Q4 2022 Avid Bioservices Inc Earnings Call

In.

Good day, Ladies and gentlemen, and welcome to the Avid Bio services. Fourth quarter and fiscal year-end 2022 financial results conference call. At this time, all participants on the 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 a conference over to Tim bronzezo.

Good day, Ladies and gentlemen, and welcome to the Avid Bio services. Fourth quarter- fiscal year-end 2022 financial results conference call. At this time, all' participants on the listen-only mote. 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 a conference over to timim. bronzezo average Investor relation group. Please go ahead.

Thank you good afternoon and thank you joining us. On today's call we have Nick Green, President and CEO , Dan Hart, Chief Financial Officer, and Matt whitneyac, Chief Commercial Officer.

Today we will be providing an overview of Avid Bioservices contract development and manufacturing business, including updates on corporate activities and financial results for the quarter and year ended April thirtieth 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, June twenty-ninth, 2000 and twentinety-two, will contain certain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, concerning the current belief of the company, which involves a number of assumptions, risks and uncertainties.

Actual results could differ from these statements and the company undertakes no obligation to revise or update any statement made today.

Speaker 1: I encourage you to review all of the company's 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, incluing relevant non-GAAP reconciliations, on our corporate website at avidbio com.

With that, I will turn the call over to Nick Green avbot, President and CEO .

Thank you, and thank you to everyone who has dialed in and to those who are participating viaour webcast.

Fiscal' 22 was an exceptionally strong year for rbit.

In every measure, including financial, business development and operations. We exceed our stated goals for the year and extended the growth trajectory established in fiscal' twenty-one.

Revenues of fiscal' 22, reflecting impressive year-over-year growth.

And the doubling of the revenues as compared to our fiscal year' twenty.

Our business development teams signed multiple new orders, resulting in the company and in the fiscal year, with its highest backlog to date.

Operationally, we continue to make progress on the ongoing expansions.

Recently opening our new selling GE therapy analytical and process development laboratories, exactly eight months of the day that we announced our intent to expand into this business.

This is the exsecond expansion we have brought online this calendar year.

Matt and I will provide additional details on business development and operations for the period following an overview of our fourth quarter and fiscal financial year 2022 financial results.

And for that I'll turn the call over to Dan.

Thank you, Nick. Before I begin, in addition to the brief financial overview, I'll provide on the call today additional details in the fourth quarter in full fiscal year 2022. financial results are included in our press release issued prior to this call and in our Form 10-K , which was filed today with the SEC.

Speaker 2: I'll now provide an overview of our financial results from operations for the quarter and fiscal year ended April thirtieth, 20 and twenty-two, and.

Revenues for the fourth quarter of fiscal 2022, or $31.2 million, representing a 13% increase compared to two $27.6 million recorded in the prior year period.

Speaker 2: The increase in revenues for the quarter can primarily be attributed to an increase in the scope of end-process and completed manufacturing runs and an increase in process development revenues primarily associated with services provided to new customers as compared to the prior year period.

Speaker 2: For the 2022 full fiscal year, revenues were $119.6 million in 25% increase compared to $95.9 million in the prior year period.

Speaker 2: The increase in revenues for the 2022 full fiscal year as compared to the prior year period can primarily be attributed to an increase in the number and scope of in-process and completed manufacturing runs.

Unutilized reserve capacity fees and process development revenues.

Gross margin for the fourth quarter of fiscal 2022 was 22%, compared to gross margin of 29% for the fourth quarter of fiscal 2021.

Speaker 2: Factors impacting the gross margin for the quarter were primarily from increases in costs associated with the growth of our business and our facility expansions, including comenstition and benefit expenses, as well as increased in facility and related expenses.

Speaker 2: Partially offset by higher revenues during the period.

Gross margin for the 2022 full fiscal year was 31%, consistent with the prior year period.

We are pleased to have achieved the gross margin of 31% for the full fiscal year. However, as in fourth quarter, we expect margins during the fiscal' 23 to continue to be impacted as we expand operations.

Speaker 2: Specifically our margin during the fourth quarter was impacted by increases in spending related to hiring and other expansion costs to support our growing mamillia business as well as to establish our new sell in gene therapy business.

Given our ongoing expansions, we believe that margins may continue to be affected in the coming quarters.

Total sda expenses for the fourth quarter of fiscal 2022 were $5.9 million, an increase of 17% compared to $5.1 million recorded in the fourth quarter of fiscal 2021.

The increase in SGNA for the fourth quarter was primarily due to higher compensation and benefit expenses, as well as increased facility in related costs.

For the 2022 full fiscal year, sdna expenses were $21.2 million as compared to $17.1 million for the prior year.

Speaker 2: The increase in estda during the 2022 full fiscal year was primarily due to compensation and benefit expenses, facility and related expenses, advertising costs and legal and accounting fees.

During the fourth quarter of fiscal 2022, we recorded a noncash income tax benefit of $115 million, or a dollar 63 cents per diluted share, due to the release of our valuation allowance recorded against the company's deferred tax asset.

Speaker 2: The company previously maintained a valuation allowance on its deferred tax asset until there is sufficient evidence to support the reversal of all or some portion of these allowances.

On a periodic basis. The company reassessed the valuation of its deferred tax assets, weighing all positive and negative evidence.

To assess if it's more likely than not that some or all of the company's deferred tax assets will be relax.

Speaker 2: As of the fourth quarter, the company has demonstrated profitability and simulative pretax income, as well as forecasting revenue growth.

Speaker 2: After assessing both positive and negative evidence, the company determined that it was more likely than not that the deferred tax assets would be realized and releaseed the valuation allowance related to the federal and state deferred tax assets as of April thirtieth twent thousand and twenty-two.

For the fourth quarter of fiscal 2022, the company recorded net income attributable to common stockholders of $115.6 million, or a dollar 87 cents per basic in a dollar 65 cents per diluted share, as compared to a net loss attributed to common stockholders of $2.7 million, or four cents per basic diluted share for the fourth quarter of fiscal 2021.

Excluding the noncash income tax benefit of $115 million recorded during the quarter, our net income which tribothed to common stockholders was approximately $6 thousand or one penny for basic and dilutence share.

Speaker 2: For the 2022 full fiscal year, the company recorded net income TRI both com stockholders of $127.7 million.

Or $2 an eight cents per basic and $1 per and 84 cents per due share. As compared to net income attributable to comees stockholders: a $3.3 million or six cents per basic du share for the 2021 full fiscal year.

Excluding the noncash income tax benefit of $115 million recorded during the period, our net income triboth to-com stockholders was $12.7 million, or 21 cents per basic into diluted share.

For the fourth quarter, the company achieved an adjusted EBITDA $5.9 million.

Speaker 2: And $30.4 million for the 2022 full fiscal year.

These represent increases of 13% and 53% respectively.

When compared to adjusted EBITDA of $5.2 million for the fourth quarter of 2021 and $19.9 million for the 2021 full fiscal year.

Our cash and cash equivalents on April thirtieth 2022 were $126.2 million, compared to our third quarter balance of $15 million and the prior fiscal year end balance of $169.9 million.

This concludes my financial overview. I'll now turn the call over to Matt for an update on commercial activities during the quarter.

Thanks Dan.

During my first six months at Avid, we focused on expanding our commercial team and refining our strategy for recruiting new business projects. The early results from these changes has been highly encouraging, as we signed net new project orders totaling approximately $44 million during the fourth quarter and 155 million for the 2022 full fiscal year.

As a result, we ended fiscal 22 with a backlog of 153 million advertised to date. This represents a 30% increase compared to the backlog of 118 million at the end of fiscal twenty-one.

Speaker 3: We expect to recognize most of our current backlog over the next 12 months and notably, this backlog contains no COVID-related business.

The commercial enhancements we made over the last six months include doubling the size of our sales team, with additions in our mammalion and our celn gene therapy businesses, including a specific focus on the leading biotechnology regions in North America. We have also created an internal sales team dedicated to identifying prospective new business and generating leads.

Speaker 3: And finally, we increased the size of our business operations team to help support our growing project pipeline generated from new customers, as well as the expanding orders from existing clients.

Complementing these organizational improvements. Our overall visibility has also increased as a result of expanded marketing and promotional campaigns, industry-speaking engagements and website search enhancements.

In addition to our bookings, increase our new proposal issuance performance in both count and value reported record results multiple times over the last six months.

These are all strong indicators of how Avid is perceived in by the market and Avid's positions to meet client need, and is well timed as we bring on additional capacity in early 2020 -three.

We believe that, given avids, available capacity and proven track record of quality, reliability and flexibility.

Speaker 3: Our company is well positioned for success in the coming years.

This concludes my overview of commercial activities for the quarter and fiscal year. I will now turn the call back over to Nick for an update on operations and other achievements during the quarter.

Speaker 3: commcial activities for the quarter and fiscal year. I will now turn the call back over to Nick for an update on operations and other achievements during the quarter. Thanks, Mart.

As reported by a guna MAT during fiscal 2022, the company's business development enhancements and subsequent wins.

Have directly strengthened both the company's top line as well as our financial position as a whole.

And during the year. I am pleased to report that our facilities and service expansions continue to advance on a timeline that will allow us to meet the demand of our newest customers, prospective customers.

As well as our existing customers that are expanding their manufacturing work.

Not as if the past two years haven't been exciting enough, we expect fiscal' 23 will be transformational planed.

Having just completed the analytical development and process development capabilities of our celg bedy business onlyy-two weeks ago.

On the MI side of the business, we look forward to seeing the completion of our mic cel utility.

And the new process development capacity in January of 2020. -three and.

Finally around this time next year, our GMP suite for the 17 therapy business will also be complete.

These expansions are the result of a phenomenal amount of planning and an amazing level of Corporation between not only internal groups, such as quality operations engineering, maintenance and finance, but also external teams at cacrb, EPR and the cities are testing and customa.

I cannot commend enough the contributions of everyone at addid, who have not only managed to maintain each and every program on schedule, but have also been able to achieve this while maintaining an operational performance that could equally be described as transformational- and not of this during COVID-19.

The newly opened analytical and process development capabilities in our seling gene therapy business will now enable the team to embark on a meaningful dialogue with prospective clients with respect to their programs.

Safe the knowledge that we are able to execute from both a technical and operational perspective.

Furthermore, the timing of the GMP suites should be well timed to accept program that complete the process development phase and are then looking for a home in the larger GMP suites.

On the mammalian side of the house. The Phase I expansion is now fully operational and the team have now completed manufacturer of multiple programs in this suite.

The expansion of our process development laboratories will enable arbitor Board even more programs as we enter calendar twenty-three.

This to ensure clients can access the new capacity in life and South in 2023 and beyond.

Enhancements to our commercial function.

Which is not described included the dbbling of ourbd personnel in front of the customer.

And the addition of internal sales, increased bandwidth of our business operations and marketing teams are key contributors to the increased number of proposals we are submitting to customers.

On the operational side of the business, we are also expanding our ability to efficiently and effectively execute in each and every program in a timely manner.

Across the whole organization. We saw an increase in staffing of approximately 100 people in calendar 2020 -two and.

While we fully expect to see the continued growth of the avage business as we seek to fill the current capacity.

Fiscal year 23 will also be a year where we equpped the business to on board the programs required to fill the new saling gene therapy capacity and the new mammalian capacity in life itselfth.

As highlighted by dou, this will inevitably place some short-term pressure on our margin.

Speaker 4: For fiscal year 2021 and 2022 have clearly demonstrated the effectiveness of the business model, which we will enable these margins to recover and be further enhanced in the years to come, as we endeavor to fill what will be close to a $4 million of capacity by this time next year.

In closing, I would like to revisit the considerable progress made during fiscal' twenty-two.

During the year, we achieved revenues of 12 million beating guidance and representing a doubling of the revenues recorded in fiscal 2020.

Notably quarter four of fiscal' 22 was the eighth consecutive quarter of operational profitability for the company.

The company signed new project orders for 155 million in fiscal 2022, leading to a backlog of $153 million, of its largest backlog to date.

Supporting this group.

As well as that which we anticipate in coming years. Our facilities and service expansions continue to proceed according to plan.

Given the growth momentum achieved. June fiscal twenty-two.

Are year-end backlog.

And the increase in demand anticipated during fiscal 2- 23. we are pleased to announce revenue guidance for fiscal two thousand and 23 of between $14.145 trillion.

Representing a projected increase of 17 to 21% as compared to the fiscal two 2022 revenuue.

This concludes my prepared remarks for today, and we can now open the call for questions.

Prepared remarks for today and we can now open the call for questions operator.

Thank you. As a reminder to task a question, you will need to push Star one on your telephone.

To myire question: chr town K. please stand by, we can follow the Q a roster.

Our first question goes from Sean. With our BC capital markets, you may proceed.

yesthanks, good afternoon and congratulations on the quarter and for the great year for that matter.

I just maaker or Dan the guidance you laid out for fiscal' 23 and I just wanted to better understand the visibility you have on that range.

Speaker 5: Kind of via the current backlog, versus what you had going into this past year, I guess. Are there any changes you made in assumptions around things like backlog conversion or how much you need from additional new business to hit that range compared to what you had factored into this past year's targets?

Yes I think there are some differences I think mainly shown against really the outlook in the marketplace. A lot of uncertainty out there in terms of the sort ofi guess political and marketkets perspective and investment into biotech and all those sort of things that probably weren't there last year. Obviously we always have a different set of circumstances. We had COVID-19 last year supply chains as well. So there's a whole host of those sort of factors that we took into account and then there's also some additional what I would consider. Generally good. Things is that a number of the projects that we're bring on board.

Larger and later Phase, and those take longer to execute. So I think there's probably a little bit of that squeezing out outside the 12 -months time frame, whereas we've typically turned down and so have that to be recognized within the next 12 months. When it comes to backlog, that's still the case, but probably a little bit less than it was in the previous years as we get more mature programs on board.

Know the other factor to influencec in the guidance as well. It's the that jorop jumps us up to 85% of our expanded capacity that we brought on about five months ago. So it's reallyty just a combination of those I think you know double of the size of the business. Over the last two years. We're still forecasting 17 to 21% of growth this year with the with the markets where they are. I still think is you know pretty good and you know if if the worst parts of those those negatives that don't don't materialize and hopefully. There's an opportunity for us to to extend that but you know we're 12 months away as it were so.

Okay that's helpful. And then maybe on one of the first comments you made there on the outlook for signing a new business, certainly the macro backdrop seems like it's got a bit more challenging, with less biopharma fundraising happening- that I guess. So there are any thoughts you can share around the demand levels you've seen subsequent to the end of April . How is that trended? And then maybe anything else we should be thinking about that you feel maybe insulates you all from from a bit of what we've been seeing across, kind of the fundrais landscape.

Yes So I should let talk to that first of all. I'm happy to fillin at the end of it, but that's part of the businesshe' right the frontline that regard. So may you want to just sort of jump in there and I can, add if you, it needs to be sure.

So really the feel we have the proposal volume, the issuance has been very, very strong. As I noted, we've had a couple record months over the last three 4, five months in new issuance. So the demand is there. I think the the market is responded well to our business model really as far as our capabilities and our expansions that we've put in place and it's a pretty good mix as far as early in late Phase opportunities that we have. So I definitely understand and agree with.

Speaker 3: The feel we have the proposal volume, the issuance has been very, very strong. You know, as I noted, we've had a couple record months over the last three 4, five months in new issuance. So the demand is there. I think the the market is responded well to our business model, really as far as our capabilities and our expansions that we've put in placeand' it's a pretty good mix as far as early and late Phase opportunities that we have. So I definitely understand and agree with.

Some of the challenges with investments in the biotech, But as of now we haven't seen a tremendous impact of that as of very recent.

Yeah show, I think here just a.

Yes just to sort of fill out on that. one is that we are very encouraged with what we're seeing. I mean, as MT highlighted, its proposal, cdas- all those leading indicators are still growing nicely and strongly. Equally, we're not immune to the fact that we can all see how much the investments G down in biotech. Equally, there was a lot of money raised over the last few years which is probably still coming out. So doesn't mean to say that that couldn't come come through in in six tlve month's time, per say. But at this stage it's what's really encouragedaging is that MT and the team are doing a great job and continuing to drive those leading indicators forward and positively.

Okay thanks and Congratulation again.

Ok thanks and congratulations again. Don't appreciate it.

Thank you. Our next question, co and Jacob, counlting with Stevens. You may proceed with your question.

Good afternoon. Maybe just look in into 2023. DAM really appreciate some comments around the outlook for margins in 20 20 three, but maybe the unpack that around gross margins. Can you just talk about the puts and takes of kind of the growing revenue base you have and the incremental margins down that Phase one has come online versus the additional capacity you're building out, and maybe just also speak to any impact from kind of inflationary pressures right now on the gross margin line?

Jacob.

The way out frame. The gross margin for the fiscal' 23 is we're going to continue to invest and gress aggressively to bring our expansions online, adding to our capacity to the existing in a million to establish the sell gene therapy business.

During those phase of growth. We would expect to see our gross margins in the 20 S.

Clearly it's going to be lump So lumpy business and it's depending on the timing of revenues and the availability of additional personnel that we can bring on board.

There's also a step up in depreciation facility costs. So as we ramp we get to a more normalized run rate. We don't expect to be at a 30% plus gross margin.

As far as inflationary pressures, we do see costs kind of going up across the Board, as everyone else does on the material side. We pass that through, So so far it hasn't had a significant impact on our business.

That it things to it and then.

Nick you response to Sean's question. You mentioned that that you've got some larger projects in in your backlog right now- and I think Matt kind of mentioned some refining to your business development strategy is kind of going after some of these larger projects. Is that been intentional or and are you seeing the frids of that? Or is this just kind of how the, the new business wins, I guess in the second half of the year?

Yes I mean, I think, I think it's intentional for sure, I mean one of one of the strong. The strongest sort of attributes have added- and there are a number of those- is the commercial pedigree of the business and the regulated track record that we have, which I think is particularly attractive to later Phase programs who want to feel good that the CDMO is able to take them across the finishing line, as it were.

Ray actually did quite a nice talk by or last a couple weeks ago on that very subject. So I think it's a it's people realizing the commercial pedigree of the company as we continue to get, and then on top of that, of course, is that that we have significant amount of capacity coming online So people can see that commercial volumes coming out of Avid is not constrained going forward, which never has been actually, but that one of the big things that we're driving. And then I think you've also seen in his BD effort and it continues that.

Speaker 4: Significantly increased the horsepower throughout the business, but also driving a little bit more towards. Now we've got that broad level of capability and significant capacity. I think that's much more interesting to some of the bigger pharma clients that we may be wouldn't normally have stepped across their threshold a few years ago. So the combination of the maturity of the expansion, the commercial track record, et cetera.

Particular increase the horsepower throughout the the business, but also driving a little bit more towards. Now we've got that broad level of capability and significant capacity. I think that's much more interesting to some of the bigger pharma clients that we may be- wouldn't normally have stepped across the threshold a few years ago. So the combination of the maturity of the expansion the, the commercial track record ETC. Got T the question.

bthank you as our mind just question: do needs of address St one on your own ple. Our next question goes: or Matthew IG capital, you need perceiive. Thank you've taking the questions maybe first up. I feel like it's been a little while since we got an update on your view of where market capacity currently sits. I know over the last couple of years there was a lot of press releases of some of your peers building out capacity but by and large that was at the larger end of the spectrum from a manufacturing perspective and I'm just curious: are you seeing any changes? Are they kind of sticking at that larger end in how to how does capacity for the market kind of sit today?

Yes I mean I haven't seen much new over the last sort of couple of quarters that I did that we weren't aware of before. In in the sort of 2000 LER platform we've seen people confirming their continued investment that they were they dilated before, but I are seeing a massive amount of new capacity on top of that coming in. We still see clients who are concerned about capacity and not able to achieve the timelines that they're looking for in other areas of the market. So it leads me to believe that there are still constraints out there.

And one of the things that we do feel particularly comfortable with is that obviously the markets have sort of pulled back a little bit in terms of growth in what and biotech, but we do have on our balance sheet enough cash to complete our capital expansions, assuming our business continues as it is doing today and we can get all of that in with what it, with the cash on hand. So we about the online and have it available for the clients going forward, which is always a big selling point.

That's great, and then maybe a follow up on regarding the new cell and gene therapy analytics and process development labs that you brought online. You know how are those discussions progressing? Have you signed a contract yet when you anticipate that would happen? Anything along those lines? Thank you Yeah, conversations are going right. I mean we started to get on name I literally eight months- in two weeks, I think it is now- was going not not.

We announced getting into this, So that it's still very, very early stages. I just remain constantly impressed with our engineering teams who can publish these facilities often and get them up and running. So analytical development of into D is is just the entry side of the lenging incenton of a business. Obviously everybody's going to start off in those areas. It was kind of important for us to- or we thought it was a good idea- I say to to- phas the expansion and try to get those up and running So that we could maybe on board some clients ahead of the GMP, with the hope that somebody bring into PD, complete their P D and then moves into the gmd as soon as that's up and ready.

So we really, really in earnest, to be Frank, only had a couple of weeks that I've been able to hard sell ack cpopy. So no, we haven't signed anybody in that period of time. But I think last time I look, there were a good number of of ongoing conversations with a good number of people- people starting to want to visit the site. Now it's available. I was out there with some people the other day, So I think it's going to be now going forward that we'll start to push that one and start to hopefully bring some new clients on in the next few quarters. Can't guarantee it'll be the next quarter, but hopefully it will be. But certainly I would expect that in the next few we'll be getting somewhere there.

That's great, Thank you.

That's great, Thank you. Thanks very much appreciate.

Thank you, and I'm not show any further questions at this time. I would now like to turn the call back over to Nick Green for any closing remarks.

Yes Thank you very much, sure thanks. Thank you for everybody participating on today's call. In closing, I'd just like to thank of its customers, partners and investors for their ongoing collaboration and, as always I'd like to acknowledge, of its extraordinary employees who together have continue to drive the company's success.

And thank you again to everybody for participating on the call and also for your continued support of idbio services.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

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