Q3 2022 Avid Bioservices Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the avid bio services third 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 Xbox instructions will follow at that time as a reminder, this conference call may be recorded I want.
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 Abbott's 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 January 31.
2022, after our prepared remarks, we will welcome your questions before we begin I'd like to caution that comments made during this conference call. Today March eight 2022 will contain certain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 concerning 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.
And to those who are participating today via webcast.
We are very pleased with the achievements of the third quarter.
During the period, we again recorded year over year growth in revenues gross margin net income backlog and adjusted EBITDA.
Our business development team had an exceptional quarter signing multiple new orders that will span the range of average current capabilities.
With respect to our expansions, we continued to make excellent progress on our new mammalian capacity in them.
<unk> facility as well as without viral vector facility in Costa Mesa, California.
Masonite will provide additional details on business development and operations for the period. Following an overview of our third quarter financial results and for that I'll turn the call over to Dax.
Thank you Nick before I begin in addition to the brief financial overview I'll provide on the call today for additional details on the third quarter financial results are included in our press release issued prior to this call and in our Form 10-Q , which was filed today with the SEC.
I'll now provide an overview of our financial results from operations for the quarter and nine months ended January 31 2022.
Revenues for the third quarter of fiscal 2022 was 31 5 million, representing a 44% decrease compared to $21 8 million recorded in the prior year period.
The increase in revenues for the quarter can primarily be attributed to an increase in the mix of in process and completed manufacturing runs and an increase in process development revenues, primarily associated with services provided to new customers.
For the first nine months of fiscal 2022 revenues were $88 4 million, a 29% increase compared to $68 3 million in the prior year period.
The increase in revenues for the nine months of fiscal 2022 can primarily be attributed to an increase in the number and mix of in process and completed manufacturing runs.
And unutilized reserved capacity fees and process development revenues during the current period as compared to the prior year period.
Gross margin for the third quarter of fiscal 2022 was 29% compared to a gross margin of 28% for the third quarter of fiscal 'twenty one.
Gross margin for the first nine months of fiscal 2002 was 34% compared to 31% in the prior year period.
The increases in gross margin for the quarter and the first nine months were primarily from higher manufacturing and process development revenues during the periods, partially offset by increases in planned growth costs, including compensation and benefits.
Compensation and facility and equipment related costs.
While we're pleased to report these improvements in gross margin compared to prior years in the coming months, we do expect additional increases in expense from hiring and other expansion related costs to support our growing business as well as our new viral vector business.
And this may impact margins in future quarters.
Total SG&A expenses for the third quarter of fiscal 'twenty, two were $5 8 million, an increase of 45% compared to 4 million recorded in the third quarter of fiscal 'twenty one.
The increase in SG&A for the quarter was primarily due to stock based compensation compensation and benefits and facility related expenses.
For the first nine months of fiscal 'twenty to SG&A expenses were $15 3 million compared to $12 million in the prior year period.
The increase in SG&A during the first nine months was primarily due to stock based compensation and facility related expenses advertising costs compensation and benefits and legal and accounting fees.
For the third quarter of fiscal 2022, we reported net income attributable to common stockholders of $2 2 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 third quarter of fiscal 'twenty one.
For the first nine months of fiscal 'twenty two the company reported net income for both the common stockholders of $12 1 million or <unk> 20 per basic and <unk> 19 per diluted share compared to net income attributable to common stockholders of $5 6 billion were <unk> 10 per basic and diluted share.
For the fiscal 'twenty one period.
Highlighting the strength of our third quarter financial results. We are pleased to report that we achieved adjusted EBITDA of $7 $2 million during the period and $24 5 million for the first nine months of fiscal 'twenty two.
These are compared to adjusted EBITDA of $4 million for the third quarter and $14 7 million for the first nine months of the prior year period.
Our cash and cash equivalents on January 31, 2022.
$150 million compared to our second quarter balance of $163 7 million on October 31, 2021, and prior fiscal year end balance of $169 9 million on April 32021.
This concludes my financial overview I will now turn the call over to Matt for an update on business development during the quarter.
Thanks, Dan.
The business development team had a strong performance during the third quarter, signing net new project orders totaling approximately $52 million from 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 third quarter with the net backlog of approximately $140 million, representing the company's largest backlog to date.
We expect to recognize most of that backlog backlog over the next 12 months.
Covid related business represents approximately 5% of our total backlog.
Our team continues to see and pursue the growing demand for <unk> services and in particular biologics manufacturing.
As we're approaching the close of fiscal 'twenty two to date, we have doubled our client base and client awards have already reached roughly the same as the whole of fiscal year 2021.
Although this new business manifest in all areas of operations, we are particularly happy with the significant increase in process development, which we hope will grow further into long term opportunities as these relationships develop over time.
To support increasing demand and our continued growth.
We have recently expanded our commercial team and we look forward to building on that momentum. The company has been building over recent years.
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, so much.
Third quarter was the company's seventh consecutive quarter of operational profitability.
And we continue recording year over year growth in multiple key areas, including revenues gross margin net income and adjusted EBITDA.
And as Matt just reported on new business signings remain robust and the company's backlog has never been stronger.
We are also making great progress with each of our expansion projects first.
First I'd like to revisit last quarter's announcement that the company is expanding its CMO service offering into the rapidly growing cell and gene therapy market.
While this is a very exciting sector of the market. It is the fundamentals that define avid.
Underpinning our viral vector offering.
Quality is being built into the very fabric of the facility as well as the systems procedures and most importantly culture.
We will of course be integrating our knowledge of disposables into the design and the business will retain our transparent customer centric and flexible approach clients have come to expect and value from IV.
In recent months drew Brendan general manager of our viral vaccines business.
Successfully recruited most of the key leaders for the viral vaccines.
The functional areas, such as presence development quality operations and facilities.
The process of adding additional strength and depth to the team is also well underway.
Our purpose built 53000 square foot facility will come online in two phases.
First phase will include process development and analytical development and is expected to come online before the end of Q1 fiscal 'twenty three.
Phase II is expected to be complete approximately one year later and we allowed the GMP suites at an estimated total cost of about $75 million.
Turning to our mammalian offering during.
During the third quarter, the company announced a significant milestone with the completion of the first phase of the two product expansion of the <unk> facility.
This new downstream suite is now operational and schedule and client projects.
This additional capacity was ideally timed coming online in the same quarter as our backlog has risen to $140 million exceeding our prior capacity.
Importantly, this expansion also enables us to continue to maintain capacity for new and existing clients continued sure that plant availability is another factor and our clients timelines.
Our attention now turns to minus itself, which remains on schedule and is expected to come online in less than 12 months.
New capacity is now approximately $170 million per annum up from the previous 120.
<unk> will add a further $100 million at the beginning of calendar 2003.
And with viral vectors, a further 80 million around the middle of the next calendar year bring.
Bring it average total revenue generating capacity to more than $350 million per annum.
For anyone interested in learning more about our expansions.
Courage you to visit our websites facilities page for videos documenting our progress.
Our top line growth has been fueled by the success of our business development team.
Can you use to achieve robust new business signings as evidenced by our current backlog of $140 million.
Our highest backlog to date.
The financial performance of increased revenues gross margin net income and adjusted EBITDA has been made possible by the effective execution of our operations quality.
Facilities and support functions, such as HR finance and supply chain.
These groups, often go and recognize but without which none of this would have been possible.
This concludes my prepared remarks for today and we can now turn the call over to the operator for questions.
Thank you, ladies and gentlemen, if you'd like to ask a question at this time you will need to press. The Star then the one key on your Touchtone telephone.
To withdraw your question you May press the pound key.
Please.
Paul the Q&A roster.
Our first question coming from the lineup Sean Dodge from RBC capital markets. Your line is open.
Yes. Thanks.
Afternoon, and congratulations on the continued strong progress with the new business wins.
I wanted to start on the revenue guidance youre, maintaining the $150 million to $117 million target for the year, but when we look at.
What you've generated year to date this implies a sequential decline in the fourth quarter.
So I think that's despite what were some annual shutdowns that took place in Q3. So maybe you can just give us a little color on.
Why why revenue should be down in the fourth quarter.
Yeah. Thanks, Sean it's Nick speaking I mean, it's just very simply timing of batches.
Clients.
Again, as you kind of highlight the the general trend.
As a continuing growing backlog of 140, but I think we've talked about this.
On a number of occasions.
Timing doesn't always quite perfectly work out on each quarter end.
And so you just see a little fluctuation in that.
So that's really we're obviously already utilizing the.
The new space that we've got created obviously, a 120 million backlog.
Sorry, $120 million capacity, and 140 million backlog, we desperately needed that additional space all would've needed that additional space. Fortunately that's online now and I do understand that there's a general feeling that obviously, if you've got 140 of backlog you've got the extra capacity.
Why isn't it flowing through straight away and it's just a timing issue.
As we see in the quarter.
Obviously, if there's any opportunity to pull anything forward into that then we will be taking advantage of that to the extent that we can.
But that's all we see it as and clearly we see that continued growth that you've seen in the backlog.
Okay. Thanks, and then maybe on your last.
<unk>.
$40 million backlog Microwatt now being open do you have the available capacity.
Can you just give us a little bit more detail on.
The fluidity of the Fungibility of that backlog, how quick can you maybe pull some of this stuff forward and get the new microgrid space ramp too.
For $12 $5 million quarterly revenue run rate is that.
I guess can you can you put any kind of bookends around.
Timing for that is that one quarter that a couple of quarters or longer.
Yeah, I mean, we've always said typically that we expect to recognize the backlog in a period of approximately 12 months and this one remains pretty much the same I think it's fair to say so.
And in that extent I've done the math in my head quickly but.
If you've got extra $20 million over there must be there's an extra 5 million already in that backlog arguably going into that additional into that additional suite.
Clearly to put all to completely fill it we'd be up 170 million if.
If that was immediate.
And at this stage, we're not guiding to next year, what that'll be that'll be the next quarter.
And so when we guide forward, but.
I think we've alluded to it the trajectory of the business remains strong the growth remains.
Backlog is kind of indicative of the go through the business and so we hope to see that flowing through into that suite.
As we go through next year and then.
First of all our problems would be if that was full and even in that case and we do have the <unk>, south which it seems incredible to be saying it now, but it will be on stream in less than a year. So.
Hopefully hopefully.
Hopefully it outside daily times as well.
Alright, thats helpful. Thanks, and congrats again.
Thanks, very much Sean.
Our next question coming from the line of Jacob Johnson with Stephens. Your line is open hey, good.
Afternoon.
At the risk of asking a question that Nick said you wouldn't answer.
Youre not guiding yet to 2023, but as we think about FY 'twenty three.
Just maybe a question would be how should we think about the long term growth outlook.
For avid and then maybe whether or not the COVID-19 from the Covid revenues in 'twenty two could prove to be a tough comp if you could maybe kind of walk through those two pieces.
Yeah, I mean, I think we've we've kind of articulated the growth I mean, clearly if you've got $140 million in the back in the backlog and we expect to recognize most of that in the next 12 months than I guess that puts the bottom.
Bottom end on the <unk> on the expected growth that we're going to go forward with.
But.
We've also seen the market growing pretty well and we expect to beat that I think we said that as well.
Again.
I don't want to get into the into the position of having to I'm going to give guidance earlier than we than we should do in.
And we're not in a position to be prepared to do that right now but.
Obviously as you say 140 would be the low end of anything like that.
What we've already got in the backlog.
Unless something drastic was to happen.
And hopefully, we'll see more than that going forward and then obviously as you go forward. We we've put additional capacity in <unk>, south as well coming on stream next year. So.
I think I have also made the comment that we're not putting that capacity in because we don't expect to utilize it maybe.
Maybe not always on the first day that it opens as we probably almost did this time, but.
Certainly in the not too distant future. So we're certainly envisaging being able to fill a lot downstream suites that we've just put in.
In a reasonable in a reasonable period of time series that we then need to go into the new sweep.
<unk> itself and then.
Ultimately you know that.
Got Ya viral vectors to come on top of that but again, that's under construction as well at the moment.
Got it that last point leads to my next question just the viral vector process development lab I think comes online I think you said <unk> fiscal 'twenty. Three can you just talk about how important that viral vector process development lab is.
The business development efforts kind of ahead of the.
The manufacturing suites coming online.
Yes.
So first and foremost I.
I know, you'll development and process development should be online, we think it'll be towards the end of the quarter quarter one so.
Probably July somewhere around there.
The reality of it is I mean, obviously, we're engaging in conversations and I'll, let Mike speak to that but we're in great obviously engaging with clients.
But ultimately having and we can obviously show them. The set of facilities that we have we can I mean, we could throw people round out existing facilities. The two will look a lot different. So I think people will have a pretty good idea of.
What theyre going to what's going to be built and the quality of that.
That infrastructure.
But ultimately at the end of the day people need the need the actual facility can be there to do business with us and I think that will enhance the meaningful discussions.
Our whole stage further and start to get us towards our position hopefully where we can start to bring business in and in terms of real business and real activities.
I don't know, whether you want to say anything about.
The BD efforts and ongoing.
I'm going out there and what you've done and the team.
Yes, sure so just to add upon that we.
We did add a dedicated viral vector business development person this year she.
She had started in January with us So we're already seeing.
Lot of interest from from potential clients. We've attended a couple of shows they are starting to get a few more that are face to face now so each one that we go to there is more and more activity.
So there is a lot of interest in our value proposition and I think it's progressing nicely is as good as I could hope at this stage with things right. So I think we're in a good place and as Nick previously stated as we get closer to opening of the facility I think things are going to firm up nicely.
Got it thanks for that Nick and Matt.
And our next question coming from the line of Matt Hewitt with Craig Hallum. Your line is open.
Good afternoon, and congratulations on the strong quarter maybe.
Maybe a couple of questions for me first off on the gross margin I think you talked about some of the incremental costs that you faced in the third quarter, but as we look at you know the revenues came in much better than than I think many of us had anticipated.
What what's the delta or what causes the shift from quarter to quarter in the gross margin. So purely a mix of you know bill.
Batches versus smaller batches versus the services it may be what creates that delta.
Sure.
Hey, Matt. Thanks, This is Dan.
Essentially just answered your own question, yes, it's absolutely up to the mix and the scale.
The duration of the process, it's kind of all of the above.
As I've said in the past gross margin of 30% roughly plus or minus is highly dependent on the mix. So I think thats kind of what we've seen in the last three or four quarters.
Got it and then.
Given some of the headlines here recently and I know others have talked about it are you seeing any inflation in your business is that is it primarily in wages or are you seeing it maybe in some of the inputs as well maybe help us out there.
Yeah.
So Nick Nick speaking again here I mean, I think certainly in wage.
Wage increases we see inflation.
In terms of what it requires to get hold of staff in our new stuff as we're growing and we said it was certainly higher than a good number of people. These days in terms of the inputs into the process.
A lot of a lot of the inputs for as a pass through so the vast majority of the sort of raw material component as a pass through to the client. So whilst we do see these things coming through.
They're not as big an impact on our profitability.
Terms of the fact that it is pass through and ultimately to the end client.
Got it alright, well, thank you very much and congratulations on the strong quarter.
Thanks, Matt.
And our next question coming from the line of Paul Knight with Keybanc. Your line is open.
Hey, Nick.
On the commercial profile order profile of the contracts are you starting to average.
Longer duration, meaning are there more moving into phase III.
Are you like an average phase two an hour.
Where's that maturity of the pipeline with the backlog increase.
<unk>.
Yeah really good question Paul.
I don't actually know what the averages I've never actually done that one that's an interesting concept that might have a look at that one but we do monitor obviously the sort of pipeline nothing.
As I alluded to one of the nice things about the businesses is that we we have established a funnel over the last couple of years for sure that you know as we see projects now in preclinical phase one phase two phase III and commercial obviously.
What we're now saying, what we're now sort of experiencing.
Broadening of that funnel.
And that's what we're trying to do and I.
I think we've been quite pleased that kind of the message of.
Of our commercial pedigree is getting out there and we are seeing some later phased projects coming in and we're seeing projects maturing to fit those phases.
Ultimately the Holy Grail is when clients actually jump across and we saw that last year as well so but.
But yeah, we are.
We're pretty pleased with the development.
In terms of.
The maturity of the pipeline.
But we'd always take more late phase and commercial products because those are always a really good for sort of predictability and reproducibility in terms of revenue streams.
Okay and then.
With your experience in the industry.
What what type of EBIT margin to you and Dan zinc.
Or it could operate whether it's more the mature stage of the business.
Sure definitely at the heart of what we're aiming at here.
Paul.
I think.
I've said in the past looking at the capacity gone from $120 million to $170 million and ultimately getting to $2 70 on the <unk> side, and then adding an additional approximately 80 for the viral vector.
Looking at both both of those.
Different offerings, they are pretty close in the overall margin profile.
Some similarities some differences.
All in all you can see that we've been running at.
Low to high Twenty's in the last four five quarters as far as a percentage of EBITDA.
I would imagine as we reach a full capacity.
That number would be.
Starting with a three.
Mid thirties.
Okay. Thank you.
Thank you at this time I would like to hand, the call back over to Nick Griffin for any closing remarks.
Thank you operator, and thank you to everyone participating on today's call.
In closing I'd like to thank all of its customers partners and investors for their ongoing collaboration and as always I'd like to acknowledge all of its extraordinary employees, who together are driving the company's success.
Thank you again for participating today and for your continued support of avid biosynthesis.
Ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect.
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