Q2 2024 Avid Bioservices Inc Earnings Call
Okay.
Good day, ladies and gentlemen, and welcome to the avid bio Services' second quarter fiscal 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 may be.
You recorded I would now like to hand, the conference over to Tim Brons of Abbott.
Stirs Relations group. Please go ahead Sir.
Okay.
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 avid Chief commercial officer.
Today, we will be providing an overview of avid bio services contracted development and manufacturing business, including updates on corporate activities and financial results for the quarter ended October 31 2023 after.
After our prepared remarks, we will welcome your questions before we begin I'd like to caution that comments made during this conference call. Today December seven 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 statements made today.
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.
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.
Thank you to everybody participating today via webcast.
Second quarter revenues were impacted by a number of factors.
Behind this.
Looking ahead to the second half of <unk>.
We closed the quarter with an improved cash balance we have now completed the expansion program started almost three years.
Our backlog has achieved a new record high.
And as we had imagined guidance, we would expect significant growth over the first half with revenues approximated those achieved in the second half of fiscal year 2000.
Great.
Six months in the company.
During the second quarter, our team continued to execute on both business development and operational.
Despite the financial challenges faced by many of our tenants.
With respect to customers.
Important program continues to advance.
Average commercial team had another strong quarter secured new business wins of approximately $75 million, resulting in a record backlog of $199 million.
Where it comes from both new and existing customers and started our capabilities, including our new cell and gene therapy.
Our CGC.
Alright.
As reported last quarter, while we continue to win more projects in the later phases of clinical developments, we were pleased to see several early stage programs.
During the quarter.
And we were delighted to see one of our customers receive FDA approval for our products, which we are currently conducting a <unk> campaign to reflect these concepts.
In support of our new <unk> services, the company was recently et cetera.
Partnership with Tot.
The California Institute of regenerative medicine.
Yes.
Which we feel both validates our nearest business as well as increases our visibility in the industry.
Third is dedicated to the advancement of manufacturing of a detail associated with our buyers as well as other cell and gene therapy programs within the state of California.
And Matt will provide a bit more information on this partnership.
And our operations during the quarter, having successfully executed its planned annual maintenance shutdown.
Most important we also completed construction of the company's cgmp manufacturing suites within our new World class CGT development and manufacturing facility.
Digital.
The newly launched manufacturing suites are currently undergoing final environmental monitoring and performance qualification.
And as we rapidly approach the start of calendar 'twenty, Turkey for we are looking forward to being able to engage with potential customers with our offering complete.
Mike and I will provide additional details on business development.
<unk> for the period.
Overview of our second quarter fiscal 2024 financial results.
And for that I'll turn the call over to Don.
Thank you Nick before I begin in addition to the brief financial overview I'll provide on the call today.
Additional details on our financial results are included in our press release issued prior to this call.
And in our Form 10-Q, which was filed today with the SEC.
I'll now provide an overview of our financial results from operations for the quarter and six months EBIT December 31 2023.
Revenues for the second quarter of fiscal 'twenty, four 'twenty $5 4 million.
Representing a 27% decrease as compared to revenues of $34 8 million.
Recorded in the prior year period.
For the first six months of fiscal Q4 revenues were $63 1, million% to 12% decrease compared to $71 million in the prior year period.
The decrease in revenues for both periods as compared to the prior year periods was primarily attributed to fewer manufactured brands with reductions in process development services from early stage customers at.
The reduction of revenue for changes in estimated variable consideration under our contract with uncertainties have been resolved.
Gross margin for the three months ended October 31, 2023 was negative 18% compared to 12% for the same periods in the prior year.
Gross margin for the first six months of fiscal 'twenty forward with negative 1% compared to a gross margin of 19% from the same period.
Great.
The decrease in gross margin percentage for both periods as compared to the same prior year periods was.
It was primarily driven by lower manufacturing volumes and costs related to expansion of both our capacity and our technical 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 three and six months ended October 31, 2023 were also impacted by the decision to defer our customers PDQ campaign after our annual maintenance shutdown.
Combined with the reduction of revenues for changes in estimated variable consideration under a contract for uncertainties have been resolved.
The decrease in gross margin for the first six months of fiscal 'twenty four was further impacted by a turn in project.
Getting to the insolvency of one of our smaller customers.
And the delays in our ability to recognize revenues of our customer products pending the implementation of our process.
Excluding all of these factors, our second quarter and year to date adjusted gross margin percentages.
Would have been two percentage points, one percentage points lower than the reported gross margin percentage of prior year periods respectively.
As disclosed previously we expect the expense related costs will continue to affect near term margins, especially the related increase in depreciation costs.
Importantly, as we increase our capacity utilization, we will began to absorb these increased costs leading to improved gross profit.
SG&A expenses for the second quarter of fiscal 'twenty four were $6 6 million.
Increase of 4% compared to $6 $8 million recorded in the second quarter of fiscal 'twenty three.
The decrease in SG&A for the second quarter was primarily due to a decrease in payroll and benefit expenses and other professional fees.
SG&A expenses for the first six months of fiscal 'twenty, four were $12 $8 million, a decrease of 3% compared to $13 $2 million reported in the prior year period.
The decrease in SG&A for the six months was primarily due to decreases in legal accounting and other professional fees.
During the second quarter of fiscal 'twenty for the Companys net loss was $9 5 million or <unk> 15 per basic and diluted share compared to a net loss of $1 2 million or <unk> <unk> per basic and diluted share for the second quarter fiscal 'twenty three.
For the first six months of fiscal 'twenty for the company recorded a net loss of $11 6 million or <unk>.
Sure as compared to net income of approximately 400000 or <unk> <unk> per basic and diluted share during the same prior year period.
For the second quarter of fiscal 'twenty for the company Hasnt adjusted EBITDA nature of $6 million.
For the first six months of fiscal 'twenty four the company had an adjusted EBITDA of negative $3 2 million.
Our cash and cash equivalents on October 31, 2023 were $31 4 million compared to $38 5 million on April 32023.
The second quarter cash and cash equivalents balance represented a 26% increase compared to $24 9 million at the end of the first quarter of fiscal 2004.
But at the end of the second quarter, we estimate our remaining fiscal 'twenty four expansion related capital expenditures to be approximately $2 million.
Another financial news during the quarter and the company entered into an amendment to its revolving credit agreement with bank of America.
This credit facility was amended to extend the maturity date to October 2024 from the initial maturity of March 2024.
This amendment also included an increase in the related interest rate apply to any borrowings under the revolver and increase the allowable amount of bad debt.
The company can occur at any one time or fixed.
Capital assets.
The other material terms of the credit agreement remained unchanged while.
While the company has no current plans to Charles download this facility have abuse. This instrument.
Sure our financial stability.
This concludes my financial overview I will now turn the call over to Matt for an update on commercial activities during the quarter.
Thanks, Dan.
I am pleased to report that our commercial team had another strong quarter.
During the period avid recorded bookings of $35 million from new and existing customers, including a meaningful contract signed for the recently completed CGT facility.
The company ended the quarter with a record backlog of $199 million.
Representing an increase of 35% as compared to $147 million at the end of the second quarter of fiscal 2023.
While certain early stage projects in our pipeline remain on hold pending customer financing events, we continue to see growth in our later stage in commercial project portfolio during the quarter.
As a reminder, later stage projects are generally larger and take longer to complete as compared to earlier stage programs.
For that reason, we expect that recognition of our backlog for these projects will extend beyond one year.
As these later stage programs have significantly higher probability of regulatory approval in a shorter timeframe. We believe they are more likely to generate the recurring and ramping commercial revenues associated with such approval.
Well there is no guarantee that regulatory approval will be achieved for any program. We do believe that our pipeline, which remains weighted towards later stage projects offers enhanced opportunity for regulatory success and ultimately for stable growth in the medium to long term.
We are pleased.
To see continued growth in this segment of our backlog and remain committed to pursuing and supporting projects at every stage of development and manufacturing.
In fact, seeing some improvement in our early stage pipeline.
We remain fully engaged with new and prospective customers in every phase and continue to build visibility for the avid brand.
Through consistent outreach and industry events.
As Nick mentioned previously avid joined the search industry resource partner program to provide development and cgmp manufacturing services to serve funded programs.
Currently serve has $5 5 billion in funding from the state of California and has more than 161 active stem cell programs in their portfolio.
Avid will assist service partners and accelerating gene therapy development and manufacturing through its suite of CMO services, which span process and analytical development.
Cell banking virus banking drug substance manufacturing and fill finish activities.
<unk> funded programs will be offered access to avid services in order to reduce the timelines required to advance through clinical development.
All partnership activities will be performed at average recently launched World class CGT manufacturing facility.
We are very pleased to have entered this validating partnership with <unk>, which we believe will further strengthen our presence broadly amongst <unk> and more specifically as a manufacturer of CGT products.
In closing I would like to reiterate how pleased we are with the commercial team's performance during the second quarter and we are looking ahead with optimism to the second half of the year.
This concludes my overview of the commercial activities I will now turn the call back over to Nick for an update on operations and other achievements during the period.
Thanks, Bob.
I will provide an overview of the company's operational activities first we successfully executed as planned annual maintenance shutdown during the quarter.
While these temporary shutdown contributed to the lower revenues for the period.
Enterprises is an essential activity to ensure the efficiency of our systems.
We are very pleased to have this process completed or another yet.
As we announced we have completed the construction of our southern gene therapy manufacturing suites.
In his newly launched suites, which are housed within the Companys, New World class CGT development and manufacturing.
Currently undergoing final environmental monitoring and performance qualification.
With the completion of this latest expansion project as it is now.
<unk> now completed all faiths of abroad multiyear expansion and we will have deployed approximately $118 million from.
From 2020 to 2023.
<unk> of both revenue generating capacity.
Nickel capabilities.
Looking ahead, we are now well positioned to be the manufacturing needs of current and future customers.
Im seeing both mammalian <unk> products.
Today, we estimate that our combined facilities have the potential to bring our total revenue generating capacity to up to $400 million annually.
More than triple the revenue generating capacity of our pre expansion business.
And while the operating costs associated with these facilities and service expansions Harvard impacting our margins.
This new infrastructure has been a major contributor.
Attracting the laser phased projects currently in our backlog as well as positioning abbvie to serve the large pharma segments of the market previously underserved by the business.
This strategy is already paying off demonstrated by the increase in customers with whom we work outlined with the strong weight towards late phase.
Further we are now beginning to on both projects utilizing the capabilities offered by <unk>.
When we combine all this new capacity and services with decades of experience in biologics and commercial manufacturing.
Record that demonstrates our focus on quality on the tailwind signing early stage development and commercialization. We believe we have established an organization that will continue to thrive in this growing and attractive market.
Not only did the quarter see the completion of our current expansion program. It also saw the cessation of manufacturing the company's legacy small scale stainless steel facility.
And while the effective this impacted the second quarter as we look forward I would now benefits from all its mammalian GMP manufacturing under a single roof.
With one of the most modern and high quality facilities available in the industry.
This will further enhance the company's ability to improve margins as we continue the credit system growing.
Im filling this capacity.
As we are more than aware the downturn from the biotech funding has certainly impacted the business initiatives.
This combined with other factors we have reported.
So a disappointing first half of fiscal 'twenty compared to before.
As a result, we are compelling so embedded guidance to $137 million to $147 million.
That being said as we look forward, we have an improved cash position, we have seen an increase in our early phase signings during the second quarter.
We have completed all currently expansion activities.
And to the second half with our backlog at an all time high.
And one of the products in our late stage pipeline has already received FDA approval.
As we look more closely at the second half of the year.
We anticipate revenues approximating half two of fiscal year, 2015, which represents the best half year performance in the company's history.
As we approach you guys are all first yes.
We are delighted to mark the completion of what has been a three year program of increasing capacity.
Modernizing the asset base as well as transform indicated abilities of the mammalian business.
And at the same time broadening the avid offering to include the new <unk> capability in.
In both process development and now GMP manufacturer.
Also joining us.
We look back at where we came from.
As we retire the old sayings reactors, which are.
Our CMO business.
The 20 year conventional manufacturing.
While our calendar 2023, so how these challenges.
Team has worked diligently in pursuit of our goal.
As we enter calendar 'twenty 'twenty four obviously the company with synergy is in biologics manufacturing.
One year regulatory track record and more than 200 commercial batches on Dropdowns.
Operating out of a modern asset base with capacity to accommodate commercial needs of our late phase clinical programs.
Which we hope will soon become commercial products.
The business with an increasingly diverse customer base and pipeline.
While that will be much of 2023, we will be happy to put behind us.
It wouldn't surprise me that we look back this year and the start of a new phase.
Not only in how our company looks but also in the market, which we set up.
I feel genuinely blessed to work with the team that has shown the fortitude to undertake such a monumental task.
That has not wavered, one bit and the pursuit of the targets we set ourselves.
And I look forward with a high level of excitement at the prospect of filling this capacity and continuing to guide the future development of Abbvie.
This concludes my prepared remarks for today.
Can now open up the call for questions.
Brexit.
Certainly ladies and gentlemen, if you do have a question at this time. Please press star one on your telephone to remove yourself from the queue simply press Star one again, one moment for our first question.
And our first question comes from the line of Jacob Johnson from Stephens. Your question. Please.
Hey, Thanks, good afternoon.
Maybe Nick kind of leaving off are starting off where you just left off I guess can you.
On the backlog in two key revenue in 'twenty four outlook. So.
Pretty good bookings in the quarter a record backlog.
But revenue is down year over year can you just kind of help us.
Square those two items and I guess, along the same lines you keep pointing to the backlog extending beyond a year.
Has that backlog lengthened like extended even even further is it taking even longer to close that or.
Are we just waiting for things like <unk> campaign to hit I know Thats, a lot, but I'll stop there with the first question.
Thanks, very much Jacob.
And good question.
First to sort of answer your last question is the backlog extended the answer to that is no.
Pretty much sustainable stable in terms of where it is.
So certainly that so certainly no further spread.
I think at the end of the day, where we what we've seen here apart from some of the.
The things that.
As Don highlighted in the earnings in the first half obviously is the impact of the biotech funding.
We've continued to sign the business and then it really is a matter of bringing through those late phase programs, which is just a lot bigger in size and take longer to execute and you've got to line them up so we've got it.
<unk>.
Published on the website, our investor presentation, which kind of shows you.
A good indication of the maturity of the pipeline that we have.
And simply to put large volumes of material into that new asset one has to first of all obviously the customer and the second thing that is to execute on the <unk> campaign, which ultimately will lead to a BLA filing and then the commercial volumes that come after that.
And I think.
Because those are as they are in the market on a day to day basis is that just.
Just unfortunately, a natural time phased that that takes to execute.
And once you've completed the <unk> campaign.
Have to file a lot.
Data along with the clinical data to the FDA and get approval and then the commercial volumes come in.
And of course, one of the other issues of course, nobody is going to put a <unk> campaign together with with the supplier that doesn't have that capacity to meet the commercial demand.
So.
It's really just a transition of the business as we've been kind of highlight from what was originally a clinical company that was.
Significant large commercial demand into one that's got a very much more diverse customer base.
A significant number of late phase programs, which were just trying to get executed get that data and often then obviously energy and look forward to at.
And at least an industry average of commercial approvals that we can then.
We can then executing against them.
We couldnt have asked for a better situation than we've got right now which is.
Concerning one of those and they've already got approvals, so thats about as fast as they ever goes so looking forward to that one.
Got it thanks for that Nick and then.
Maybe I guess for my follow up on what you just alluded to.
Yes, I think in that that.
Suggests that these later stage opportunities could be $100 million to $200 million revenue opportunity I think the inevitable question is what is the timeline for.
Assuming all goes well and I know that's impossible for any of us to handicap, but assuming all goes well.
Is that a peak revenue that could be five years out or how should we think about the path to that kind of revenue potential.
Well again.
Without trying to get into each of the individual ones because they all have such different different profiles to be Frank with you in terms of the size of the markets. They serve and also.
The probability of success.
You can have you can have four out of eight for example, getting approval and if all four of those are small ones and the impact is not that great. If all four of those are the large ones. The impacts enormous and then there's all the different timelines. So thats a really difficult question to ask but to answer either but I think in general terms you look at the sort of growth that we've seen.
In this business in the past.
Don't see any we know the growth in the marketplace going forward and we know that capacity. We've got in you drove those lines.
Anywhere between sort of I think on the fast side will be three years to fill that capacity on the on the on the longer side, you're probably looking at somewhere like six years, but anywhere in that window I think is not unreasonable obviously when it's.
Soon as quickly as we possibly could.
But it's.
The fact that we've got so many is really really.
Good strong indicated to us that we will be filling that capacity.
Got it I'll leave it there thanks for taking the question.
Thanks Jacob.
Thank you one moment for our next question.
And our next question comes from the line of Matt Hewitt from Craig Hallum. Your question. Please.
Good afternoon, and thank you for taking my.
Questions, maybe the first one I think Matt I think you mentioned.
Third remarks that did win.
So gene therapy contract during the quarter I'm, assuming that's on the.
Any thoughts from your side or is that development did that come through the new CRM relationship.
That is the early stage projects, yes, and it's in our PD group and that's where it's going to span currently there is potential in the future for that to grow obviously, but the only piece that they've contracted for at this point.
Until further development as the early phase work.
Got it. Thank you it didn't come through my Italian it was independent of soon that's right that's right sorry.
Okay, I was going to say that was really quick.
Sure.
New partnership.
Alright.
Last quarter I think you said that you had actually won.
Competitive displacement those are my words, but you had won some business from a competitor from a large pharma customer and I'm curious how is that.
Business progressed is that opening up doors for other opportunities.
Okay.
So I'm trying to remember the competitive front.
Certainly won business from large pharma and from competitors, but I don't know that we are in the large pharma big from a competitor and I'm trying to think whether that might have been but.
But I don't remember it being from a big pharma.
I think we've done both of those but not together.
So.
All I can say is that all of our business with the with the ones that we've been winning.
Continuing to progress well so no.
No issues on any of those.
Okay. Thank you.
Thanks, Mike.
Thank you one moment for our next question.
And our next question comes from the line of Paul Knight from Keybanc. Your question. Please.
Yes, Dan you mentioned 2 million of Capex remaining in the fiscal year.
I did yes Paul.
And if I can break that down for you so in the first half.
We've spent.
Spent $21 million on Capex, and we've incurred $8 million.
Which has now been spent but outside of those dollars we have an additional two to incur.
What maintenance Capex after this fiscal year.
It's going to be really low.
Going to be some sit.
Systems that we're going to need to continue to invest into but as far as the assets. Most of the assets are brand new so we would likely be 2% ish, maybe sub 2% of revenues.
And your line of credit the size on that.
The size of our line of credit is $50 million.
Okay, and then Nick.
On the cell and gene therapy, a portion of the business.
Alliance for regenerative medicine is showing finally from sequential growth in trial activity.
Are you seeing that.
Yes, I mean, we literally just opened the GMP assets.
So it's probably a little early to say that with what we're saying is reflective of the market I think we've seen some good engagement.
Im.
I think probably a lot of that is because we're here now when we bought the assets as opposed to a market indication, but we certainly have seen a good flurry of activity obviously, signing another client that is there and a meaningful one is also quite.
Encouraging as we come out of the gate.
And we have an ongoing engagement with a number of clients.
I'm, certainly, hoping that thats not going to be the last in the near future.
We are encouraged by what we generally hear in the marketplace.
But I think where we're at.
Hoping to see a lot more of that as we go forward for sure.
And Nick I think obviously the industry issue for as it has been centered around.
The lower level of early stage biotech financing.
Are there any other features that stand out like in a positive or a negative way is the capacity opening up globally is that bad for you or does it not matter.
And we've got a lot of approvals this year.
What are the other factors.
And then last thing I would I think we all think about right and is there more ensuring so.
Excluding biotech financing do you think the market dynamics are.
Better or worse for you right now.
It's interesting that's a good question and thanks for asking that one Paul but.
Just trying to look at where how I am looking at the marketplace as we sit today I remember six months ago.
At the end of a really good yeah, where we were feeling really positive about what we've just done and then I was looking forward at what was going on in the marketplace.
And obviously add to report lower lower guidance going forward for that for the following year for the first time.
As I sit here today, we're clearly not happy with the last quarter and I don't think anybody around here is going to make any any other calls on that one but contrary to that position that we had last year. The beginning of the I actually feel more positive now about what's coming forward.
So we have captured a good number of late phase programs a lot of those are coming to us from other <unk>, which sort of say is that we're doing the right things we've gotten those because we've got the capacity account control.
Happens in terms of FDA approval I only wish I could say I wish I could sit here and tell you which ones of those are going to go forward, but the number of phase III programs are not a lot different from the number of phase one programs.
In my 40 years, I've never known that happen so.
We're very bullied by that again, I think <unk> highlighted that in our signings.
But we've seen some early phase signings, which were completely devoid in quarter, one which is again another positive sign and we kind of have some leading indicators in the conversations and the pipeline that we see behind that and we started to see some positivity there.
I'm not going to turn around and tell you that there is a recovery and as a way.
I know all of his title wave coming that's not the case, but I do think that we see a much more positive outlook going forward and if we hit the.
The guidance that we've just given which we obviously intend to do because that's what we've just provided.
That would be similar to the back end of last year and if we can hit the record revenues.
We saw at the end of 'twenty three and then continue that then I think we are.
As I say at the beginning we.
We have a much more positive feeling to the business in the industry today than I did six months ago.
Alright, thank you.
Thank you one moment for our next question.
And.
Our next question comes from the line of Max.
William Blair Your question please.
Hey, good afternoon. Thanks for taking my questions, maybe just starting off here I was wondering if you can give some more detail around what exactly the change in estimated variable consideration under a contract where uncertainties had been resolved relates to and what the impact was in the quarter and then similarly was impacted your customers' decision to defer that PDQ campaign.
Until after annual maintenance shutdown is that campaign now ongoing.
Sure Max I'll start I'll start off with that so the the <unk>.
A variable consideration is.
Another way to say that it was a change in estimate.
The revenue recognized on certain programs was less than originally estimated at the beginning of that project.
Under <unk>.
606 revenue Rec rules were percentage of completion shop. So.
Some of those estimates can change during the period.
So the impact of that in the quarter.
Was roughly.
$2 million of gross profit.
So around <unk> eight percentage points.
And as far as the.
Deferral deferral was similar gross profit.
Hit of roughly eight percentage points.
And as far as the batches themselves Nick.
No I mean, the decision was a mutual decision.
PPD campaigns.
Something where youre executing three batches identical.
That's always a lot easy when you do them back to back to back.
Where we were was that we would like to split those across the shutdown, which we felt was.
I didn't know what to do that and keep them all in line or otherwise we would have got to move the shutdown, which again was not an ideal situation. So.
It was a mutual decision between us and the customer the programs now opened.
Boeing.
Going going as planned so.
Again.
Ideally would have wanted to do but I would always prefer to.
To run at <unk> with three batches literally back to back to back.
Got it that's helpful. Maybe just asking a follow up to Jacobs earlier in terms of the backlog.
Wondering how confident are you in the actual quality of network that you have in backlog.
If there's any detail you can provide around what portion of your backlog is currently on hold and how that relates to maybe last quarter. When we spoke and just in general how you would characterize your visibility into whether or not that work is going to actually start to move forward here again in the near future. Thank you.
Our backlog typically converts.
I would say north of 95% probably closer to.
Closer to them towards the 100 on that one so we really it's firm business is none of it on hold as they say.
Do know I know.
One program I got news helped last week, that's actually being brought forward. So when when done articulate that it's not getting not getting any longer.
In potash might argue that there is a little bit of pull in that but there is always a little bit of a switch.
Swell forward and backwards, but no material change and certainly from a conversion perspective, we would expect the vast majority as I said more than 95%.
No closer to a 100 of that to execute.
Okay, and then if I could just sneak one more in here I think you had previously talked Nick you talked about holding backlog is flat year over year as being kind of a win here in fiscal 'twenty four thanks, Lee stepped up a little bit relative to where you were at the end of last year just to kind of see revenue is a little bit light here in the quarter, but wondering how youre thinking about the outlook for bookings growth in the back.
Half of the year given your commentary in particular around seeing a return of early stage projects in the mix during the quarter and whether or not youre still thinking about flat backlog year over year as kind of the goal for fiscal 2024.
Yes.
Crystal balls, a little cloudy on that one.
The difficulty.
Max is that.
Is that signing from quarter to quarter as we've talked in the past and I've mentioned also publicly is it's lumpy. We do we've seen 69 million signings in a quarter and I guess, the $29 million signings in a quarter. So it can be very erratic.
I think to be Frank with you if we can hold the.
The.
The backlog, where we where we mentioned before would be would still be a reasonable result.
I would say that theres a bit of optimism, but again some of these are some of the opportunities that we're talking on a working on are quite significant.
The binary and when you come second you don't get 30% or 60%.
Zero so.
It's always a little difficult in the short term to predict where that will be due to the lumpiness, but I don't think necessarily our opinions change, but if it was going to go anywhere it would seem to be going up and not down I would've said.
Got it. Thank you again for taking my questions no.
No problem thanks for the questions.
Thank you one moment.
Final question for today.
Okay.
Final question comes from the line of Sean Dodge from RBC capital markets. Your question. Please.
Hey, Good afternoon. This is Thomas Keller on for Sean Thanks for taking the question.
Just one for me on gross margins, how should we think about progression there for the balance of the year are there any specifics you can point to other kind of one time items when you consider.
Yes Thomas.
No.
Taking the first half aside.
Still.
The second half at the revenue levels to hit call at the midpoint midpoint of guide is still similar to what we've talked about going into this year and last quarter.
There's going to be a gross.
Margin impact for the additional cost and additional depreciation that we have this year that would put it into the mid teens area, which I would I would expect to be plus or minus that mid teens area.
As you hit that top line for the second half of the year. So that's going to be diluted by the first half.
Okay.
Alright, I appreciate it thanks, Jeff I'll leave it there.
Okay.
Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Nick Green for any further remarks.
Yes. Thank you operator, and thank you to everybody participating on today's call.
As we approach the end of calendar 'twenty three we look forward with some optimism to the second half of our fiscal year and the beginning of 2024.
Starting at the beginning of 'twenty four will hold for the business.
We feel the business is well positioned to generate cash from operations and in the near term with sustained and sustainable profitability within reach we thank our customers for their trust and partnership.
<unk> for their continued support and we wish to recognize Arctic social employees, who continue to drive the success. Thank you again for participating today.
<unk> supportive of it by our services.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
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Good day, ladies and gentlemen, and welcome to the avid Baidu services second quarter fiscal 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 may be recorded I would now like to hand, the conference over to Tim Brons of avid.
Esters Relations group. Please go ahead Sir.
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 avid Chief commercial officer.
Today, we will be providing an overview of avid bio services contract development and manufacturing business, including updates on corporate activities and financial results for the quarter ended October 31 2023 after.
After our prepared remarks, we will welcome your questions before we begin I would like to caution that comments made during this conference call. Today December seven 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 statements made today.
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.
Can find our earnings press release, including relevant non-GAAP reconciliations on our corporate website at avid bio dot com.
That I will turn the call over to Nick Green Abbott's, President and CEO.
Thank you Tim and thank.
Thank you to everybody participating today via webcast.
Second quarter revenues were impacted by a number of factors behind this and we are.
Looking ahead to the second half of <unk>.
We closed the quarter with an improved cash balance we have now completed the expansion program started almost three years ago.
Our backlog has achieved a new record high.
And as we embed in guidance, we would expect significant growth over the first half with revenues approximated those achieved in the second half of fiscal year 2020.
The highest six months in the company.
During the second quarter, our team continued to execute on both business development and operational fronts.
Despite the financial challenges faced by many of our current and prospective customers.
Important programs continue to advance.
Average commercial team had another strong quarter secured new business wins of approximately $75 million.
Resulting in a record backlog of $199 million.
Where it comes from both new and existing customers and strengthens our capabilities, including our new cell and gene therapy.
Our CGC.
Right.
As reported last quarter, while we continue to win more projects in the later stages of clinical development.
We're pleased to see several early stage programs advanced during the quarter.
And we were delighted to see one of our customers receive FDA approval for our products, which we are currently conducting a <unk> campaign to reflect this transaction.
In support of our <unk> services. The company was recently accepted into an interesting partnership with Teva and the California Institute of regenerative Medicine.
Sure.
Which we feel both validates our nearest business as well as increased visibility in the industry.
Third is dedicated to the advancement of manufacturing of a D var associated the dania buyers as well as other cell and gene therapy programs within the state of California.
Matt will provide a bit more information on this partnership.
And operations during the quarter average successfully executed its planned annual maintenance shutdown.
It's important we also completed construction of the Companys cgmp manufacturing suites within our new World class CGT developments and manufacturing facility.
Thank you.
The newly launched manufacturing suites.
And final environmental monitoring and performance qualification and.
And as we rapidly approach the start of calendar 'twenty 'twenty four we are looking forward to being able to engage with potential customers with our offering complete.
Mike and I will provide additional details on business development and operations for the period following an overview of our second quarter fiscal 2024 financial results.
And for that I'll turn the call over to Doug.
Thank you Nick before I begin in addition to the brief financial overview I will 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 and six months ended December 31 2023.
Revenues for the second quarter of fiscal 'twenty, four 'twenty $5 4 million representing.
Representing a 27% decrease as compared to revenues of $34 8 million.
Recorded in the prior year period.
For the first six months of fiscal Q4 revenues were $63 1, million% to 12% decrease compared to $71 million in the prior year period.
The decrease in revenues for both periods as compared to the prior year periods was primarily.
Steve our manufactured brands and reductions in process development services from early stage customers at.
The reduction of revenue for changes in estimated variable.
Under our contract with uncertainties have been resolved.
Gross.
For the three months ended October 31, 2003 was negative 18% compared to 12% for the same prior period in the prior year.
Gross margin for the first six months of fiscal 'twenty forward was negative 1% compared to a gross margin of 19% from the same period.
Right.
Great.
The decrease in gross margin percentage for both periods as compared to the same prior year periods.
It was primarily driven by lower manufacturing volumes and costs related to expansion of both our capacity and our technical capabilities.
This included adding staff and associated overhead, including depreciation expense.
Will provide critical capacity for near and medium term growth.
Margins during the three and six months ended October 31, 2023 were also impacted by the decision to defer our customers.
Pain after our annual maintenance shutdown <unk>.
Combined with the reduction of revenues for changes in estimated variable consideration under a contract for uncertainties have been resolved.
The decrease in gross margin for the first six months of fiscal 'twenty. Four was further impacted by a terminated project relating to the insolvency of one of our smaller customers.
The delayed our ability to recognize revenues of our customer products pending the implementation of our processes.
Excluding all of these factors, our second quarter and year to date adjusted gross margin percentages.
Would have been two percentage points, one percentage points lower than the reported gross margin percentages.
Prior year periods, respectively.
As disclosed previously we expect the expense related costs will continue to affect near term margins, especially the related increase in depreciation costs.
Importantly, as we increase our capacity utilization, we will began to absorb these increased costs leading to improved gross profit.
SG&A expenses for the second quarter of fiscal 'twenty four were $6 6 million.
The decrease of 4% compared to $6 $8 million recorded in the second quarter of fiscal 'twenty three.
The decrease in SG&A for the second quarter was primarily due to a decrease in payroll and benefits.
And other professional fees.
SG&A expenses for the first six months of fiscal 'twenty four were $12 8 million a decrease of 3% compared to $13 2 million reported in the prior year period.
The decrease in SG&A for the six months was primarily due to decreases in legal accounting and other professional fees.
During the second quarter of fiscal 'twenty for the company's net loss was $9 5 million or 15 cents per basic and diluted share compared to a net loss of $1 $2 million or <unk> <unk> per basic and diluted share for the second quarter fiscal 'twenty three.
For the first six months of fiscal 'twenty for the company recorded a loss.
$11 6 million or 18.
Sure as compared to net income of approximately 400000 or <unk> <unk> per basic and diluted share during the same prior year period.
For the second quarter of fiscal 'twenty four the company had an adjusted EBITDA of negative $6 million.
For the first six months of fiscal 'twenty four the company had an adjusted EBITDA of negative $3 2 million.
Our cash and cash equivalents on October 31, 2023 were $31 4 million compared to $38 5 million on April 32020.
The second quarter cash and cash equivalents balance representing a 26% increase compared to $24 9 million at the end of the first quarter of fiscal 'twenty four.
But at the end of the second quarter, we estimate our remaining fiscal 'twenty four expansion related capital expenditures to be approximately $2 million.
And other financial news during the quarter the company entered into an amendment to its revolving credit agreement with bank of America.
This credit facility was amended to extend the maturity date to October 2024 from the initial maturity to March 2024.
This amendment also included an increase in the related interest rate apply to any borrowings under the revolver and increase the allowable amount.
The company can occur at any one time.
Capital assets.
The other material terms of the credit agreement remains unchanged while.
While the company has no current plans to draw down on this facility have abuse. This instrument.
Sure.
Okay.
This concludes my financial overview I will now turn the call over to Matt for an update on commercial activities during the quarter.
Thanks, Dan.
I am pleased to report that our commercial team had another strong quarter during.
During the period avid recorded bookings of $35 million from new and existing customers, including a meaningful contract signed for the recently completed CGT facility.
The company ended the quarter with a record backlog of $199 million representing.
Representing an increase of 35% as compared to $147 million at the end of the second quarter of fiscal 2023.
While certain early stage projects in our pipeline remain on hold pending customer financing events, we continue to see growth in our later stage in commercial project portfolio during the quarter.
As a reminder, later stage projects are generally larger and take longer to complete as compared to earlier stage programs.
For that reason, we expect that recognition of our backlog for these projects will extend beyond one year.
As these later stage programs have significantly higher probability of regulatory approval in a shorter timeframe. We believe they are more likely to generate the recurring and ramping commercial revenues associated with such approval.
Well there is no guarantee that regulatory approval will be achieved for any program. We do believe that our pipeline, which remains weighted towards later stage projects offers enhanced opportunity for regulatory success and ultimately for stable growth in the medium to long term.
We are pleased to see continued growth in this segment of our backlog and remain committed to pursuing and supporting projects at every stage of development and manufacturing.
We are in fact seeing some improvement in our early stage pipeline.
We remain fully engaged with new and prospective customers in every phase and continue to build visibility for the avid brand through consistent outreach and industry events.
As Nick mentioned previously avid joined the search industry resource partner program to provide development and cgmp manufacturing services to serve funded programs.
Currently serve has $5 $5 billion in funding from the state of California and has more than 161 active stem cell programs in their portfolio.
Avid will assist service partners and accelerating gene therapy development and manufacturing through its suite of CMO services, which span process and analytical development.
Cell banking virus banking drug substance manufacturing and fill finish activities.
Sarah funded programs will be offered access to avid services in order to reduce the timelines required to advance through clinical development.
All partnership activities will be performed at average recently launched World class CGT manufacturing facility.
We are very pleased to have entered this validating partnership with <unk>, which we believe will further strengthen our presence broadly amongst <unk> and more specifically as a manufacturer of CGT products.
In closing I would like to reiterate how pleased we are with the commercial team's performance during the second quarter and we are looking ahead with optimism to the second half of the year.
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, Bob.
I will provide an overview of the company's operational activities first we successfully executed as planned annual maintenance shutdown during the quarter.
While these temporary shutdown contributed to the lower revenues for the period.
The enterprise is an essential activity to ensure the efficiency of our systems and we are very pleased to have this process completed or another yet.
As we announced we have completed the construction of our southern gene therapy manufacturing suites.
He is newly launched suites, which are housed within the Companys, New World class CGT development and manufacturing.
Currently undergoing final environmental monitoring and performance qualification.
With the completion of this latest expansion project now.
<unk> now completed all faiths of abroad multiyear expansion and will deploy uplifts of approximately 180 million from <unk>.
2020 to 2023.
Two expansions of both revenue generating capacity and technical capabilities.
Looking ahead, we are now well positioned to lead the manufacturing needs of current and future customers advancing both malian <unk> products.
Today, we estimate that our combined facilities have the potential to bring our total revenue generating capacity.
Up to $400 million annually.
More than triple the revenue generating capacity of our pre expansion business.
And while the operating costs associated with these facilities and service expansion is how it impacted our margins.
This new infrastructure has been a major contributor and extracting the laser based projects currently in our backlog as well as positioning out of it.
They are a large pharma segments of the market previously underserved by the business.
This strategy is already paying off demonstrated by the increase in customers with whom we work.
With this strong rate towards major phase.
Further we are now beginning to on both projects utilizing the capabilities offered by <unk>.
When we combine all this new capacity.
With decades of experience in biologics and commercial manufacturing.
Recall that demonstrates our focus on quality on the talent signing early stage development commercialization.
We have established an organization there.
There will continue to thrive in this growing and attractive market.
Not only did the court has seen the completion of our current expansion program. It also saw the cessation of manufacturing the company's legacy small scale stainless steel facility.
And while the effective this impacted the second quarter as we look forward I would now benefits from all its mammalian GMP manufacturing under a single route.
With one of the most modern and high quality facilities available in the industry.
This will further enhance the company's ability to improve margins as we continue the prior system growing.
Filling this capacity.
As we are more than aware the downturn from the biotech funding has certainly impacted the business initiatives.
This combined with other factors. We've reported has led to a disappointing first half of fiscal 'twenty compared to before.
And as a result, we are compelling.
<unk> guidance to $137 million to $147 million.
That being said as we look forward, we have an improved cash position, we have seen an increase in our early phase signings during the second quarter.
We have completed all currently expansion activities.
And to the second half with our backlog at an all time high and one of the products in our late stage pipeline has already received FDA approval.
As we look more closely at the second half of the year.
We anticipate revenues approximating half two of fiscal year 'twenty with.
Which represents the best half year performance in our company's history.
As we approach you guys have offered.
We are delighted to mark the completion of what has been a three year program of increasing capacity.
Modernizing the asset base as well as transform vindicated abilities and the momentum in business.
And at the same time broadening the avid offering to include the <unk> capabilities.
And both process development and now GMP manufacturer.
Also joining us.
We look back at where we came from.
We retire the old things.
Which model, we sell off our CMO business.
<unk> and commercial manufacturing.
While calendar 2023, so how these challenges.
Team has worked diligently in pursuit of our goal.
As we enter calendar 'twenty 'twenty four obviously the company with synergy is in biologics manufacturing.
Q1 year regulatory track record and more than 200 commercial batches under our belt.
Operating out of a modern asset base with capacity to accommodate commercial needs of all date based clinical programs.
Some of them, which we hope will soon become commercial products.
Business with an increasingly diverse customer base and pipeline.
While there will be much of 2023, we will be happy to put behind it.
It would not surprise me that we look back this year and the start of a new phase.
Not only in how our company looks but they also in the market, which we serve.
I feel genuinely blessed to work with the team that has shown the 42 to undertake such a monumental task.
That has not wavered, one bit in the pursuit of the targets we set ourselves.
And I look forward with a high level of excitement at the prospect of filling this capacity and continuing to guide the future development of Abbvie.
This concludes my prepared remarks for today and we can now open up the call for questions.
Brexit.
Certainly ladies and gentlemen, if you do have a question at this time. Please press star one on your telephone to remove yourself from the queue simply press Star one again, one moment for our first question.
And our first question comes from the line of Jacob Johnson from Stephens. Your question. Please.
Hey, Thanks, good afternoon.
And maybe Nick kind of leaving off are starting off where you just left off.
Can you.
On the backlog in two key revenue in 'twenty four outlook. So.
Pretty good bookings in the quarter record backlog, but revenues down year over year can you just kind of help us square those two items and I guess, along those same lines you keep pointing to the backlog extending beyond a year.
As it has that backlog lengthened like extended even even further is it taking even longer to close that or are.
Or are we just waiting for things like <unk> campaign to hit I know Thats, a lot, but I'll stop there with the first question.
No thanks very much Jacob.
And good question first.
First to sort of answer your last question how does the backlog extended the answer to that is no.
Pretty much sustainable stable in terms of where it is.
So certainly that so certainly no further spread.
I think at the end of the day, where we what we've seen here apart from some of the.
The things that the debt.
Don highlighted in the.
Earnings in the first half obviously is the impact of the biotech funding.
We've continued to sign the business and then it really is a matter of bringing through those late phase programs, which is just a lot bigger in size and take longer to execute and you've got to line them up so we've got.
I recently.
Published on the website, our investor presentation, which kind of shows you.
A good indication of the maturity of the pipeline that we have.
And simply to put large volumes of material into that new asset one has to first of all obviously attract the customer and the second thing that is to execute on the <unk> campaign, which ultimately will lead to a BLA filing and then the commercial volumes that come after that.
And I think.
Because those are as they are in the market on a day to day basis is that that this is just unfortunately, a natural time phased that that takes to execute.
And once you've completed the <unk> campaign.
Have to file a lot that data along with the clinical data to the FDA and get approval and then the commercial volumes come and of course, one of the other issues of course, nobody is going to put a P. P. Q campaign together with with the supplier that doesn't have that capacity to meet the commercial demand.
So it's really just a transition of the business as we've been kind of highlight from what was originally a clinical company that was it.
Significant large commercial demand into one that's got a very much more diverse customer base.
A significant number of late phase programs, which were just trying to get executed get that data off and then obviously as you look forward to at.
And at least an industry average of commercial approvals that we can then.
We can then execute against them.
We couldnt have asked for a better situation than we've got right now which is that.
Concerning one of those in they've already got approvals, so thats about as fast as they ever goes so looking forward to that one.
Got it thanks for that Nick and then.
Maybe I guess for my follow up on what you just alluded to.
Yes, I think in that deck. You suggests that these later stage opportunities could be $100 million to $200 million revenue opportunity I think the inevitable question is what is the timeline for assuming all goes well and I know that's impossible for any of us to handicap, but assuming all goes well is that is that a P.
Revenue that could be five years out or how should we think about the path to that kind of revenue potential.
Again.
Without trying to get into each of the individual ones because they all have such different different profiles to be Frank with you now in terms of the size of the markets. They serve and also the <unk>.
The probability of success.
You can have you can have four out of eight for example, getting approval and if all four of those are small ones and the impact is not that great. If all four of those were larger on the impacts enormous and then there's all the different timelines. So thats a really difficult question to ask but to answer either but I think in general terms. You know you look at the sort of growth.
We've seen in this business in the past I don't see any we know the growth in the marketplace going forward and that and we know that capacity. We've got in you draw those lines in any.
Anywhere between sort of I think on the fast side will be three years to fill that capacity on the on the longer side, you're probably looking at somewhere like six years, but anywhere in that window. I think is not unreasonable obviously would add anything.
Soon as quickly as we possibly could.
But it's.
The fact that we've got so many is really really.
Good strong indicated to us that we will be filling that capacity.
Got it I'll leave it there thanks for taking the question.
Thanks Jacob.
Thank you one moment for our next question.
And our next question comes from the line of Matt Hewitt from Craig Hallum. Your question. Please.
Good afternoon, and thank you for taking the questions maybe the first one I think Matt I think you mentioned in your prepared remarks that you did win.
So gene therapy contract during the quarter I'm, assuming that on the manufacturing side or is that development did that come through the new CRM relationship.
That is the early stage projects, yes, and it's in our PD group and that's where it's going to span currently there is potential in the future for that to grow obviously, but the only piece that they've contracted for at this point.
Until further development as the early phase work.
Got it and it didn't come through some math it was independent of soon that's right that's right sorry.
Okay, I was going to say that was really quick.
Sure.
New partnership.
Alright.
Last quarter I think you said that you had actually won.
Competitive displacement those are my words, but you had won some business from a competitor from a large pharma customer and I'm curious how is that.
Business progressed is that opening up doors for other opportunities.
Okay.
So I'm trying to remember the competitive front, we've certainly won business from large pharma and from competitors, but I don't know that we won't have large pharma big from a competitor and I'm trying to think whether that might have been but.
Sure.
But I don't remember it being from a big pharma.
I think we've done both of those but not together.
So.
All I can say is that all our business with the with the ones that we've been winning.
Continuing to progress well so no.
No issues on on any of those.
Okay. Thank you.
Thanks, Mike.
Thank you one moment for our next question.
And our next question comes from the line of Paul Knight from Keybanc. Your question. Please.
Yes, Dan you mentioned 2 million of Capex remaining in the fiscal year.
I did yes Paul.
And if I could break that down for you so in the first half.
We believe spent $21 million on Capex, and we've incurred $8 million.
Which has now been spent but outside of those dollars we have an additional two to incur.
What maintenance Capex after this fiscal year.
It's going to be really low.
Is going to be some.
Systems that we're going to need to continue to invest into but as far as the assets. Most of the assets are brand new so we would likely be 2% ish, maybe sub 2% of revenues.
Ben Your line of credit the size on that.
The size of our line of credit is $50 million.
And then Nick.
On the cell and gene therapy, a portion of the business.
Alliance for regenerative medicine is showing finally from sequential growth in trial activity.
Are you seeing that.
Yes, I mean, we literally have just opened the GMP assets.
<unk> sorry.
Probably a little early to say that we see.
What we're saying is reflective of the market I think we've seen some good engagement.
I think probably a lot of that is because we're here now when we bought the assets as opposed to a market indication, but we certainly have seen a good flurry of activity obviously, signing another client that is there and a meaningful one is also quite.
Encouraging as we come out of the gate.
And we have an ongoing engagement with a number of clients.
I'm, certainly, hoping that thats not going to be the last in the near future.
We are encouraged by what we generally hear in the marketplace.
But I think where we're at.
Hoping to see a lot more of that as we go forward for sure.
And Nick I think obviously this.
Industry issue for as it has been centered around.
The lower level of early stage biotech financing.
Are there any other features that stand out in a positive or a negative way is the capacity opening up globally is that bad for you or does it not matter.
And we.
We've got a lot of approvals this year I mean, what are the other factors.
And then last thing I would I think we all think about right and is there more ensuring so excluding biotech financing do you think the market dynamics there.
Better or worse for you right now.
It is interesting that's a good question and thanks for asking that one Paul.
Just trying to look at where how I am looking at the marketplace as we sit today I remember six months ago that the end of a really good yeah, where we were feeling really positive about what we've just done and then I was looking forward at what was going on in the marketplace.
And there are obviously add to report lower level guidance going forward for that for the following year for the first time.
As I sit here today, we're clearly not happy with the last quarter and I don't think anybody around here is going to make any.
Any other calls on that one, but contrary to that position that we had last year at the beginning of the I actually feel more positive now about what's coming forward.
So we've captured a good number of late phase programs a lot of those are coming to us from other <unk>, which sort of say is that we're doing the right things. We've got those because we've got the capacity account control what happens in terms of FDA approval I only wish I could say I wish I could sit here and tell you which one.
Are those are going to go forward, but the number of phase III programs up guide not a lot different from the number of phase one programs.
In my 40 years, I've never known that happen.
So we're very buoyed by that.
I think Matt highlighted that in our signings that we'd said that we'd seen some early phase signings, which were completely devoid in quarter, one which is again another positive sign and we kind of have some leading indicators in the conversations and the pipeline that we see behind that and we're starting to see some positivity there.
I'm not going to turn around and tell you that there is a recovery underway.
No all of his title wave coming that's not the case, but I do think that we see a much more positive outlook going forward and if we hit that.
The guidance that we've just given which we obviously would intend to do because that's what we've just provided.
That would be similar to the back end of last year and if we can hit the record revenues.
That we saw at the end of 'twenty three and then continue that then I think we're.
As I say at the beginning we we have a much more positive feeling to the business in the industry today than I did six months ago.
Alright, thank you.
Thank you one moment for our next question.
And.
Our next question comes from the line of Max <unk> from William Blair. Your question. Please.
Hey, good afternoon. Thanks for taking my questions, maybe just starting off here I was wondering if you can give some more detail around what exactly the change in estimated variable consideration under a contract where uncertainties had been resolved relates to and what the impact was in the quarter and then similarly was the impact of the customer's decision to defer that PDQ campaign.
And until after annual maintenance shutdown and is that campaign now ongoing.
Sure Max I'll start I'll start off with that so the.
<unk> is a variable consideration is.
Another way to say that it was a change in estimate.
The revenue recognized on certain programs was less than originally estimated at the beginning of that project.
Under <unk>.
606 revenue Rec rules were percentage of completion shop. So.
Those estimates can change during the period.
So the impact of that in the quarter.
Was roughly.
$2 million of gross profit.
So around <unk> eight percentage points.
And as far as the.
Deferral deferral was a similar gross profit.
Hit of roughly eight percentage points and as far as the the batches themselves Nick.
No I mean, the decision was a mutual decision.
PPG campaigns.
Something where youre executing three batches identical.
That's always a lot easy when you do them back to back to back.
Where we were was that we would like to split those across the shutdown, which we felt was.
Better not to do that and keep them all in line or otherwise we would have got to move the shutdown, which again was not an ideal situation. So.
It was a mutual decision between us and the customer the programs now opened on ongoing.
Going going as planned.
Again, not what we ideally would have wanted to do but I would always prefer to run.
We run at <unk> with three batches literally back to back to back.
Got it that's helpful. Maybe just asking a follow up to Jacobs earlier in terms of the backlog I'm. Just wondering how confident are you in the actual quality of network that you have in backlog.
If there's any detail you can provide around what portion of your backlog is currently on hold and how that relates to maybe last quarter. When we spoke and just in general how you would characterize your visibility into whether or not that work is going to actually start to move forward here again in the near future. Thank you.
Our backlog typically converts.
I would say north of 95% probably closer to.
Closer to them towards the 100 on that one so we really it's firm business is none of it on hold as they say.
Do know I know.
One program I got news have last week, that's actually being brought forward. So when when done articulate that is not getting not getting any longer.
In potash might argue that there's a little bit of pull in that but there is always a little bit of a switch.
Swell forward and backwards, but no material change and certainly from a conversion perspective, we expect the vast majority as I said more than 95%.
No closer to a 100 of that to execute.
Okay, and then if I could just sneak one more in here I think you had previously talked Nick you talked about holding backlog flat year over year as being kind of a win here in fiscal 'twenty four thanks, Lee stepped up a little bit relative to where you were at the end of last year, just because revenue is a little bit light here in the quarter, but wondering how youre thinking about the outlook for bookings growth in the back.
Half of the year given your commentary in particular around seeing a return of early stage projects in the mixed during the quarter and whether or not youre still thinking about flat backlog year over year as kind of the goal for fiscal 2024.
Yes.
My Crystal ball.
Cloud that will add the difficulty.
I have Max is that.
Is that signing from quarter to quarter as we've talked in the past and I've mentioned also publicly is it's lumpy. We do we've seen 69 million signings in a quarter and I think guessing $29 million signings in a quarter. So it can be very erratic.
I think to be Frank with you if we can hold the.
The.
The backlog, where we where we mentioned before would be would still be a reasonable result.
I would say that theres a bit of optimism, but again some of these are some of the opportunities that we're talking on a working on are quite significant.
And the binary and when you come second you don't get 30% or 60%.
Zero, so it's always a little difficult in the short term to predict where that will be due to the lumpiness, but I don't think necessarily our opinions changed but if it was going to go anywhere it would seem to be going up and not down I would have said.
Got it. Thank you again for taking my questions no problem. Thanks for the questions.
Thank you one moment for our final question for today.
And our final question comes from the line of Sean Dodge from RBC capital markets. Your question. Please.
Hey, Good afternoon. This is Thomas Keller on for Sean Thanks for taking the question.
Just one from me on gross margins, how should we think about progression there for the balance of the year are there any specifics you can point to other kind of onetime items, we need to consider.
Yes Thomas.
So.
Taking the first half aside it's still.
The second half at the revenue levels to hit call at the midpoint midpoint of guide is still similar to what we've talked about going into this year and last quarter and that theres going to be a gross.
The margin impact for the additional cost and additional depreciation that we have this year that would put it into the mid teens area, which I would I would expect to be plus or minus that mid teens area.
As you hit that top line for the second half of the year. So that's going to be diluted by the first half.
Okay.
Alright, I appreciate it thanks, Jeff I'll leave it there.
Okay.
Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Nick Green for any further remarks.
Yes. Thank you operator, and thank you to everybody participating on today's call.
As we approach the end of calendar 'twenty three we look forward with some optimism to the second half of our fiscal year and the beginning of 2024.
Sorry on that what the beginning of 24 will hold for the business.
We feel that the business is well positioned to generate cash from operations and in the near term with sustained and sustainable profitability within reach we thank our customers for their trust and partnership.
<unk> for their continued support and we wish to recognize Arctic social employees, who continue to drive the success. Thank you again for participating today.
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Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.