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.
spk08: Good day, ladies and gentlemen, and welcome to the AVID Bioservices fourth quarter and fiscal year end 2022 financial results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this conference call may be recorded. I would now like to hand the conference over to Tim Bronze of AVID's Investor Relations Group. Please go ahead.
spk01: 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, App Chief Commercial Officer. Today, we will be providing an overview of Abbott Bioservices' contract development and manufacturing business, including updates on corporate activities and financial results for the quarter and year ended April 30th, 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, June 29, 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.
spk03: Thank you, Tim, and thank you to everyone who has dialed in and to those who are participating via webcast. Fiscal 22 was an exceptionally strong year for AVID. In every measure, including financial, business development, and operations, we exceeded our stated goals for the year and extended the growth trajectory established in Fiscal 21. Revenues for Fiscal 22 reflected impressive year-over-year growth. and a doubling of the revenues as compared to our fiscal year 20. Our business development team signed multiple new orders, resulting in the company ending the fiscal year with its highest backlog to date. Operationally, we continue to make progress on the ongoing expansions, recently opening our new cell and gene therapy analytical and process development laboratories exactly eight months to the day that we announced our intention to expand into this business. This is the second expansion we have brought online this calendar year. Matt and I will provide additional details on business development and operations for the period following an overview of our fourth quarter and fiscal financial year 2022 financial results. And for that, I'll turn the call over to Dan.
spk07: Thank you, Nick. Before I begin, in addition to the brief financial overview I'll provide on the call today, Additional details on the fourth quarter and full fiscal year 2022 financial results are included in our press release issued prior to this call and in our form 10-K, which was filed today with the FCC. I'll now provide an overview of our financial results from operations for the quarter and fiscal year ended April 30th, 2022. Revenues for the fourth quarter of fiscal 2022 were $31.2 million. representing a 13% increase compared to $27.6 million recorded in the prior year period. The increase in revenues for the quarter can primarily be attributed to an increase in the scope of in-process and completed manufacturing runs and an increase in process development revenues primarily associated with services provided to new customers as compared to the prior year period. For the 2022 full fiscal year, revenues were $119.6 million, a 25% increase compared to $95.9 million in the prior year period. The increase in revenues for the 2022 full fiscal year as compared to the prior year period can primarily be attributed to an increase in the number and scope of in-process and completed manufacturing runs, unutilized reserve capacity fees, and process development revenues. Gross margin for the fourth quarter of fiscal 2022 was 22% compared to gross margin of 29% for the fourth quarter of fiscal 2021. Factors impacting the gross margin for the quarter were primarily from increases in costs associated with the growth of our business and our facility expansions, including compensation and benefit expenses, as well as increased in facility and related expenses, partially offset by higher revenues during the period. Gross margin for the 2022 full fiscal year was 31%, consistent with the prior year period. We are pleased to have achieved a gross margin of 31% for the full fiscal year. However, as in fourth quarter, we expect margins during the fiscal 23 to continue to be impacted as we expand operations. Specifically, our margin during the fourth quarter was impacted by increases in spending related to hiring and other expansion costs to support our growing mammalian business, as well as to establish our new cell and gene therapy business. Given our ongoing expansions, we believe that margins may continue to be affected in the coming quarters. Total SG&A expenses for the fourth quarter of fiscal 2022 were $5.9 million. an increase of 17% compared to $5.1 million recorded in the fourth quarter of fiscal 2021. The increase in SG&A for the fourth quarter was primarily due to higher compensation and benefit expenses, as well as increased facility and related costs. For the 2022 full fiscal year, SG&A expenses were $21.2 million as compared to $17.1 million for the prior year. The increase in SG&A during the 2022 full fiscal year was primarily due to compensation and benefit expenses, facility and related expenses, advertising costs, and legal and accounting fees. During the fourth quarter of fiscal 2022, we recorded a non-cash income tax benefit of $115 million, or $1.63 per diluted share, due to the release of our valuation allowance recorded against the company's deferred tax assets. The company previously maintained a valuation allowance on its deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. On a periodic basis, the company reassesses the valuation of its deferred tax assets, weighing all positive and negative evidence to assess if it's more likely than not that some or all of the company's deferred tax assets would be realized. As of the fourth quarter, the company has demonstrated profitability and cumulative pre-tax income, as well as forecasting revenue growth. After assessing both positive and negative evidence, the company determined that it was more likely than not that the deferred tax assets would be realized and released the valuation allowance related to the federal and state deferred tax assets as of April 30th, 2022. For the fourth quarter of fiscal 2022, the company recorded net income attributable to common stockholders of $115.6 million, or $1.87 per basic and $1.65 per diluted share, as compared to a net loss attributable to common stockholders of $2.7 million, or $0.04 per basic and diluted share, for the fourth quarter of fiscal 2021. Excluding the non-cash income tax benefit of $115 million recorded during the quarter, our net income attributable to common stockholders was approximately $600,000 or one penny per basic and diluted share. For the 2022 full fiscal year, the company recorded net income attributable to common stockholders of $127.7 million or $2.08 per basic and $1.84 per diluted share. as compared to net income of triple-to-com stockholders of $3.3 million, or $0.06 per basic diluted share for the 2021 full fiscal year. Excluding the non-cash income tax benefit of $115 million recorded during the period, our net income of triple-to-com stockholders was $12.7 million, or $0.21 per basic diluted share. For the fourth quarter, the company achieved an adjusted EBITDA of $5.9 million and $30.4 million for the 2022 full fiscal year. These represent increases of 13% and 53% respectively when compared to adjusted EBITDA of $5.2 million for the fourth quarter of 2021 and $19.9 million for the 2021 full fiscal year. Our cash and cash equivalents on April 30th, 2022 were $126.2 million compared to our third quarter balance of $150 million and the prior fiscal year end balance of $169.9 million. This concludes my financial overview. I'll now turn the call over to Matt for an update on commercial activities during the quarter.
spk04: Thanks, Dan. During my first six months at AVID, we focused on expanding our commercial team and refining our strategy for recruiting new business projects. The early results from these changes has been highly encouraging as we signed net new project orders totaling approximately $44 million during the fourth quarter and 155 million for the 2022 full fiscal year. As a result, we ended fiscal 22 with a backlog of 153 million advertised to date. This represents a 30% increase compared to the backlog of 118 million at the end of fiscal 21. We expect to recognize most of our current backlog over the next 12 months. And notably this backlog contains no COVID related business. The commercial enhancements we made over the last six months include doubling the size of our sales team with additions in our mammalian and our cell and gene therapy businesses, including a specific focus on the leading biotechnology regions in North America. We have also created an internal sales team dedicated to identifying prospective new business and generating leads. And finally, We increased the size of our business operations team to help support our growing project pipeline generated from new customers, as well as the expanding orders from existing clients. Complementing these organizational improvements, our overall visibility has also increased as a result of expanded marketing and promotional campaigns, industry speaking engagements, and website search enhancements. In addition to our bookings increase, our new proposal issuance performance in both count and value reported record results multiple times over the last six months. These are all strong indicators of how Avid is perceived by the market and of Avid's position to meet client need and is well-timed as we bring on additional capacity in early 2023. We believe that given Avid's available capacity and proven track record of quality, reliability, and flexibility, our company is well-positioned for success in the coming years. This concludes my overview of commercial activities for the quarter and fiscal year. I will now turn the call back over to Nick for an update on operations and other achievements during the quarter.
spk03: Thanks, Matt. As reported by Dan and Matt, during fiscal 2022, the company's business development enhancements and subsequent wins have directly strengthened both the company's top line as well as our financial position as a whole. And during the year, I am pleased to report that our facilities and service expansions continue to advance on a timeline that will allow us to meet the demand of our newest customers, prospective customers, as well as our existing customers that are expanding their manufacturing work. Not as if the past two years haven't been exciting enough, we expect fiscal 23 will be transformational for AVID. Having just completed the analytical development and process development capabilities of our cell and gene therapy business only two weeks ago, on the male alien side of the business, we look forward to seeing the completion of our Myfit cell facility and the new process development capacity in January of 2023. Finally, around this time next year, our GMP suites for the cell and gene therapy business will also be complete. These expansions are the result of a phenomenal amount of planning and an amazing level of cooperation between not only internal groups such as quality, operations, engineering, maintenance, and finance, but also external teams at CAE, CRB, EPR, and the cities of Tustin and Costa Mesa. I cannot commend enough the contributions of everyone at AVID who have not only managed to maintain each and every program on schedule, but have also been able to achieve this while maintaining an operational performance that could equally be described as transformational, and all of this during COVID. The newly opened analytical and process development capabilities in our cell and gene therapy business will now enable the team to embark on a meaningful dialogue with prospective clients with respect to their programs, safe in the knowledge that we are able to execute from both a technical and operational perspective. Furthermore, the timing of the GMP suites should be well-timed to accept programs that complete the process development phase and are then looking for a home in the larger GMP suites. On the mammalian side of the house, the phase one expansion is now fully operational, and the team have now completed manufacture of multiple programs in this suite. The expansion of our process development laboratories will enable AVID to onboard even more programs as we enter calendar 23. this to ensure clients can access the new capacity in Myford South in 2023 and beyond. Enhancements to our commercial function, which as Matt described, included a doubling of our BD personnel in front of the customer, and the addition of internal sales, increased bandwidth of our business operations and marketing teams are key contributors to the increased number of proposals we are submitting to customers. On the operational side of the business, we are also expanding our ability to efficiently and effectively execute each and every program in a timely manner. Across the whole organization, we saw an increase in staffing of approximately 100 people in calendar 2022. While we fully expect to see the continued growth of the AVID business as we seek to fill the current capacity, Fiscal year 23 will also be a year where we equip the business to onboard the programs required to fill the new cell and gene therapy capacity and the new mammalian capacity in life itself. As highlighted by Dan, this will inevitably place some short-term pressure on our margins. But fiscal years 2021 and 2022 have clearly demonstrated the effectiveness of the business model, which will enable these margins to recover and be further enhanced in the years to come as we endeavor to fill what will be close to $400 million of capacity by this time next year. In closing, I would like to revisit the considerable progress made during fiscal 22. During the year, we achieved revenues of $120 million, beating guidance and representing a doubling of the revenues recorded in fiscal 2020. Notably, quarter four of fiscal 22 was the eighth consecutive quarter of operational profitability for the company. The company signed new project orders for $155 million in fiscal 2022, leading to a backlog of $153 million, Avid's largest backlog to date. Supporting this growth, as well as that which we anticipate in coming years, our facilities and service expansions continue to proceed according to plan. Given the growth momentum achieved during fiscal 22, our year-end backlog, and the increase in demand anticipated during fiscal 23, we are pleased to announce revenue guidance for fiscal 2023 of between $140 and $145 million, representing a projected increase of 17 to 21 percent as compared to the fiscal 2022 revenue. This concludes my prepared remarks for today, and we can now open the call for questions. Operator?
spk08: Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by as we compile the Q&A roster. Our first question comes from Sean Dodge with RBC Capital Markets. He may proceed.
spk05: Yep, thanks. Good afternoon and congratulations on the quarter and for the great year, for that matter. I guess, Nick or Dan, the guidance you laid out for fiscal 23, I just wanted to better understand the visibility you have on that range kind of via the current backlog versus what you had going into this past year. I guess, are there any changes you made and assumptions around things like backlog conversion or how much you need from additional new business to hit that range compared to what you'd factored into this past year's targets?
spk03: Yeah, I think there are some differences. I think mainly, Sean, against really the outlook in the marketplace, there's a lot of uncertainty out there in terms of the sort of I guess, political and markets perspective and investment into biotech and all those sort of things that probably weren't there last year. Obviously, we always have a different set of circumstances. We had COVID last year. Supply chains as well. So there's a whole host of those sort of factors that we took into account. And then there's also some additional what I would consider generally good things is that, you know, a number of the projects that we're bringing on board are a larger and later phase, and those take longer to execute. So I think there's probably a little bit of that squeezing out outside the 12-month time frame, whereas, you know, we've typically turned down and said we expect the majority of that to be recognized within the next 12 months when it comes to backlog. That's still the case, but probably a little bit less than it was in the previous years as we get more mature programs on board. The other factor influencing the guidance as well is that jumps us up to 85% of our expanded capacity that we brought on about five months ago. So it's really just a combination of those. I think we've doubled the size of the business over the last two years. We're still forecasting 17% to 21% growth this year with the with the markets where they are, I still think is, you know, pretty good. And, you know, if the worst parts of those negatives don't materialize, then hopefully there's an opportunity for us to extend that. But, you know, we're 12 months away, as it were.
spk05: Okay. That's helpful. And maybe on one of the first comments you made there, on the outlook for signing new business, certainly the macro backdrop seems like it's gotten a bit more challenging with less biopharma fundraising happening. Are there any thoughts you can share around the demand levels you've seen subsequent to the end of April? How is that trend? And then maybe anything else we should be thinking about that you feel maybe insulates you all from a bit of what we've been seeing across kind of the fundraising landscape?
spk03: Yeah, so I should let Matt talk to that first of all. I'm happy to fill in at the end of it, but that's his part of the business. He's right on the front line in that regard. So, Matt, maybe you want to just sort of jump in there, and I can add if needs be.
spk04: Yeah, sure, Nick. So, really, the feel we have, the proposal volume, the issuance has been very, very strong. You know, as I noted, we've had a couple record months over the last three, four, five months. in new issuance. So the demand is there. I think the market has responded well to our business model, really, as far as our capabilities and our expansions that we've put in place. And it's a pretty good mix as far as early and late phase opportunities that we have. So I definitely understand and agree with some of the challenges with investments in the biotechs. But as of now, we haven't seen a tremendous impact of that as of very recent.
spk03: Okay. So, Sean, just to sort of fill out on that one is that we are very encouraged with what we're seeing. I mean, as Matt highlighted, his proposals, CDAs, all those leading indicators are still growing nicely and strongly. But equally, we're not immune to the fact that we can all see how much the investment's gone down in biotech. Equally, there was a lot of money raised over the last few years, which is probably still coming out. So it doesn't mean to say that that couldn't come through in six to 12 months' time, per se. But at this stage, what's really encouraging is that Matt and the team are doing a great job and continuing to drive those leading indicators forward and positively.
spk05: Okay. Thanks and congratulations again.
spk03: Thanks, Bill. Appreciate it.
spk08: Thank you. Our next question goes from Jacob Johnson with Stevens. You may proceed with your question.
spk06: Hey, good afternoon. Maybe just look into 2023. Dan, really appreciate the comments around the outlook for margins in 2023, but maybe to unpack that and just say around gross margins, can you just talk about the puts and takes of kind of the growing revenue base you have and the incremental margin now that phase one has come online versus the additional capacity you're building out? And maybe just also speak to any impact from kind of inflationary pressures right now on the gross margin line.
spk07: Sure, Jacob. The way I would frame the gross margin for the fiscal 23 is we're going to continue to invest aggressively to bring our expansions online, adding to our capacity to the existing mammalian to establish the cell and gene therapy business. During this phase of growth, we would expect to see our growth margins in the 20s. Clearly, it's going to be lumpy. It's a lumpy business, and it's depending on the timing of revenues and the availability of additional personnel that we can bring on board. There's also a step up in depreciation facility costs. But as we ramp and we get to a more normalized run rate, we would expect to be at a 30% plus gross margin. As far as inflationary pressures, we do see costs kind of going up across the board, as everyone else does. On the materials side, we passed that through. So, so far, it hasn't had a significant impact on our businesses.
spk06: Got it. Thanks for that, Dan. And then, Nick, in response to Sean's question, you mentioned that you've got some larger projects in your backlog right now, and I think Matt kind of mentioned some refining to your business development strategy. Is kind of going after some of these larger projects, has that been intentional, and are you seeing the fruits of that, or is this just kind of how the new business wins, I guess, maybe the second half of the year?
spk03: Yeah, I mean, I think it's intentional for sure. I mean, one of the strongest sort of attributes of Avid, and there are a number of those, is the commercial pedigree of the business and the regulated track record that we have, which I think is particularly attractive to later phase programs who, you know, want to feel good that their CDMO is able to take them across the finishing line, as it were. Ray actually did quite a nice talk at Bio a couple of weeks ago on that very subject. So I think it's people realizing the commercial pedigree of the company as we continue to get our name out there. And then on top of that, of course, is that we have a significant amount of capacity coming online, so people can see that commercial volumes coming out of Avid is not constrained going forward, which is Never has been, actually, but that's one of the big things that we're driving. And then I think you've also seen Matt in his BD effort, and it continues, that he's significantly increased the horsepower throughout the business, but also driving a little bit more towards now. We've got that broad level of capability. and significant capacity, I think that's much more interesting to some of the bigger pharma clients that we maybe wouldn't normally have stepped across the threshold a few years ago. So a combination of the maturity, the expansion, the commercial track record, et cetera.
spk06: Got it. Thanks for taking the questions.
spk03: No problem. Thank you.
spk08: Thank you, and as a reminder, to ask a question, you'll need to press star 1 on your telephone. Our next question comes from Matthew with Craig Hallam Capital. You may proceed.
spk02: Good afternoon. Thank you for taking the questions. Maybe first up, I feel like it's been a little while since we got an update on your view of where market capacity currently sits. I know over the last couple of years, there was a lot of press releases of some of your peers building out capacity, but by and large, that was at the larger end of the spectrum. from a manufacturing perspective. And I'm just curious, are you seeing any changes? Are they kind of sticking at that larger end? And how does capacity for the market kind of sit today?
spk03: Yeah, I mean, I haven't seen much new, Matt, over the last sort of couple of quarters that we weren't aware of before. in this sort of 2,000-liter platform. We've seen people confirming their continued investment that they'd highlighted before, but I aren't seeing a massive amount of new capacity on top of that coming in. We still see clients who are concerned about capacity and aren't able to achieve the timelines that they're looking for in other areas of the market. And it leads me to believe that there are still constraints out there. And, you know, one of the things that we do feel particularly comfortable with is that obviously the markets have sort of pulled back a little bit in terms of growth and biotech. But, you know, we do have on our balance sheet enough cash to complete our capital expansions. assuming our business continues as it is doing today, and we can get all of that in with the cash on hand. So we can bring that capacity online and have it available for the clients going forward, which is always a big selling point.
spk02: That's great. And then maybe a follow-up. Regarding the new cell and gene therapy analytics and process development labs that you brought online, You know, how are those discussions progressing? Have you signed a contract yet? When do you anticipate that would happen? Anything along those lines? Thank you.
spk03: Yeah, conversations are going great. I mean, we started to get our name out. It's literally eight months and two weeks, I think it is now, or something like that, since. We announced getting into this, so it's still very, very early stages. I just remain constantly impressed with our engineering teams who can polish these facilities off and get them up and running. So analytical development and PD is just the entry side of the cell and gene therapy business. Obviously, everybody's going to start off in those areas. It was kind of important for us to, or we thought it was a good idea, should I say, to phase the expansion and try to get those up and running so that we could maybe onboard some clients ahead of the GMP with the hope that, you know, somebody you bring into PD completes their PD and then moves into the GMP as soon as that's up and ready. So we really, in earnest, to be frank, have only had a couple of weeks of actually being able to hard sell that capacity. So, no, we haven't signed anybody in that period of time. But I think last time I looked, there were a good number of ongoing conversations with a good number of people, people starting to want to visit the site now it's available. I was out there with some people the other day. So I think it's going to be now going forward that we'll start to push that one and start to hopefully bring some new clients on in the next few quarters. Can't guarantee it will be the next quarter, but hopefully it will be. But certainly I would expect that in the next few we'll be getting somewhere there.
spk02: That's great. Thank you.
spk03: Thanks very much, Matt. Appreciate it.
spk08: Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Nick Green for any closing remarks.
spk03: Yes, thank you very much, Josh. Thanks. Thank you for everybody participating on today's call. In closing, I'd just 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 have continued to drive the company's success. Thank you again to everybody for participating on the call and also for your continued support of Avid Bioservices.
spk08: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Disclaimer