Q1 2024 Avid Bioservices Inc Earnings Call

September 7, 2023

Yeah.

Good day, ladies and gentlemen, and welcome to the avid bio services' first quarter 'twenty 'twenty four financial results conference call. At this time all participants are in a listen only mode. Later, we 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 Abbott's 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 average Chief commercial officer today, we will be providing an overview of avid bio services contract development and manufacturing business, including <unk>.

Dates on corporate activities and financial results for the quarter ended July 31, 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 September seven 2023 will contain certain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095 concerning the current belief of the company, which involves a number of assumptions risks and uncertainties actual results could differ from <unk>.

These statements and the company undertakes no obligation to revise or update any statements made today.

I encourage you to review all 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 participating today via webcast.

The first quarter of fiscal 2024 was busy and productive.

During the period, we continued to execute winning multiple new projects.

These signings have enabled the business to effectively maintaining the record backlog, which was built.

Which in the current climate, we see as a significant achievement.

As highlighted at the end of last year, our new capabilities and capacity to continue to attract attention from new and existing customers, particularly those in later stages of clinical development, while safety commercial manufacturing.

It has been pleasing to see increased utilization of the new Bally and line three.

Previously referred to as Microsoft.

As well as more clients in the pipeline.

We continue to successfully onboard new business won in the second half of fiscal 'twenty.

And our revenues during the period remained strong.

In operations, the cell and gene therapy facility continues to progress according to plan.

We remain on schedule to complete this facility later this year.

Martin and I will provide additional details on the business development and operations for the period. Following an overview of our first quarter 2024 financial results.

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

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-Q, which was filed today with the SEC.

I will now provide an overview of our financial results from operations for the quarter ended July 31 2023.

Revenues for the first quarter of fiscal 2024 were $37 $7 million.

Representing a 3% increase over revenues of $36 $7 million recorded in the prior year period.

The increase in revenue was primarily attributed to an increase in manufacturing revenues from late stage programs.

Gross profit for the three months ended July 31, 2023 was $4 1 million.

Operator: Good day, ladies and gentlemen, and welcome to the Avid Bioservices first quarter, 2024 Financial Results Conference Call. At this time, I'll participate in a listen only mode. Later, we conduct a question and answer session, and instructions will follow at that time. As a reminder, this conference call may be recorded.

We're at 11% gross margin.

Compared to $9 1 million gross profit or 25% gross margin for the same period in the prior year.

The decrease in margin during the three months ended July 31 2023.

Tim Brons: I would now like to hand the conference over to Tim Brons of Avid Investor Relations Group. Please go ahead. Thank you.

As compared to the prior year period was primarily driven by costs related to ongoing expansions of both our capacity and our technological capabilities.

This included adding staff and associated overhead, including depreciation expense.

Tim Brons: Good afternoon, and thank you for joining us.

Tim Brons: On today's call, we have Nick Green, President and CEO, Dan Hart, Chief Financial Officer, and Matt Kwietniak, 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 ended July 31, 2023. After our prepare remarks, we will welcome your questions.

That will provide critical capacity for near and medium term growth.

Margins during the quarter were also impacted by a terminated project related to the insolvency of one of our smaller customers.

And a delay in our ability to recognize the revenues of one product pending the implementation of our processes.

As disclosed previously we expect the expansion related costs incurred to date will continue to affect near term margins.

Tim Brons: Before we begin, I'd like to caution that comments made during this conference call today, September 7, 2023. We'll contain certain forward-looking statements within the meaning of the private security's 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-gap information. You can find our earnings press release, including relevant non-gap reconciliation on our corporate website at AvidBio.com.

Especially the related increase in depreciation costs.

Importantly, as we increase our capacity utilization, we will begin to absorb these increased expansion related costs, leading to improved gross margins.

Total SG&A expenses for the first quarter of fiscal 2024 or $6 $3 million.

Largely consistent as compared to $6 4 million recorded in the first quarter of fiscal 2023.

During the first quarter of 2024, the company's net loss was approximately $2 1 million or <unk> <unk> per basic and diluted share compared to net income of $1 6 million or <unk> <unk> per basic and <unk> <unk> per diluted share for the first quarter of fiscal 2023.

Nicholas Green: With that, I will turn the call over to Nick Green, Abbot's president and CEO. Thank you, Tim, and thank you to everyone participating today by a webcast. The first quarter of fiscal 2024 was busy and productive. During the period, we continue to execute winning multiple new projects. These signings have enabled the business to effectively maintain the record backlog which was built during fiscal 2020, which in the third climate we see as a significant achievement.

For the first quarter of 2000 and for the company achieved an adjusted EBITDA of $2 8 million.

Our cash and cash equivalents on July 31, 2023, or $24 9 million.

Compared to $38 5 million on April 32023.

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 fiscal 2023, our commercial teams significantly expanded our visibility and standing in the industry and we continue to build on that momentum during the first quarter of fiscal 'twenty four.

Nicholas Green: I highlighted at the end of last year, our new capabilities and capacity continue to attract attention from new and existing customers, particularly those in late stages of clinical development or seeking commercial manufacture. And it has been pleasing to see increased utilization of the new and early in line three, previously referred to as Microsoft, as well as more clients in the pipeline. We continue to successfully onboard your business one during the second half of fiscal 2020, and our revenues during the period remain strong. In operations, the challenging type of facility continues to progress according to plan, and we remain on schedule to complete this facility later this year.

During the quarter avid recorded bookings of $36 million and ended the quarter with a backlog of $189 million, representing an increase of 20% as compared to $157 million at the end of the first quarter of fiscal 2023.

While these signings of new projects spanned the company's capabilities. The majority of the bookings came from later stage in commercial products.

As a testament to the company's commercial pedigree and the quality of new of the new.

<unk>, we brought online a few months ago.

As discussed previously today's challenging financial environment. This force many companies to focus financial resources on later stage in commercial projects versus investing in earlier stage higher risk projects.

Daniel Hart: My tonight will provide additional details on the business development and operations for the period following an overview of our first quarter 2024 financial results.

These later stage projects are generally larger and take longer to complete as compared to earlier stage programs.

Daniel Hart: And for that, I'll turn the call over to Dan. Thank you, Nick.

For that reason, we expect that recognition of our backlog will extend beyond one year.

Daniel Hart: 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 an oppressed release issued prior to the call, and in our form 10Q, which was filed today, would be a- on HTC. I now provide an overview of our financial results from operations for the quarter-ended July 31, 2023. Revenues for the first quarter of fiscal 2024 were $37.7 million, representing a 3% increase over revenues of $36.7 million recorded in prior year period.

These later stage projects have a much higher probability of regulatory approval.

Essentially leading to future recurring and ramping commercial revenues associated with each approval.

While there remains some risks and time between late phase manufacturer BLA submission and regulatory approval. This dynamics should drive medium to long term growth for avid.

This fits well with the company's objective of establishing a larger more diversified and predictable revenue base.

Daniel Hart: The increase in revenue was primarily attributed to an increase in manufacturing revenues from late-stage programs. Rose profit for the three-month-ended July 31, 2023 was $4.1 million, or 11% rose margin, compared to $9.1 million rose profit, or 25% rose margin, for the same period in the prior year. The decrease in margin during the three-month-ended July 31, 2023, as compared to the prior year period, was primarily driven by costs related to ongoing expansions of both our capacity and our technological capacity.

Our team has been extremely active with client engagement in anticipation of a return in funding that will support our customers' pipelines and in turn our own pipeline.

We continue to be optimistic for the year ahead.

And at the time that the financing environment improves we will be well positioned with both capacity and capabilities to supplement our late stage and commercial revenue base with the early stage programs that are currently being deferred.

Daniel Hart: This included adding staff and associated overhead, including depreciation expense, that will provide critical capacity for near and medium-term growth. Margin's during the quarter were also impacted by a terminated project related to the insolvency of one of our smaller customers, and a delay in our ability to recognize the revenues of one product pending the implementation of a process change. As disclosed previously, we expect the expansion-related costs incurred to date will continue to affect near-term margins, especially the related increase in depreciation costs.

This concludes my overview of commercial activities.

I'll now turn the call back over to Nick for an update on operations and other achievements during the period.

Thanks Mark.

I will provide an overview of the company's progress with its expansion efforts during fiscal 2003, I've had completed construction and opened multiple in the area of the business expansions.

We are very proud of the fact that the timing of each opening was aligned precisely with the period in which the company's backlog exceeded these product capacity.

As a result, we began fiscal 'twenty fall with more than 20000 liters of state of the.

And a fully disposable platform.

Daniel Hart: Importantly, as we increase our capacity utilization, we will begin to absorb these increased expansion-related costs leading to approved gross margins. Total SG&A expenses for the first quarter of fiscal 2024 were $6.3 million, largely consistent as compared to $6.4 million, recorded in the first quarter of fiscal 2023. During the first quarter of 2024, the company's net loss was approximately $2.1 million, or $3 cents per basic individual's share, compared to net income of $1.6 million, or $3 cents per basic, and $2 cents per individual's share for the first quarter of fiscal 2020. For the first quarter of 2024, the company achieved an adjusted EBITDA of $2.8 million. Our cash and cash equivalence on July 31, 2023 were $24.9 million, compared to $38.5 million on April 30, 2023.

We continue to build the company's new cell and gene therapy facility, which will support early stage development to commercial manufacturing.

In late calendar 'twenty, one currently only one the company announced its intent to expanded CMO offering.

The rapidly growing <unk> market.

Eight months. After this announcement avid opened its analytical and process development suites within the new cell and gene therapy development and GMP manufacturing.

Providing the company with its first opportunity to engage with drug developments in this area and signed initial agreements to support these programs.

Today, the company remains on track to largest GMP manufacturing suites by the end of the third quarter of calendar 2020.

And while these expansions EMEA associated a hiring of impacted our current margins in the near term.

<unk> abilities.

<unk> added capacity established an essential infrastructure and foundation from which to expand average footprint in the industry.

Daniel Hart: This concludes my financial overview.

Matthew Kwietniak: I'll now turn the call over to Matt for an update on commercial activities during the quarter. Thanks, Dan. During fiscal 2023, our commercial team significantly expanded our visibility and standing in the industry, and we continue to build on that momentum during the first quarter of fiscal 2024. During the quarter, COVID recorded bookings of $36 million, and ended the quarter with a backlog of $189 million, representing an increase of 20% as compared to $157 million at the end of the first quarter of fiscal 2023.

Importantly, upon completion of the cell and gene therapy facility, we estimate that our combined facilities will have a potential to bring our total revenue generating capacity up to $400 million.

Represented a significant transformation from one or two years ago.

30 years of experience in biologics and almost two decades of commercial manufacturing.

As a resulted in the business today that has more than 50% of its revenues and backlog associated with late stage or commercial programs.

Matthew Kwietniak: While these signings and new projects span the company's capabilities, the majority of the bookings came from later stage and commercial products, which is a testament to the company's commercial pedigree, and the quality of new capacities we brought online a few months ago. As discussed previously, today's challenging financial environment has forced many companies to focus financial resources on later stage and commercial projects versus investing in earlier stage higher risk projects. These later stage projects are generally larger and take longer to complete as compared to earlier stage programs.

New capabilities and capacities, we believe we will continue to attract customers through our own rig chemical manufacturer, but also <unk> with the pedigree to take them through the approval process and subsequent commercial supply.

The strategy employed over recent years to build the capabilities and capacity for clients, who see partner, who can take them through the entire lifecycle of their product is already paying off.

Matthew Kwietniak: For that reason, we expect that recognition of our backlog will extend beyond one year. These later stage projects have a much higher probability of regulatory approval potentially leading to future recurring and ramping commercial revenues associated with each approval. While they remain some risk and time between late phase manufacturer, the LA submission and regulatory approval, this dynamic should drive medium to long-term growth for Avid. This fits well with the company's objective of establishing a larger, more diversified and predictable revenue base.

With multiple clients already using the new M&A capacity.

More scheduled to enter this space in coming quarters.

In closing the first quarter was a continuation of the trajectory established during fiscal 2003.

During the period I will continue to successfully navigate what has been a challenging financing environment for our customers.

As our revenues and backlog remains strong and our commercial team continued to win new projects.

Fortunately I've. It has continued to attract and signed late phase and commercial business during the period, which has the potential to add significant upside in the medium to longer term.

Matthew Kwietniak: Our team has been extremely active with client engagement and anticipation of a return in funding that will support our customers' pipelines and in turn, our own pipeline. We continue to be optimistic for the year ahead and at the time that the financing environment improves, we will be well positioned with both capacity and capabilities to supplement our late stage and commercial revenue base with the early stage programs that are currently being deferred.

On the operational front, we continue to make progress with the build out of our seven gene therapy.

Matthew Kwietniak: This concludes my overview of commercial activities.

We remain on track to bring this new building and capability online by the end of the third quarter of calendar 'twenty two 'twenty three.

Each time, the company's state of the Apis, However revenue.

New generating capacity at approximately $400 million.

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

Nicholas Green: I will now turn the call back over to Nick for an update on operations and other achievements during the period. Thanks, Matt. I will provide an overview of the company's progress with its expansion efforts. During fiscal 2023, Avid completed construction of and opened multiple and many of business expansions. As we are very proud of the fact that the timing of each opening was aligned precisely with the period during which the company's backlog exceeded its prior capacity.

Thank you.

As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby will be compile the Q&A roster.

And one moment please.

Okay.

Ann.

Nicholas Green: As a result, we began fiscal 24 with more than 20,000 litres of state-of-the-art capacity and a fully disposable platform. We continue to build the company's new seven gene therapy facility, which will support early stage development to commercial money factory. In late calendar 21, 2021, the company announced its intent to expand its BDMO offering into the rapidly growing seven gene therapy market. Only eight months after this announcement, Avid opened its analytical and process development suite within the new seven gene therapy development and GMP manufacturing facilities, providing the company with its first opportunity to engage with drug developers in this area and sign initial agreements to support these programmes.

And our first question comes from.

Sure.

Jacob Johnson from Stephens. Your line is now open.

Hey, thanks.

Good afternoon everybody.

Maybe Nick first on the cell and gene therapy side.

With that facility seemingly opening up some time I guess in the next couple of weeks just curious if kind of latest thoughts about.

How we should think about the revenue contribution when that opens and then two maybe just kind of demand trends as it relates to that end market.

Yes.

So I think in terms of opening up Jacob we're looking at.

Nicholas Green: Today, the company remains on track to launch its GMP manufacturing suite by the end of the third quarter of calendar 2023. While these expansions and the associated hiring have impacted our current margins in the near-term, the announced Canadian capabilities and added capacity, established an essential infrastructure and foundation from which to expand Avid's footprint in the industry. Importantly, upon completion of the seven gene therapy facility, we estimate that our combined facilities will have a potential to bring out total revenue generating capacity up to $400 million dollars annually, representing a significant transformation for more than two years.

At the end of quarter three.

Obviously, then as we said before 11, it's open and I think thats the real time, when we can start to.

Bring clients and so I think this is probably more of a 2020 for revenue stream that will start to see the one thing that we that we have seen and.

I think in recent.

Well I would say weeks even months now is just starting to.

To see an increase in the amount of interest quite significantly in the area. So in terms of proposals being made in site visits and engagement.

Looking up quite nicely. So I think really looking to see what 11, we've got the facility open converting those those interesting conversations into revenues.

Nicholas Green: Our 30 years of experience in biologics and almost two decades of commercial manufacturing millions has resulted in a business today that has more than 50% of its revenues and backlog associated with late phase and or commercial programs. The new capabilities and capacities we believe will continue to attract customers who seek not only clinical manufacture but are also a CDMO with a pedigree to take them through the approval process and subsequent commercial supply.

<unk> to guide at this moment in time towards our revenue I think that would be something that we'll do in the.

And the next fiscal year as terms of revenue guidance for that part of the business maybe.

Got it that's helpful.

And then maybe just on the <unk>.

You called out in your prepared comments in the press release this.

Rev Rack delay I guess data that implementation process change.

Any way to frame up kind of the magnitude of that and is that something that could persist as a headwind or is that something that could be resolved.

Nicholas Green: The strategy employed over recent years to build the capabilities and capacity for clients who seek aren't there who can take them through the entire life cycle of their products is already keying on. With multiple clients already using the new and many capacity are more scheduled to enter this space in coming quarters.

Sooner rather than later.

I'll, let down to that magnitude, but I can say.

I don't think its going to be a persistent to say exactly when the revenue.

Hey, Greg just recognized.

I would expect to be within this fiscal year revised best estimate hopefully sooner rather than later to be Frank.

Nicholas Green: In closing, the first quarter was a continuation of the trajectory established during fiscal 2023. During the period, Avid continued to successfully navigate what has been a challenging financing environment for our customers. As our revenues and backlog remains strong and our commercial team continue to win new projects. Fortunately, Avid has continued to attract and sign later phase and commercial business during the period, which has the potential to a significant upside in the medium to longer term.

But it's not.

We see assuming that would be repetitive in any way.

Sure.

Yes.

A one off event in this case I think in terms of what we see most of the changes made.

Back to Noam.

Yes Jacob.

The impact to the quarter was approximately three percentage points.

Got it.

Thank you very much.

And thank you.

Okay.

Nicholas Green: On the operational front, we continue to make progress with the build out of our 7G third-in-money facility. We remain on track to bring this new building and capability online by the end of the third quarter of calendar 2023, at which time the company stayed in the office as well as a revenue generating capacity of approximately 400 million dollars.

And one moment our next question.

And our next question comes from Matt Hewitt from Craig Hallum Capital Group. Your line is now open.

Good afternoon. Thank you for taking my questions.

Maybe just to touch a little bit on the environment. Obviously, it's been challenging yet you guys are still able to us win new business.

Nicholas Green: This concludes my prepared remarks for today.

Has there been any changes I guess over the past couple of months here. Since you reported your Q4 in the tone or the dialogue that you're having with customers. What are you hearing from them as far as as you look out into calendar year 'twenty. Four is there an expectation that things are going to approve or just any details.

Operator: We can now open the call for questions. I'll break it. Thank you.

Operator: As a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. So, with your question, please press star 1-1 again. Please stand by.

Jacob Johnson: We compile the Q&A roster and one moment, please and our first question comes from Jacob Johnson from Stevens. Your line is not open. Hey, thanks.

Long those lines.

Yes.

What I would say first and foremost is that some is never the best quarter.

Nothing.

<unk> levels.

I mean, what we've seen in the past is a nice thing throughout my life.

Sometimes people will get to move things ahead, because I'm trying to get things done before the golf vacation, sometimes they get delayed because they're going on vacation. So it's always a little bit of a.

Less than ideal environment.

I think it's a little bit like the financial markets, everybody kind of looks towards the post labor day.

Nicholas Green: Good afternoon, everybody. Maybe Nick first on the cell and gene therapy side. With that facility, seemingly opening up sometime in the next couple of weeks. Just curious the latest thoughts about how we should think about the revenue contribution when that opens and then to maybe just kind of demand trends, is there less than that in market? Yeah. So, I think in terms of opening up, Jacob, we're looking at the end of quarter-three.

Period to start to see what's going on.

I think one thing I would say is that I don't think we've seen any worsening from where we were which is obviously good.

I think if we look at the commentary that we're hearing in the industry in general.

There is reason for some optimism I would say cautious optimism.

We saw it obviously an uptick in the beginning of this year and then the <unk>.

Bank issues that we saw seem to kill.

Im fairly fairly shortly thereafter.

So very much looking to.

Nicholas Green: We'll obviously then, as we said before, was this open? I think that's the real time when we can start to bring clients in. So, I think this is probably more of the 2024 revenue stream that we'll start to see. The one thing that we have seen in recent, I would say, weeks even months now is just starting to see an increase in the amount of interest quite significantly in the area. So, in terms of proposals being made and side visits and engagement, that's picking up quite nicely.

So this is post.

Labor day period and see.

Between now and I guess.

Probably thanksgiving too to give us an idea.

The strength of any recovery that might be.

And.

And then the Big question, obviously as you start to fund the biotech sector, how quickly that funding.

To all of us on which we can execute so that's constant.

Those are some of the areas that we're watching very carefully I would say.

Summary on that law, not worse than before and some signs that things might be getting better, but I would say, it's too early to call one swallow a summarized it well.

Nicholas Green: So, I think really looking to see what once we've got the facility open, converting those interest and conversations into revenues. Difficult to guide at this moment in time towards a revenue, I think that would be something that we'll do in the next fiscal year, in terms of revenue guidance for that partner, of the business matter. That's helpful. And then maybe just on the, you called out in your prepared comments and then the press release this rev wreck delay, I guess due to the implementation of a process change.

Understood. Thank you and then maybe.

Separate question as far as.

You reiterated a reaffirmed your guidance for the year.

How should we be thinking about the cadence should we see sequential growth over the course of the year.

Or with.

Some normal shutdowns here in August .

Will there be a little bit of a step back before it ramps back up in the back half of the year. Thank you.

I think you pretty much got it.

Nicholas Green: Is there any way to frame up kind of the magnitude of that? And is that something that could persist as a headwind or something that could be resolved sooner rather than later? I'll let down so the magnitude, but I don't think it's going to be a persist to say exactly when the revenue gets recognized. I would expect would be within this fiscal year, would be my assessment hopefully sooner rather than later to be frank, but it's not something that we see as something that would be repetitive in any way.

It's difficult to avoid anything.

Downsize and that we have to do every year.

So I think youll see the usual sort of fall off we usually see somewhere around 15% I think consensus is not untypical quarter two from quarter one.

And then obviously, we think up towards the end of the year.

To make the guidance so.

I don't see any reason why this year will be any different from any other.

Got it that's very helpful. Thank you.

I appreciate it.

And thank you.

Yes.

And one moment our next question.

Nicholas Green: It's a one-off event in this case, I think in terms of what we see here, what's the changes made? We're back to normal. Yeah, Jacob, the impact of the quarter was approximately three percentage points. Got it. Thank you very much.

And our next question comes from Sean Dodge from RBC capital markets. Your line is now open.

Jacob Johnson: And thank you.

Yes, Thanks, Tom and good afternoon.

Nick the new business signed during the quarter.

You said you continue to find later phase and commercial projects.

Can you give us a little bit more detail on where those are coming from or are these things.

Anything youre winning from other <unk> or are these more previously early stage programs that you had been working on that are now progressing into later phases.

Matt Hewitt: And one moment for our next question. And our next question comes from Matt Hewitt from Craig Halem Capital Group. Your line is now open.

Predominantly this quarter I think was wins from.

Nicholas Green: Good afternoon and thank you for taking the questions. Maybe there's just a touch a little bit on the environment. Obviously it's been challenging yet you guys are still able to use win-new business. Has there been any changes? I guess over the past couple of months here since you reported your Q4 in the tone or the dialogue that you're having with customers, what are you hearing from them as far as you look out into calendar year 24?

From.

Not business that we brought from.

Through phase one phase II phase III. So this is new business.

From elsewhere.

Of the day.

Okay, Great and then.

Dan on gross margins, if we think about the new gene therapy space that set to open here are you at this point kind of fully ramped on costs with respect to the new space that has opened and that will be opening or as we get closer to that will there be more cost that kind of flow and maybe just help us think through.

Nicholas Green: Is there an expectation that things are going to approve or just any details along those lines? Yeah, I mean what I would say much first and foremost is that some has never the best quarter for assessing activity levels because I think what we've seen in the past and I've seen throughout my life is sometimes people get to move things ahead because they're trying to get things done before they go on vacation.

Nicholas Green: Sometimes they get delayed because they're going on vacation. So it's always a little bit of a less than ideal environment. I think it's a little bit like the financial markets everybody kind of looks towards the post-labor day period to start to see what's going on. I think one thing I would say is that I don't think we're seeing any worsening from where we were which is obviously good. I think if we look at the commentary that we're hearing in the industry in general that is reason for some optimism I would say cautious optimism.

<unk> had these kind of one time dynamic that hit gross margins in this quarter. If we think about those puts.

Potentially incremental gene therapy costs, what the trajectory should look like towards gross margins from here.

Upon opening we are essentially fully loaded.

Those costs and those costs will begin to incrementally increase as we bring in business.

Okay. So Q1 then.

Fully reflect what will be like a full load of the gene therapy cost that there should be a step up then.

As we think about there.

Will be Sean, but that'll be over time, that's not going to be say next quarter.

It'll it'll be.

The bookings and the revenues increase on that side.

Okay great.

Nicholas Green: We saw obviously an uptick in the beginning of this year and then the bank issues that we saw seem to kill fairly shortly thereafter. So very much looking to this post-labor day period and see what happened between now and I guess probably thanks to giving to give us an idea of the strength of any recovery that there might be. And then the big question obviously is you start to fund the biotech sector how quickly that funding turns to orders on which we can execute.

Great.

Thanks again.

Yes.

Thank you.

And I'm showing no further questions I would now like to turn the call back over to Nick Green.

For closing remarks.

Thank you operator, and thank you to everyone participating on today's call.

In closing as we Mark averaged 30 ethereum business, we'd like to acknowledge this substantial progress we've made in recent years.

And our customers for their trust and partnership and our investors for their continued support and we wish to also to recognize the exceptional employees, who continue to drive the success.

Nicholas Green: So those are some of the areas that we're watching very carefully. I would say in summary on that lot not worse than before and sometimes things might be getting better but I would say it's too early to call once in one hour summer as it was.

Thank you for participating today in today's call and for your continued support of avid biosynthesis. Thank you.

Matt Hewitt: Thank you.

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

Okay.

Nicholas Green: And then maybe a separate question. As far as you reiterated or reaffirmed your guidance for the year, how should we be thinking about the cadence? Should we see sequential growth over the course of the year, or with some normal shutdowns here in August, will there be a little bit of a step back before ramps back up in the back half of the year? Thank you. Yeah, I think you pretty much got it there, Matt.

Okay.

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Yes.

Okay.

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Nicholas Green: I mean, we're difficult to avoid anything than the shutdowns. So I mean, we have to do every year. So I think you'll see the usual sort of fall off. We usually see somewhere around 15% I think it's not typical for a quarter two from quarter one. And then obviously we pick up towards the end of the year is to make the middle guidance. So I don't see any reason why this year will be any different from any other. Got it. That's very helpful. Thank you. Appreciate it, Matt.

Operator: And thank you.

Okay.

Operator: And one moment for our next question.

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Sean Dodge: And our next question comes from Sean Dodge from RBC Capital Markets. Your line is now open. Yeah, thanks. Good afternoon. Nick, the new business designs are in the quarter. You said you continue to sign later phase in commercial projects. Can you give us a little bit more detail on on where those are coming from? Are these these things are winning from other CDMOs or these more previously early stage programs that you had been working on that are now progressing into later phases?

Okay.

Sean Dodge: Pardon me, this quarter, I think was wins from from I not business that we brought from two phase one phase two phase three. So this is new business from elsewhere at the end of the day. Okay, great.

Daniel Hart: And then Dan on gross margins.

Daniel Hart: If we think about the new gene therapy space that's set to open here, are you at this point kind of fully ramped on costs with respect to the new space that has opened and that will be opening or we get closer to that will there be more cost that kind of flowing maybe just help us think through. We had these kind of one time dynamic to hit gross margins in this quarter if we think about those puts the potentially incremental gene therapy cost what the trajectory should look like for gross margins from here.

Daniel Hart: Yeah, upon opening where we're essentially fully loaded with those costs and those cost will begin to incrementally increase as we bring in business. Okay, so Q one then is not kind of fully reflect what will be like a full load of the gene therapy cost that there should be a step up then. As we think about there will there will be Sean, but that that'll be over time. That's not going to be say in the next quarter, you know, it'll it'll be as as the bookings and the revenues increase on that side. Okay, great. Thank you again. Thank you.

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Good day, ladies and gentlemen, and welcome to the avid bio Services' first quarter 2024 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 maybe recorded.

I would now like to hand, the conference over to Tim Brons of Abbott's 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 Abbott's Chief commercial officer today, we will be providing an overview of avid <unk> contract development and manufacturing business include.

Updates on corporate activities and financial results for the quarter ended July 31 2023.

After our prepared remarks, we will welcome your questions before.

Before we begin I would like to caution that comments made during this conference call. Today September seven 2023 will contain certain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095 concerning the current belief of the company, which involves a number of assumptions risks and uncertainties actual results could differ.

These statements and the company undertakes no obligation to revise or update any statements 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 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 participating today via webcast.

The first quarter of fiscal 2024 was busy and productive.

During the period, we continued to execute winning multiple new projects.

These signings have enabled the business to effectively maintaining the record backlog, which was built in infrastructure.

Which in the current climate, we see as a significant achievement.

As highlighted at the end of last year, our new capabilities and capacity continue to attract attention from new and existing customers, particularly those in later stages of clinical development, while safety commercial manufacturing.

It has been pleasing to see increased utilization of the new daily and line three.

Previously referred to as micro.

As well as more clients in the pipeline.

We continue to successfully onboard new business won during the second half of fiscal 'twenty.

And our revenues during the period remained strong.

In operations, the cell and gene therapy facility continues to progress. According to plan and we remain on schedule to complete this facility later this year.

Martin and I will provide additional details on the business development and operations for the period. Following an overview of our first quarter 2024 financial results.

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

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-Q, which was filed today with the SEC.

I'll now provide an overview of our financial results from operations for the quarter ended July 31 2023.

Revenues for the first quarter of fiscal 2024 were $37 $7 million.

Representing a 3% increase over revenues of $36 $7 million recorded in the prior year period.

The increase in revenue was primarily attributed to an increase in manufacturing revenues from late stage programs.

Gross profit for the three months ended July 31, 2023 was $4 1 million.

We're 11% gross margin.

<unk> to $9 1 million gross profit or 25% gross margin for the same period in the prior year.

The decrease in margin during the three months ended July 31 2023.

As compared to the prior year period was primarily driven by costs related to ongoing expansions of both our capacity and our technological capabilities.

This included adding staff and associated overhead, including depreciation expense.

That will provide critical capacity for near and medium term growth.

Margins during the quarter were also impacted by a terminated project related to the insolvency of one of our smaller customers.

And a delay in our ability to recognize the revenues of one product pending the implementation of our processes.

As disclosed previously we expect the expansion related costs incurred to date will continue to affect near term margins.

Especially the related increase in depreciation costs.

Importantly, as we increase our capacity utilization, we will begin to absorb these increased expansion related costs, leading to improved gross margins.

Total SG&A expenses for the first quarter of fiscal 2024 were $6 3 million.

Largely consistent as compared to $6 4 million recorded in the first quarter of fiscal 2023.

Nicholas Green: I would now like to turn the call back over to Nick Green for closing remarks. Thank you operator and thank you to everyone participating on today's call, and closing as we mark Avid's 30th year in business. We'd like to acknowledge this substantial progress we've made in recent years. We thank our customers for their trust and partnership and our investors for their continued support. And we wish to also to recognize the official employees who continue to drive this success. Thank you for participating today in today's call and for your continued support, Avid Bioservices. Thank you.

For the first quarter of 'twenty for the company achieved an adjusted EBITDA of $2 $8 million.

Operator: This concludes today's conference call. Thank you for participating.

Our cash and cash equivalents on July 31, 2023, or $24 9 million.

Operator: You may now disconnect.

Compared to $38 5 million on April 32023.

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 fiscal 2023, our commercial team significantly expanded our visibility and standing in the industry and we continue to build on that momentum during the first quarter of fiscal 'twenty four.

While these signings of new projects spanned the company's capabilities. The majority of the bookings came from later stage in commercial products, which is a testament to the company's commercial pedigree and the quality of new of the new capacities, we brought online a few months ago.

As discussed previously today's challenging financial environment. This forced many companies to focus financial resources on later stage in commercial projects versus investing in earlier stage higher risk projects.

Matthew Kwietniak: [inaudible] Matthew Kwietniak, Matthew Kwietniak, Matthew Kwietniak, Matthew Kwietniak, Matthew Kwietniak, Matthew Kwietniak, Matthew Kwietniak, Matthew Kwietniak, Matthew Kwietniak, Matthew Kwietniak, Matthew Kwietniak, Matthew Kwietniak, Matthew Kwietniak,[inaudible] Matthew Kwietniak, Matthew Kwietniak, Matthew Kwietniak, Matthew Kwietniak, Matthew Kwietniak, Matthew Kwietniak, Matthew Kwietniak, Matthew Kwietniak, Matthew Kwietniak, Good day, ladies and gentlemen, and welcome to the Avid Bioservices First Quarter 2024 Financial Results Conference call.

These later stage projects are generally larger and take longer to complete as compared to earlier stage programs.

Tim Brons: At this time, I'll participate in a listen only mode. Later, we conduct a question and answer session, and instructions will follow at that time. As a reminder, this conference call may be recorded.

Tim Brons: I would now like to hand the conference over to Tim Brons of Avid 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 Kwietniak, 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-ended July 31st, 2023.

For that reason, we expect that recognition of our backlog will extend beyond one year.

Tim Brons: After our prepare remarks, we will welcome your questions. Before we begin, I'd like to caution that comments made during this conference call today, September 7th, 2023. We'll contain certain forward-looking statements within the meaning of the Private Security's 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.

These later stage projects have a much higher probability of regulatory approval potentially leading to future recurring and ramping commercial revenues associated with each approval.

Tim Brons: 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-gap inhibition. You can find our earnings press release, including relevant non-gap reconciliation on our corporate website at AvidBio.com.

While there remains some risk and time between late phase manufacturer BLA submission and regulatory approval. This dynamics should drive medium to long term growth for avid.

Tim Brons: With that, I will turn the call over to Nick Green, Avid's President and CEO. Thank you, Tim, and thank you to everyone participating today by a webcast. The first quarter of fiscal 2024 was busy and productive. During the period, we continue to execute when in multiple new projects. The signings have enabled the business to effectively maintain the record backlog, which was built during fiscal 2020, which in the current climate, we see as a significant achievement.

This fits well with the company's objective of establishing a larger more diversified and predictable revenue base.

Our team has been extremely active with client engagement in anticipation of a return in funding that will support our customers' pipelines and in turn our own pipeline.

We continue to be optimistic for the year ahead.

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.

Thanks Mark.

I will provide an overview of the company's progress with its expansion efforts during fiscal 'twenty three avid completed construction and opened multiple on that business expansions.

As.

I'm very proud of the fact that the timing of each opening was aligned precisely with the period during which the company's backlog exceeded these prior capacity.

As a result, we began fiscal 'twenty four with more than 20000 liters of state of the.

And a fully disposable platform.

We continue to build the company's new cell and gene therapy facility, which will support early stage development to commercial manufacturing.

In late calendar 'twenty, one currently only one the company announced its intent to expanding CMO offering into the rapidly growing seven gene therapy market.

Only eight months. After this announcement avid opened its analytical impressive development suites within the new cell and gene therapy development and GMP manufacturing.

Providing the company with its first opportunity to engage with drug developments in this area and sign initial agreements to support these programs.

Today, the company remains on track to largest GMP manufacturing suites by the end of the third quarter accounted detrimental.

And while these expansions and the associated of hiring have impacted our current margins in the near term the announced Canadian abilities.

<unk> added capacity, establishing essential infrastructure and foundation from which to expand average footprint in the industry.

Importantly, upon completion of the <unk> gene therapy facility, we estimate that our combined facilities will have a potential to bring our total revenue generating capacity up to $400 million.

Tim Brons: As highlighted at the end of last year, our new capabilities and capacity continue to attract attention from new and existing customers, particularly those in later stages of clinical development or seeking commercial manufacture. It has been pleasing to see increased utilization of the new Malian Line 3, previously referred to as myself, as well as more clients in the pipeline. We continue to successfully onboard your business when during the second half of fiscal 2020, and our revenues during the period remain strong.

Represented a significant transformation from one or two years ago.

Our 30 years of experience in biologics.

Two decades of commercial manufacturing.

As a resulted in the business today that has more than 50% of its revenues and backlog associated with late phase on all commercial programs.

The new capabilities and capacities. We believe we will continue to attract customers who seek not only chemical manufacturer, but also a CMO with the pedigree to take them through the approval process.

Subsequent commercial supply.

The strategy employed over recent years to build the capabilities and capacity for clients, who see partner, who can take them through the entire lifecycle of that product is already paying off with.

With multiple clients already using the new M&A capacity.

Schedule to enter this space in coming quarters.

In closing the first quarter was a continuation of the trajectory established here in fiscal 'twenty.

During the period, we continue to successfully navigate what has been a challenging financing environment for our customers.

Our revenues and backlog remains strong and our commercial team continued to win new projects.

Fortunately I've. It has continued to attract and signed late phase and commercial business during the period, which has the potential to add significant upside in the medium to longer term.

On the operational front, we continue to make progress with the build out of our seven gene therapy.

Facility.

We remain on track to bring this new building and capability online by the end of the third quarter of calendar 'twenty chunky at which time the company, stating the obvious to us as well as a revenue generating capacity at approximately $400 million.

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

Thank you.

And one moment please.

Okay.

Ann.

And our first question comes from.

Tim Brons: In operations, the challenging type of facility continues to progress according to plan, and we remain on schedule to complete this facility later this year. Matt and I will provide additional details on the business development and operations for the period following an overview of our first quarter of 2024 financial results.

Yes.

Jacob Johnson from Stephens. Your line is now open.

Hey, thanks.

Nicholas Green: And for now, I'll turn the colonel over to down. 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 an oppressed release issued prior to this call, and in our form 10Q, which was filed today, with the S&C, on PCC. I'm now providing an overview of our financial results from operations for the quarter ended July 31st, 2023.

Good afternoon everybody.

Maybe Nick first on the cell and gene therapy side.

With that facility seemingly opening up some time I guess in the next couple of weeks just curious if kind of latest thoughts about.

Nicholas Green: Revenues for the first quarter of fiscal 2024 were $37.7 million, representing a 3% increase over revenues of $36.7 million recorded in prior year period. The increase in revenue was primarily attributed to an increase in manufacturing revenues from late-stage programs. Gross profit for the three-month ended July 31st, 2023, was $4.1 million, or 11% gross margin, compared to $9.1 million gross profit, or 25% gross margin, for the same period in the prior year.

How we should think about the revenue contribution when that opens and then two maybe just kind of demand trends as it relates to that end market.

Yes.

So I think in terms of opening up Jacob we're looking at.

At the end of quarter three.

Obviously, then as we said before 11 things open I think thats the real time, when we can start to bring.

Nicholas Green: The decrease in margin during the three-month ended July 31st, 2023, as compared to the prior year period, was primarily driven by costs related to ongoing expansions of both our capacity and our technological capabilities. This included adding staff and associated overhead, including depreciation expense, that will provide critical capacity for near and medium-term growth, margins during the quarter were also impacted by a terminated project related to the insolvency of one of our smaller customers.

<unk> clients and so I think this is probably more of a 2020 for revenue stream that will start to see the one thing that we that we have seen.

I think in recent.

Well I would say weeks even months now is just starting to.

Nicholas Green: And a delay in our ability to recognize the revenues of one product pending the implementation of a process change. As disclosed previously, we expect the expansion-related costs incurred to date will continue to affect near-term margins, especially the related increase in depreciation costs. Importantly, as we increase our capacity utilization, we will begin to absorb these increased expansion-related costs, leading to approved gross margins. Total S-GNA expenses for the first quarter of fiscal 2024 were $6.3 million, largely consistent as compared to $6.4 million, recorded in the first quarter of fiscal 2023.

To see an increase in the amount of interest quite significantly in the area. So in terms of proposals being made in site visits and engagement that is picking up quite nicely. So I think really looking to see what.

11, we've got the facility open converting those those interesting conversations into revenues.

To guide at this moment in time towards our revenue I think all of this and we will do in the in the next fiscal year as terms of revenue guidance for that part of the business.

Got it that's helpful.

And then maybe just on the.

You called out in your prepared comments in the press release this.

Rev Rack delay I guess data that implementation of that process changed.

Any way to frame up the magnitude of that and is that something that could persist as a headwind or is that something that could be resolved.

Sooner rather than later.

I'll, let diane so that magnitude.

I don't think its going to be a persistent to say exactly when the revenue.

And Greg just recognize.

I would expect will be within this fiscal year revised best estimate hopefully sooner rather than later to be Frank.

Nicholas Green: During the first quarter of 2024, the company's net loss was approximately $2.1 million, or $3 cents per basic individual's share, compared to net income of $1.6 million, or $3 cents per basic, and $2 cents per individual's share for the first quarter of fiscal 2023. For the first quarter of 24, the company achieved an adjusted EBITDA of $2.8 million. Our cash and cash equivalents on July 31, 2023, were $24.9 million, compared to $38.5 million on April 30, 2023.

But it's not something that we see as something that would be repetitive in any way.

Daniel Hart: This concludes my financial overview.

Okay.

A one off event in this case I think in terms of what we see most of the changes made.

Back to Noam.

Yes Jacob.

Matthew Kwietniak: I'll turn the call over to Matt for an update on commercial activities during the quarter. Thanks, Dan. During fiscal 2023, our commercial team significantly expanded our visibility and standing in the industry, and we continue to build on that momentum during the first quarter of fiscal 2024. During the quarter, COVID recorded bookings of $36 million, and ended the quarter with a backlog of $189 million, representing an increase of 20% as compared to $157 million at the end of the first quarter of fiscal 2023.

The impact to the quarter was approximately three percentage points.

Got it.

<unk>.

Thank you very much.

And thank you.

Matthew Kwietniak: While these signings and new projects span the company's capabilities, the majority of the bookings came from later stage and commercial products, which is a testament to the company's commercial pedigree and the quality of new capacities we brought online a few months ago. I've discussed previously today's challenging financial environment has forced many companies to focus financial resources on later stage and commercial projects versus investing in earlier stage higher risk projects. These later stage projects are generally larger and take longer to complete as compared to earlier stage programs.

Yeah.

And one moment our next question.

And our next question comes from Matt Hewitt from Craig Hallum Capital Group. Your line is now open.

Matthew Kwietniak: For that reason, we expect that recognition of our backlog will extend beyond one year. These later stage projects have a much higher probability of regulatory approval, potentially leading to future recurring and ramping commercial revenues associated with each approval. While they remain some risk and time between late phase manufacturer, the LA submission and regulatory approval, this dynamic should drive medium to long term growth for Avid. This fits well with the company's objective of establishing a larger, more diversified and predictable revenue base.

Good afternoon. Thank you for taking my questions.

Maybe just to touch a little bit on the environment. Obviously, it's been challenging yet you guys are still able to use win new business.

Matthew Kwietniak: Our team has been extremely active with client engagement and anticipation of a return in funding that will support our customers pipelines and in turn our own pipeline. We continue to be optimistic for the year ahead and at the time that the financing environment improves, we will be well positioned with both capacity and capabilities to supplement our late stage and commercial revenue base with the early stage programs that are currently being deferred.

Matthew Kwietniak: This concludes my overview of commercial activities.

Those lines.

Yes.

What I would say, Matt first and foremost is is that some is never the best quarter for testing.

Activity levels, because I think what.

What we've seen in the past a nice theme throughout my life.

Sometimes people will get to move things ahead, because I'm trying to get things done before the golf vacation.

They get delayed because they're going on vacation. So it's always a little bit of a.

Less than ideal environment.

It's a little bit like the financial markets, everybody got it looks towards the post labor day.

Nicholas Green: I will now turn the call back over to Nick for an update on operations and other achievements during the period. Thanks, Matt. I will provide an overview of the company's progress with its expansion efforts. During fiscal 23, Avid completed construction of and opened multiple and many of business expansions. As we are very proud of the fact that the timing of each opening was aligned precisely with the period during which the company's backlog exceeded its prior capacity.

Nicholas Green: As a result, we began fiscal 24 with more than 20,000 liters of state-of-the-art capacity and a fully disposable platform. We continue to build the company's new seven gene therapy facility, which will support early stage development to commercial manufacturing. In late calendar 21, 2021, the company announced its intent to expand its BDMO offering into the rapidly growing seven gene therapy market. Only eight months after this announcement, Avid opened its analytical and process development suite within the new seven gene therapy development and GMP manufacturing facility.

Period to start to see what's going on.

I think one thing I would say is that I don't think we're seeing any worsening from where we were which is obviously good.

Nicholas Green: Providing the company with its first opportunity to engage with drug developments in this area and sign initial agreements to support these programs. Today, the company remains on track to launch its GMP manufacturing suite by the end of the third quarter of calendar 2023. And while these expansions and the associated hiring have impacted our current margins in the near term, the enhanced connect abilities and added capacity, established an essential infrastructure and foundation from which to expand up its footprint in the industry.

I think if we look at the commentary that we're hearing in the industry in general.

Nicholas Green: Importantly, upon completion of the seven gene therapy facility, we estimate that our combined facilities will have a potential to bring out total revenue generating capacity up to $400 million annually, represented a significant transformation from already two years ago. Our 30 years of experience in biologics and almost two decades of commercial manufacturing units has resulted in a business today that has more than 50% of its revenues and backlogs associated with late phase and or commercial programs.

There is reason for some optimism I would say cautious optimism.

We saw obviously an uptick in the beginning of this year and then the.

Nicholas Green: The new capabilities and capacities we believe will continue to attract customers who seek not only clinical manufacture but also a CDMO with a pedigree to take them through the approval process and subsequent commercial supply. The strategy employed over recent years to build the capabilities and capacity for clients who seek aren't there, who can take them through the entire life cycle of their products who's already paying off. With multiple clients already using the new and many capacity, a more scheduled to enter this space in coming quarters.

Nicholas Green: In closing, the first quarter was a continuation of the trajectory established during fiscal 2023. During the period, Avid continued to successfully navigate what has been a challenging financing environment for our customers, as our revenues and backlog remain strong and our commercial team continue to win new projects. Fortunately, Avid has continued to attract and sign later phase and commercial business during the period, which has the potential to have a significant upside in the medium to longer term.

The bank issues that we saw seem to kill.

But it's fairly shortly thereafter, so very much looking to.

Nicholas Green: On the operational front, we continue to make progress with the build-out of our 7G and 3G learning facility. We remain on track to bring this new building and capability online by the end of the third quarter of calendar 2023, at which time the company and state of the office will have a revenue generating capacity of approximately 400 million dollars.

So this is post labor day period, and see more between now and I guess.

Nicholas Green: This concludes my prepared remarks for today.

Operator: We can now open the call for questions. I'll break it. Thank you. As a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. So, with your question, please press star 1-1 again. Please stand by. Will we compile the Q&A roster? And one moment, please.

Probably thanksgiving too to give us an idea.

The strength of any recovery that might be.

Operator: And our first question comes from Jacob Johnson. From Steven. Your line is not open. Hey, thanks. Good afternoon, everybody. Maybe Nick first on the cell and gene therapy side. With that facility, seemingly opening up sometime in the next couple of weeks, just curious just how latest thoughts about how we should think about the revenue contribution when that opens. And then two, maybe just kind of demand trends, is there a way to that end market?

And then the Big question, obviously as you start to fund the biotech sector. How quick ended up funding tends to.

To all of us on which we can execute so thats.

Operator: Yeah. So, I think in terms of opening up, Jacob, we're looking at the end of quarter three. We'll obviously then, as we said before, was this open? I think that's the real time when we can start to bring clients in. So, I think this is probably more of the 2024 revenue stream that we'll start to see. The one thing that we have seen in recent, well, I would say, weeks even months now is just starting to see an increase in the amount of interest quite significantly in the area.

Those are some of the areas that we're watching very carefully I would say.

Summary on that law, not western before and some signs that things might be getting better, but I would say, it's too early to call one swallow a summary.

Operator: So, in terms of proposals being made and side visits and engagement, that's picking up quite nicely. So, I think really looking to see what, once we've got the facility open, converting those interest in conversations into revenues, difficult to guide at this moment in time towards a revenue. I think that would be something that we'll do in the next fiscal year, in terms of revenue guidance for that part, of the business matter. Yeah, that's helpful.

Understood. Thank you and then maybe a separate question as far as.

You reiterated or reaffirmed your guidance for the year.

How should we be thinking about the cadence should we see sequential growth over the course of the year.

Jacob Johnson: And then maybe just on the, you called out in your prepared comment and then the press release this rev wreck delay, I guess, due to the implementation of a process change, is there any way to frame up kind of the magnitude of that? And is that something that could persist as a headwind or something that could be resolved sooner rather than later? I'll let down to the magnitude, but I don't think it's going to be a persist to say exactly when the revenue gets recognized.

Or with.

Some normal shutdowns here in August .

Will there be a little bit of a step back before it ramps back up in the back half of the year. Thank you.

I think you pretty much got it.

It's difficult to avoid anything then the shutdowns that we have to do every year.

So I think youll see the usual sort of fall off we usually see somewhere around 15% I think consensus is not untypical quota to from quarter one.

And then obviously, we pick up towards the end of the year.

I intend to make the guidance.

Jacob Johnson: I would expect it would be within this fiscal year, it would be my assessment, hopefully sooner rather than later to be frank. But it's not something that we see as something that would be repetitive in any way. It's a one off event to this case, I think in terms of what we see here, what's the changes made? We're back to normal. Yeah, Jacob, the impact of the quarter was approximately three percentage points. Got it. Thank you very much. And thank you.

I don't see any reason why this year will be any different from any other.

Got it that's very helpful. Thank you.

I appreciate it.

Daniel Hart: And one moment, far next question.

And thank you.

Yes.

And one moment our next question.

And our next question comes from Sean Dodge from RBC capital markets. Your line is now open.

Yes, Thanks, Tom and good afternoon.

Nick the new business signed during the quarter.

You said you continue to find later phase and commercial projects.

Can you give us a little bit more detail on where those are coming from or are these things you're winning from other <unk> or are these more previously early stage programs that you had been working on that are now progressing into later phases.

Nicholas Green: And our next question comes from Matt Hewitt from Craig Hallum Capital Group. Your line is now open. Good afternoon, and thank you for taking the questions. Maybe there's just a touch a little bit on the environment. Obviously, it's been challenging yet you guys are still able to use win-new business. Has there been any changes? I guess over the past couple of months here, since you reported your Q4 in the tone or the dialogue that you're having with customers, what are you hearing from them as far as you look out into calendar year 24?

Predominantly this quarter I think was wins from.

No.

<unk> business that we brought from <unk>.

Through phase I phase II phase III. So this is new business.

From elsewhere at the end of the day.

Okay, Great and then Dan on gross margins.

If we think about the new gene therapy space that set to open here are you at this point kind of fully ramped on costs with respect to the new space that has opened and that will be opening or as we get closer to that will there be more cost that kind of flow and maybe just help us think through you had these kind of one time dynamic that hit gross.

Nicholas Green: Is there an expectation that things are going to approve or just any details along those lines? What I would say, Matt, first and foremost is that the summer's never the best quarter for assessing activity levels, because I think what we've seen in the past and I've seen throughout my life is sometimes people get to move things ahead because they're trying to get things done before the go-of vacation, sometimes they get delayed because they're going on vacation.

And this quarter, if we think about those puts.

<unk> Patel.

Potentially incremental gene therapy costs, what the trajectory should look like towards gross margins from here.

Upon opening we are essentially fully loaded.

With those costs and those costs will begin to incrementally increase as we bring in business.

Nicholas Green: So it's always a little bit of a less-than-ideal environment. I think it's a little bit like the financial markets. Everybody can look towards the post-labor day period to start to see what's going on. I think one thing I would say is that I don't think we're seeing any worsening from where we were, which is obviously good. I think if we look at the commentary that we're hearing in the industry in general, there is reason for some optimism.

Okay. So Q1 than it does not kind of fully reflect what would be like a full load of the gene therapy cost that there should be a step up in.

As we think about there will there will be Sean but that'll be over time, that's not going to be say next quarter.

It'll it'll be.

<unk>.

The bookings and the revenues increase on that side.

Nicholas Green: I would say cautious optimism. We saw obviously an uptick in the beginning of this year and then the bank issues that we saw seem to kill fairly shortly thereafter. So very much looking to this post-labor day period and see what's going on between now and I guess probably thanks to giving an idea of the strength of any recovery that there might be. And then the big question obviously is you start to fund the biotech sector how quickly that funding turns to orders on which we can execute.

Okay great.

Great.

Thanks again.

Yes.

Thank you.

And I'm showing no further questions I would now like to turn the call back over to Nick Green.

For closing remarks.

Thank you operator, and thank you to everyone participating on today's call in closing as we Mark averaged 30 ethereum business, we'd like to acknowledge this substantial progress. We've made in recent years, we thank our customers for their trust and partnership.

<unk> for their continued support and we wish to also to recognize the exceptional employees, who continue to drive the success.

Nicholas Green: So those are some of the areas that we're watching very carefully. I would say in summary on that lot, not worse than before and sometimes that things might be getting better but I would say it's too early to call once, one of the summaries is here.

Thank you for participating today in today's call and for your continued support of avid biosynthesis. Thank you.

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

Nicholas Green: Thank you. And then maybe a separate question. As far as you reiterated or reaffirmed your guidance for the year, how should we be thinking about the cadence? Should we see sequential growth over the course of the year, or with some normal shutdowns here in August? Will there be a little bit of a step back before ramps back up in the back half of the year? Thank you. Yeah, I think you pretty much got it there.

Nicholas Green: I mean, we're difficult to avoid anything than the shutdowns. So I mean, we have to do every year. So I think you'll see the usual sort of fall off. We usually see somewhere around 15%. I think it's not typical for a quarter two from quarter one. And then obviously we pick up towards the end of the year is to make the middle guidance. So I don't see any reason why this year would be any different from any other. Got it. That's very helpful. Thank you. Appreciate it. And thank you.

Sean Dodge: And one moment for our next question. And our next question comes from Sean Dodge from RBC Capital Market. Your line is now open. Yeah, thanks. Good afternoon. The new business designs are in the quarter. You said you continue to sign later phase in commercial projects. Can you give us a little bit more detail on where those are coming from? Are these these things you're winning from other CDMOs or are these more previously early stage programs that you had been working on that are now progressing into later phases?

Sean Dodge: Predominantly this quarter, I think, was wins from from I not business that we brought from two phase one phase two phase three. So this is new business from elsewhere at the end of the day. Okay. Great.

Daniel Hart: And then Dan on gross margins. If we think about the new gene therapy space that's set to open here are you at this point kind of fully ramped on costs with with respect to the new space that has opened and that will be opening or we get closer to that will there be more cost that that kind of flowing maybe just help us think through. So we had these kind of one time dynamic to hit gross margins in this quarter if we think about those puts the potential incremental gene therapy cost what the trajectory should look like for gross margins from here.

Daniel Hart: Yeah, upon opening where we're essentially fully loaded with those costs and those cost will begin to incrementally increase as we bring in business. Okay, so Q1 then is not kind of fully reflect what will be like a full load of the gene therapy cost that there should be a step up then. Is we think about there will there will be Sean, but that'll be over time. That's not going to be say in the next quarter it, you know, it'll be as the bookings and the revenues increase on that side. Okay, great. Thank you again. Thank you.

Nicholas Green: And I'm showing no further questions. I would now like to turn the call back over to Nick Green for closing remarks. Thank you operator and thank you to everyone participating on today's call. In closing as we mark Avid's 30th year in business, we'd like to acknowledge this substantial progress we've made in recent years. We thank our customers for their trust and partnership and our investors for their continued support and we wish to also to recognise the essential employees who continue to drive this success. Thank you for participating today in today's call and for your continued support, Avid Bioservices. Thank you.

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

Q1 2024 Avid Bioservices Inc Earnings Call

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