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spk01: Good day, ladies and gentlemen, and welcome to the AVID Fire Services Third Quarter Fiscal 2022 Financial Results Conference Call. At this time, all participants are on a listen-only mode. Later, we will conduct a question-and-answer session, and instructors will file that time. As a reminder, this conference call may be recorded. I would now like to hand the conference over to Tim Browns of AVID's Investor Relations Group. Please go ahead.
spk03: 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 Quitniak, 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, 2022. 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, March 8th, 2022, will contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 concerning the current belief of the company, which involves a number of assumptions, risks, and uncertainties. Actual results could differ from these statements, and the company undertakes no obligation to revise or update any statement made today. I encourage you to review all of the company's filings with the Securities and Exchange Commission concerning these and other matters. Our earnings press release and this call will include discussion of certain non-GAAP information. You can find our earnings press release including relevant non-GAAP reconciliations on our corporate website at avidbio.com. With that, I will turn the call over to Nick Green, AVID's President and CEO.
spk09: Nick Green, AVID's President and CEO Thank you, Tim. And thank you to everyone who has dialed in, and to those who are participating today via webcast. We are very pleased with the achievements of the third quarter. During the period, we again recorded year-over-year growth in revenues, gross margin, net income, backlog, and adjusted EBITDA. Our business development team had an exceptional quarter, signing multiple new orders that will span the range of Avid's current capabilities. With respect to our expansions, we continue to make excellent progress on our new mammalian capacity in our Myford facility, as well as with our viral vector facility in Costa Mesa, California. Matt and I will provide additional details on business development and operations for the period, following an overview of our third quarter financial results. And for that, I'll turn the call over to Dan.
spk06: Thank you, Nick. Before I begin, in addition to the brief financial overview I'll provide on the call today, Additional details on the third quarter financial results are included in our press release issued prior to this call and in our form 10Q, which was filed today with the SEC. I'll now provide an overview of our financial results from operations for the quarter in nine months into January 31st, 2022. Revenues for the third quarter of fiscal 2022 were $31.5 million, representing a 44% increase compared to $21.8 million recorded in the prior year period. The increase in revenues for the quarter can primarily be attributed to an increase in the mix of in-process and completed manufacturing runs and an increase in process development revenues primarily associated with services provided to new customers. For the first nine months of fiscal 2022, revenues were $88.4 million, a 29% increase compared to $68.3 million in the prior year period. The increase in revenues for the nine months of fiscal 2022 can primarily be attributed to an increase in the number and mix of in-process and completed manufacturing runs in unutilized reserve capacity fees and process development revenues during the current period as compared to the prior year period. Gross margin for the third quarter of fiscal 2022 was 29%, compared to a gross margin of 28% for the third quarter of fiscal 21. Gross margin for the first nine months of fiscal 22 was 34%, compared to 31 percent in the prior year period. The increases in gross margin for the quarter and the first nine months were primarily from higher manufacturing and process development revenues during the periods, partially offset by increases in planned growth costs, including compensation and benefits, stock-based compensation, and facility and equipment-related costs. While we're pleased to report these improvements in gross margin compared to prior years, In the coming months, we do expect additional increases in expense from hiring and other expansion-related costs to support our grown mammalian business, as well as our new viral vector business. And this may impact margins in future quarters. Total SG&A expenses for the third quarter of fiscal 22 were $5.8 million, an increase of 45% compared to $4 million recorded in the third quarter of fiscal 21. The increase in SG&A for the quarter was primarily due to stock-based compensation, compensation and benefits, and facility-related expenses. For the first nine months of fiscal 22, SG&A expenses were $15.3 million compared to $12 million in the prior year period. The increase in SG&A during the first nine months was primarily due to stock-based compensation, facility-related expenses, advertising costs, compensation and benefits, and legal and accounting fees. For the third quarter of fiscal 2022, we recorded net income attributable to common stockholders of $2.2 million or $0.04 per basic diluted share. That's compared to net income attributable to common stockholders of $800,000 or $0.01 per basic diluted share for the third quarter of fiscal 21. For the first nine months of fiscal 22, the company recorded net income attributable to common stockholders of $12.1 million or $0.20 per basic and 19 cents per diluted share compared to net income attributable to common stockholders of 5.6 million or 10 cents per basic and diluted share for the fiscal 21 period. Highlighting the strength of our third quarter financial results, we are pleased to report that we've achieved adjusted EBITDA of 7.2 million during the period and 24.5 million for the first nine months of fiscal 22. These are compared to adjusted EBITDA of $4 million for the third quarter and $14.7 million for the first nine months of the prior year period. Our cash and cash equivalents on January 31st, 2022 were $150 million compared to our second quarter balance of $163.7 million on October 31st, 2021 and prior fiscal year end balance of $169.9 million on April 30th, 2021. This concludes my financial overview. I will now turn the call over to Matt for an update on business development during the quarter.
spk07: Thanks, Dan. The business development team had a strong performance during the third quarter, signing net new project orders totaling approximately $52 million from new and existing customers. This work will span process development, new projects with existing customers, and additional orders for commercial products. As a result, We ended the third quarter with a net backlog of approximately 140 million, representing the company's largest backlog to date. We expect to recognize most of that backlog over the next 12 months. COVID-related business represents approximately 5% of our total backlog. Our team continues to see and pursue the growing demand for CDMO services, and in particular, biologics manufacturing. As we're approaching the close of fiscal 22, to date we have doubled our client base and client awards have already reached roughly the same as the whole of fiscal year 2021. Although this new business manifests in all areas of operations, we are particularly happy with this significant increase in process development, which we hope will grow further into long-term opportunities as these relationships develop over time. To support increasing demand and our continued growth, we have recently expanded our commercial team, and we look forward to building on that momentum the company has been building over recent years. This concludes my overview of business development activities for the quarter. I will now turn the call back over to Nick for an update on operations and other achievements during the quarter.
spk09: Thanks, Matt. The third quarter was the company's seventh consecutive quarter of operational profitability. and we continue recording year-over-year growth in multiple key areas, including revenues, gross margin, net income, and adjusted EBITDA. And as Matt just reported, our new business signings remain robust, and the company's backlog has never been stronger. We are also making great progress with each of our expansion projects. First, I'd like to revisit last quarter's announcement that the company is expanding its CDMO service offering into the rapidly growing cell and gene therapy market. While this is a very exciting sector of the market, it is the fundamentals that define AVID that underpin our viral vector offering. Quality is being built into the very fabric of the facility, as well as the systems, procedures, and most importantly, culture. We will, of course, be integrating our knowledge of disposables into the design, and the business will retain our transparent, customer-centric, and flexible approach clients have come to expect and value from Avid. In recent months, Drew Brennan, general manager of our viral vectors business, has successfully recruited most of the key leaders for the viral vectors, covering the functional areas such as process development, quality, operations, and facilities. The process of adding additional strength and depth to the team is also well underway. Our purpose-built 53,000-square-foot facility will come online in two phases. The first phase will include process development and analytical development and is expected to come online before the end of Q1 fiscal 23. Phase two is expected to be complete approximately one year later and will add the GMP suites at an estimated total cost of about $75 million. Turning to our mammalian offerings, During the third quarter, the company announced a significant milestone with the completion of the first phase of the two-part expansion of the Myford facility. This new downstream suite is now operational and scheduling client projects. This additional capacity was ideally timed coming online in the same quarter as our backlog has risen to 140 million, exceeding our prior capacity. Importantly, this expansion also enables Avid to continue to maintain capacity for new and existing clients and to ensure that plant availability is not a factor in our clients' timelines. Our attention now turns to Myford South, which remains on schedule and is expected to come online in less than 12 months. Our new capacity is now approximately $170 million per annum, up from the previous $120 million. Myford South will add in a further $100 million at the beginning of calendar 23, and with viral vectors a further $80 million around the middle of the next calendar year, bringing out its total revenue generating capacity to more than $350 million per annum. For anyone interested in learning more about our expansions, I'd encourage you to visit our website's facilities page for videos documenting our progress. Our top line growth has been fueled by the success of our business development team. It continues to achieve robust new business signings as evidenced by our current backlog of $140 million, our highest backlog to date. The financial performance of increased revenues, gross margin, net income, and adjusted EBITDA has been made possible by the effective execution of our operations, quality facilities, and support functions such as HR, finance, and supply chain. These groups often go unrecognized, but without which none of this would have been possible. This concludes my prepared remarks for today, and we can now turn the call over to the operator for questions.
spk01: Thank you. Ladies and gentlemen, if you'd like to ask a question at this time, you will need to press the start and the 1 key on your touch-tone telephone. To withdraw your question, you may press the pound key. Please stand by while we compile the Q&A roster. Now, first question coming from the lineup. Sean Dodge from RBC Capital Markets. Your line is open.
spk04: Yep. Thanks. Good afternoon, and congratulations on the continued strong progress with the new business wins. I wanted to start on the revenue guidance. You're maintaining the $115 million, $117 million target for the year, but when we look at what you've generated year to date, this implies a sequential decline in the fourth quarter. And I think that's despite what were some annual shutdowns that took place in Q3. So maybe you can just give us a little color on why revenue should be down in the fourth quarter.
spk09: Yeah, thanks, Sean. It's Nick speaking. I mean, it's just very simply timing of batches for clients. It's, again, as you kind of highlight there, The general trend is a continuing growing backlog of 140, but I think we've talked to this on a number of occasions. You know, the timing doesn't always quite perfectly work out on each quarter end, and so you just see a little fluctuation in that. So that's really it. We're obviously already utilizing the new space that we've got created, obviously a 120 million backlog trend, Sorry, 120 million capacity and 140 million backlog, we desperately needed that additional space or would have needed that additional space. Fortunately, that's online now. And, you know, I do understand that there's a general feeling that, obviously, if you've got 140 a backlog, you've got the extra capacity. Why isn't it flowing through straightaway? And it's just a timing issue, really, as we see the quarter. Obviously, if there's any opportunity to pull anything forward into there, then we'll be taking advantage of that to the extent that we can. But that's all we see it as, and clearly we see that continued growth that you see in the backlog.
spk04: Okay, thanks. And then maybe on your last point there, the $140 million backlog might for one now be in open so you have the available capacity. Can you just give us a little bit more detail on that? I don't know, the fluidity or the fungibility of that backlog. How quick can you maybe pull some of this stuff forward and get the new Miford space, you know, ramped to a full kind of 12.5 million quarterly revenue run rate? Is that, I guess, can you put any kind of bookends around timing for that? Is that one quarter, a couple quarters or longer? Sure.
spk09: Yeah, I mean, we've always said typically that we expect to recognize the backlog in a period of approximately 12 months. And this one remains pretty much the same, I think it's fair to say. So in that extent, I'm doing the math in my head quickly. But if you've got extra 20 million over, there must be there's an extra 5 million already in that backlog, arguably going into that additional into that additional suite. Clearly, to completely fill it, we'd be up at $170 million if that was immediate. At this stage, we're not guiding to next year. That'll be at the next quarter end, so we'll guide forward. I think we've alluded to it. The trajectory of the business remains strong. The growth that remains in backlog is indicative of the growth of the business. We hope to see that flowing through into that suite as we go through next year and then You know, first world problems would be if that was full, and even in that case, we do have the Myford South, which seems incredible to be saying it now, but it will be on stream in less than a year. So, you know, hopefully that's ideally timed as well.
spk04: All right. That's helpful. Thanks, and congrats again.
spk09: Thanks very much, Sean.
spk01: Our next question coming from the line of Jacob Johnson with Stevens. The line is open.
spk02: Jacob Johnson Hey, good afternoon. At the risk of asking a question that Nick said he wouldn't answer, I know you're not guiding yet to 2023, but as we think about FY23, maybe the question would be this. How should we think about the long-term growth outlook for AVID and then maybe whether or not some of the COVID revenues in 2022 could prove to be a tough comp. Do you maybe kind of walk through those two pieces?
spk09: Yeah, I mean, I think we've kind of articulated the growth. I mean, clearly, if we've got $140 million in the backlog and we expect to recognize most of that in the next 12 months, then I guess that puts a bottom end on the expected growth that we're going to go forward with. But, you know, we've also seen the market growing pretty well, and we expect to beat that. I think we've said that as well. Again, I don't want to get into the position of having to give guidance earlier than we should do, and we're not in a position to be prepared to do that right now. But, you know, obviously, as I say, 140 would be the low end of anything. That's what we've already got in the backlog, unless something drastic was to happen. and hopefully we'll see more than that going forward. And then obviously as you go forward, we've put additional capacity in in Myford South as well coming on stream next year. So I think I've also made the comment that we're not putting that capacity in because we don't expect to utilize it, maybe not always on the first day that it opens as we probably almost did this time, but certainly in the not too distant future. So we're certainly envisaging being able to fill that downstream suite that we've just put in in a reasonable period of time, such that we then need to go into the new suite into Myford South. And then ultimately, you know, you've got your viral vectors to come on top of that. But again, that's under construction as well at the moment.
spk02: Got it. That last point leads to my next question. Just the viral vector process development lab, I think, comes online. I think you said 1Q fiscal 23. Can you just talk about how important that viral vector process development lab is? for the business development efforts kind of ahead of the manufacturing suites coming online?
spk09: Yeah, I mean, so first and foremost, the ADP, another little development and process development should be online. We think it'll be towards the end of the quarter, quarter one, so probably July, somewhere around there. The reality of it is, I mean, obviously we're engaging in conversations, and I'll let Matt speak to that, but we're obviously engaging with clients, but ultimately having, and we can obviously show them the sort of facilities that we have. I mean, we could throw people around our existing facilities, the two won't look a lot different, so I think people will have a pretty good idea of what's going to be built and the quality of that infrastructure. But ultimately, at the end of the day, you know, people need the actual facility to be there to do business with us, and I think that will enhance the meaningful discussions a whole stage further and, you know, start to get us towards a position hopefully where we can start to bring business in in terms of real business and real activities. Matt, I don't know whether you want to say anything about the BD efforts that are ongoing out there and what you've done in the team.
spk07: Yeah, sure. So just to add upon that, we did add a dedicated viral vector business development person this year. She had started in January with us. So we're already seeing a lot of interest from potential clients. You know, we've attended a couple shows. They're starting to get a few more that are face-to-face now. So each one that we go to, there's more and more activity. You know, so there's a lot of interest in our value proposition and And I think it's, you know, it's progressing nicely, as good as, you know, I could hope at this stage with things, right? So I think we're in a good place. And as Nick had previously stated, you know, as we get closer to opening of the facility, I think things are going to firm up nicely.
spk02: Got it. Thanks for that, Nick and Matt.
spk01: Our next question coming from the lineup, Matt Hewitt with Craig Hallamy, Alanis Open.
spk05: Good afternoon and congratulations on the strong quarter. Maybe a couple questions for me. First off, on the gross margin, I think you talked about some of the incremental costs that you faced in the third quarter. But as we look at, you know, revenues came in much better than I think many of us had anticipated. What's the delta or what causes the shift from quarter to quarter in the gross margin? Is that purely a mix of, you know, bigger batches versus smaller batches? versus the services, maybe what creates that delta?
spk06: Matt, thanks. This is Dan. You essentially just answered your own question. Yeah, it's absolutely up to the mix and the scale, the duration, the process. It's kind of all of the above. You know, as I've said in the past, gross margin of 30% roughly plus or minus is highly dependent on the mix. So I think that's kind of what we've seen. in the last three, four quarters.
spk05: Got it. And then, given some of the headlines here recently, and I know others have talked about it, are you seeing any inflation in your business? Is that primarily in wages, or are you seeing it maybe in some of the inputs as well? Maybe help us out there.
spk09: um so nick nick speaking again here i mean i think certainly in wage uh wage increases we see inflation and uh um you know in terms of what it requires to get hold of staff and new staff as we're growing and we certainly you know we're certainly hiring a good number of people these days in terms of the inputs into the process um a lot of a lot of the inputs for us are passed through so the vast majority of the uh sort of raw material component is a pass-through to the client. So whilst we do see these things coming through, they're not as big an impact on our profitability in terms of the fact that it's passed through ultimately to the end client.
spk05: Got it. All right. Well, thank you very much, and congratulations on the strong quarter. Thanks very much.
spk01: Our next question coming from the line-up, Paul Knight with KeyBank. Your line is open.
spk08: Hi, Nick. On the commercial profile, on the profile of the contracts, are you starting to average longer duration, meaning are there more moving into Phase 3? I mean, are you like an average Phase 2 now, or where's that maturity of the pipeline with the backlog increase, et cetera?
spk09: Yeah, really good question, Paul. I don't actually know what the average is. I've never actually done that one. That's an interesting concept. I might have a look at that one. But we do monitor, obviously, the sort of pipeline. I think, as I've alluded to, one of the nice things about the business is that we established a funnel over the last couple of years, for sure, that we see projects now in preclinical phase one, phase two, phase three, and commercial, obviously. What we're now sort of experiencing is a broadening of that funnel, and that's what we're trying to do. And I think we've been quite pleased that kind of I think the message of our commercial pedigree is getting out there, and we are seeing some later phase projects coming in, and we're seeing projects maturing to those phases as well. you know, ultimately the Holy grail is when clients actually jump across. And we saw that last year as well. So, uh, but yeah, we, we, we're pretty pleased with the, with the development, uh, in terms of, uh, uh, the maturity of the pipeline. Uh, but we'd always take more late phase and commercial products because those are always, uh, really good for, you know, sort of predictability and reproducibility in terms of, uh, revenue streams.
spk08: Okay. And then, uh, With your experience in the industry, what type of EBITDA margin do you and Dan think AVID could operate when it's more at the mature stage of the business?
spk06: Sure. Definitely at the heart of what we're aiming at here, Paul. I think, you know, I've said in the past, looking at the capacity going from 120 to 170 million and ultimately getting to 270 on the mammalian side and then adding in additional approximately 80 for the viral vector. Looking at both of those different offerings, they're pretty close in the overall margin profile. Some similarities, some differences. All in all, you can see that we've been running at... low to high 20s in the last four or five quarters as far as a percentage of EBITDA. I would imagine as we reach a full capacity, that number would be starting with a three, low to mid 30s. Okay, thank you.
spk01: Thank you. At this time, I would like to hand the call back over to Nick Green for any closing remarks.
spk09: Thank you, Operator, and thank you to everyone participating on today's call. In closing, I'd like to thank Avid's customers, partners, and investors for their ongoing collaboration. And as always, I'd like to acknowledge Avid's extraordinary employees who together are driving the company's success. Thank you again for participating today and for your continued support of Avid Bioservices.
spk01: Ladies and gentlemen, that's our conference for today. Thank you for your participation. You may now disconnect.
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