Avid Bioservices Inc
NASDAQ:CDMO
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Avid Bioservices Inc
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Good day, ladies and gentlemen and welcome to the Avid Bioservices First Quarter 2024 Financial Results Conference Call. [Operator Instructions] 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.
Thank you. Good afternoon and thank you for joining us. On today's call, we have Nick Green, President and CEO; Dan Hart, Chief Financial Officer; and Matt Kwietniak, Avid's Chief Commercial Officer. Today, we will be providing an overview of Avid Bioservices contract development and manufacturing business, including updates on corporate activities and financial results for the quarter ended July 31, 2023. 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, September 7, 2023, 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 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.
Thank you, Tim and thank you to everyone participating today via webcast. The first quarter of fiscal 2024 was busy and productive. During the period, we continued to execute, winning multiple new projects. These signings have enabled the business to effectively maintain the record backlog which was built during fiscal 2023 which in the current climate, we see as a significant achievement.
As highlighted at the end of last year, our new capabilities and capacity continue to attract attention from new and existing customers, particularly those in later stages of clinical development or seeking commercial manufacture. And it has been pleasing to see increased utilization of the new mammalian line fleet, previously referred to as Myford South, as well as more clients in the pipeline.
We continue to successfully onboard new business won during the second half of fiscal '23 and our revenues during the period remained strong. In operations, the cell and gene therapy facility continues to progress according to plan and we remain on schedule to complete this facility later this year. Matt and I will provide additional details on the business development and operations for the period following an overview of our first quarter 2024 financial results.
And for that, I'll turn the call over to Dan.
Thank you, Nick. Before I begin, in addition to the brief financial overview I'll provide on the call today, additional details on our financial results are included in our press release issued prior to this call and in our Form 10-Q which was filed today with the SEC.
I'll now provide an overview of our financial results from operations for the quarter ended July 31, 2023. Revenues for the first quarter of fiscal 2024 were $37.7 million, representing a 3% increase over revenues of $36.7 million recorded in the prior year period. The increase in revenue was primarily attributed to an increase in manufacturing revenues from late-stage programs.
Gross profit for the 3 months ended July 31, 2023, was $4.1 million or 11% gross margin compared to $9.1 million gross profit or 25% gross margin for the same period in the prior year. The decrease in margin during the 3 months ended July 31, 2023, as compared to the prior year period was primarily driven by costs related to ongoing expansions of both our capacity and our technological capabilities. This included adding staff and associated overhead, including depreciation expense, that will provide critical capacity for near- and medium-term growth. Margins during the quarter were also impacted by a terminated project related to the insolvency of one of our smaller customers and a delay in our ability to recognize the revenues of one product pending the implementation of a process change.
As disclosed previously, we expect the expansion-related costs incurred to date will continue to affect near-term margins, especially in the related increase in depreciation costs. Importantly, as we increase our capacity utilization, we will begin to absorb these increased expansion-related costs, leading to improved gross margins.
Total SG&A expenses for the first quarter of fiscal 2024 were $6.3 million, largely consistent as compared to $6.4 million recorded in the first quarter of fiscal 2023. During the first quarter of 2024, the company's net loss was approximately $2.1 million or $0.03 per basic and diluted share compared to net income of $1.6 million or $0.03 per basic and $0.02 per diluted share for the first quarter of fiscal 2023. For the first quarter of '24, the company achieved an adjusted EBITDA of $2.8 million. Our cash and cash equivalents on July 31, 2023, were $24.9 million compared to $38.5 million on April 30, 2023. This concludes my financial overview.
I'll now turn the call over to Matt for an update on commercial activities during the quarter.
Thanks, Dan. During fiscal 2023, our commercial team significantly expanded our visibility and standing in the industry and we continued to build on that momentum during the first quarter of fiscal '24. During the quarter, Avid recorded bookings of $36 million and ended the quarter with a backlog of $189 million, representing an increase of 20% as compared to $157 million at the end of the first quarter of fiscal 2023.
While these signings and new projects span the company's capabilities, the majority of the bookings came from later-stage and commercial products which is a testament to the company's commercial pedigree and the quality of the new capacities we brought online a few months ago. As discussed previously, today's challenging financial environment has forced many companies to focus financial resources on later-stage and commercial projects versus investing in earlier-stage, higher-risk projects. These later-stage projects are generally larger and take longer to complete as compared to earlier-stage programs. For that reason, we expect that recognition of our backlog will extend beyond 1 year. These later-stage projects have a much higher probability of regulatory approval, potentially leading to future recurring and ramping commercial revenues associated with each approval.
While there remains some risk and time between late-phase manufacturer, BLA submission and regulatory approval, this dynamic should drive medium- to long-term growth for Avid. This fits well with the company's objective of establishing a larger, more diversified and predictable revenue base.
Our team has been extremely active with client engagement in anticipation of a return in funding that will support our customers' pipelines and, in turn, our own pipeline. We continue to be optimistic for the year ahead and at the time that the financing environment improves, we will be well positioned with both capacity and capabilities to supplement our late-stage and commercial revenue base with the early-stage programs that are currently being deferred.
This concludes my overview of commercial activities. I will now turn the call back over to Nick for an update on operations and other achievements during the period.
Thanks, Matt. I will provide an overview of the company's progress with its expansion efforts. During fiscal '23, Avid completed construction of and opened multiple mammalian business expansions. As -- we are very proud of the fact that the timing of each opening was aligned precisely with the period during which the company's backlog exceeded its prior capacity. As a result, we began fiscal '24 with more than 20,000 liters of state-of-the-art capacity and a fully disposable platform. We continue to build the company's new cell and gene therapy facility which will support early-stage development to commercial manufacturing.
In late calendar 2021, the company announced its intent to expand its CDMO offering into the rapidly growing cell and gene therapy market. Only 8 months after this announcement, Avid opened its analytical and process development suites within the new cell and gene therapy development and GMP manufacturing facility, providing the company with its first opportunity to engage with drug developers in this area and sign initial agreements to support these programs.
Today, the company remains on track to launch its GMP manufacturing suites by the end of the third quarter of calendar 2023. And while these expansions and the associated hiring have impacted our current margins in the near term, the announced capabilities and added capacity establish an essential infrastructure and foundation from which to expand Avid's footprint in the industry. Importantly, upon completion of the cell and gene therapy facility, we estimate that our combined facilities will have a potential to bring our total revenue generating capacity up to $400 million annually, representing a significant transformation from only 2 years ago.
Our 30 years of experience in biologics and almost 2 decades of commercial manufacturing experience has resulted in a business today that has more than 50% of its revenues and backlog associated with late-phase and/or commercial programs. The new capabilities and capacities, we believe, will continue to attract customers who seek not only clinical manufacturer but also a CDMO with a pedigree to take them through the approval process and subsequent commercial supply.
The strategy employed over recent years to build the capabilities and capacity for clients who seek a partner who can take them through the entire life cycle of their product is already paying off, with multiple clients already using the new mammalian capacity and more scheduled to enter this space in coming quarters.
In closing, the first quarter was a continuation of the trajectory established during fiscal 2023. During the period, Avid continued to successfully navigate what has been a challenging financing environment for our customers. as our revenues and backlog remained strong and our commercial team continued to win new projects. Fortunately, Avid has continued to attract and sign later-phase and commercial business during the period which has the potential to add significant upside in the medium to longer term.
On the operational front, we continue to make progress with the build-out of our cell and gene manufacturing facility. We remain on track to bring this new building and capability online by the end of the third quarter of calendar 2023, at which time the company's state-of-the-art facilities will have a revenue-generating capacity of approximately $400 million.
This concludes my prepared remarks for today. We can now open the call for questions. Operator?
[Operator Instructions] And our first question comes from Jacob Johnson from Stephens.
Maybe, Nick, first on the cell and gene therapy side. With that facility seemingly opening up sometime, I guess, in the next couple of weeks, just curious your kind of latest thoughts about how we should think about the revenue contribution when that opens; and then two, maybe just kind of demand trends as it relates to that end market.
Yes. So I think in terms of opening up, Jacob, we're looking at the end of quarter 3. It will obviously then, as we said before, once it's open, I think that's the real time when we can start to bring clients in. So I think this is probably more of a 2024 revenue stream that we'll start to see. The one thing that we have seen in -- I think in recent, well, I would say weeks, even months now, is just starting to see an increase in the amount of interest quite significantly in the area. So in terms of proposals being made and site visits and engagement, that's picking up quite nicely. So I think really looking to see what -- once we've got the facility open, converting those interesting conversations into revenues. Difficult to guide at this moment in time towards revenue. I think that will be something that we'll do in the next fiscal year in terms of revenue guidance for that part of the business maybe.
Got it. That's helpful. And then maybe just on the -- you called out in your prepared comments and in the press release this rev rec delay, I guess, due to the implementation of a process change. Is there any way to frame up kind of magnitude of that? And is that something that could persist as a headwind? Or is it something that could be resolved sooner rather than later?
I'll let Dan answer the magnitude. But it's -- I don't think it's going to be a persist per se. Exactly when the revenue gets recognized, I would expect would be within this fiscal year would be my best estimate, hopefully sooner rather than later, to be frank. But it's not something that we see as something that would be repetitive in any way. It's a one-off event in this case, I think, in terms of what we see here is once the change is made, we're back to normal.
Yes. Jacob, the impact of the quarter was approximately 3 percentage points.
And our next question comes from Matt Hewitt from Craig-Hallum Capital Group.
Maybe just to touch a little bit on the environment. Obviously, it's been challenging yet you guys are still able to win new business. Has there been any changes, I guess, over the past couple of months here since you reported your Q4 in the tone or the dialogue that you're having with customers? What are you hearing from them as far as you look out into calendar year '24? Is there an expectation that things are going to improve? Or just any details along those lines.
Yes. I mean what I would say, Matt, first and foremost, is that summer is never the best quarter for assessing activity levels, because I think what we've seen in the past and I've seen throughout my life is that sometimes people will get to move things ahead because they're trying to get things done before they go on vacation. Sometimes they get delayed because they're going on vacation. So it's always a little bit of a less-than-ideal environment. I think it's a little bit like the financial markets. Everybody kind of looks towards the post-Labor Day period to start to see what's going on. I think one thing I would say is that I don't think we're seeing any worsening from where we were which is obviously good. I think if we look at the commentary that we're hearing in the industry in general, there is reason for some optimism, I would say, cautious optimism. We saw obviously an uptick in the beginning of this year and then the bank issues that we saw seemed to kill that fairly shortly thereafter. So very much looking to this post-Labor Day period and seeing what will run between now and I guess probably Thanksgiving to give us an idea of the strength of any recovery that there might be.
And then the big question, obviously, as you start to fund the biotech sector, how quickly that funding turns to orders on which we can execute. So that's -- those are some of the areas that we're watching very carefully. I would say, in summary on that lot, not worse than before and some signs that things might be getting better but I would say it's too early to call one [indiscernible] summer, as it were.
Understood. And then maybe a separate question. As far as -- you reiterated or reaffirmed your guidance for the year. How should we be thinking about the cadence? Should we see sequential growth over the course of the year? Or with some normal shutdowns here in August, will there be a little bit of a step back before it ramps back in the back half of the year?
Yes. You -- I think you pretty much got it there, Matt. I mean we -- it's difficult to avoid anything. I mean the shutdowns is something that we have to every year. So I think you'll see the usual sort of falloff. We usually see somewhere around 15%, I think, is not untypical for quarter 2 from quarter 1. And then obviously, we pick up towards the end of the year to make the guidance. So I don't see anything this year would be any different from any other.
And our next question comes from Sean Dodge from RBC Capital Markets.
Nick, the new business you signed during the quarter, you said you continue to sign later phase in commercial projects. Can you give us a little bit more detail on where those are coming from? Are these things you're winning from other CDMOs? Or are these more previously early-stage programs that you had been working on that are now progressing into later phases?
Predominantly, this quarter, I think, was wins from -- i.e. not business that we brought from -- through Phase I, Phase II, Phase III. So this is a new business from elsewhere at the end of the day.
Okay, great. And then, Dan, on gross margins, if we think about the new gene therapies space that's set to open here, are you at this point kind of fully ramped on costs with respect to the new space that has opened and that will be opening? Or as we get closer to that, will there be more costs that kind of flow in? Maybe just help us think through -- you had these kind of onetime dynamics that hit gross margins in this quarter. If we think about those plus the potentially incremental gene therapy cost, what the trajectory should look like for gross margins from here.
Yes. Upon opening, we're essentially fully loaded with those costs and those costs will begin to incrementally increase we bring in business.
Okay. So Q1 then does not kind of fully reflect what will be like a full load of the gene therapy cost. There should be a step-up in as we think about...
There will be, Sean but that will be over time. That's not going to be, say, in the next quarter. It will be as the bookings and the revenues increase on that side.
Thank you. And I'm showing no further questions. I would now like to turn the call back over to Nick Green for closing remarks.
Thank you, operator and thank you to everyone participating on today's call. In closing, as we mark Avid's 30th year in business, we'd like to acknowledge the substantial progress we've made in recent years. We thank our customers for their trust and partnership and our investors for their continued support and we wish also to recognize the exceptional employees who continue to drive this success. Thank you for participating today in today's call and for your continued support of Avid Bioservices. Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect.