to see what we're going to do with the funds that we've gotten obviously, whereas we're just keen to execute as anybody but I think it's a little bit like when I first came on board and they are the expansion.
We want to we want to be Swift and what we do but we also want to be thoughtful to make sure. We do the right things we.
We can see a number of opportunities I think that you know clearly at this stage where are biologics focused CMO and intend to remain such.
And you know.
Whilst I don't think we're going to be putting more of a mammalian cell culture and right now we've still got phase one and phase two ongoing.
But we can see some other opportunities out there and as soon as we are in a position that where you think it's the right thing to do then obviously, we'll be letting people know.
It will be as quick as we can but also we're not gonna Roche just for that for the sake of rushing as it were and make bad decisions.
Got it makes sense, thanks for taking the questions Nick.
Very much Jacob.
Okay.
Thank you. Our next question comes from Matthew <unk> with Craig Hallum Capital You May proceed with your question.
Thank you for taking the questions and a nice start to the year maybe for the first one for me is you talked a little bit about some of the supply chain issues youre not seeing them directly but obviously as you look around the landscape.
Some of those are apparent.
How are you staying ahead are you preordering.
The advance and then I guess as a tail to that as you look at the phase one the phase II build out.
Does that supply chain risk maybe want do you maybe want to push you into even starting to look at our phase III. So that youre ahead of the curve there or is there are there ways to kind of stay ahead of that game.
Yes.
Good questions.
Why why if we manage to doing so well I mean, I think it's a little bit like a Boston set a.
Swann or a duck swimming across upon it looks quite grateful to talk but we're puddling like hell underneath.
And that's kind of what the team are doing there.
Dodging and weaving in and trying to make sure that they get there and I think I've alluded to this before on occasions, we've got closer than we wanted to do so I think there's a lot of hard work and an element of luck.
And you know, it's it's only for the sake of one one item here and that every now and again that you could get caught out. So it's not one that we relax on and it's not one where in total control of to be Frank.
I think I've made an analogy before as you know you might have 5000 components in a car on a car.
You can put it altogether, but if you only end up with three out of four wheels being delivered is still as much you. So we were really just trying really hard to to stay ahead, where we can we can we bring materials in ahead of time, where we can see strategic stock that we could bring in if it's available then we will bring it in but quite often you know even bill.
<unk> a strategic stock is a is a difficult thing to do in many cases today. So it's a whole combination of those.
With regard to building out phase III data.
Be a really nice problem to have at this moment in time.
It's not an urgent requirement from our perspective I think we have you know obviously, leading indicators to our business that suggested we needed to do phase one and phase two.
Kind of $150 million of expansion revenue generating capacity expansion is a pretty big number on a business that was only 60 million two years ago. So.
We've got a bit of growing into that but obviously, we keep casting out I forward and the more and more often we have quarters, where we do a good job and we deliver product for customers and our reputation continues to build as a really commercial grade manufacture and someone that you can trust then hopefully we will be facing an issue with phase III.
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Somewhere down the road in the future, but I don't think that's right now.
Understood. That's really helpful. Maybe one question for Dan regarding the gross margin. Obviously you have had this tailwind the last two quarters from the unused.
Use of our unused reserve capacity.
Should we be modeling.
More like your typical upper twenty's over the near term or as you are filling that capacity, we should be anticipating.
Better gross margins and thats that lift will kind of offset.
If there is a decline in the unused portion.
Yes, Matt Great question, the way I look at it and I believe I stated last on the last call. We ended the fiscal year last year with just over 30%. If you take out the onetime items were roughly at 27%.
Moving into fiscal 'twenty, two with the expansion and taken our capacity up to roughly 121. It is currently installed we would typically be at.
30% give or take gross margin as we start to fill the phase one and phase two we will see some incremental margins are roughly 40% to 60%.
But that's going to be based on the timing of the stair step up costs. The earlier, we're bringing cost versus revenue clearly that margin will go down but over time I would anticipate once we hit that ultimate capacity of $270 million, we'd be at a 40% plus or minus gross margin.
That's really helpful.
It for me Thank you very much.
Yeah.
Thanks, Matt.
Thank you. Our next question comes from Paul Knight with Keybanc. You May proceed with your question.
Hi, Nick you had mentioned you expect backlog.
To pick up and I think the future months.
What.
What's your thinking there.
Yes.
It's a tougher challenge for the BD team, obviously, when they hit the revenues of nearly $31 million this quarter.
The increase in the backlog and they've got they've got to sign even more than that so we keep raising the raising the bar as it were which is obviously what we're here to do.
In the quarters ahead.
Business, it doesn't always jive perfectly well with a quarter end.
So we can see some opportunities out there that we think we have a reasonable prospect of.
Of winning and.
And I think if we can execute on what we can see out there at this moment in time.
We should hopefully see that the backlog will start to grow over the next few months.
That's kind of where we feel it is.
It would've been nice you know if things that are just finished off right now.
Something that you could sign at the end of July instead of at the beginning of August might just change the needle a little bit sometimes so you know it's it isn't perfectly jiving. So we can see some things that give us. Good. Good good reason to believe that that's possible going forward.
You had mentioned numerous contract work in.
I am sorry projects.
Was it the most projects you've seen in the quarter could you qualify that.
It's more mix I mean, you know that.
Again that we can go from smaller projects and lots of them all.
Larger projects and less of them, but.
It's just really the blend and the total revenue and we obviously internally we probability weight those in terms of whether we think we've got a good fit a good chance whether it's just waiting for the peoples approval process and effectively they have already confirmed that they're going to come they just need to go to the board or what have you. So there can be a whole host of factors that we we kind of monitor.
Pretty carefully obviously.
Either way from from number of C. D. A's that we might sign or even number of hits on web sites, all the way through to.
Two you know msas in.
In review, all signed or even going further than that we even go down to analyzing the number of.
Modifications to our work statement. So just trying to measure it get engagement that gives us an idea of what's coming forward and that leads into obviously trying to forecast on the business, but also more importantly to some of the other areas that we talked about which is expansion requirements as well. So it's a mixture of those that give us that confidence.
And.
My my understanding is that your technology content is high.
The single use technology et cetera.
Or are you think you're winning and dish.
Call it share because of your technology content and turnaround time.
Yeah.
I think it's there are a number of factors that I think is starting to resonate in the marketplace. I mean avid zoning and a name out that is the sole focus of CDMA was only a few years old.
The truth of the matter is.
We've been in biologic space for 28 years as a company we've been manufacturing commercially for more than 16, and we have a regulatory track record, which is which is pretty impressive and the guys do a great job and then it comes down to execution of batch and batch out and building that reputation and then people start talking about Europe and that gets out there and I think that's.
What's going on at the moment and then you know the other thing is that speed to market is a critical success factor for most of our clients.
If not all of them.
There are lots of things you can do at the end of the day to to speed up the process between <unk> and.
The inception of the project and delivery, but one of the key success factors driving a bioreactor to make something in and so having that capacity being proactive with with those investments and showing clients that whether you are an existing client or a new client that will be here for you and we'll have that capacity available when you get success and so those are the key factors.
I think are driving it obviously being in Italy.
An early mover in.
And disposable technology means the guys are pretty good at using it these days and pretty effective so.
A whole host of different things okay. Thanks.
Thanks, Paul.
Okay.
Thank you at this time I would like to hand, the call back over to Nick Green for any closing remarks.
Yeah.
Thank you operator.
Thanks to everybody participating on the call today in closing I, just like to thank all of its customers partners and investors for their ongoing collaboration.
I'd also like to acknowledge the extraordinary employees, who together are driving the company's success.
Thank you again for participating today and for your continued support of avid biosciences.
Okay.
Okay.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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