This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk03: Good day, ladies and gentlemen, and welcome to the AVID Bioservices Third Quarter Fiscal 2021 Financial Results Conference Call. At this time, all participants are on a listen-only mode. Later, we'll have a Q&A session, and instructions will follow at that time. As a reminder, this conference may be recorded. I would now turn the conference over to Mr. Tim Bronze of the AVID Investor Relations Group. Please go ahead, Seth.
spk04: 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 Timothy Compton, 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, 2021. After our prepared remarks, we will welcome your questions.
spk05: You've probably heard that trading stock options is one of the fastest ways to make money in the markets. Yes, that's true, but only if you do it the smart way. Most professional options traders would rather keep these valuable secrets to themselves. Now, I've been trading options for over 24 years, and I'm here to share my hard-won knowledge and experience with you. My name is Dave Aquino, and I've created the Ultimate Beginner's Guide to Options. This free e-book will show you how to quickly get started trading options the right way. It's 100% free, and you can download it right now by clicking on the button below.
spk01: What does former UFC champion Guy Mesger destroying a heavy bag have to do with trading stocks and options?
spk07: Nothing really. But if you want to beat the market, check out Black Box Stocks.
spk06: The ultimate tool for traders.
spk04: Before we begin, I'd like to caution that comments made during this conference call today, March 8th, 2021, 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 involved a number of assumptions, risks, and uncertainties. Actual results could differ from these statements, and the company undertakes no obligation to revise or update any statement made today. I encourage you to review all of the company's filings with the Securities and Exchange Commission concerning these and other matters. With that, I will turn the call over to Nick Green, Abbott's President and CEO.
spk08: Thank you, Tim, and thank you to everyone who has dialed in and to those who are participating via webcast. During the third quarter, we continued to build on the momentum of the first and second quarters of fiscal 2021. During the period, AVID recorded strong revenues and significantly improved margins. Our business development team signed orders with two new customers and we expanded work with multiple existing customers. These events resulted in significant increase in orders recorded during the quarter and a consequential increase in backlog. In addition, we continued to make progress with the first phase of the MIFID expansion, initiated the second phase and successfully raise funds required to support these major projects. Tim and I will provide additional details on business development and operations following an overview of our third quarter financial results. And for that, I'll turn the call over to Dan.
spk10: Thank you, Nick. Before I begin, in addition to the brief financial overview I'll provide on the call today, additional details on our third quarter financial results are included in our press release issued prior to this call in our form 10Q, which was filed today with the SEC. I'll now provide an overview of our financial results from the operations for the third quarter into January 31st, 2021. Revenues for the third quarter of fiscal 21 were $21.8 million, a 61% increase compared to revenues of $13.6 million recorded during the third quarter of fiscal 20. The increase in the third quarter revenue was primarily due to the growth in the number and scope of in-process and completed manufacturing runs, as well as an increase in the number of process development projects during the period. Gross margin for the quarter was 28 percent, up significantly compared to a gross margin of 6 percent in the prior year period, primarily from leverage of higher manufacturing and process development revenues. While previously disclosed non-operations factors strengthened the margins recorded in Q1 and Q2 of fiscal 21, it is important to note that our current quarter margin of 28% was achieved with no such adjustments. For this reason, we believe that the strength of our third quarter margin demonstrates the growing efficiencies in our business model. Total SG&A expenses for the third quarter of fiscal 21 were $4 million, an increase compared to $3 million recorded in the third quarter of fiscal 20. The increase in SG&A was primarily due to increases in payroll-related costs, including stock-based compensation. For the third quarter of fiscal 21, we recorded a consolidated net income attributable to common stockholders of approximately $800,000, or one cent per basic and diluted share. as compared to a consolidated net loss attributable to common stockholders of 3.5 million or six cents per basic and diluted share for the third quarter of fiscal 20. This marks our third consecutive quarter of profitability. We are also pleased to report that the company generated cash flow from operating activities of 5.2 million during the quarter and 13.3 million year to date. Our cash and cash equivalents as of January 31st, 2021 were $70.9 million. This balance includes approximately $32.1 million in net proceeds which were raised during the quarter in a follow-on underwritten equity financing. This balance is up $35.2 million from the end of the second quarter and up $34.6 million at the end of the prior fiscal year. Based on the consistent growth that we have achieved during the first three quarters of fiscal 21, our forecast of our customers, and the significant level of our current backlog, which Tim will detail shortly. We are pleased to report that we are increasing our annual revenue guidance for fiscal 21 from between $84 and $88 million to between $88 and $91 million. This concludes my financial overview. I'll now turn the call over to Tim for an update on business development activities and achievements for the quarter.
spk11: Thanks, Dan. Our business development team had an exceptional third quarter. Despite the challenges presented by the pandemic, our team remained highly engaged with both existing and prospective customers. As a result, we signed new orders for $74 million during the period. These orders include two new customers as well as existing customers that are advancing programs from one clinical phase to another. Projects signed during the period quarter include process development, Technology Transfer, and CGMP Clinical and Commercial Manufacturing, employing the full scope of AVID's capabilities. These signings, along with the onboarding of a new program for an existing customer in the second quarter, demonstrates our ability to support the new and existing customers with their growth demands. As a result of these new orders, our backlog at the end of the third quarter of fiscal 2021 grew to 120 million. an increase of 78% compared to 67 million at the end of the second quarter of fiscal 2021. We expect to recognize most of this backlog by the end of next fiscal year. As you may recall from our last earnings webcast, we stated that the second quarter backlog of 67 million was the highest achieved since becoming a pure play CDMO. Clearly, we have significantly exceeded this benchmark during the third quarter. which we believe is a testament to AVID's growing reputation for excellence, our state-of-the-art capabilities, and our exceptional team dedicated to quality in all we do. We continue efforts to increase visibility and to capitalize on this strong and growing momentum. This concludes my business development overview, and I'll now hand the call back over to Nick.
spk08: Thank you, Tim. As with our financial and business development performance, we have also been very pleased with AVID's operational execution during the third quarter. As discussed during our second quarter call in late calendar 2020, AVID initiated a two-phased expansion of the Myford facility. The first phase, which is proceeding according to plan, will expand the production capacity of our Myford North facility. On the back of what can only be described as a very solid business development effort, We have also initiated the second phase of the expansion. The additional capacity created by our phase two expansion is expected to add a further 100 million in annual revenue, which on top of phase one will create a total revenue capacity of up to $270 million annually. As we consider our current backlog and projected customer growth, this expansion will enable us to continue to provide capacity to onboard new customers as well as capacity to accommodate the successful clinical development and commercial growth of our existing customers. Furthermore, we look forward to incorporating a high level of automation and digitization into phase two as we further focus on commercial manufacture. As anticipated, the onboarding of new customers is starting to translate into increased activity in the process development group with quarter three showing a significant increase in revenues. The combination of growing revenues, increased utilization, allied with solid operational execution, are now demonstrating that our business model can deliver both improved margins and drive profitability. As 2020 came to a close, we were delighted to successfully complete the raise of $34.5 million in gross proceeds to fund the expansion of our state-of-the-art manufacturing facility and to support the continued growth of the business. We were also very pleased with the enthusiasm and support we received from the financial community during this offering and are already putting these funds to good use. In closing, the third quarter was exceptional on all fronts. Top line revenues were strong, operational execution was solid, and significant growth in process development activity all contributed to significant improvement in margins and other key financial metrics during the quarter.
spk04: Only two things are forever, love and Liberty Mutual customizing your car insurance so you only pay for what you need.
spk08: As much as it is difficult to pick any one aspect of the quarter, I think the efforts that have resulted in our booking of $74 million in new business during the quarter and resulting in a backlog of 120 million deserve a special mention. As a result, we are raising our revenue guidance for the second time in 2021 to between 88 and 91 million. Finally, as we enter the final fiscal quarter of financial year 2021, I'm also delighted to see the AVID team is executing to plan, which is not only driving growth today, but also establishing the foundation necessary for continued growth in the future. This concludes my prepared remarks for today, and we can now open the call up for questions. Operator?
spk03: Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star then one on your touchtone telephone. Again, if you would like to ask a question, please press star then one. Our first question comes from Matt Hewitt of Craig Harlem Capital. Your line is open.
spk12: Good afternoon. Thank you for taking the questions, and congratulations on the strong quarter. Thanks, Matt. Thanks, Mark. A couple questions. First off, you know, given the very strong bookings number and obviously your backlog now, how should we be thinking about, I guess, two different items? Number one, the cadence of those revenues coming on, and number two, the impact that that will have on gross margins over the next few quarters?
spk10: Sure. Great question, Matt. So as far as the bookings that we have, as we stated in the prepared remarks, most of those bookings will wind out through the end of next fiscal year. And as far as gross margins, you know, as we've kicked off our phase one and phase two expansions of MIFRD, you know, I think the margin that we saw of 28% is going to be where we're at until we incrementally add that new capacity. Once we add the phase one capacity of the Miford North facility, we'll be able to have some incremental margins of 50 to 70%, especially at these revenue levels and the leverage of the overall revenue mix. And then once the ultimate phase two comes online, we'll be able to get to industry standard margins of upwards of 40%.
spk12: That's great. And I guess sticking with the gross margin theme, you mentioned the automation and digitization. How will that impact gross margins? Is that something that we could see even as you're adding this incremental capacity, or is that part of the phase one and phase two so that the benefit really won't be seen until you're done with that phase two?
spk08: Yeah, I mean, the automation is really focused on the Myford South expansion, so phase two, and looking more at commercial manufacturers. So obviously, the more you automate, the more rigid it becomes. So you want to be automating processes that have got repeatability rather than discrete one-off or two or three batches. So we'll probably see the benefit of that as it comes into phase two. Okay, great.
spk10: And then maybe one – yeah. Real quick, to add to that, you know, as we're incrementally adding revenue capacity through our expansion, there will be a little bit of a step-up of cost next fiscal year.
spk12: Okay, good to know. And then one last one from me, and then I'll hop back into queue. Thank you for the breakdown of some of the new customers as far as two new customers, and you've got customers adding, you know, new opportunities there. But regarding the new customers, are those COVID-related or are those other market opportunities? And how should we be thinking about the broader market? I mean, are you still seeing incremental demand because you have excess capacity and that's driving customers to your door? Or are things maybe stabilizing a little bit on the capacity front? Thank you.
spk11: Yeah, thanks, Matt. This is Tim. But we are still seeing increased demand for capacity in this space as we continue to onboard new customers. Of the two new customers we did onboard last quarter, we publicly announced that one of those customers was Mammogen, which is obviously COVID-related, but also has some non-COVID-related indications for the program that we're working on there as well. But we will continue to work to onboard new customers quarter over quarter, year over year.
spk12: That's great. Thanks a lot.
spk03: Thank you. Our next question comes from Jacob Johnson of Stevens. Your line is open.
spk02: Hey, thanks, and congrats on the record backlog. Maybe following up on that last question, just on the humanitarian announcement from last month, if you can, can you size up what this opportunity could mean for you in terms of near-term revenues, and then maybe from a longer-term perspective, obviously providing services for high profile COVID-19 therapeutic. Has this helped or could this help with business development efforts? I probably think that this is as good as any kind of advertisement as you can have.
spk08: Yeah, so in terms of, Jacob, the backlog and COVID generally, that's around 30%, I would say, of our backlog at the moment. In terms of how much What that ends up growing to is in the long term. I think that's a bit difficult at this moment in time to judge. Clearly, humanitarian are going for emergency use authorization. And I think we can all see that COVID is a bit of a flexible beast. So working out exactly what the future holds in that area is difficult to quantify. But nevertheless, it's an interesting project. As Tim mentioned, I think one of the good things about it has both COVID and non-COVID applications as well. And certainly, you know, we were very, very pleased to sign the humanitarian piece of business in this quarter.
spk02: Got it. That makes sense. Maybe for Dan, could you just talk about the, how you should think about the pace or timing of CapEx for the phase one and two capacity expansions? Is this something that's going to occur kind of ratably over the next, I guess, 12 to 24 months or any kind of commentary you can give us around the pace of CapEx?
spk10: Sure, Jacob. So for Phase 1, as we announced, it's going to be roughly $15 million. Phase 2 is between $45 and $55 million. I would lean towards a majority of that will occur in fiscal 22 for us. We've already started to incur costs for the first phase and bringing on some costs now for the second phase. But a majority of those costs, in addition to just general maintenance CapEx, will occur over fiscal 22. Got it.
spk02: That's helpful. And then maybe last question for Nick. You had announced that you kicked off Phase 1 capacity expansion a couple months ago and then quickly followed it with the Phase 2 capacity expansion. Was that the timeline you originally envisioned to do these so quickly together? Or just given what you saw in the backlog, did that kind of change your thinking on when to kick off the Phase 2 capacity expansion?
spk08: Yeah, no, I think if we'd have thought that we were going to do them both so quickly, we'd have probably announced them both together. So it's the increase in business. I think we were, as Tim sort of alluded to, and I think I also alluded to, is that we did bookings of 21 in quarter one, 27 in quarter two, if my memory serves me correctly, and then 74 in quarter three, which is a a pretty significant uplift. And so, you know, you look at our backlog today, it's, I think, around 122, which is double last year's total revenue. So very pleased with the BD efforts, with how Avid has been received in the market, the result of that on our backlog. And that really is what spurred the need to go with phase two and Just to be clear, the phase one and phase two are going on in parallel as opposed to sequential. So they are both officially kicked off, as it were, and the timeline's ticking. Got it. Thanks for taking the questions. Thanks very much, Jacob.
spk03: Thank you. Our next question comes from Paul Knight of KeyBank Capital Market. Your line is open.
spk09: Hi, Nick. Based on the backlog that you won in the quarter, How should that cadence be for the next few quarters? Is there any large deliverable in a given quarter upcoming that we should think about on the burn or the revenue recognition of that backlog?
spk08: First of all, Paul, nice to hear from you, but I don't think it's particularly phased in sort of any lumpy phasing at the moment. that we can see. We're certainly obviously starting to push up on quite significantly on the capacity of the facility as we start to bring that production into the plant. But we're not seeing a particular spike at any point in time, just relatively sort of a smooth growth is the way I would describe it as we stand at this moment in time.
spk09: And then regarding, you know, your contract wins, I mean, time to market is imperative. Is that one reason you're winning projects and growing this backlog? And I know you're definitely single-use savvy, but, you know, what are the reasons behind the backlog build beside, you know, obviously a great map market?
spk08: I think it goes down to a number of factors. I mean, obviously, I think we said this earlier on, we've brought the team together. Tim and his BD team were brought on a month or so this time last year, so just over 12 months ago now. And they're really starting to get some cadence in the marketplace. I think the reputation of the business is also growing stronger and stronger. So there are a number of factors. At the end of the day, execution is everything as a contract manufacturer. It's on time, in full, inspect delivery. And the more and more you do that, the more interest you get in your offering. And one thing that's been really nice this year, I think quarter three kind of saw all elements. I think we sort of categorized them as five different elements of the business, which is You know, new clients coming on board, clients moving from one clinical phase to the next, clients moving into commercial, increased amounts of commercial manufacture, and then, you know, additional assets from existing clients as they broaden their interaction with us. And so this year we've seen examples of each one of those five different elements, and when they all come together, it starts to result in the sort of growth in both revenue and also backlog that you've seen in the business.
spk09: When do you expect phase one CAPEX to translate into increased revenue from that program?
spk08: So the original timeline was quarter one next year. So from some we've said 12 to 15 months to bring it online, which is really around January 2022. So we obviously with the fact that we've actually accelerated phase two. We would like to speed that up if it's possible, and we'll be looking at every opportunity we can to bring these expansions on faster if the opportunity exists. And just for clarity, I said quarter one. We always have a bit of confusion sometimes between our fiscal and calendar year. I meant calendar year quarter one. So January 2022 is kind of our early part of when we look like bringing it online unless we can speed that up. Okay, thank you.
spk03: Thank you. At this time, I'd like to hand the call back over to Nick Green for any closing remarks.
spk08: Thank you, operator, and thank you to everybody participating on today's call. In closing, it only remains for me to thank AVID, the AVID team as a whole, for their continued diligence and determination in overcoming the adversity presented by what is one of the most challenging periods of the COVID pandemic. We are confident in our team, our facilities, and our strategy, and we look forward to reporting future successes as we go forward. Thank you again for participating in the call and your continued support of AVID Bioservices.
spk03: Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may all disconnect. Have a great day.
Disclaimer