Q3 2024 Avid Bioservices Inc Earnings Call
Okay.
Speaker Change: Good day, ladies and gentlemen, and welcome to the avid Biosciences third quarter fiscal 'twenty 'twenty four financial results conference call. At this time all participants are in a listen only mode. Later, we'll conduct a question answer session and instructions will follow at that time as a reminder, this conference call maybe recorded.
Operator: Good day, ladies and gentlemen, and welcome to the Avid Bioservices Third Quarter Fiscal 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we'll 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 call over to Tim Brons of Avid's Investor Relations Group.
Speaker Change: Like to hand, the conference over to Tim Brons of Abbott's Investor Relations Group. Please go ahead.
Tim Brons: 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 <unk>, Chief Commercial officer.
Tim Brons: 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 January 31st, 2024. 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, April 29th, 2024, will contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 concerning the current beliefs of the company, which involve 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.
Tim Brons: Today, we will be providing an overview of avid <unk> contract development and manufacturing business, including updates on corporate activities and financial results for the quarter ended January 31 2024.
Tim Brons: 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 April 29, 2024 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.
Tim Brons: Differ from 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.
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 includes discussion of certain non-GAAP information. You can find our earnings press release, including relevant non-GAAP reconciliations, on our corporate website at avidbio.com. With that, I will turn the call over to Nick Green, Avid's president and CEO. Thank you, Tim.
Tim Brons: Our earnings press release includes discussion of certain non-GAAP information you can find our earnings press release, including relevant non-GAAP reconciliations on our corporate website at <unk> Dot com.
With that I will turn the call over to Nick greet Abbott's President and CEO.
Nicholas Stewart Green: Thank you Tim and thank you everyone participating today via webcast.
Nicholas Stewart Green: Thank you, Tim, and thank you to everyone participating today via webcast. We are excited to report our results for the third quarter of fiscal 2024. Last quarter, we told investors that we expected revenues for Q3 and Q4 of fiscal 2024 to ramp upward, and, as anticipated, during the third quarter, we recorded an increase in revenues of more than 30% as compared with the second quarter of 2024, and we continue to anticipate a strong quarter four. Consistent with our pre-release, we remain on track for full fiscal year 2024 revenue to be within our previously disclosed guidance range.
We are excited to report our results for the third quarter of fiscal 2024.
Nicholas Stewart Green: Last quarter, we told investors that we expected revenues for quarter, three and quarter four of fiscal 2024 to ramp upward.
Nicholas Stewart Green: As anticipated during the third quarter, we recorded an increase in revenues of more than 30% as compared with the second quarter of 2024.
Nicholas Stewart Green: And we continue to anticipate a strong quarter for <unk>.
Nicholas Stewart Green: Consistent with our pre release, we remain on track for full fiscal year 2020 for revenue to be within our previously disclosed guidance range.
Nicholas Stewart Green: Consistent with last quarter, we still feel quarter two of fiscal 2024 was a low watermark for avid and we look forward with optimism as our later stage pipeline begins to flow through the financials.
Nicholas Stewart Green: Consistent with last quarter, we still feel that Quarter 2 of Fiscal 2024 was a low-water mark for Avid, and we look forward with optimism as our later-stage pipeline begins to flow through the financial... The financial environment for our customers continues to strengthen, and we continue to benefit from our recently completed expansion program. During the quarter, we signed multiple new project agreements with both existing and new customers. The bookings for the period were quite strong, resulting once again in a new record high backlog, breaking the $200 million level for the first time.
Nicholas Stewart Green: The financial environment for our customers continues to strengthen and we continue to benefit from our recently completed the expansion program.
During the quarter, we signed multiple new project agreements with both existing and new customers.
The bookings for the period were quite strong, resulting once again, a new record high backlog breaking the $200 million level for the first time.
Nicholas Stewart Green: We are also encouraged to see an increasing proportion of these signings associated with early stage projects during fiscal quarter three, representing the second consecutive quarterly-on-quarter increase from the low seen in fiscal quarter one. We view this, along with a number of other factors, as signs of an improving financing environment for biotech. In operations, we were delighted to cut the ribbon on the grand opening of our new cell and gene therapy, or CGT, facility and are happy now to be engaging with customers with our complete offering in place.
We are also encouraged to see an increasing proportion of these signings associated with early stage projects during quarter three.
Nicholas Stewart Green: Representing the second consecutive quarter on quarter increase from the low seen in fiscal quarter one.
Nicholas Stewart Green: We view this along with a number of other factors and signs of an improving financing environment for biotechs.
Nicholas Stewart Green: In operations, we were delighted to cut the ribbon on a grand opening of our new cell and gene therapy or CGT facility and are happy now to be engaging with customers with our complete offering in place.
Nicholas Stewart Green: Completing the construction of our <unk> facility represented the final step in a three year expansion program that has dramatically increased the company's service offerings and revenue generating capacity.
Nicholas Stewart Green: Completing the construction of our CNGT facility represented the final step in a three-year expansion program that has dramatically increased the company's service offerings and revenue-generating capacity, transforming Avid into a stronger and substantially enhanced organization. Importantly, we expect to see strengthening cash flow and margins as we cease CAPEX associated with the expansion, and we benefit from the operating leverage of our newly completed facility. As previously communicated, it was necessary to refinance our 2026 convertible notes prior to the closing of the quarter.
Nicholas Stewart Green: Forming avid into a stronger and substantially enhanced organization.
Nicholas Stewart Green: Importantly, we expect to see strengthening cash flow margins as we see capex associated with the expansion and we benefit from the operating leverage of our newly completed facilities.
Nicholas Stewart Green: As previously communicated it was necessary to refinance our 2026 convertible notes prior to the closing of the quarter.
Nicholas Stewart Green: This caused a delay in the filing of our quarter three results and required us to restate certain prior quarters.
Nicholas Stewart Green: This caused a delay in the filing of our quarter three results and required us to restate certain prior quarters. With the new instrument, we have extended the maturity of our debt to 2029, which provides us stability as we direct our efforts at filling our newly created capacity and taking advantage of the improving market conditions. Matt and I will provide additional details on business development and operations during the period following an overview of our third quarter fiscal 2024 financial results. And for that, I'll turn the call over to Dan.
Nicholas Stewart Green: With the new instrument, we have extended our maturity of our debt to 2029, which provides us stability as we direct our efforts on selling our new newly created capacity and to take advantage of the improving market conditions.
Nicholas Stewart Green: Martin and I will provide additional details on business development and operations from the period following an overview of our third quarter of fiscal 2024 financial results.
Nicholas Stewart Green: And for that I will turn the call over to Dan.
Thank you Nick.
Daniel R. Hart: Before I begin in addition to the brief financial overview I'll provide on the call today. The additional details on our financial results are included in our press release issued on April 24th and in our Form 10-Q, which was also filed on April 24th with the SEC.
Daniel R. 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 our press release issued on April 24th and in our Form 10-Q, which was also filed on April 24th with the SEC. Before I begin, I would like to quickly touch upon the note acceleration that Nick mentioned in his opening remarks.
Before I begin I would.
Daniel R. Hart: I'd like to quickly touch upon the no acceleration that Nick mentioned in his opening remarks.
Daniel R. Hart: First, there was a default stemming from a technical requirement relating to the removal of a legend that led to the acceleration of our convertible senior notes due 2026. As a result of the note acceleration, in March, we conducted and closed an offering of $160 million aggregate principal amount of 7% convertible senior notes due on March 1, 2029. We used approximately $146 million of the net proceeds from the offering to repurchase and repay our 2026 notes.
Daniel R. Hart: First there was a default stemming from a technical requirement relating to legend removal that led to the acceleration of our convertible senior notes due 2026.
Daniel R. Hart: As a result of the acceleration in March we conducted and closed an offering of $160 million aggregate principal amount of 7% convertible senior notes due on March one 2029.
Daniel R. Hart: We used approximately $146 million of the net proceeds from the offering to repurchase and repay our 2026 notes.
Daniel R. Hart: As disclosed in our recent filings with the SEC, we undertook an evaluation of our financial statements spending for the period October 31, 2022 to October 31, 2023, including the 10-K for the year ended April 32023.
Daniel R. Hart: As disclosed in our recent filings with the SEC, we undertook an evaluation of our financial statements for the period October 31st, 2022 to October 31st, 2023, including the 10K for the year ended April 30th, 2023. The company's Audit Committee determined, based on management's recommendations, that certain recent periods would require a restatement to reclassify the 2026 notes from long-term liabilities to current liabilities on our balance sheet and to account for the incremental interest associated with our 2026 notes. There were no other material adjustments to our financial statements for each of the restated periods.
Daniel R. Hart: The company's audit committee determined based on management's recommendation.
That certain recent periods would require restatement to reclassify. The 2026 notes from long term liabilities to current liabilities on our balance sheet and to account for incremental interest associated with our 2026 notes.
Daniel R. Hart: There were no other material adjustments to our financial statements for each of the restated periods.
Speaker Change: I'll now provide an overview of our financial results from operations for the quarter and nine months ended January 31 2024.
Daniel R. Hart: I'll now provide an overview of our financial results from operations for the quarter and nine months ended January 31st, 2024. Revenues for the third quarter of fiscal 24 were $33.8 million, representing an 11% decrease as compared to revenues of $38 million recorded in the same prior year period. For the first nine months of fiscal 24, revenues were $96.9 million, a decrease of approximately 11% compared to $109.5 million in the same prior year period.
Revenues for the third quarter of fiscal 24 were $33 8 million.
Speaker Change: Representing an 11% decrease as compared to revenues of $38 million recorded in the same prior year period.
For the first nine months of fiscal 'twenty, four revenues were $96 9 million a.
A decrease of approximately 11% compared to $109 5 million in the same prior year period.
Speaker Change: The decreases in revenues for the third quarter and nine months ended January 31, 2024 compared to the same prior year periods were primarily attributed to fewer manufacturing runs and a reduction in process development services from early stage customers.
Daniel R. Hart: The decreases in revenues for the third quarter and nine months into January 31st, 2024, compared to the same prior year periods, were primarily attributed to fewer manufacturing runs and a reduction in process development services from early stage customers. Additionally, during the first nine months, revenues were also impacted by a reduction of revenue for changes in estimated variable consideration under a contract where uncertainties have been resolved.
Speaker Change: Additionally, during the first nine months revenues were also impacted by a reduction of revenue for changes in estimated variable consideration under contract where uncertainties have been resolved.
Gross profit for the third quarter of fiscal 'twenty, four with $2 4 million or 7% gross margin.
Daniel R. Hart: Gross profit for the third quarter of fiscal 24 was $2.4 million, or 7% gross margin, compared to $9.8 million, or 26% gross margin, in the third quarter of fiscal 23. Gross profit for the first nine months of fiscal 24 was $1.8 million, or 2% gross margin, compared to a gross profit of $23.1 million, or 21% gross margin, for the same period in fiscal 23. The decreases in gross margin for the three and nine months ended January 31st, 2024, compared to the same prior year period, were primarily driven by fewer manufacturing runs, a reduction in process development services from early-stage customers, and an increase in our costs related to expansions for both the company's capacity and technical capabilities.
Speaker Change: Compared to $9 8 million or 26% gross margin in the third quarter of fiscal 'twenty three.
Gross profit for the first nine months of fiscal 'twenty, four it was $1 $8 million or 2% gross margin.
Speaker Change: Compared to a gross profit of $23 1 million or 21% gross margin for the same period during fiscal 'twenty three.
Speaker Change: The decreases in gross margin for the three and nine months ended January 31, 2024 compared to the same prior year periods were primarily primarily driven by fewer manufacturing runs a reduction in process development services from early stage customers and an increase in our costs related to expansions for both the company's capacity.
Speaker Change: And technical capabilities gross margin during the nine months ended January 31, 2024 were also impacted by a reduction of revenue for changes in estimated variable consideration under a contract where uncertainties have been resolved.
Daniel R. Hart: Gross margins during the nine months ended January 31, 2024 were also impacted by a reduction in revenue for changes in estimated variable consideration under a contract where uncertainties have been resolved, a terminated project related to the insolvency of one of the company's smaller customers, and a delay in the ability to recognize revenues of a customer product pending the implementation of a process.
Speaker Change: A terminated project related to the insolvency of one of the companies smaller customers.
Speaker Change: And a delay in the ability to recognize revenues of our customer product pending the implementation of a process change.
Speaker Change: SG&A expenses for the third quarter of fiscal 'twenty four were $6 4 million a decrease of 10% compared to $7 1 million recorded in the third quarter of fiscal 'twenty three.
Daniel R. Hart: SG&A expenses for the third quarter of fiscal 24 were $6.4 million, a decrease of 10% compared to $7.1 million recorded in the third quarter of fiscal 23. SG&A expenses for the first nine months of fiscal 24 were $19.2 million, a decrease of approximately 6% compared to $20.3 million recorded in the same prior year period. The decreases in SG&A for both the three and nine months ending January 31st, 2024, compared to the same prior year periods, were primarily due to decreases in compensation and benefit-related expenses and consulting fees.
Speaker Change: SG&A expenses for the first nine months of fiscal 'twenty four were $19 2 million.
Speaker Change: A decrease of approximately 6% compared to $20 3 million recorded in the same prior year period.
Speaker Change: The decreases in SG&A for both the three and nine months ended January 31, 2024 compared to the same prior year periods were primarily due to decreases in compensation and benefit related expenses and consulting fees.
Operating loss for the third quarter of fiscal 24 was $4 million.
Daniel R. Hart: Operating loss for the third quarter of fiscal 24 was $4 million, a decrease compared to operating income of $2.7 million recorded in the third quarter of fiscal 23. Operating loss for the first nine months of fiscal 24 was $17.4 million compared to operating income of $2.8 million for the first nine months of fiscal 23. The decreases in operating income for the three and nine months ending January 31st, 2024, compared to the same prior year periods, were driven by a decrease in gross profit, partially offset by reduced SG&A.
Speaker Change: A decrease compared to operating income of $2 7 million recorded in the third quarter of fiscal 'twenty three.
Speaker Change: Operating loss for the first nine months of fiscal 'twenty, four was $17 4 million compared to the operating income of $2 8 million for the first nine months of fiscal 'twenty three.
Speaker Change: The decreases in operating income for the three and nine months ended January 31, 2024 compared to the same prior year periods were driven by a decrease in gross profit partially offset by reduced SG&A.
During the third quarter of fiscal 'twenty for the Companys net loss was $6 million or <unk> <unk> per basic and diluted share.
Daniel R. Hart: During the third quarter of fiscal 24, the company's net loss was $6 million, or $0.09 per basic and diluted share, compared to a net loss of $0.2 million, or zero per basic and diluted share, for the third quarter of fiscal 23. For the first nine months of FYSBA 24, the company recorded a net loss of $17.6 million, or $0.28 per basic and diluted share, as compared to net income of approximately $0.6 million, or $0.01 per basic and diluted share, during the same prior year period.
Speaker Change: Compared to a net loss of.
Speaker Change: $2 million or zero per basic and diluted share for the third quarter of fiscal 'twenty three.
Speaker Change: For the first nine months of fiscal 'twenty for the company recorded a net loss of $17 6 million or 28 per basic and diluted share as.
Speaker Change: As compared to net income of approximately zero point $6 million or <unk> <unk> per basic and diluted share during the same prior year period.
Our cash and cash equivalents on January 31, 2024 were $30 7 million.
Daniel R. Hart: Our cash and cash equivalents on January 31st, 2024 were $30.7 million, compared to $38.5 million on April 30th, 2023. This concludes my financial overview. I will now turn the call over to Matt for an update on commercial activities during the quarter.
Speaker Change: Compared to $38 5 million on April 32023.
Speaker Change: This concludes my financial overview I will now turn the call over to Matt for an update on commercial activities during the quarter.
Matt: Thanks, Dan.
Matt: During the third quarter, we were encouraged by the strengthening of our bookings for the period.
Matthew Kwietniak: During the third quarter, we were encouraged by the strengthening of our bookings for the period. With new project agreements of $41 million during the period, we ended the quarter with a backlog of $206 million, another record high for the company. The quarter's bookings include new customer projects, as well as expansions from existing customers. The resulting backlog, which includes projects spanning a broad range of the company's capabilities, represents an increase of 17% as compared to $176 million at the end of the third quarter of fiscal 2023. It is important to highlight the composition of these new books.
Matt: With new project agreements of $41 million during the period, we ended the quarter with a backlog of $206 million.
Matt: Another record high for the company.
Matt: The quarter's bookings include new customer projects as well as expansions from existing customers, the resulting backlog, which includes projects spanning a broad range of the company's capabilities represents an increase of 17% as compared to $176 million at the end of the third quarter of fiscal 2023.
Matt: It is important to highlight the composition of these new bookings.
Matthew Kwietniak: As we reported earlier in the year, during the first and second quarters, Avid's new bookings were comprised primarily of later stage projects, with a notable decline in earlier stage programs. Today, our pipeline remains weighted towards later stage programs, which generally take longer to execute, and as a result, we expect that recognition of our backlog for these projects will extend beyond one year. Later stage programs have certain key advantages, including a significantly higher probability of regulatory approval and the recurring and rising commercial revenues associated with such approval.
Matt: As we reported earlier in the year during the first and second quarters average new bookings were comprised primarily of later stage projects with a notable decline in earlier stage programs.
Matt: Our pipeline remains weighted towards later stage programs, which generally take longer to execute and as a result, we expect that recognition of our backlog for these projects will extend beyond one year.
Matt: Later stage programs have certain key advantages, including a significantly higher probability of regulatory approval and the recurring and ramping commercial revenues associated with such approvals.
Matthew Kwietniak: These later stage programs are exactly the type of project that AVID was targeting in initiating its expansion strategy. We believe they will be important contributors to filling our new capacity, not only as a result of the larger project values but also in terms of the longer term and growing demand associated with commercial supply, should they gain regulatory approval. Having said that, we were also pleased to see an incremental improvement in our pipeline mix during the third quarter, marked by an increase in the value of early-stage project books.
Matt: These later stage programs are exactly the type of projects that avid was targeting and initiating its expansion strategy we.
Matt: We believe they will be important contributors to filling our new capacity not only as a result of the larger project values, but also in terms of the longer term and growing demand associated with commercial supply should they gain regulatory approval.
Matt: Having said that we were also pleased to see an incremental improvement in our pipeline mix during the third quarter marked by an increase in the value of early stage project bookings.
Matt: Early stage programs, many of which have been postponed industry wide due to the challenging financing environment, which prevailed for much of calendar 2023 provide their own set of advantages, including also our pipeline broader capacity usage and shorter term revenue generation.
Matthew Kwietniak: Early-stage programs, many of which have been postponed industry-wide due to the challenging financing environment which prevailed for much of calendar 2023, provide their own set of advantages, including balance to our pipeline, broader capacity usage, and shorter-term revenue generation. While our pipeline remains weighted towards later stage work, we are encouraged by the levels of engagement we are now seeing with early stage customers about their programs, and we hope we are observing an improvement in the financing environment for the biotech sector as a whole.
Matt: While our pipeline remains weighted towards later stage work. We are encouraged by the levels of engagement. We are now seeing with early stage customers about their programs and hope we are observing an improvement in the financing environment for biotech sector as a whole.
During the third quarter, we continued to make progress, which with each of our active programs successfully translating backlog into revenue looking ahead, we see a healthy pipeline of opportunity in the market and we continue to pursue these programs aggressively through consistent engagement with both existing and prospective customers and <unk>.
Matthew Kwietniak: During the third quarter, we continued to make progress with each of our active programs, successfully translating backlog into revenue. Looking ahead, we see a healthy pipeline of opportunity in the market, and we continue to pursue these programs aggressively through consistent engagement with both existing and prospective customers and elevating Avid's brand recognition in the industry. We are very pleased with our progress during the period and remain on track to have an even stronger fourth quarter. 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 much.
Matt: Elevating average brand recognition in the industry.
Matt: We are very pleased with our progress during the period and remain on track to have an even stronger fourth quarter.
Matt: 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.
Nicholas Stewart Green: Thanks Mark.
Nicholas Stewart Green: We are pleased to report that during the third quarter, we achieved significantly stronger revenues and an increase in bookings as compared to Q2 2024. This momentum is in keeping with the revenue and bookings ramp that we projected for the second half of the year.
Nicholas Stewart Green: We are pleased to report that during the third quarter, we achieved significantly stronger revenues and an increase in bookings as compared to quarter two 2024.
Nicholas Stewart Green: This momentum is in keeping with the revenue and bookings ramp that we projected in the second half of the second half of the year.
Nicholas Stewart Green: As we look ahead, we believe the fourth quarter revenues will be even stronger, making our second half 2024 revenues one of the best in the company's history. With the opening of our cell and gene therapy facility located just five miles from Avid's mammalian operation, we have not only upgraded our capabilities but expanded the breadth of our offer. We can now service a larger market that includes CGT products, and we are better positioned to address the needs of large pharma customers.
Nicholas Stewart Green: As we look ahead, we believe the fourth quarter revenues will be even stronger making a second half 2024 revenues one of the best in the company's history.
Nicholas Stewart Green: With the opening of our cell and gene therapy facility located just five miles from average mammalian operations, we have not only upgraded our capabilities, but expanded the breadth of our offerings. We can now service a larger market that includes CGT products and.
Nicholas Stewart Green: And we are better positioned to address the needs of large pharma customers.
Of note the <unk> campaign, we delayed until after our Q2 Q2 maintenance shutdown has now been successfully completed.
Nicholas Stewart Green: Of note, the PPQ campaign we delayed until after our Q2 maintenance shutdown has now been successfully completed. This is the first of a number of PPQ campaigns slated for our new mammalian line, Myford South, also known as Line 3, incoming quarters.
This is the first of a number of <unk> campaigns.
Nicholas Stewart Green: Slated for our new mammalian line might've itself also known as <unk> III in coming quarters.
Nicholas Stewart Green: These expanded capabilities are already paying dividends successfully attracting the larger and later stage clients that we have discussed.
Nicholas Stewart Green: These expanded capabilities are already paying dividends, successfully attracting the larger and later-stage clients that we have discussed. And while our investment has impacted our current margins, we expect the growing utilization of our new capacity and capabilities will strengthen margins in the near term, establishing a new baseline for growth in the years ahead. In closing, I would like to acknowledge Avid's many successes during its 30-year history, achieving an industry-leading regulatory track record and delivering more than 220 commercial batches to its customers. There are few CDMOs in our peer space who can claim such achievements.
Nicholas Stewart Green: And while our investment has impacted our current margins, we expect the growing utilization of our new capacity and capabilities will strengthen margins in the near term, establishing a new baseline for growth in the years ahead.
Speaker Change: In closing I would like to acknowledge avid many successes during his 30 year history.
Speaker Change: Achieving an industry, leading regulatory track record on delivering more than 220 commercial batches to its customers.
Speaker Change: There are a few <unk> in our peer space, who can claim such achievements.
Nicholas Stewart Green: However, it has been our goal to elevate the organization beyond the size and capabilities of the. To that end, we have worked diligently over the past three years to bring Avid into the future with significantly expanded opportunities, and today, we are delighted to see our strategic plan come to fruition. During the past three years, the company has remained steadfast in its commitment to the transformation that is now complete. Today, the business is a larger, more capable, world-class organization, poised to service multiple CDMO marks, including a larger segment of the pharma market than at any time in the company's past.
Speaker Change: However, it has been our goal is to elevate the organization beyond the size and capabilities of the past to that end. We have worked diligently over the past three years to bring avid into the future with significantly expanded opportunity.
Speaker Change: And today, we are delighted to see our strategic plan come to fruition.
Over the past three years. The company has remained steadfast in its commitment to transformation that is now complete.
Today, the business is a larger more capable world class organization poised to serve as multiple CMO markets, including our largest segment of the pharma market than at any time in the company's past.
Nicholas Stewart Green: The late-stage programs in our pipeline are making great programs. One of these high-value programs has already achieved FDA approval, and others continue to advance through the approval process. When we combine the state-of-the-art facilities and expanded technical capabilities with the value of our late-stage pipeline and the strength of our commercial team, we believe we are well positioned to realize the strategic objectives of our expansion plan. As we continue to fill capacity and attract additional customers, we expect to achieve consistent growth and sustainable profitability and believe we are well on our way to establishing Avid as the supplier of choice for the industry. This concludes my prepared remarks for today, and we can now open the call to the operator. Operator?
Speaker Change: The late stage programs in our pipeline are making great progress one of these high value programs has already achieved FDA approval and then others continue to advance through the approval process.
Speaker Change: When we combine the state of the facilities and expanded technical capabilities with the value of our late stage pipeline and the strength of our commercial team. We believe we are well positioned to realize the strategic objectives of our expansion plan.
Speaker Change: As we continue to fill capacity and attract additional customers, we expect to achieve consistent growth and sustainable profitability and believe we are well on our way to establishing avid as a supplier of choice for the industry.
Speaker Change: This concludes my prepared remarks for today and we can now open the call to the operator for questions.
Speaker Change: Operator.
Speaker Change: Yes.
Speaker Change: Thank you.
Operator: Thank you. And at this time, we'll conduct a question and answer session. To ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again.
Speaker Change: At this time, we will conduct a question and answer session.
Speaker Change: To ask a question you will need to press star one on your telephone and wait for name to be announced to a draw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
Operator: Please stand by while we compile the Q&A roster. One moment for our first question. Our first question will come from Jacob Johnson from Stevens. Your line is open.
Speaker Change: One moment for our first question.
Speaker Change: Our first question will come from Jacob Johnson from Stephens. Your line is open.
Jacob K. Johnson: Hey, Thanks, good afternoon everybody.
Jacob K. Johnson: Hey, thanks. Good afternoon, everybody.
Jacob K. Johnson: Nick So a lot of positive commentary around the funding backdrop and I guess the end markets in general I guess I'd be curious about some of the other unique dynamics that are going on in the end markets right now, let's notably bias of care and then de Novo Catlin deal I'm. Just curious are you seeing.
Nicholas Stewart Green: Nick, so a lot of positive commentary around the funding backdrop and, I guess, the end markets in general. I guess I'd be curious about some of the other unique dynamics that are going on in the end markets right now, most notably Biosecure and then the Novo Catalan deal. I'm just curious, are you seeing additional opportunities present themselves after those events, which I think largely happened after you concluded the quarter you just reported?
Jacob K. Johnson: All opportunities.
Jacob K. Johnson: Present themselves.
Those events, which I think largely happened at Aker.
Jacob K. Johnson: You concluded the quarter you just reported.
Jacob K. Johnson: Yes Jacob, it's an interesting one. We don't always, at the beginning of the conversation, necessarily understand exactly where the opportunity is coming from. So you mentioned two, I guess, tailwinds in terms of, or potential tailwinds in terms of, our sector. So when a client comes to us with a new opportunity, it's not always obvious to us whether it's something to do with Biosecure or whether it's to do with Catalan, but I think it's fair to say that there seems to be some correlation between those events and the number of opportunities that we see materialize at the early stage of discussions at the beginning of this year.
Jacob K. Johnson: Yesterday.
Jacob K. Johnson: It's an interesting one we don't always.
Jacob K. Johnson: At the beginning of the conversation necessarily.
Jacob K. Johnson: I understand exactly where the opportunities coming from so you mentioned two.
Jacob K. Johnson: Two I guess tailwind in terms of our potential tailwind in terms of our sector. So a client comes to us with a new opportunity. It's not always obvious that whether it's something to do with Biosecurity all whether it has to do with with Catlin, but I think it's fair to say that this seems to be some correlation between those events.
Jacob K. Johnson: The number of opportunities that we're seeing materialize at the early stage of discussions.
Jacob K. Johnson: The beginning of this year.
Jacob K. Johnson: Obviously, the turnaround cycle for those isn't instantaneous; it's not widgets that we sell, so there's an ongoing discussion regarding those. Obviously, there's putting work statements together and converting those to revenues, but I think it's fair to say that with the dynamics that we see, we look forward with some optimism, and I think, aside maybe from the inflation number that we saw a couple of weeks ago, most of the data we've seen out of the marketplace generally from November onwards has been positive.
Jacob K. Johnson: The turnaround cycle of those.
Jacob K. Johnson: <unk>.
Jacob K. Johnson: Which is that we sell so.
Jacob K. Johnson: There is an ongoing.
Jacob K. Johnson: Discussion regarding those obviously, there's putting work statements together and converting those to revenues.
I think it's fair.
Jacob K. Johnson: Fair to say that with the dynamics that we see we look forward with some optimism.
Jacob K. Johnson: I think aside maybe from the inflation number that we saw at a couple of weeks ago. Most of the data we've seen out of the marketplace. Generally from November onwards is has been positive.
Daniel R. Hart: Got it. Thanks for that, Nick. And then maybe for Dan. You guys reiterated your FY 24 guidance. I think I heard what Matt and Nick both talked about. Strong, 4Q. Just given where we are in the quarter, for those of us who have models, if you want to give us any more specific detail on kind of how the quarter is playing out relative to the guidance you have, maybe I'd give you the opportunity to do that.
Speaker Change: Got it. Thanks go ahead, Nick and then maybe for Dan.
Speaker Change: You guys reiterated your FY 'twenty for guidance, I think I heard Matt and Eric both.
Nicholas Stewart Green: Talk about a strong for Q.
Nicholas Stewart Green: Given where we are in the quarter for those of US who have models.
Nicholas Stewart Green: If you want to give us any more specific detail on kind of how the quarter is playing out relative to the guidance you have.
Speaker Change: Maybe it gives me an opportunity to do that.
Okay.
Jacob K. Johnson: Yeah, Jacob, I'll take that one. I mean, we left the guidance of the range that we did because that's what we did in our pre-release, to be frank with you. So we wanted to be consistent with what we've pre-released. I think, you know, again, with the consensus out there, we're comfortable with that. And we were kind of just, I think, restating where we were and restating what you guys have been saying. So I wouldn't necessarily treat it any differently than where we were last quarter.
Speaker Change: Yes, Jacob I'll take that one.
Left the guidance at the range that we did.
Because that's what we've done in our per unit pre released to be Frank with you. So we wanted to be consistent with what we pre released.
Speaker Change: I think again.
Jacob K. Johnson: With consensus out there, we're comfortable with that and we were kind of just I think.
Speaker Change: <unk>, where we were in restating, what you guys have been saying, so I wouldn't necessarily change it any differently than where we were last quarter.
Jacob K. Johnson: We still expect to come in in that range, and I think the consensus that we see out there looks in line with expectations. So hopefully, we can meet those or beat those. But that's certainly where we're looking at this stage.
Speaker Change: We still.
Speaker Change: <unk> to come in in that range and I think the consensus that we see how that looks.
Speaker Change: It looks in line with expectations.
Speaker Change: Hopefully we can we can meet those will be those but.
Speaker Change: But that certainly where we look we're looking at this stage.
Jacob K. Johnson: I got it. Well, I had to try it, Nick.
Speaker Change: Got it I had to try Nick I'll leave it there thanks for taking questions.
Jacob K. Johnson: I'll leave it there. Thanks for taking the questions. Cheers.
Speaker Change: Yes.
Speaker Change: Thank you one moment for our next question.
Operator: Thank you. One moment for our next question. Our next question comes from Sean Dodge from RBC Capital Markets. Your line is open.
Our next question will come from the line of Sean Dodge from RBC capital markets. Your line is open.
Sean Wilfred Dodge: Yeah. Thanks, maybe just following Jacobs a line of questioning there.
Sean Wilfred Dodge: Yeah, thanks. Maybe just following Jacob's line of questioning there, and more specifically on the bookings.
Sean Wilfred Dodge: More specifically on the bookings you had $41 million of new business, you signed last quarter.
Sean Wilfred Dodge: You had $41 million in new business you signed last quarter. We're a day away from wrapping this quarter up. I guess when it comes to bookings, can you give us some sense of how those have trended here recently, or maybe some direction on how to think about where that will land this quarter?
Sean Wilfred Dodge: Day away from ramping this quarter.
Sean Wilfred Dodge: I guess when it comes up bookings can you give us some sense of how those have trended here recently made some direction on how to think about.
Sean Wilfred Dodge: Where that will land this quarter.
Sean Wilfred Dodge: Yes.
Nicholas Stewart Green: Yeah, I can't go on to quarter four, Sean. It's a quarter three call. I know I'll be late.
Sean Wilfred Dodge: Go into quarter, four and into quarter three call I know, albeit late.
Nicholas Stewart Green: But again, I think we've kind of highlighted that quarter four revenues being meeting consensus will be a really nice uplift on quarter three, which is a good lift upon quarter four in terms of revenues and bookings. The 41 million was, and we were pleased with that. And I think as we go through the record backlog, and as we go forward, I think my comments on the market would suggest that we were optimistic about those continuing to grow.
Sean Wilfred Dodge: But again I think we've kind of highlighted quarter four revenues being.
Sean Wilfred Dodge: Meeting consensus will be a nice uplift on quarter today, which was a good lift upon quarter falling in terms of revenues in terms of bookings.
Sean Wilfred Dodge: $31 million was we were pleased with that and I think as we go and the record backlog and as we go forward I think my comments on the market would suggest that.
Sean Wilfred Dodge: We are optimistic about those continuing to grow but I would also just highlight that.
Nicholas Stewart Green: But I would also just highlight that, you know, with the size of orders that we book and the timings between one quarter and the next, it's not always a smooth ride. So I am optimistic about continuing to see growing bookings and revenues, but I also expect to see some ups and downs along the way as we go forward. And again, I can't comment on quarter four, but I know we're very close to the end of that. But this is a quarter three call, so a little awkward as it may be, I still have to respect the quarter.
Sean Wilfred Dodge: With the size of orders that we book.
Sean Wilfred Dodge: And the timings between one quarter to the other and it's not always a smooth ride so.
Sean Wilfred Dodge: Im optimistic about continuing to see growing.
Sean Wilfred Dodge: Bookings and revenues, but I also expect to see some ups and downs along the way as we go forward.
Sean Wilfred Dodge: And again I kind of come in in quarter four I know, we're very close to the end of that.
Sean Wilfred Dodge: This is a quarter three calls.
Sean Wilfred Dodge: Or is it maybe I still have to respect the quarter.
Sean Wilfred Dodge: Okay, and if we think about the Q3 result of $41 million, is there anything notable or worth calling out there? Were there any winds that shifted or slipped out of the quarter into the current one? Were there any meaningful cancellations, anything that would affect how we think about the trend or comparability there?
Sean Wilfred Dodge: Okay, and if we think about the Q3 result of $41 million or they are doing.
Sean Wilfred Dodge: Anything notable worth calling out there were there any wins that shifted or slipped out of the quarter under the current one were there any meaningful cancellations anything that would affect.
Sean Wilfred Dodge: Think about trend or comparability there.
Speaker Change: Yes, I mean again, we're looking at we're looking back now to the end of January so.
Nicholas Stewart Green: Yeah, I mean, we're looking back now to the end of January, and you know I was quite pleased with that considering where we were at the beginning of the quarter in November. So I thought that number was good in itself. Obviously, we'll always take higher, but I think the other thing that we saw was early phase opportunities increasing, which we hadn't seen. So, you know, we had zero in quarter one, we had an increase in quarter two, we had an increase again in quarter three, which, you know, was kind of the sort of precursor to the slump that we saw going back to this time last year, as it were, or just slightly after. So that was positive from my perspective. No major losses or cancellations or anything.
He was quite pleased with that considering where we were facing at the beginning of the quarter in November.
Speaker Change: So I thought that number was good in itself.
Speaker Change: Obviously, we'll always take higher but I think the other thing that we saw was early phase opportunities increasing.
Speaker Change: We haven't seen so we have zero in quarter. One we had an increase in quarter. Two we had an increase again in quarter three which.
Speaker Change: It was kind of the sort of precursor to the to the slump that we saw going back to this time last year as well just let just slightly after.
Speaker Change: So that was a positive from my perspective.
Speaker Change: No major losses are.
Speaker Change: All cancellations or anything in.
Nicholas Stewart Green: And I think I've alluded to this in prior conversations that the tone of conversations in the marketplace is positive. I've had more conversations about bringing forward programs or accelerating them than I have had delays or pushing off or conserving cash. So it's nice to have those conversations. And again, I just reiterate that the gestation period of programs and projects and decisions in this industry is not the most rapid due to the regulatory environment, but it's good to see the tone making quite a significant change, I think.
Speaker Change: I think I've alluded to this in the prior conversations the tone of conversations in the marketplace.
Speaker Change: <unk> is positive I've had more conversations about bringing forward programs or accelerating than I have.
Delays are pushing off while conserving cash.
Speaker Change: So.
Speaker Change: It's nice to have those conversations.
Speaker Change: And again I'd, just reiterate the gestation period of <unk>.
Speaker Change: Programs and projects and decisions in this industry is not the most rapid due to the regulatory environment, but it is good to see the the tone.
Speaker Change: Making quite a significant change I think.
Speaker Change: Okay, and then if we take.
Sean Wilfred Dodge: Okay, and then if we take, so you said more early phase signings in the last couple of quarters. You also talked about some of the later stage stuff that you'd signed earlier progressing, and beginning to flow through. If we take kind of all of that, can you kind of help us walk through how we should be thinking about backlog conversion or backlog burn going forward?
Speaker Change: Said more.
Speaker Change: Early phase signings in the last couple of quarters. You also talked about some of the later stage stuff that you had signed earlier progressing beginning to flow through.
Speaker Change: If we take kind of all of that.
Can you kind of help us walk through how we should we think about backlog conversion our backlog burn.
Speaker Change: Going forward.
Nicholas Stewart Green: Yes, I don't think I've mentioned this before, you know, kind of once you've got the majority of your revenue now into that sort of later phase, there's a resistance then to elongating because, you know, effectively, if 100% of your revenue is in the late phase and it took 15 months or so to convert, then 15 months is what it is. So I think as you start to see earlier phase business come into it, unless it's materially offset by late phase, which wouldn't be a bad thing, you'd expect to see it at worst staying where it is and potentially shortening and getting better. So that's another positive, I think, that would hopefully be materializing as we look into our next fiscal year. Okay, great.
Speaker Change: Yes.
Speaker Change: I think I've mentioned this before.
Speaker Change: Once you've got the majority of your revenue now into that sort of later phase.
Speaker Change: There is a resistance then too.
Speaker Change: Elongated because.
Speaker Change: Effectively 100% of revenues in late phase and it took 15 months or so to convert than 15 months is what it is so I think as you start to see any Fas business come into it unless it's materially offset by late phase, which wouldn't be a bad thing.
Great to see it at west staying where it is and potentially shortening and getting better so.
Speaker Change: That's another positive I think.
Speaker Change: It.
Speaker Change: Would hopefully be.
Speaker Change: Realizing as we look into next fiscal year, we would like to see.
Speaker Change: Okay, great. Thanks again.
Sean Wilfred Dodge: Okay, great. Thanks again.
Speaker Change: Thanks, Sean.
Operator: Thank you. One moment for our next question. Our next question comes from Matt Hewitt from Craighalem Capital Group. Your line is open.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from the line of Matt Hewitt from Craig Hallum Capital Group. Your line is open.
Matthew Gregory Hewitt: Good afternoon, thanks for taking the questions. Maybe I could dig in a little bit more on the Catalan and BioSecure opportunities. You've had a couple large pharma companies come out here over the past week or so kind of talking about how they're having those conversations now, but maybe walk us through that process. And have you seen any change in maybe the sense of urgency from, you know, last quarter to where we sit today? Not asking for specific numbers, but are you hearing those conversations kind of changing as more and more companies are looking to possibly use a new provider?
Matthew Gregory Hewitt: Good afternoon, and thanks for taking the questions maybe to dig in a little bit more on the Cadillac <unk> bio secure opportunity.
Matthew Gregory Hewitt: <unk> had a couple of large pharma companies come out here over the past week or so kind of talking about it they are having the conversations now, but maybe walk us through that process and have you seen any change in maybe the sense of urgency from last quarter or two where we sit today not asking for specific numbers, but are you sure.
Matthew Gregory Hewitt: During those conversations kind of changing as more and more companies are looking to possibly use a new provider.
Matthew Gregory Hewitt: Yes.
Nicholas Stewart Green: Yeah, I mean, I think that the, as you look at somebody who's maybe looking at that, facing that problem of, you know, do I want to switch a supplier? It can be very varied from one to another. I mean, somebody who might have been considered to place an order there.
Matthew Gregory Hewitt: Matt.
Matthew Gregory Hewitt: <unk>.
Matthew Gregory Hewitt: As you look at.
Matthew Gregory Hewitt: Somebody who may be looking at that facing that problem of D&O do I want to switch a supplier.
Matthew Gregory Hewitt: It can be very varied from one to another I mean somebody who somebody may have been considering to place an order today. So I guess, depending on their timeline. They may already be committed to that until in terms of meeting chemical.
Nicholas Stewart Green: So I guess, depending on their timeline, they may already be committed to that in terms of meeting clinical trials. So that could be one scenario. If you're already there, you've already spent a significant amount of money on tech transferring it into another facility. And we've always talked about this industry being sticky. There are quite big resistors to moving.
Matthew Gregory Hewitt: It could be one scenario, if you're already there you've already spent a significant amount of money in tech transferring it into another facility and we've always talked about this industry being sticky.
There are quite big resistance due to moving but equally I guess it ultimately if one is looking at the future and are you concerned that you are not going to have a supply then you have to start making some of those decisions. So I think it's.
Nicholas Stewart Green: But equally, I guess, ultimately, if one's looking at the future and you're concerned that you're not going to have a supply, you have to start making some of those decisions. So I think it's an interesting dilemma. I think the first comment is going to be, or the first point, if you're going to look at moving or switching, is, "Who am I going to go to?".
Matthew Gregory Hewitt: It's an interesting dilemma.
The first the first comment is going to be all the first point, if youre going to look at moving our switching is.
Matthew Gregory Hewitt: We're going to go to so we do feel good about that quality track record that we have been.
Nicholas Stewart Green: So we do feel good about that quality track record that we have, being commercial and the commercial experience that we've established. And so hopefully, we're on the call list for that. It's then going to be looking at facility fit and talking through your capabilities and making sure that those match up with the program in question. And then it's obviously going to go through a detailed review work statement issue. And those can take several months in terms of execution. I think the fastest I've ever seen somebody walk up to the door and say, could you do something, and actually convert it into a written, signed order is about six weeks. And that is extraordinarily unusual.
Matthew Gregory Hewitt: Commercial in the commercial experience that we've established and so hopefully we're on the call list of that.
Matthew Gregory Hewitt: And then going to be looking at facility faced in talking through through the all capabilities and making sure that there was much up with the programming question.
Matthew Gregory Hewitt: And then it's obviously going through the <unk>.
Matthew Gregory Hewitt: Detailed review work statement issue and those can take several months in terms of.
Matthew Gregory Hewitt: Executing I think the fastest I've ever seen somebody walk up to the door and say could you do something and actually converted into a written signed orders about six weeks and that is extraordinary unusual.
Nicholas Stewart Green: I think you're probably talking more about three to six months is a more normal phase. And for bigger programs, they would go on longer than that. Again, depending on how severe they feel their situation is, those things can be motivated faster. I have seen MSAs take six to eight months to negotiate, and I've seen people moving a lot quicker than that recently. I certainly feel that there's a motivation to get into some very serious conversations around programs. But coming to Avid, again, I just go back to my first comment.
I think you're probably talking more three to six months.
Matthew Gregory Hewitt: As a more normal phase and for bigger programs. They would go on longer than that.
Matthew Gregory Hewitt: Again, depending on how severe they feel that situation being those things can be motivated so faster.
Matthew Gregory Hewitt: I have seen MSA it takes six to eight months to negotiate.
Matthew Gregory Hewitt: Ive seen people moving a lot quicker than that recently so.
Matthew Gregory Hewitt: Yes.
Matthew Gregory Hewitt: I certainly feel that there is.
Matthew Gregory Hewitt: Our motivation to.
Matthew Gregory Hewitt: Get into some very serious conversations around programs.
Matthew Gregory Hewitt: Coming to avid again I just go back to my first comment it's not always clear to us.
Nicholas Stewart Green: It's not always clear to us as to whether or not that's as a result of either one of those two factors, but we may have our suspicions.
Matthew Gregory Hewitt: As to whether or not that's as a result of either one of those two factors but.
Matthew Gregory Hewitt: May have our suspicions.
Speaker Change: Got it and then maybe shifting gears here, a little bit with the cell and gene therapy facility up and running or ribbon cut ready to go.
Matthew Gregory Hewitt: Got it. And then maybe shifting gears here a little bit with the cell and gene therapy facility up and running or, you know, ribbon-cutting, ready to go. How is the pipeline of opportunities looking there? You know, how are those discussions going? Best guess on when we could see our first commercial run out of that facility? Anything along those lines would be helpful. Thank you.
Speaker Change: How is the pipeline of opportunities looking there how are those discussions going.
Speaker Change: Best guess on when we could see our first commercial run out of that facility anything along those lines would be helpful. Thank you.
Nicholas Stewart Green: Yeah, so for the first commercial run, I'm going to leave that one. I don't know when that would be, but I would be happy making GMP clinical material for the foreseeable future. I think it's, you know, again, opening a new facility and expecting a commercial product in the short term is a bit of a long push. But what we're seeing in that part of the market is similar to the mammalian side, which, as I say, has been a very positive indicator since November, aside from the one I mentioned.
Speaker Change: Yes, so first commercials on I'm going to leave that one.
Speaker Change: Don't know when that would be but.
Speaker Change: We'd be happy, making GMP clinical material.
Speaker Change: For the foreseeable future I think.
Again.
Speaker Change: Opening a new facility in expecting that a commercial product in the in the short term it is a bit of a lung.
Speaker Change: Loan push button.
Speaker Change: What we're seeing in that part of the market is.
Speaker Change: To the mammalian side, which as I say is has been very positive.
Very positive indicators since November aside from the one I mentioned.
Nicholas Stewart Green: I think it's fair to say that the cell and gene therapy sector is lagging behind, but moving at a similar rate, it will probably be a quarter or two behind it, or a quarter, a quarter and a half behind it, would be my estimation. So we're seeing more proposals being requested, more interaction, better interaction, talking about the programs and how they would fit. So we're feeling the optimism across the whole business. I think it's lagging in cell and gene therapy, but nonetheless, improving.
Speaker Change: I think it's fair to say that the cell and gene therapy sector is lagging behind.
Speaker Change: Moving at a similar rate Tobey, probably a quarter or two behind it quarter to quarter and a half behind it would be my.
My estimation, so we're seeing more proposals being requested more interaction better interaction talking about.
Speaker Change: The programs and how they would say so.
Speaker Change: We're feeling the optimism across the whole business.
Speaker Change: It's lagging in the cell and gene therapy, but nonetheless, improving so <unk> gone from a situation where.
Nicholas Stewart Green: So gone from a situation where, you know, at the end of quarter two in the whole business, we were disappointed in the year to date and felt like quarter two should be the end and the low point. I think in quarter three, I was holding short of, as we went into quarter three, being cautiously optimistic. But I think it would be fair to say that as we see it at this moment, if it continues, then optimistic is not an unreasonable word to use regarding what we're seeing at the moment. So long may it continue.
Speaker Change: At the end of quarter, two in the home and the whole business.
Speaker Change: Disappointed in the year to date and felt I think quarter two should be the end of the low point.
Speaker Change: I think in quarter three I was I was holding short.
Speaker Change: As we went into quarter three I was holding showed a cautiously optimistic being this statement.
Speaker Change: But I think it would be fair to say that as we see it at this moment if it continues and optimistic is not an unreasonable.
Speaker Change: Unreasonable word to us regarding what we're seeing at the moment. So long may it continue.
Speaker Change: Well, that's great to hear thank you.
Matthew Gregory Hewitt: Well, that's great to hear. Thank you.
Speaker Change: Thank you one moment for our next question.
Operator: Thank you. One moment for our next question, and our next question will come from the line of Max Mock from William Blair. Your line is open.
Speaker Change: Yes.
Speaker Change: And our next question comes from the line of Max <unk> from William Blair. Your line is open.
Maxwell Andrew Smock: Hey, good afternoon guys. Thanks for taking our questions. We're going to ask one on overcapacity in the small-scale mammalian drug substance space. Well, over the last month or so here, we've seen Lonza and Fuji both divest some assets there and move away from smaller-scale bioreactors. We also heard Sartorius last week say that this is really where there's overcapacity or weak demand currently. So with that backdrop, how concerned are you about the impact of overcapacity on the million-drug substance spacer's game? And what do you think insulates you from some of those concerns that we've heard from other players in the space?
Max: Hey, good afternoon, guys. Thanks for taking my questions.
Max: Going to ask one on overcapacity in the small scale of $1 billion drug substance space.
Max: Over the last months or so we've seen lines and Fuji both divest some assets there move away from smaller scale. Bioreactors. You also heard sartorius last week say that this is really where there is overcapacity of weak demand currently so with that backdrop. How concerned are you about the impact of overcapacity in the $1 million drug substance space should play and what do you think insulate from some of those concerns.
Max: That we've heard from others other players in the space.
Nicholas Stewart Green: It's really difficult for me to comment on what they're seeing, so if they're seeing that as overcapacity... Again, I kind of, I would say, contradicts a little bit of what I've just been saying. So we're seeing good demand for Avid's services and capabilities. I'm not going to suggest for a minute that Avid is a bellwether for the whole industry. So you know, we're not a, we aren't that big that we could suggest that we are a perfect representative for the market, but we're certainly not seeing an overcapacity situation. So it's difficult for me to comment on people who are.
Speaker Change: It's really difficult for me to.
Speaker Change: Comment on that.
On what we're seeing so.
Speaker Change: We're seeing that is overcapacity.
Speaker Change: Again, I kind of.
Speaker Change: I'd say it contradicts a little bit of what I've just been saying.
Speaker Change: So we're seeing good demand for avid.
Speaker Change: Avid services and capabilities.
Speaker Change: Not going to suggest for a minute that avid is.
Speaker Change: Bellwether for the whole industry. So.
Speaker Change: Sure.
Speaker Change: Where we're not.
Speaker Change: We aren't that big that we could suggest that we.
Speaker Change: Perfect representation for the market, but we're certainly not seeing that.
Speaker Change: The capacity situation.
Speaker Change: <unk>.
Speaker Change: So it's difficult for me to comment on people who are.
Speaker Change: Understood I appreciate that commentary, Nick maybe just asking the bookings question. Another way here. So looking back over the last couple of years bookings or step down sequentially in the fiscal fourth quarter can you just help us think through any potential seasonality associated with bookings and then what that implies here potentially for the fourth quarter of this year.
Maxwell Andrew Smock: I understand. I appreciate that comment there, Nick.
Maxwell Andrew Smock: Maybe just asking the bookings question another way here. So, looking back over the last couple of years, bookings have stepped down sequentially in the fiscal fourth quarter. Can you just help us think through any potential seasonality associated with bookings and then what that implies here potentially for the fourth quarter of this year?
And then kind of comment on our quarter four this year in this call but.
Nicholas Stewart Green: Again, I can't comment on our quarter 4 this year in this call, but there's no reason to suspect seasonality in the quarter. There is a degree of lumpiness in the way that orders get lodged. I mean, again, I think I've said this on numerous occasions, you can...
Speaker Change: There is no seasonality.
Speaker Change: Reason to suspect seasonality in the quarter.
Speaker Change: It's.
Speaker Change: So there is a degree of it.
Speaker Change: Lumpiness in the way the orders get.
Speaker Change: Get launched I mean, again I think I've said this on numerous occasions you can if you.
Speaker Change: You're booking at a late phase.
Nicholas Stewart Green: If you're booking a late-phase PPQ campaign, I'll use a number somewhere between 15 and 25 million or whatever, just as an indication. If one of those falls in or falls out of the quarter when you're booking 41 million, that's quite a big difference. So, you know, 41 turns into 60 or 41 turns into 20 to 21, so those are pretty big spreads by one event that can be days apart.
Speaker Change: <unk> campaign.
Use a number somewhere between 15 and $25 million or what have you just as a.
As an indicator as an indication.
Speaker Change: If one of those holes in all falls out of the quarter. When you said when youre booking $41 million, that's quite a big difference. So 41 turns into 60 41 turns into 'twenty to 'twenty. One so those are pretty big spread by one one event that can be days apart.
Nicholas Stewart Green: So until we have the critical mass to smooth those out and soften those, which obviously is every year that goes by as we grow, that's the case. I don't know how to change that. But I don't see any particular reason why quarter four should be any better or any worse than any other quarter in terms of signings.
Speaker Change: So until we have the critical mass to smoothed those out and soften those which obviously is every year that goes by that we grow that's the case.
Speaker Change: I don't know how to how to how to.
Speaker Change: Change that so.
Speaker Change: But we don't I don't see any particular reason why quarter four should be any better or any worse than any other quarter.
Speaker Change: <unk> signings.
Maxwell Andrew Smock: understood I had to I had to try it maybe one just quick, let me hear on the margin on the margin side so You know, revenue and bookings look good in the quarter. Margins, again, a little lighter than we were expecting. Can you just help us think through the margin ramp from here? Is it fair to think about the most recent quarter being a reasonable jumping-off point moving forward? And if it is a reasonable jumping-off point, how do you think about the drop through to EBITDA from incremental revenue moving forward from here? Thank you.
Speaker Change: Understood I had two.
Speaker Change: I had to try.
Speaker Change: Maybe one just quick one for me here on the margin.
Speaker Change: On the margin side so.
Speaker Change: Revenue and bookings look good in the quarter margins again, a little lighter than we were expecting can you just help us think through the margin ramp from here is it fair to think about the most recent quarter being a reasonable jumping off point moving forward and if it is a reasonable jumping off point, how do you think about drop through to EBITDA from Ankara incremental revenue moving forward from here. Thank you.
Maxwell Andrew Smock: Yeah, thanks, Matt. Thanks, Max.
Speaker Change: Yes, Thanks, Matt.
Speaker Change: As far as looking at the revenues from second quarter to third quarter I think we had a.
Daniel R. Hart: As far as looking at the revenues from second quarter to third quarter, I think we had a reasonable flow through of our margin quarter over quarter. But going forward, you know, until we hit ultimate capacity, you know, at a call it 40% plus or minus gross margin. We always say that, you know, if you drew a straight line from now till then, that's kind of how we're going to get there as we continue to grow the top line.
Speaker Change: A reasonable.
Speaker Change: Flow through of our margin quarter over quarter, but going forward.
Speaker Change: Until we hit ultimate capacity at a call it 40% plus.
Speaker Change: Or minus gross margin.
Speaker Change: We always say that if you drew a straight line from now till then that's kind of how we're going to get there as we continue to.
Speaker Change: Grow the top line it is going to be lumpy and we do have some additional expense that we've had this year that we've added.
Daniel R. Hart: It is going to be lumpy, and we do have some additional expenses that we've had this year that we've added from our expansions that have, I would say, depressed the margin a little bit, and there is a fair amount of non-cash in that margin. But over time, our margin expansion is expected as the top line grows, and we benefit from our operating leverage.
Speaker Change: From our expansions that has I would say depressed the margin a little bit.
Speaker Change: There is a fair amount of noncash in the margin.
Speaker Change: But over time, our margin expansion is expected as top line grows and we benefit from our operating leverage.
Speaker Change: Understood. Thanks, guys I appreciate you taking my questions.
Maxwell Andrew Smock: Understandable. Thanks, guys. Appreciate you taking our questions. Thank you.
Speaker Change: Thanks, Dan.
Speaker Change: Thank you.
Operator: One moment for our next question, and our next question comes from Paul Knight from KeyBank. Your line is open.
Moment for our next question.
Speaker Change: And our next question will come from the line of Paul Knight from Keybanc. Your line is open.
Paul Richard Knight: Hi Dan. Hi Nick. Thanks for the time.
Paul Richard Knight: Hi, Dan Hi, Nick Thanks for the time.
Paul Richard Knight: Um, Dan, where are we with CapEx? I think that's, frankly, the most common question from clients right now. What was it, what about 4.7 in the January quarter? What should we think about in, you know, the current quarter and years upcoming?
Paul Richard Knight: Dan what what's the where are we with Capex I think that's more frankly, the most common question from clients right now.
Paul Richard Knight: About $4 seven in the January quarter, what should we think about in <unk>.
Paul Richard Knight: Current quarter any year's upcoming.
Daniel R. Hart: Sure Paul Great question the expansion Capex is done.
Daniel R. Hart: Sure, Paul, great question. The expansion of CapEx is under way. So going forward, any CapEx that comes through will be more software, what have you, and maintenance. Though maintenance, because most of our equipment is brand new, will start fairly light and grow over the next couple of years. But I think the main question is, as far as growth and expansion CAPEX are concerned, that's now complete. And I still think that this fiscal year, we're going to end up roughly around $32 million in CAPEX.
Paul Richard Knight: So going forward any capex that comes through will be more.
Paul Richard Knight: Software or what have you and maintenance the maintenance.
Paul Richard Knight: Because most of our equipment is brand new we will start fairly light and grow over the next couple of years.
Paul Richard Knight: But I think the main question is as far as the growth and the expansion Capex that's now complete.
Paul Richard Knight: And I still think that this fiscal year, we're going to end.
Paul Richard Knight: Roughly around $32 million of Capex.
Paul Richard Knight: Okay.
Paul Richard Knight: Okay, and what a fraction of that is going forward annually.
Paul Richard Knight: Fraction of that going forward annually.
Daniel R. Hart: That's right, that's right. You know, we've said two to five percent of revenues. Clearly, the first couple years, we're going to be at that low end.
Paul Richard Knight: Right that's right.
Paul Richard Knight: We've said, 2% to 5% of revenues clearly the first couple of years, we're going to be.
Paul Richard Knight: At the low end.
Paul Richard Knight: Okay, and then Nick. I know it's a different beast with Lonza buying the Vacaville facility, but is there anything good or bad about a West Coast operation like that now being owned by Lonza?
Speaker Change: Okay, and then Nick.
Nicholas Stewart Green: I know, it's a different beast with lawns are buying the <unk> facility, but is there anything good or bad about our west coast operation like that now being owned by Alondra.
Nicholas Stewart Green: You know, we like the West Coast as a location. So, I mean, I think that it's at a much larger capacity than we are. My understanding is, I think there are smaller reactors at the 12,000 liter upwards, but, you know, that's, that's my understanding and up to 20,000 liters. So, it's a market segment we don't operate in. Nobody really makes too many products in a 2,000 liter platform that would be made in a 20,000 liter stainless steel tank.
Nicholas Stewart Green: We like the West Coast is a location so.
Speaker Change: I mean I think.
Much larger capacity than we are my understanding is I think the smaller react to that.
Speaker Change: The 12000 liter upwards.
Speaker Change: That's.
My understanding and up to 20000 liters. So its a market segment, we don't operate in nobody really makes too many products and a 2000 liter platform that will be made at a 20000 liter stainless steel. So I don't think theres a lot of overlapping markets that we're serving.
Nicholas Stewart Green: So, I don't think there's a lot of overlap in the markets that we're serving. They did recently announce that they were exiting from their San Francisco facility a few months prior, which was the smaller scale facility. So, that would probably be more notable for us that they haven't got a small scale offering on the West Coast. So, hopefully, that's to some of our advantage, but, you know, it wouldn't surprise me as well.
Speaker Change: You did recently announce the.
Speaker Change: They're exiting from the San Francisco facility.
Speaker Change: A few months prior I believe which was the smaller scale facility. So that would probably be more notable for us.
Speaker Change: They haven't got a small scale offering on the west coast. So hopefully that's to some of our advantage but.
Speaker Change: No it Wouldnt surprise me as well.
Nicholas Stewart Green: They did highlight, I think, half a billion dollars worth of spending on that Vacaville site. And they may be putting some of that capability that they had at Haywood into that facility. I don't think there's anything negative from our perspective in all of that news. If anything, one might try to read a little bit positive from it. But, you know, Lons is a good company and a capable organization, and I'm sure we'll be competing with them for a long time going forward. Hopefully, well.
Speaker Change: I think comparability with the spending on that Vacaville site. So they may be putting some of that capability that he went into.
Speaker Change: And to that facility so again.
Speaker Change: Its I don't think Theres anything negative from our perspective and all of that news.
If anything what Mike tried to read a little bit positive from it but.
Loans are a good company and a capable organization and I'm sure, we'll be competing with them for a long time going forward.
Speaker Change: Hopefully well okay. Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you and with no further questions in the queue I'll turn it over to our CEO, Nick Green for any closing remarks.
Operator: Thank you. And with no further questions in the queue, I'll turn it over to our CEO, Nick Green, for any closing remarks.
Nicholas Stewart Green: Yes, so I'd like to thank everybody for participating in the call today and for their continued support. On a personal level, I'd just also like to thank my father, who passed away three weeks ago. He was fundamental in my upbringing in this industry, having one of the first CMOs in the world.
Speaker Change: Yes.
Nicholas Stewart Green: So I'd like to thank everybody for participating on the call today and for their continued support.
Nicholas Stewart Green: On a personal level I'd just also like to thank my father, who passed away three weeks ago.
Nicholas Stewart Green: Yeah.
Nicholas Stewart Green: Formation all in my upbringing in this industry, having one of the first CMO in the world.
Nicholas Stewart Green: And sorry to see him go, but I thought I'd want to just say thanks in that regard. Again, we really appreciate everybody who's interested in Avid and the support for Avid from employees and also from our investors. And we look forward to speaking to you in the not too distant future about quarter four and the fiscal year 25 ahead. So again, thanks very much and look forward to speaking to you shortly.
Nicholas Stewart Green: Sorry to see him go.
Thought I'd want to say thanks.
Nicholas Stewart Green: In that regard.
Speaker Change: Again, we really appreciate everybody.
Speaker Change: It was interesting avid and to support private from employees and also from our investors.
Speaker Change: And we look forward to speaking to you in the not too distant future over quarter four.
Speaker Change: In fiscal year 'twenty five ahead. So again, thanks, very much and look forward to speaking to you shortly.
Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect everyone have a great day.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Sure.
Please.
Speaker Change: Yes.
Speaker Change: Yes.
[music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: [music].
Sure.
Speaker Change: Okay.
Speaker Change: Thanks.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
[music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Sure.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Thanks.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Sure.
Okay.
Speaker Change: Okay.
Speaker Change: Sure.
Speaker Change: Thanks.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Thanks.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Right.
Okay.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Right.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Thanks.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Perfect.
Yes.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
[music].
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Thanks.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: Yes.
Speaker Change: Great.
Speaker Change: Okay.
Speaker Change: Great.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Right.
Speaker Change: Okay.
[music].
Speaker Change: Yes.
Speaker Change: Yes.
Okay.
Speaker Change: Thanks.
Speaker Change: Okay.
Okay.
Speaker Change: [music].
Yes.
Great.
Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Okay.
[music].
Yes.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Sure.
Speaker Change: Okay.
[music].
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: 2019.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Sure.
[music].
Speaker Change: Okay.
Speaker Change: Great.
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Hi.
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: Sure.
Okay.
Speaker Change: Sure.
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Sure.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Sure.
Yes.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Thanks.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: Okay.
Yes.
Speaker Change: Hum.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
[music].