Q2 2022 Avid Bioservices Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the bio Services' second quarter fiscal 2022 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 to hand the conference over.
Two Tim Brons of <unk> Investor Relations Group. Please go ahead.
Thank you.
Afternoon, and thank you for joining us on today's call, we have Nick Green, President and CEO, Dan Hart, Chief Financial Officer, and Matt Kwitny average Chief commercial officer.
Today, we will be providing an overview of avid <unk> contract development and manufacturing business, including updates on corporate activities and financial results for the quarter ended October 31 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 December seven 2021 will contain certain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Turning to 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 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 and to those participating today via webcast.
I am pleased to announce another strong quarter at avid beginning with our financial results for the sixth quarter in a row, we have recorded an increase in revenues compared to the prior year period.
On the new business front, our team signed numerous new clients and new orders further strengthening our pipeline.
Finally, with respect to operations the company successfully completed its annual maintenance shutdowns.
Ground on the bio <unk> south construction.
Most significantly the company recently announced its expansion into viral vector development and manufacturing services for cell and gene therapy products, we have.
Believe this area offers significant opportunity for growth and we are very excited to begin offering services to the sector.
Before I turn the call over done for a review of the financial results I would first like to welcome Matt.
New Chief commercial officer to the call.
Madison accomplished senior global sales executive with a proven track record of driving revenue growth.
In his new role he will be responsible for the continuing growth.
Business through the ongoing expansion of the company's commercial and clinical client base.
We are extremely pleased to have Matt join our team and we look forward to working with him.
But now I will provide additional details on business development and operations for the period. Following an overview of our second quarter financial results and for that I'll turn the call over to Donna.
Thank you Nick before I begin in addition to the brief financial overview I'll provide on the call today additional details on our second 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 and six months ended October 31 2021.
Revenues for the second quarter of fiscal 2022 were $26 1 million, representing a 24% increase compared to $21 1 million recorded in the prior year period.
The increase in revenues can primarily be attributable to fees received from a customer during the current year period for Unutilized reserve capacity combined with an increase in our process development revenues, primarily associated with services provided to new customers.
For the first six months of fiscal 2022 revenues were $56 9 million, a 22% increase compared to $46 5 million in the prior year period the.
The increase in revenues for the first six months of fiscal 2022 can primarily be attributable to an increase in fees received from customers for Unutilized reserve capacity combined with an increase in process development revenues, primarily associated with services provided to new customers.
Gross margin for the second quarter of fiscal 'twenty, two was 35% compared to a gross margin of 30% for the second quarter of fiscal 2021.
Gross margin for the first six months of fiscal 'twenty, two was 36% compared to 32% for the prior year period.
The increases in gross margin for the quarter and the first six months were primarily from higher manufacturing and process development revenues during these periods.
While we are pleased to report these improvements in gross margin compared to prior years, we do expect to increase hiring in the coming months to support our growing manufacturing capacity and our new viral vector business and this may impact margins in future quarters.
Total SG&A expenses for the second quarter of fiscal 'twenty, two were $5 million, an increase of 21% compared to $4 2 million recorded for the second quarter of fiscal 'twenty one.
For the first six months of fiscal 'twenty to SG&A expenses were $9 5 million as compared to $8 million for the prior year period.
The increase in SG&A during the quarter and the first six months was primarily due to increases in stock based compensation.
<unk> and related expenses advertising costs, partially offset by a decrease in payroll and benefit related costs.
For the second quarter of fiscal 2022, we recorded net income attributable to common stockholders of $3 5 million or <unk> <unk> per basic and diluted share as compared to net income attributable to common stockholders of 800000 or <unk> <unk> per basic and diluted share for the second quarter of fiscal 'twenty one.
For the first six months of fiscal 2022, the company recorded a consolidated net income attributable to common stockholders of $9 8 million or <unk> 16.
<unk> 15 per basic and diluted share respectively.
Impaired to a consolidated net income tripled to common stockholders of $4 5 million or <unk> <unk> per basic and diluted share for the fiscal 2021 period.
The second quarter of fiscal 'twenty, two was the company's sixth consecutive quarter of operational profitability and we are pleased to report that we achieved adjusted EBITDA of $7 6 million during the second quarter and $17 3 million for the first six months of fiscal 'twenty two.
Our cash and cash equivalents on October 31, 2021 were $163 7 million compared to our first quarter balance of $159 7 million on July 31 2021.
In prior fiscal year end balance of $169 9 million on April 32021.
We are updating our previously announced planned capital spend for fiscal year 'twenty, two from $50 million to $60 million to approximately $55 million to $65 million, which now includes anticipated spend on the viral vector facility.
This concludes my financial overview I'll now turn the call over to Matt for an update on business development during the quarter.
Hello, everyone I am very pleased to be participating in my first earnings call as average Chief commercial officer.
Throughout my career I've had the good fortune of working with many leading companies in the development and CMO sectors and in each role I've been charged with driving revenue growth and building the business development teams that achieve that growth I was eager to join avid because I believe the opportunity to be substantial and after my first two months on the job I can say that.
Enthusiasm has only grown for this company.
While the ongoing expansion.
And the company's move into viral vector manufacturing presents significant opportunities for growth in the future. Our current team continues to deliver solid results for our existing mammalian cell business.
During the second quarter the business development team signed new project orders totaling approximately $36 million from the new and existing customers.
This work will span process development, new projects with existing customers and additional orders for our commercial products. As a result, we ended the second quarter with a backlog of approximately $120 million and expect to recognize most of that backlog over the next 12 months.
We're also pleased to report that during the first six months of fiscal 'twenty. Two we have signed as many new projects from new and existing clients as we did in the whole of fiscal 'twenty one.
We believe this is an early indicator of the trajectory ahead in the entire business development team is looking forward with great optimism.
This concludes my overview of business development activities for the quarter I will now turn the call back over to Nick for an update on operations and other achievements during the quarter.
Thanks, Mike.
The company made great progress in operations during the quarter, most notably we recently announced that the company was expanding at CMO service offering into the rapidly growing cell and gene therapy market.
This decision was driven by continued strong growth in this sector combined with the CMO industries overall lack of proven high quality cgmp manufacturing expertise and capacity for viral vectors.
To lead the company strategic expansion into this market. We are actively building an industry leading team of experts with established track records of success in this field.
To this end avid recently appointed drew Brendan and experienced executive from the viral vector sector of the CMO market to lead the company's expansion into cell and gene therapy market.
Drew most recently spent more than a decade and senior commercial and operational positions at Nova.
Were he was credited with driving significant growth of news that's U S <unk> business.
<unk>.
Securing of several major viral vector <unk> contracts.
In addition, the company recently appointed Ellie.
Yeah.
Vice President process development.
He is a seasoned life science industry executive with more than 30 years of experience in the field of cell and gene therapy.
So how is this new business. The company is constructing a world class purpose built 53000 square feet viral vector development and GMP manufacturing facility in Costa Mesa, California.
Approximately five miles from average existing operations and testing in California.
Based on current projections of it expects the entire new facility build out to take up to 18 months at an estimated cost of approximately $75 million.
The new facilities analytical and process development laboratory.
<unk> to come online more rapidly with the potential to be operational during the first quarter of fiscal 'twenty three.
Given average strong record of quality and manufacturing are exceptional regulatory inspection history, and our customer centric approach to business. We believe this company is uniquely qualified to bring these values and skills to the cell and gene therapy sector and look forward to bringing this business online.
Basically a 23.
I will now provide an update on the other.
Operational achievements.
As of today. The company has successfully concluded its annual maintenance shutdowns.
Broke ground on phase two of the bikes that south expansion on tight in the phase one expansion, which we expect to be available to operations by January 2022, as we previously communicated.
And we are also scheduling clients into this space during quarter one of calendar 2022.
As we've discussed previously we estimate that the addition of the viral vectors to the ongoing expansions will bring the company's total annual revenue generating capacity.
So that makes it $850 million.
As I hope is evident in the second quarter was highly productive and transformative time for avid the company's financial status is increasingly strong supported by year over year revenue growth.
Continued new business wins and substantial backlog.
These reasons, we believe we remain on track to achieve our stated full year 'twenty two revenue guidance of between 115 and $117 million.
Our business development team continues to perform.
Signing $36 million in new business during the quarter and ending the period with a backlog of $120 million a month.
Under the new leadership of Mike, We believe our new business opportunities will only grow.
Leveraging the company's operational strengths, we are pleased to expand our service offerings into the cell and gene therapy market and we are confident in our ability to establish an industry leading viral back to see the ammo business and we are actively building the team and facilities that we believe will drive our success.
Expand our revenue generating capacity.
Also during the quarter. We are pleased to have our progress is measured in the value created for shareholders recognized as the company stock was named for the first time to the S&P Smallcap 600 index.
We are honored to join this index and we believe it speaks to the collective efforts of everyone at avid while building greater visibility for the company with investors in the industry alike.
We are pleased with our progress and we believe that each of our accomplishments during the quarter I will facilitate the growth and move us towards our overarching goal of <unk>.
Wishing avid.
Best in class CMO focused on biologics.
This concludes my prepared remarks for today and we can now open the call for questions.
Later.
Certainly ladies and gentlemen, if you have a question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered and you'd like to move yourself from the queue. Please press the pound key.
Our first question comes from the line of Sean Dodge from RBC capital markets. Your question. Please.
Yes. Thanks.
Good afternoon and.
Congratulations on the success of the new business wins.
Nick or Matt you touched on it a bit in your prepared remarks, but can you talk a little bit more about the broader demand environment are you seeing any noise from supply chain challenges and then maybe with the.
They did the backlog and the visibility you may have through your sales pipeline can you just give us some kind of idea of how quickly you think you can fill the incremental capacity that'll be coming online in the next couple of months here.
Yes, I think.
With a strong backlog already.
And positive growth with our issuance in the last few months I think that we're going to remain on track for continued growth.
Okay.
Okay.
Yes.
And then maybe I guess on the <unk>.
Forward margin trajectory there.
A couple of different dynamics that'll be affecting you over the coming quarters, Dan you mentioned.
Increasing hiring soon but you also have this new space opening up and generating revenue is there any.
General direction, you can give us on how we should be thinking about the trajectory of margins over the next year year and a half.
Yes, I think I'll I will firm up Sean what I've said in the past that with the current installed capacity, we should see a gross margin thats, roughly 30% plus or minus depending on mix.
Moving into the first phase and second phase for that matter of the <unk> expansion, we should see.
Good positive.
50% to 70% or so margin expansion.
But thats fully dependent on the mix that comes through the timing of the revenues in filling that first phase and second phase and.
Onboarding the cost so in general we should see continued growth as the top line increases but.
Just to point out in the near term we will have.
Based on mix and the cost associated with bringing on the new facilities and absorbing the depreciation and other cost including personnel cost.
Could impact how quick it expands.
Okay, and then just to follow on to that.
Cell and gene therapy expansion.
How quickly will you be hiring to begin to staff that are those kind of more G&A additions at this point and then we'll start to get to kind of more of that facility specific.
People or will those happen.
I guess soon.
Yes sure.
<unk> speaking I think it is.
It makes you to be Frank with you we.
Some of the first people, we're bringing in and we've already got people in engineering, obviously in.
We've obviously got alien.
R&D side, but we also were looking at bringing in operational people.
Quality people, we've got to build the quality systems and everything else ahead of ahead.
Ahead of opening up manufacturing, but I think you're probably going to see more of them.
And the development side of the business as we bring new clients initially into development and then move them into GMP and that's the way we are bringing the facility is online. So we're bringing the development hopefully in quarter one of fiscal 'twenty three.
And then obviously.
We said the GNP completion is about an 18 month program. So that will be somewhat later on after that.
Okay Super helpful. Thanks, and congratulations again.
Thanks very much.
Thank you. Our next question comes from the line of Jacob Johnson from Stephens. Your question. Please.
Hey, good afternoon.
First just because I'm getting a number of questions on it to get out of the way on COVID-19 can you just talk about how much of your backlog today is comprised of COVID-19 related work.
Yes, I think were around 15% roughly give or take Jacob.
The backlog there okay.
And then I guess shifting gears to the viral vector build out maybe first Nick.
What kinds of viral vectors will you be manufacturing is the AAV <unk> and then also any interest in getting into plasmids.
So first question on the on the vectors.
Both AAV Atlanta.
He has a tremendous range actually I was.
Shove two vectors that I haven't even heard of to be Frank with you that that he's been involved with and it is 30 year.
History so.
Not that I.
That will surprise anybody but it's.
Is.
He's been involved in a large number and a good variation, but clearly AAV and lend to adenovirus.
As I sort of main the main threat.
The <unk> market for cell and gene therapy.
But there will be others I'm sure. We obviously then as we go along to bring additional expertise around those to support early which we're obviously out there looking for it as we speak so.
But.
And Lindsay will certainly I think be a key cornerstone of the business.
Got it and then just one last follow up along the same lines.
Nick can you just remind us.
The synergies that exist between the mammalian capacity and the viral vector business.
Yeah, I mean, obviously.
We still are grow the cells in a mammalian cell and heck and more often than not.
Which is not a lot different to what we do with Joe and the mammalian cell business. So a lot of the key fundamentals the size of it.
Reactors the disposable technologies.
Unit steps the purification are all very very common.
Obviously, the quality systems under a biologics.
Operation as well as very similar but there are other challenges obviously.
Similar so you know airflows and construction of the facility is slightly different in terms of viral vectors and obviously, we've got to do the.
The vital component, which is why we brought people like Eliot because that's the the new technology that we need to to add to what we already know how to do so.
A lot of commonality there.
With respect to your comment regarding plasmids I mean, I think that obviously is an interesting field.
Every.
Viral vector that requires the plasmid or two or three.
And so that clearly is an area that they could have.
Interest going forward as I think we probably highlighted some time in the past, but right at this moment in time, we have.
We've got a few things that.
What occupied with getting up and running so not right at this minute.
Perfect I'll leave it there thanks for taking the questions.
Thanks, very much Jacob.
Thank you. Our next question comes from the line of Matt Hewitt from Craig Hallum Capital. Your question. Please.
Good afternoon, gentlemen, congratulations on all the progress.
Maybe the first one regarding <unk>.
Regarding the first phase at <unk> and now that that's completed I think early on there was the potential that it.
That was completed on time.
Yeah.
It could be as much as $12 million of upside to your guidance for the year, if im reading the press release.
<unk> it sounds like that will be dependent upon valid.
<unk> and I'm, just curious what what could delay that validation in and push that into.
I don't anticipate there being much in terms of validation that would cause us not to be able to do that to be Frank so.
I think the major major issue for US was getting to where we are now coming out of shutdown and haven't tied it into the existing operations, which we've done all of that.
Fundamentally it is mechanically complete.
So.
I guess the main thing is is there upside in into it is where you're getting at regarding the.
The forecast.
And it remains the same as it was before yesterday is now we've got it on side, obviously, we can leverage that but we've got to have it.
It has to be operational before you can book people and we are already starting booking people in.
So clearly if he might continue.
<unk> continues to add to that.
And sort of it we can squeeze into this year than if our capacity is 120 and hits. One twenty-five then we've got a we've got some additional revenue opportunities there. So.
Catalytic, let's get Christmas out of the way.
I have everything up and running and then obviously you will where it will obviously be driving to do as much as we can.
But at the moment, our guidance remains the sort of $1 15, $1 17 Mark.
We'll work really hard in the new year to try to see if we can find any opportunity to improve it if its possible if it's possible.
That's great day, and thank you for the color there.
Shifting gears, a little bit regarding the new viral vector opportunity.
I would assume at this point, you've had an opportunity to check with existing customers that are developing cell and gene therapies. In addition to you maybe.
There are traditional large molecule.
Products and I'm curious if there is any overlap there and if those are the low hanging fruit is the existing customer base that could come in earlier or quickly.
Once that new facility is up and ready to go.
Yeah, I mean, I think I will say that it's probably not just about going around our new or existing customers and the like obviously those would be people that we would go out and talk to.
But to be very Frank that the main thrust today, our focus at the moment is making sure we bring the right level of expertise in getting the construction of the design absolutely nailed on moving that forward as fast as we can.
And then you know putting a quality system and again, we hate to do this right. That's kind of one of the fundamentals of our business is quality first.
Making sure that we have a real world class facility, well equipped with the right level of competence.
I think they you know the customer side of it is always a challenge and bringing new business in but we we feel that with that with those things in place that we will be able to to attract the attention that we need to the facility.
Understood Alright, thank you very much.
Thank you. Our next question comes from the line of Paul Knight from Keybanc. Your question. Please.
Hey, Dan what was the contract fees.
In the quarter just posted.
I'm, sorry could you repeat that question Paul effectively.
Okay.
I'm sorry, Paul can you repeat that question for me sorry.
Certain part of the revenue is from Matt.
Manufacturing not perform but still a charge.
Our revenue recognition.
What was that level in the quarter.
That number was.
Roughly a $5 million during the quarter.
Okay.
And then.
The.
The Covid is about 15% of backlog is that is that where you're getting the most known.
Recognition of non.
Manufacturing revenue.
No most of the non manufacturing revenue is coming just from the PD side of the house, which is the entry point into the mammalian side.
New programs come in and have the PD side Tech transfer what have you analytical before it gets to the cgmp.
And then that 5 million what was that a year ago.
A year ago. It was a 3.1.
Thanks, and then.
On the.
Challenging therapy expansion, how many square feet did you mentioned Nick.
54000 square feet Paul.
And.
$75 million of Capex.
Yes.
Good morning.
You're kind of implying about 100 and about to about $80 million of potential revenue.
Would you view that as kind of a conservative level.
Revenue out of the facility of that size.
It'll depend on mix, obviously in capacity utilization, but I think.
It is.
Little early for me to be to be absolutely Franklin, whether we can squeeze more out of it until we start getting it operational in and see the opportunities, but I would be surprised if it was any less for sure.
Thank you.
Thank you at this time I'd like to hand, the call back to Nick Green for any closing remarks.
Thank you operator, and thank you to everyone participating on today's call in closing I'd, just like to thank all of its customers partners and investors for their ongoing collaboration.
As always I'd like to acknowledge of its extraordinary employees, who together are driving the continued company success.
Thank you again for participating on the call today and for your continued support of avid biosciences.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
[music].
[music].
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Good day, ladies and gentlemen, and welcome to the avid bio Services' second quarter fiscal 2022 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 to hand the conference over to.
Tim Brons of <unk> 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, Dan Hart, Chief Financial Officer, and Matt Kwitny at avid Chief commercial officer.
Today, we will be providing an overview of avid biosynthesis contract development and manufacturing business, including updates on corporate activities and financial results for the quarter ended October 31 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 December seven 2021 will contain certain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Turning to 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 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 as its president and CEO.
Thank you Tim and thank you to everyone, who has dialed in and to those participating today via webcast.
I am pleased to announce another strong quarter at avid beginning with our financial results for the sixth quarter in a row, we have recorded an increase in revenues compared to the prior year period.
On the new business front, our team signed numerous new clients and new orders further strengthening our pipeline.
Finally, with respect to operations the company successfully completed its annual maintenance shutdowns and broke ground on the <unk> south construction.
Most significantly the company recently announced its expansion into viral vector development and manufacturing services for cell and gene therapy products. We.
We believe this area offers significant opportunity for growth and we are very excited to begin offering services to the sector.
Before I turn the call over to Dan for a review of the financial results I would first like to welcome Matt.
New Chief commercial officer to the call.
Madison The complex senior global sales executive with a proven track record of driving revenue growth.
In his new role he will be responsible for the continuing growth.
Business through the ongoing expansion of the company's commercial and clinical client base.
We are extremely pleased to have Matt join our team and we look forward to working with him.
But now I will provide additional details on business development and operations for the period. Following an overview of our second 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 second 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 and six months ended October 31 2021.
Revenues for the second quarter of fiscal 2022 were $26 1 million, representing a 24% increase compared to $21 1 million recorded in the prior year period.
The increase in revenues can primarily be attributable to fees received from a customer during the current year period for Unutilized reserve capacity combined with an increase in our process development revenues, primarily associated with services provided to new customers.
For the first six months of fiscal 2022 revenues were $56 9 million, a 22% increase compared to $46 5 million in the prior year period the.
The increase in revenues for the first six months of fiscal 2022 can primarily be attributable to an increase in fees received from customers for Unutilized reserve capacity combined with an increase in process development revenues, primarily associated with services provided to new customers.
Gross.
For the second quarter of fiscal 'twenty, two was 35% compared to a gross margin of 30% for the second quarter of fiscal 2021.
Gross margin for the first six months of fiscal 'twenty, two was 36% compared to 32% for the prior year period.
The increases in gross margin for the quarter and the first six months were primarily from higher manufacturing and process development revenues during these periods.
While we are pleased to report these improvements in gross margin compared to prior years, we do expect to increase hiring in the coming months to support our growing manufacturing capacity and our new viral vector business and this may impact margins in future quarters.
Total SG&A expenses for the second quarter of fiscal 'twenty, two where $5 million, an increase of 21% compared to $4 2 million recorded for the second quarter of fiscal 'twenty one.
For the first six months of fiscal 'twenty to SG&A expenses were $9 5 million as compared to $8 million for the prior year period.
The increase in SG&A during the quarter and the first six months was primarily due to increases in stock based compensation facility and related expenses advertising costs, partially offset by a decrease in payroll and benefit related costs.
For the second quarter of fiscal 2022, we recorded net income attributable to common stockholders of $3 5 million or <unk> <unk> per basic and diluted share as compared to net income attributable to common stockholders of 800000 or <unk> <unk> per basic and diluted share for the second quarter of fiscal 'twenty one.
For the first six months of fiscal 2022, the company recorded a consolidated net income attributable to common stockholders of $9 8 million or 16.
<unk> 15 per basic and diluted share respectively.
Compared to a consolidated net income tripled to common stockholders of $4 5 million or <unk> <unk> per basic and diluted share for the fiscal 2021 period.
The second quarter of fiscal 'twenty, two was the company's sixth consecutive quarter of operational profitability and we are pleased to report that we achieved adjusted EBITDA of $7 6 million during the second quarter and $17 3 million for the first six months of fiscal 'twenty two.
Our cash and cash equivalents on October 31, 2021 were $163 7 million compared to our first quarter balance of $159 7 million on July 31 2021.
In prior fiscal year end balance of $169 9 million on April 32021.
We are updating our previously announced planned capital spend for fiscal year 'twenty, two from $50 million to $60 million to approximately $55 million to $65 million, which now includes anticipated spend on the viral vector facility.
This concludes my financial overview I'll now turn the call over to Matt for an update on business development during the quarter.
Hello, everyone I am very pleased to be participating in my first earnings call as average Chief commercial officer.
Throughout my career I've had the good fortune of working with many leading companies in the development and CMO sectors and in each role I've been charged with driving revenue growth and building the business development teams that achieve that growth I was eager to join avid because I believe the opportunity to be substantial and after my first two months on the job I can say that.
My enthusiasm has only grown for this company.
While the ongoing expansion.
And the company's move into viral vector manufacturing presents significant opportunities for growth in the future. Our current team continues to deliver solid results for our existing mammalian cell business.
During the second quarter the business development team signed new project orders totaling approximately $36 million from the new and existing customers.
This work will span process development, new projects with existing customers and additional orders for our commercial products. As a result, we ended the second quarter with a backlog of approximately $120 million and expect to recognize most of that backlog over the next 12 months.
We are also pleased to report that during the first six months of fiscal 'twenty. Two we have signed as many new projects from new and existing clients as we did in the whole of fiscal 'twenty one.
We believe this is an early indicator of the trajectory ahead in the entire business development team is looking forward with great optimism.
This concludes my overview of business development activities for the quarter I will now turn the call back over to Nick for an update on operations and other achievements during the quarter.
Thanks, Matt.
The company made great progress in operations during the quarter, most notably avid recently announced that the company was expanding at CMO service offering into the rapidly growing cell and gene therapy market.
This decision was driven by continued strong growth in this sector combined with the CMO industries overall lack of proven high quality cgmp manufacturing expertise and capacity for viral vectors.
To lead the company strategic expansion into this market. We are actively building an industry leading team of experts with established track records of success in the sales.
To this end avid recently appointed drew Brendan and experienced executive from the <unk> of the CMO markets to lead the company's expansion into cell and gene therapy market.
Drew most recently spent more than a decade and senior commercial and operational positions at Nova.
Were he was credited with driving significant growth of news that's U S CMO services business.
<unk> the same.
Securing a several major viral vector CMO contracts.
In addition, the company recently appointed early on.
Yeah.
Vice President process development.
And he is a seasoned life science industry executive with more than 30 years of experience in the field of cell and gene therapy.
So how does this new business. The company is constructing a world class purpose built 53000 square feet viral vector development and GMP manufacturing facility in Costa Mesa, California, approximately five miles from avid as existing operations in test in California.
Based on current projections, we would expect the entire new facility build out to take up to 18 months at an estimated cost of approximately $75 million.
The new facilities analytical and process development laboratory are expected to come online more rapidly with the potential to be operational during the first quarter of fiscal 'twenty three.
Given avid strong record of quality and manufacturing are exceptional regulatory inspection history, and our customer centric approach to business. We believe this company is uniquely qualified to bring these values and skills to the cell and gene therapy sector and look forward to bringing this business online.
During fiscal year 2003.
I'll now provide an update.
The operational achievements.
Today. The company has successfully concluded its annual maintenance shutdowns at.
Broke ground on phase two of the mice itself expansion on tight in the phase one expansion, which we expect to be available to operations by January 2022, as we previously communicated.
And we are also a scheduling clients into this space during quarter one of calendar 2022.
As we've discussed previously we estimate that the addition of the viral vectors to the ongoing expansions will bring the company's total annual revenue generating capacity to approximately $350 million.
As I hope is evident in the second quarter was highly productive and <unk>.
Transformative time for avid the company's financial status is increasingly strong supported by year over year revenue growth.
Continued new business wins and substantial backlog for.
For these reasons, we believe we remain on track to achieve our stated full year 'twenty two revenue guidance of between 115 and $117 million.
Our business development team continues to perform signing $36 million in new business during the quarter and ending the period with a backlog of $120 million.
And then to the new leadership of Matt, We believe our new business opportunities will only grow.
Leveraging the company's operational strengths, we are pleased to expand our service offerings into the cell and gene therapy market and we are confident in our ability to establish an industry, leading viral vector to see the ammo business and we are actively building the team and facilities that we believe will drive our success and expand our revenue.
<unk> capacity.
Also during the quarter. We are pleased to have our progress is measured in the value created for shareholders recognized as the company stock was named for the first time to the S&P Smallcap 600 index. We are honored to join this index and we believe it speaks to the collective efforts of everyone at avid while building.
Visibility for the company with investors in the industry alike.
We are pleased with our progress and we believe that each of our accomplishments during the quarter I will facilitate the growth and move us towards our overarching goal of establishing avid as a best in class CMO focused on biologics.
This concludes my prepared remarks for today and we can now open the call for questions.
Operator.
Certainly ladies and gentlemen, if you have a question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered and you'd like to move yourself from the queue. Please press the pound key our first question comes from the line of Sean Dodge from RBC capital markets. Your question. Please.
Yes, thanks, good afternoon and congrats.
Congratulations on the success of the new business wins.
Nick or Matt you you touched on it a bit in your prepared remarks, but can you talk a little bit more about the broader demand environment are you seeing any noise from supply chain challenges and then maybe with the.
The backlog and the visibility you may have through your sales pipeline can you just give us some kind of idea of how quickly you think you can fill the incremental capacity that'll be coming online in the next couple of months here.
Yes, I think with.
With a strong backlog already.
And positive growth with our issuance in the last few months I think that we're going to remain on track for continued growth.
Yes.
Okay.
And then maybe I guess on the forward margin trajectory. There is a couple of different dynamics that will be affecting you over the coming quarters, Dan you mentioned it.
Increasing hiring soon but you also have this new space opening up and generating revenue is there any.
General direction, you can give us on how we should be thinking about the trajectory of margins over the next year year and a half.
Yeah, I think I'll I will firm up Sean with what I've said in the past that with the current installed capacity, we should see a gross margin thats, roughly 30% plus or minus depending on mix.
Moving into the first phase and second phase for that matter of the mammalian expansion we should see.
A good positive.
50% to 70% or so margin expansion.
But thats fully dependent on the mix that comes through and the timing of the revenues in filling that first phase and second phase and.
Onboarding the cost so in general we should see continued growth as the top line increases but.
Just to point out in the near term we will have.
Based on mix and the cost associated with bringing on the new facilities and absorbing the depreciation and other cost including personnel cost.
Could impact how quick and expand.
Okay, and then just to follow on to that the cell and gene therapy expansion.
How quickly.
Will you be hiring to begin to staff that are are they kind of more G&A additions at this point and then we will start to get to kind of more of that facility specific.
People or will those happen.
I guess soon.
Yes, so shown snake speaking.
Thank you.
It makes you to be Frank with you we.
The first people, we're bringing in and we've already got people in engineering obviously.
<unk>.
We've obviously got alien.
R&D side, but we also were looking at bringing in operational people.
Quality people, we've got to build the quality systems and everything else ahead of.
Ahead of opening up manufacturing, but I think you're probably going to see more in the.
And the development side of the business as we bring new clients initially into development and then move them into GMP and that's the way we are bringing the facilities online. So we're bringing the development hopefully in quarter one of fiscal 'twenty three.
And then obviously.
We said the GNP completion is about an 18 month program. So that will be somewhat later on after that.
Okay Super helpful. Thanks, and congratulations again.
Thanks very much.
Thank you. Our next question comes from the line of Jacob Johnson from Stephens. Your question. Please.
Hey, good afternoon.
Everybody first just because I'm getting a number of questions on it just to get out of the way on COVID-19 can you just talk about how much of your backlog today is comprised of COVID-19 related work.
Yes, I think there are around 15% roughly give or take Jacob.
The backlog okay.
And then I guess shifting gears to the viral vector Buildout, maybe first Nick.
What kinds of viral vectors will you be manufacturing is the AAV <unk> and then also any interest in getting into plasmids.
So first question on the on the vectors.
Both AAV Atlanta.
He has a tremendous range actually I was.
Shelf vectors that I haven't even heard of to be Frank with you that that he has been involved with and it is <unk>.
History so.
No not yet.
That would surprise anybody but it's.
Is.
He has been involved in a large number and a good variation, but clearly AAV and lengthy adenovirus.
As I sort of main the main throws of the biobank to market for cell and gene therapy.
But there will be others I'm sure we all.
Obviously, then as we go along to bring additional expertise around those to support early which we're obviously out there looking for it as we speak so.
Yep.
And Lindsay will certainly I think be a key cornerstone of the business.
Got it and then just one last follow up along the same lines.
Nick can you just remind us.
The synergies that exist between the mammalian capacity and the viral vector business.
Yeah, I mean, obviously.
We still are grow the cells in a mammalian cell and heck and more often than not.
Which is not a lot different to what we did with Joe and the mammalian cell business. So a lot of the key fundamentals the size of the react to the disposable technologies.
Unit steps the purification are all very very common.
Obviously, the quality systems under a biologics.
Operation as well as very similar but there are other challenges obviously that are dissimilar. So you know airflows and construction of the facility is slightly different in terms of viral vectors and obviously, we've got to do the.
The vital component, which is why we brought people like Eliot because thats where.
The new technology that we need to to add to what we already know how to do so a lot of commonality there.
With respect to your comment regarding plasmids I mean, I think that obviously is an interesting field.
Viral vector that requires a plasmid or two or three.
And so that clearly is an area that they could have.
Interest going forward as I think we probably highlighted some time in the past, but right at this moment in time, we have.
We've got a few things that we're we're occupied with getting up and running so not right at this minute.
Perfect I'll leave it there thanks for taking the questions.
Thanks, very much Jacob.
Thank you. Our next question comes from the line of Matt Hewitt from Craig Hallum Capital. Your question. Please.
Good afternoon, gentlemen, and congratulations on all the progress.
Maybe the first one regarding <unk>.
Regarding the first phase at <unk> and now that that's complete I think early on there was the potential that that.
If that was completed on time, there could be as much as $12 million of upside to your guidance for the year, if I'm reading the press release.
<unk> it sounds like that will be dependent upon valid.
Validation and I'm just curious what do you know what could delay that validation in and push that into February March time frame versus getting that done here before the end of the year.
Yeah. So.
As we speak we are in pretty good shape. So we fully expect it to be on in January.
Sure.
I don't anticipate there being much in terms of validation that would cause us not to be able to do that to be Frank so.
I think the major major issue for US was getting to where we are now coming out of shutdown and haven't tied it into the existing operations, which we've done all of that.
Fundamentally it is mechanically complete.
So.
I guess the you know the main thing is is there upside and where you're getting at is we got in.
The forecast.
And then it remains the same as it was before yesterday is now we've got it on side, obviously, we can leverage that but we've got to have it.
It has to be operational before you can book people and we are already starting booking people in in quarter one.
But we can switch those as I've mentioned before from you know the.
The one DSP suite to the new one so it doesn't always mean, just because I'll put a client in that it's above.
I believe our initial guidance.
But as I think probably the sort of more positive on towards that one is the backlog that highlighted which is a $120 million.
So clearly.
<unk> continues to add to that.
And so that we can squeeze into this year than if our capacity is $120 hits 125, then we've got.
We've got some additional revenue opportunities there so.
Kind of like let's get Christmas out of the way.
I have everything up and running and then obviously you will we'll obviously be driving to do as much as we can.
But at the moment, our guidance remains the sort of $1 15, $1 17 Mark.
We work really hard to try to see if we can find any opportunity to improve it if its possible.
If it's possible.
That's great day, and thank you for the color there.
Shifting gears, a little bit regarding the new viral vector opportunity I would assume at this point you've had an opportunity to check with existing customers that are developing cell and gene therapies. In addition to maybe.
There are traditional large molecule.
Products and I'm curious if there is any overlap there and if those are the low hanging fruit is the existing customer base.
That could come in earlier or quickly.
Once that new facility is up and ready to go.
Yeah, I mean I think.
I will say that it's probably not just about going around our new or existing customers and the like obviously those would be people that we would go out to until two.
But to be very Frank the Memphis today, our focus at the moment is making sure we bring the right level of expertise and getting into construction and the design absolutely nailed on moving that forward as fast as we can.
And then you know.
Putting our quality system and again.
I hate to do this right that's kind of one of the fundamentals of our business is quality first.
Making sure that we have a real world class facility, well equipped with the right level of competence.
I think they you know the customer side of it is always a challenge and bringing new business in but we feel that we've got with.
With those things in place that we'll be able to.
The attention that we need to the facility.
Understood Alright, thank you very much.
Thank you. Our next question comes from the line of Paul Knight from Keybanc. Your question. Please.
Now what was the contract fees.
In the quarter just posted.
I'm, sorry could you repeat that question Paul effectively.
I'm sorry, Paul could you repeat that question for me sorry.
Certain part of the revenue is from <unk>.
Manufacturing not performed but its still a charge.
Our revenue recognition.
What was that level in the quarter.
That number was.
Roughly a $5 million during the quarter.
Okay.
And then.
The.
The Covid, it's about 15% of backlog is that is that where you're getting the most non.
Recognition of non.
Manufacturing revenue.
No most of the non manufacturing revenue is coming just from the PD side of the house, which is the entry point into the <unk> side.
New programs come in and have the PD side Tech transfer what have you analytical before it gets to the cgmp.
And then that $5 million, what was that a year ago.
A year ago. It was in the three one.
Thanks, and then.
On the.
Selling gene therapy expansion, how many square feet you mentioned Nick.
54000 square feet Paul.
And.
$75 million of Capex.
Yeah.
What do you think that you're kind of implying about 100 and about to about $80 million of potential revenue.
Would you view that as kind of a conservative level.
Revenue out of the facility of that size.
It will depend on mix, obviously in capacity utilization, but I think.
It's what.
A little early for me to be to be absolutely Franklin, whether we can squeeze more out of it until we start getting it operational in and see the opportunities, but I would be surprised if it was any less for sure.
Okay. Thank you.
Yeah.
Thank you.
At this time I'd like to hand, the call back to Nick Green for any closing remarks.
Thank you operator.
And thank you to everyone participating on today's call in closing I'd, just like to thank all of its customers partners and investors for their ongoing collaboration and as always I'd like to acknowledge of its extraordinary employees, who together are driving the continued company success.
Again for participating on the call today and for your continued support of avid biosciences.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.