Q4 2023 Avid Bioservices Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the AVID BioServices fourth quarter and year end fiscal 2023 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 turn the conference over to Tim Bruns of Abbott Investor Relations Group. Please go ahead.
Thank you.
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 Kwiteniak, Avid's 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 30, 2023.
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 21st, 2023, will contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, concerning the current belief of the company, which involves a number of assumptions, risks, and uncertainties.
Actual results could differ from these statements and the company undertakes no obligation to revise or update any statement made today. I encourage you to review all 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, including relevant non-GAAP reconciliations, on our corporate website at avidbio.com. With that, I will turn the call over to Nick Green, AVID's President and CEO . Thank you Tim and thank you to everybody participating.
over the last year.
With respect to business development, bookings for the quarter and the full fiscal year as a whole were strong.
and our teams continue to have success bringing in new customers and winning project expansions with existing customers.
In operations, our MIFOD expansion, including our new process development capabilities, are now in full operation and actively fulfilling customer requirements.
And we continue to make progress with our Cell and Gene Therapy Facility and remain on schedule to bring this building online later this year.
Matt and I will provide additional details on business development and operations for the period following an overview of our fourth quarter and full year fiscal 2023 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 on our financial results are included in our press release issued prior to this call and in our Form 10-K which was filed today with the SEC.
I'll now provide an overview of our financial results from operations for the quarter and fiscal year ended April 30, 2023.
Revenues for the fourth quarter of fiscal 23 were $39.8 million, representing a new single quarter high for the company.
And a 28% increase compared to $31.2 million recorded in the prior year period.
For the 2023 full fiscal year revenues were $149.3 million.
representing a new full year high for the company.
and a 25% increase compared to $119.6 million in the prior year period.
For both the quarter and the full fiscal year, the increase in revenues can primarily be attributed to increased manufacturing runs and process development services provided to new customers.
Gross margins for the fourth quarter of fiscal 23 was 21 percent, and in line as compared to gross margin of 22 percent for the fourth quarter of fiscal 22.
Gross margin for the 23 full fiscal year was 21%.
compared to a gross margin of 31% for the same period during fiscal 2022.
During the three and 12 months ended April 30th, 2023, our labor, overhead, and depreciation expenses increased over the prior year periods, primarily due to the hiring of personnel and additional facility and equipment related costs ahead of our mammalian and cell and gene therapy facility expansion.
Additionally, the current fiscal year margin benefited from revenue associated with the change in variable consideration under a contract where uncertainties have been resolved.
as compared to benefits from unutilized capacity fees recognized in the same prior year period.
Excluding all these factors, our fourth quarter and fiscal year adjusted gross margins would have been 28 percent for both periods.
an increase as compared to the prior year force order and fiscal year adjusted gross margins which would have been 22% and 25% respectively.
We expect the expansion-related costs incurred to date.
will continue to affect near-term margins.
especially the related increase in depreciation costs.
Additionally,
Any incremental expansion related costs will only be added in line with anticipated growth and to support future increases in capacity.
Total SD&A expenses for the fourth quarter of fiscal 23 were $7.6 million, an increase of 29% compared to $5.9 million recorded in the fourth quarter of fiscal 22.
SG&A expenses for the 23 full fiscal year were $27.9 million, an increase of 32 percent as compared to $21.2 million recorded in the prior year period.
The increases in SG&A for both the quarter and the full fiscal year were primarily due to increases in compensation and benefits-related costs, legal, accounting, and other professional expenses.
Before addressing that income, I would like to remind everyone that during our fourth quarter of fiscal 22, we recorded a non-tax income tax benefit of $115 million, or $1.63 per dulunded share, due to a release of our valuation allowance recorded against the company's deferred tax assets, or DTAs. The company previously maintained a valuation allowance on its DTA.
2022.
During the fourth quarter of fiscal 23, the company recorded a net loss of approximately $300,000, or 0 cents per basic and dilute share.
That's compared to net income of $115.6 million, or $1.87 per basic and $1.65 per diluted share, or the fourth quarter of fiscal 2022.
For the 23-fold fiscal year, the company recorded a net income of approximately $600,000, or $ ERA per basic oflet share.
That's compared to net income of $127.7 million, or $2.08 per basic and $1.84 per donor share respectively during the prior year period.
Exploding the non-cash income tax benefit of $115 million recorded during the fourth quarter of fiscal 2022, the company's net income was approximately $600,000 or one penny per basic and due to share for the prior quarter.
and $12.7 million, or 21 cents, per basic and dealer's share for the full fiscal year 22. $12.7 million, or 21 cents, per basic and dealer's share for the full fiscal year 22.
For the fourth quarter and the 23 full fiscal year, the company achieved an adjusted EBIT of $6.3 million and $21.7 million, respectively.
Our cash and cash equivalents on April 30th, 23 were $39 million compared to $126 million April 30th, 2022.
We have made great progress on our facility expansion.
As of the end of the fourth quarter, we have completed our mammalian expansions, including process development and manufacturing capacity.
We look to complete our cell and gene therapy expansion by the end of calendar Q3 of 2023.
We estimate our fiscal year 24 cash required for expansion related capital expenditures to be approximately $30 million. Upon completion of these expansion projects, we estimate that our combined facilities will have the potential to bring our total revenue generating capacity.
to up to approximately $400 million annually, depending on the mix of future customer projects.
This concludes my financial overview. I'll now turn the call over to Matt for an update on commercial activities during the quarter.
financial overview. I'll now turn the call over to Matt for an update on commercial activities during the quarter. Thanks Dan.
Fiscal 2023 was a great year for our commercial team.
During the past year, we made substantial changes to our organization, including the expansion of our sales team with additions in both our mammalian and our cell and gene therapy offerings. We created a new function dedicated to the specific needs of large pharma customers, and this investment is already paying off.
We were recently named a preferred partner for a top pharma company, and other large pharma companies have conducted audits or are planning to visit our facilities in the near term.
During the year, our team enhanced its visibility at conferences and industry events, and we continue to expand our outreach and presence in the leading value of technology regions in North America.
Combined, these strategic moves significantly improved our team's productivity in fiscal 2023 as compared to prior years.
This is evidenced in our bookings for both the fourth quarter of fiscal 23 as well as the full fiscal year. AVID recorded fourth quarter bookings of 55 million dollars and as a result we ended fiscal 23 with a new record high backlog of 191 million dollars representing an increase of 25% as compared to 150.
approval leading to recurring commercial revenues.
This market dynamic provides a strong long-term benefit for the business and should help stabilize average future revenue base and long-term growth.
As a result, a growing portion of the backlog will extend beyond a year. With a shift to larger and later stage programs allied with the increasing commercial manufacture contributing to backlog, we would expect this trend to continue.
The successes of the past year have allowed us to continue to expand and diversify our client base, an ongoing priority for the company. We are also beginning to utilize our new capacity. And we continue to engage with potential customers for cell and gene therapy offering, which includes process development.
and soon to be online CGMP manufacturing services. Finally, we continue to respond to demand for proposals, which we believe will drive our new business successes in the future.
In summary, we could not be more pleased with the growth and productivity of our commercial organization in fiscal 2023. The team's dedication and hard work have elevated out of its reputation and visibility within the industry. And we look forward to leveraging this standing in fiscal 24.
This concludes my overview of commercial activities. I will now turn the call back over to Nick for an update on operations and other achievements during the period.
overview of commercial activity. I will now turn the call back over to Nick for an update on operations and other achievements during the period.
Fiscal 23 has been nothing short of extraordinary.
During the year we have opened each of our expansions in the mammalian part of the business. In the same quarter we have seen the backlog equal or exceed our prior capacity.
As planned, fiscal 23 has seen avid transition to a fully disposable platform with more than 20,000 litres of state-of-the-art capacity.
most of which is new.
with the completion of these mammalian cell capacity expansion projects.
Currently Avid's only remaining expansion effort includes the build-out of its new selling engine.
remaining expansion effort includes the build-out of its new cell and gene therapy.
which will support early stage development through commercial manufacturing.
The company has already launched analytical and process development capabilities at this facility.
and remains on track to launch the CGMP manufacturing suite by the end of the third quarter of calendar 2023.
Upon completion of the cell and gene therapy facility, we estimate that our combined facilities will have the potential to bring a total revenue generating capacity to approximately $400 million annually.
Our business development team achieved signings during the quarter of more than $55 million bringing total signings for the second half alone to $122 million.
all of which bodes well for the future.
Equally however, it is impossible to ignore some of the changes we have seen in the market dynamics. Reduced resources from investors being applied to early phase customers.
has certainly resulted in lower portions of preclinical and early phase projects in our backlog.
However, the focus of customers on late phase and pre-commercial projects provides longer-term upside.
as one of the few CDMOs with close to two decades of commercial manufacturing under our belt. This has resulted in an increase in later phase and commercial business in our backlog.
During 2023, signings associated with late phase projects.
defined internally as phase 3 and PPQ campaigns, increased by approximately 34%.
The increase in late-space projects also have the effect of extending the project duration and associating revenues. Quite simply, there is significantly more work involved in a late-space project than there is in an early-space project.
However, this also means in the medium term we have in effect more shots on go.
By this I mean we hope the increase in late phase projects will lead to an increase in the number of BLAs being filed for products manufactured without it. And we would expect a result of the increase in commercial products and revenues assuming their subsequent approval.
This trend, we feel, is a result of having been recognized as a partner capable of meeting the complete life cycle of our customers needs.
I believe given the increase in later stage projects, the probability of adding additional commercial products in the future has been significantly enhanced.
On the other hand, the reduced number of early phase projects does make the short-term legs clear.
Each quarter we would typically expect to register new customer wins with early phase projects that can be recognized in the short term, i.e. upcoming quarters.
Although Avid is to some degree insulated from this as a significant proportion of our business is already commercial, this does in the short term impact the speed at which we can attract new customers.
It is as a result of this level of uncertainty as to when exactly funding will return to the broader biotech sector.
and the impact it has on our short-term revenue. We have felt compelled to broaden our guidance for fiscal 2024 to $145 to $165 million.
In closing, fiscal 2023 was a record setting year.
The company recording its highest single quarter revenue, its highest annual revenue, and the largest backlog to date.
It is highly encouraging to begin fiscal 24 with a strong backlog and a mature piping.
And while we acknowledge the situation created by today's challenging financial markets,
We believe as in fiscal 23, Avid's reputation as a flexible, reliable and truly commercial great partner will continue to position Avid in an ideal place to take advantage of the medium to longer term market fundamentals that underpin the business. This concludes my prepared remarks for today.
and we can now open the call for questions. Operator. Thank you. If you would like to ask a question, please press star 11 on your telephone.
One moment while we compile the Q&A roster.
Our first question for today will be coming from.
Our first question for today will be coming from Matt Hewitt.
for today will be coming from Matt Hewitt of
Craig Hillam, your line is open. Good afternoon. Thank you for taking the questions. Maybe first up, and Sean, sorry, Nick, thank you for providing a little bit of detail on what you're hearing from the customers.
Craig Hillam, your line is open. Good afternoon. Thank you for taking the questions. And maybe first up, and Sean, sorry, Nick, thank you for providing a little bit of detail on what you're hearing from the customers, but maybe a little bit more detail on...
What's transpiring on the short or the near term opportunities? Because your guidance implies basically what mid single digit growth at the midpoint this year, a pretty dramatic slowdown from what we saw here in fiscal 23. So just a little bit more color in what you're seeing in the market.
Yeah, Matt, thanks for the question. What's going on, I think, at least from what we can see is clearly with the amount of investment going into early phase projects, I'm talking pre-clinical phase one, which are relatively small in size, those funds are certainly being, at least from our perspective, being diverted towards later phase.
They're being replaced, and as I said, as I highlighted in my commentary, by an increase in 34% in our late phase, that's phase 3 and PPQ campaigns, which just by virtue of the phase that they're in, they involve more batches, they involve the PPQ and the validation exercises, and they just take longer to execute. Now frankly, if I had a choice, would I prefer a phase 1 preclinical or a phase 3? I think the answer to that is quite obvious. The revenues in a phase 3 obviously are larger, but they take longer to execute.
I think the big fundamental for me is that they're one stage away from approval. And the probability of approval of those products is – or the likelihood of approval of a stage three project versus a phase one project is significantly higher. So that drives us much closer towards commercial revenues. And fundamentally, the whole!
in a number of different ways. If you're not a commercial manufacturer, how do you benefit from those late phase projects? Because most people are probably not going to trust you with those. Whereas if you have got that track record, which I've been doing, then we've seen that 34% increase, which is kind of everything that you'd want. It does create some short-term uncertainty. I don't know any way of getting around that, which I wish I did.
But I'm sure as the funding goes back into the early phase projects, we'll see that lift back up. And hopefully that's sooner rather than later. But again, if there's a trade-off between a preclinical phase one and a phase three, I'd like to see what we've got, which is the phase threes. Those will result in not only larger revenues, as you can see in the backlog at $191 million.
some additional commercial products being added to our pipeline and then the results have broken.
that one normally sees in commercial products. Got it. All right, that's very helpful and maybe a follow-up question for me and I'll hop back in the queue. But regarding your backlog, $191 million, obviously congratulations on the growth there in the second half of the year in particular. But I don't know if you have this but a split between how much of that you would qualify as commercial versus late stage versus early stage do you?
Thank you.
And our next question will be coming from Paul Knight of Key Bank Capital. Your line is open. Okay, next question comes from Rob Young for FDX.
Hi Nick, you mentioned that the later stage projects were up 34%. So I have two questions around that. Is leader stage phase three and beyond, is it a third of the business? Do you have a rough idea? And then the second question...
Is regarding for the team, I guess.
how quickly can you kind of move into these later stage programs?
relative to what was a pretty robust phase one pipeline before. So how quickly can you win over large customers?
So we don't have a breakdown, unfortunately, on the individual components of the pipeline. But I mean, I think just in general terms, I mean, it has a pretty proposed commercial pipeline. And I think we've talked before that we need to attract later phase projects generally.
in probably a slightly more favorable manner than one might see the overall clinical pipeline landscape, i.e., you know, the typical landscape is a lot of early phase three clinical, let's face one, let's face two, and let's face three.
I certainly would be more advantageous towards the later phase than one would typically see. And I think that trend is what I've alluded to today and my comments has moved even further that way as we've seen a significant increase. And it's not a significant increase on a couple of dollars, it's a significant increase on a reasonable number of dollars.
we're very happy with that sort of general dynamic. In terms of execution, I mean it just is physically the time to execute so in terms of winning these projects obviously they do take a little bit longer to land because most people don't sign a 15 million dollar check for argument's sake compared to a two million dollar check in the same time people
we call our pipeline, where we could attract even more of those. So attracting them, I don't think, is the biggest issue. I mean, obviously, there is at the time, as I've said, in signing the checks or the orders for those larger sums, which does take a little bit longer, as we've mentioned before. But also, then executing. And Croatia, Mag Sniper,
To execute a large project with a PPQ campaign, for example, there's a lot of documentation, a lot of diligence, a lot of hard work in making sure all the identities across on absolutely every aspect because literally this is formally part and parcel of your filing to the FDA and it involves obviously initially the tech transfer and then the scale up and then the demonstration of data worried about how you might million mark legacyaco 2016 Pay day data state. Absolutely the research. The research of the tool to use every little piece of software to showisation of the data
I'll take one of those every single day because the next thing that happens after that is the BLA gets filed for the FDA and the following when that gets approved and then we've got another commercial product and last time I checked most commercial products you know if we start with one batch they move to two three four five six seven and off we go so you then get repeatable business more going forward.
which is exactly the fundamental and why we try to build a pipeline in the first place. And last question, Nick, would be this. You obviously have a lot of industry experience along with your team. What's the situation with phase three and later stage pipelines?
It seems like the large CDMOs like Lonza, Cattle, and Aura are putting in a ton of capacity to meet demand. Do you think this later stage environment is good, great, tight? What's your view on this late stage world?
I mean, I've said this on numerous occasions, you know, it isn't necessarily the bellwether for the whole industry, but from what we can see, we're seeing a growing proportion of those coming to Avid. It's always difficult to determine exactly why, is it because...
funds have been moving towards late phase from early phase I think that certainly has to be a contributor as a highlighter you know whether other people ultimately the phase 3 project is coming to have it it's coming from somewhere else so somebody I guess has done something wrong who that is is not always clear to us so but you know people don't normally move late phase projects
for the fun of it. But I think in the case of Avid, you know, I can only talk about ourselves is that we do we have got almost 20 years, I think it's 18 plus years now of late phase of commercial manufacturing experience and clearly that I think goes a long way to making your clients feel comfortable that you get.
It's not your first rodeo as it were. Okay, thanks. Thank you. One moment while we prepare for the next question.
And our next question today will be coming from Jacob Johnson of Stevens. Your line is open.
Hey, good afternoon. Maybe on the later stage, customers, is there any way to outline how many of these projects you have? Because obviously, you outlined the tradeoff for these later stages and that they can turn into commercials. So, what I'm just trying to think about.
kind of how many commercial therapy opportunities there are as you look at a couple of years. It sounds like it's not one we're talking about.
No, it's not one, Jacob. And good afternoon, by the way. No, it's not one. We don't go into the detail and break down each number of projects by phase or clients. But no, it's not one. It is multiple and there are multiple in the pipeline. So it's very encouraging. I mean, if you step here, then that.
and looked at the expansion that we put on the things that are going to fill that expansion of late phase projects. I might fill the expansion with three or four commercial products but it might be 40 phase ones to fill the same capacity.
It's a dynamic that is encouraging and I think it kind of underpins the absolute basic fundamentals of this sector and this business is that Avid is a full life cycle CDMO partner that can take you all the way through. And when dynamics such as we see in the financial markets and buy it.
at least I believe that all CDMOs are also interested in picking those up and I don't know how you get away from that fact at the end of the day but the fact that it actually gets covered albeit slightly longer, going out slightly longer by later phase projects were one of the few people that I think can benefit from that because of that.
commercial pedigree. So, medium to long term, I think we got a boost in the next couple of quarters. You know, clearly we would have liked to have seen much more bullish investment and therefore a continued growth as we have done. But, you know, I don't know how to get away from some of those smaller projects not being funded.
and therefore not being able to pick them up. Got it. Thanks, Metnick. And then maybe my follow-up for Dan. Dan, could you just talk about the outlook for margin in FY24 given kind of mid-single-digit-ish growth, but I'm guessing a larger cost base with the capacity additions online and...
As I noted in my prepared remarks, we've invested in our people and our facilities over the last fiscal year, which is also including establishing our cell and gene therapy business.
Looking forward, any further investment would be to support any additional growth or the fulfilling of capacity.
Looking at those gross margins for last year as a starting point, as I noted, if you were to normalize for those costs and for some of the benefits that went through, we saw roughly a 7 percentage point impact, positive impact for both the fourth quarter and the whole year of fiscal 23.
the increase in depreciation, which will more than double next year for these assets, those impact future margins by approximately 5 percentage points.
In the long term, we still strongly believe that our margins will be strengthened as capacity utilization increases. As far as the balance sheet, looking forward on the cash side, we still feel confident that our cash flow operations will fund the business. In the event we need to, we could pull from a revolver that we have in place, but we're
We believe that the CASM operations will satisfy where we're at going forward, and we're comfortable where we're at as far as the balance sheet.
and looking at viral vector, we're still 100% into moving into the viral vector space.
And we'll continue to fund that similar to the mammalian side as it grows. We'll continue to increase labor and related costs around that.
Thanks for all that.
Got it. Thanks for all that. Thank you. One moment for our next question.
And our next question, we have a follow-up from...
Matthew Hewitt of Crackin and your line is open. Thank you. Just one follow up for me. Maybe on the booking side, is there a breakdown between your gross bookings versus cancellations in the quarter? Just if you've got that number handy. Just one follow up.
I suppose there was virtually no cancellations in the quarter.
That's fantastic. All right, that's it for me. Thank you.
That's fantastic. All right, that's it for me. Thank you. Thank you.
One moment for our next question.
And our next question will be coming from Sean Dodge of RBC Capital Markets. Your line is open.
And our next question will be coming from Sean Dodge of RBC Capital Markets. Your line is open.
Hey, good afternoon. This becomes killer on for Sean. Thanks for saving the questions. You know, there's notable disconnection backlog and the fiscal 24 outlook. Is it fair to say that you all have a particularly high level of visibility on this year's guidance or maybe saying a different way how much of this is already
kind of effectively contracted versus versus a go-get portion? I don't think we actually come in on that one normally, Sean, but I mean out of $191 million dollars was clearly a significant portion of that in the first year. I think
Dan has always made the comment that the majority is in the next 12 to 15 months. I think if you were looking for the next 15 months, the majority is in the next 12 to 15 months.
Certainly over 50%, so over 50% of that in the next 12 to 15 months is there. It's a significant number of that guidance. So that's the best way I can probably answer that. In regards to the prior question from Matt, I said, you know, virtually no cancellations. The reason I hesitated to say, because virtually no kind of a strain down there.
but I do recall there being a change of scope which was a very small number. So that comes as a negative in our signings, so just for clarification I don't think there was any cancellations, I think there was a change in scope.
So just wanted to clarify on the previous question from Matt as well. Thanks. So then just a quick one on CapEx and.
I apologize for answering already, but how much more do you have left to spend on these expansions and fiscal 24? And then is there any sort of like a good rule of thumb for annual maintenance spend going forward?
Sure, Thomas. As far as cash outlay, we have roughly $30 million just for 24 to spend, which will be over the entire year with a significant majority of that over the next three quarters.
As far as cash outlay, we have roughly $30 million just to point forward to spend, which will be over the entire year with a significant majority of that over the next three quarters.
So, there's that component. So, as far as maintenance capex, I apologize. Maintenance capex, you know, in the long term, I would imagine we're going to get to the 4 or 5 percent of revenues, but in the short term, since...
The assets are brand new. It's going to be a smaller ramp up to those levels. So I would start with a lower number, call it 2 to 5 million on an annual basis, and that would ramp up over some period of time. All right. Perfect. All right. Thanks for that call for me. Good one.
Thank you. That concludes the Q&A session for today. I would like to turn the call back over to Nick Green for closing remarks. Please go ahead. Yes, thank you, operator, and thank you to everybody participating on today's call. In closing, as we mark its 30th year in business.
We acknowledge the substantial progress made in recent years. We thank our customers for their trust and partnership and our investors for their continued support.
And I would like to thank and recognize our exceptional employees who continue to drive our success.
Thank you again for participating today and for your continued support of OVID BioServices. This concludes today's conference call. Thank you all for joining. Make this connected and everyone enjoy your evening.
I.