Avid Bioservices, Inc.
Q4 2021 Earnings Call Transcript

Published: 29 Jun 2021

[Operator:]

Good day, ladies and gentlemen, and welcome to the Avid Bioservices Fourth Quarter Fiscal 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call may be recorded. I would now like to hand the conference over to Tim Brons of Avid'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 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 April 30th, 2021. After our prepared remarks, we will welcome your questions.

[Nick Green:]

Thank you, Tim, and thank you to everyone who has dialed in and to those who are participating today via webcast. Since coming on Board almost a year ago, I've been delighted with the way the team has been able to focus on execution and the results and achievements made to date. In a relatively short amount of time, having successfully brought on multiple new clients and projects spanning early-stage development through to commercial manufacturing. We have significantly increased top line revenues, strengthened margins as well as laying a solid foundation for the future in the terms of backlog. These are all culminating in the delivery of operational profitability for four consecutive quarters. The growing demand for our services has driven our ongoing phased expansions of the Myford facility. Furthermore, this growth, combined with a strong balance sheet, has enabled us to invest in additional offerings within our core business, such as high throughput capabilities for upstream, downstream and analytical. We are also assessing further opportunities both within our core business as well as an adjacent and our synergistic businesses, where we might enhance and/or broaden our capabilities with the objective of providing more and better solutions to our existing and growing customer base. Tim and I will provide additional details on business development and operations following an overview of our fourth quarter financial results. And for that, I'll turn the call over to Dan.

[Dan Hart:]

Thank you, Nick. Before I begin, in addition to the brief financial overview I'll provide on the call today, additional details on our fourth quarter and full fiscal year 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 SEC.

[Tim Brons:]

Thank you, Dan. Fiscal 2021 was a great year for Avid, capped by a strong fourth quarter. During the fourth quarter, the business development team brought on multiple new customers and projects, signing new orders, totaling approximately $26 million. The work for these new orders will expand all areas of the business from process development to commercial manufacturing. During fiscal 2021, the company signed new business orders for approximately $148 million as compared to $80 million during fiscal 2020. In addition, subsequent to the quarter end, we announced that Avid will serve as the commercial manufacturer for the humanized monoclonal antibody portion of ZYNLONTA, a recently approved cancer treatment developed by ADC Therapeutics. Avid has provided clinical manufacturing services to ADC to support development of the products since 2017 and we'll now expand our manufacturing relationship to include commercial manufacturing activities for the ZYNLONTA. Our evolving and expanding relationship with ADC is an excellent illustration of the value of the early-stage customers, which bring with them the opportunity for clinical development and ultimately commercial manufacturing. We are very pleased to have worked alongside ADC as they advanced ZYNLONTA through the clinic and we look forward to supporting the commercial efforts. For the fiscal year 2021, we on-boarded a total of eight new customers, a significant increase over the prior fiscal year. The backlog at the end of fiscal year 2021 was approximately $118 million, a dramatic increase compared to the backlog of approximately $65 million at the end of the prior fiscal year. We expect to recognize most of the current backlog by the end of fiscal 2022. Looking ahead, we remain optimistic regarding our opportunity to further grow the business. Based on market projections and customer estimates, we believe that our ongoing facility expansion has been exceptionally well timed to align our spend with growing demand. In fact, we are pleased to report that our present, the BD team is actively pre-booking our expanded capacities. This concludes my business development overview and I'll now hand the call back over to Nick.

[Nick Green:]

Thank you, Tim. There are four key areas I would like to address as we close out fiscal 2021 and look forward to a new year. While I don't want to dwell on the past, I think it's important to recognize the tremendous performance of the team and the business over the past 12 months. Fiscal year 2021, so Avid delivered many of the attributes built as a result of the company's significant heritage of commercial manufacture. Revenues increased by 61%, eight new clients brought on board, our team successfully completed FDA inspections for two product approvals with zero 483 observations. Gross margins increased from 7% to more than 30%. Cash generated from operations exceeded $31 million, and we raised more than $170 million in net proceeds from our equity and debt offerings to strengthen our balance sheet.

[Operator:]

Our first question comes from the line of Sean Dodge from RBC Capital. Your line is now open.

[Thomas Kelliher:]

Hey, good afternoon. This is Thomas Kelliher on for Sean. Thanks for taking the questions. I guess to start off just, how would you guys characterize the development pipeline of your customers right now? How many programs you're working on? How many would you consider that are in a later stage with potential to go commercial versus some of the earlier stage work?

[Tim Brons:]

Yes. I'd say that - this is Tim. Thanks for the question, Sean. I'm sorry, it was Thomas. Yes, our pipeline is really well mixed between early phase and late phase as far as new opportunities coming in. I would say it's more weighted towards the early phase, which is nice because we tend to hold on to those opportunities throughout the entire lifecycle of those programs. But as an organization, we really maintain optimism and are optimistic about the future of the pipeline.

[Dan Hart:]

Yes. The spread is probably roughly 60/40 in terms of -- we don't actually break it down by individual clinical phase, roughly 60% earlier phase, 40% later phase.

[Thomas Kelliher:]

Okay, that sounds good. Thank you. And then one more on business development. I know you guys have expanded the team over the past year and it's -- it seems like that's been reflected on the bookings. Is there more investment you'll need to make here to that team or do you pretty much kind of have all the pieces in place to fill all the upcoming capacity?

[Timothy Compton:]

Yes. No, the team is in place and they're obviously performing very well by the numbers you've heard today, and we don't anticipate needing to on-board anymore of the BD team in the next fiscal year.

[Thomas Kelliher:]

Okay, that sounds good. That's all from me. Thank you.

[Nick Green:]

Thanks, Tom.

[Operator:]

Thank you. Our next question comes from the line of Paul Knight from KeyBanc. Your line is now open.

[Paul Knight:]

Hey, how are you? Could you talk to -- you mentioned the facility closures and how will that roll out this year in terms of putting that up down into the rollout of quarters?

[Nick Green:]

Yes, I mean the -- in terms of splitting the two, we've always tried to keep the facility running. So we've always had a phased shutdown with Franklin initially, and then Myford coming on afterwards as Franklin comes back up. So we end up with the same effect. The only thing is, I think, there'll be an impact across both quarters, quarter two and quarter three this year, whereas in past years, it's all come in quarter two. It is difficult to say, I mean, typically, the shutdowns probably last somewhere in the order of three weeks. So I would kind of split that down for what you've seen in previous quarters and just take half of it in each. It’s probably the best proxy I can give at this stage without getting into a really detailed analysis of it.

[Paul Knight:]

Sure. Okay. And regarding backlog, was there any COVID benefit? I know you had a little bit in the prior quarter, any in this quarter, Nick?

[Nick Green:]

I'm not so sure, there is enormous amount actually in quarter four if any in quarter four. So I think the answer to that is no.

[Paul Knight:]

Okay. And could you talk to the industry conditions as capacity still pretty tight in the market, is the timeline shortening at all? What's your read on that?

[Nick Green:]

Yes, still seeing -- I think we still hear of cases where people are short of capacity and are concerned about lead times. It's always a bit of a difficult thing to assess, certainly my competition wouldn't tell me whether they would follow, they weren't, I'm sure, but we see a good healthy inflow of RFPs looking for capacity. So, if the inputs of opportunities is an indication, there's still plenty of demand out there. And I think I've seen nothing to suggest that the capacity issue is -- has eased significantly for sure. I'm sure as we go through that, we will take away the – obviously, the COVID, at least, we hope we take away some of the COVID impact in terms of the industry as a whole. I have always been of the view that even when COVID comes away -- because there has been a lack of supply, there is a lot of other therapeutics that are waiting for capacity that are out there, that we certainly hope now started to come through and we see those and we see going back to sort of the -- sort of typical profile. We might have seen pre-COVID, as I'm sure we're all looking forward to life without masks.

[Paul Knight:]

Got it. Okay. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Matt Hewitt from Craig-Hallum Capital. Your line is now open.

[Lucas Baranowski:]

Hi, guys. This is Lucas on for Matt Hewitt. Just a couple of questions here. I guess, once the expansions are complete, how should we be thinking about the speed of the production ramp for those, I mean, just in general terms?

[Nick Green:]

Yes. Lucas, and thanks for the question. This is Nick. So, I mean, clearly, the first expansion brings on around $50 million of capacity. The moment was sort of planning for that to come on in quarter four. Obviously, we're doing everything we can in terms of accelerating that if there is an opportunity to do that. And as I alluded in my remarks earlier that, as we come out of the October shutdown, that's really when we will be able to cement exactly when we feel it's going to come online. And if there is an opportunity to bring that into calendar 2021 as opposed to calendar 2022 as it were. If you take the $50 million, roughly that obviously gives us at least $12 million of upside if we get it on January 1, maybe a little bit more north of that. In terms of filling it up, when we give the dates, it's fully operational. And as Tim alluded to, we are booking into it. It will be difficult to say at this stage whether we'd be able to book all of that, but we will certainly be making every effort to do so.

[Lucas Baranowski:]

Thanks. That's really helpful. And then I guess given the hiring that needs to take place, should we be expecting a step up in SG&A, once the expansions are complete or what all of that fall into cost of goods sold?

[Nick Green:]

No, there is a little increase in the SG&A over the next sort of -- I don't know 12 to 18 months if we continue to grow as we have in and guided to continue to grow. There's always a little bit of a headwind in terms of the business in terms of bringing in personnel because frankly, we need them in six to nine months ahead of the capacity coming online to get people trained and GMP ready as it were. So we do have that headwind. Some of that comes into cost of goods, but some of it also comes into SG&A.

[Lucas Baranowski:]

Okay. Thank you very much. That's all I had.

[Nick Green:]

Thanks, Lucas.

[Operator:]

Thank you. Our next question comes from the line of Jacob Johnson from Stephens, Inc. Your line is now open.

[Mason Carrico:]

Hey, guys, this is Mason on for Jacob. Just a few quick ones from me. Starting with the 2022 guide, how should we think about the pace of activity this year? Are there any specific projects that could be lumpy in any particular quarters?

[Nick Green:]

We're not guiding on the quarters. I think -- but I don't know of anything that would immediately stand out outside what we just sort of highlighted in terms of the shutdowns, that's the major area of lumpiness you always get a little bit of impact obviously of the Christmas break, but we actually continue to run through that. But I guess it's the market as a whole tends to going down a little bit, but it's not overly market as you've seen from our prior quarters. So nothing exceptional that we're expecting as we sit here right now. Is that fair Dan?

[Dan Hart:]

Yes.

[Mason Carrico:]

Got it. And as we sort of think about growth in 2022, the year-over-year growth, any color on the main driver of that growth, is it mainly existing customers scaling up, is it new projects with existing customers or new customer programs themselves?

[Nick Green:]

I think probably the best answer to that is all of the above. We continue to see -- try to see our commercial clients continue to increase in revenues, but we've seen all four modalities of new business in growth, new business coming -- new clients coming on board, clients moving from one phase to the other; commercial clients increasing their demands and then additional programs from existing clients. And we've got all four of those working last year to the extent that we can forecast where clients moving their clinical demands and that clinical success would expect to see all four continue in this year as well.

[Mason Carrico:]

Got it, thanks. That's it from me.

[A – Nick Green:]

Thanks, Jacob.

[Operator:]

Thank you. At this time, I would like to hand the call back over to Nick Green for any closing remarks.

[Nick Green:]

Thank you, operator. And thank you to everybody for participating on today's call. In closing, I'd like to thank all our employees for their exceptional performance during fiscal 2021, that brought us to the position of operational and financial strength. And I look forward with excitement to the many opportunities that lie ahead as a result. Our team remains the key to our success and I am grateful for their dedication and unwavering professionalism. And thank you again to everybody participating on the call and for your continued support of Avid Bioservices.

[Operator:]

This concludes today's conference call. Thank you for participating. You may now disconnect.