On March 8, 2022 Avid Bioservices, Inc. (NASDAQ:CDMO), a dedicated biologics contract development and manufacturing organization (CDMO) working to improve patient lives by providing high quality development and manufacturing services to biotechnology and pharmaceutical companies, reported financial results for the third quarter of fiscal 2022, ended January 31, 2022 (Press release, Avid Bioservices, MAR 8, 2022, View Source [SID1234609640]).
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Highlights from the Quarter Ended January 31, 2022, and Other Events:
"I am pleased to report another successful quarter for Avid. Our financial and operational performance were strong, demonstrating year-over-year growth in revenues, gross margin, net income and adjusted EBITDA. This represents our seventh consecutive quarter of operational profitability," stated Nicholas Green, president and chief executive officer of Avid Bioservices.
"Fueling this growth has been the success of our business development team. They continue to achieve robust new business signings, as evidenced by our current backlog of $140 million – our highest backlog to date. We expect this trend to continue as we increase capacity, expand our commercial team and broaden our services, including our recent expansion into the cell and gene therapy sector of the market.
"Finally, to support growth today and in the future, the company continues to execute a strategically phased expansion plan that allows us to align spending with increasing market demand. This is highlighted by our downstream expansion, which came on line this quarter just in time to support our increased backlog, up from $120 million last quarter to $140 million.
"The company expects to launch its new viral vector business in two phases with process and analytical development suites launching in mid calendar 2022 and GMP manufacturing suites coming on line approximately one year later. In addition, we anticipate the completion of the Myford South facility expansion in early calendar 2023. Combined, we expect these expansions to organically increase the company’s total annual revenue generating capacity from approximately $120 million to in excess of $350 million in a period of three years."
Financial Highlights and Guidance
The company is reiterating revenue guidance for fiscal 2022 of $115 million to $117 million, a 20-22% increase over fiscal 2021.
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 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 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 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, in unutilized reserved capacity fees, and in process development revenues.
As of January 31, 2022, revenue backlog was $140 million, representing a net increase of 17% compared to $120 million at the end of the same quarter last year. The company expects to recognize the majority of this backlog over the next twelve months.
Gross margin for the third quarter of fiscal 2022 was 29%, compared to a gross margin of 28% for the third quarter of fiscal 2021. Gross margin for the first nine months of fiscal 2022 was 34% compared to 31% for 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.
Selling, general and administrative expenses ("SG&A") for the third quarter of fiscal 2022 were $5.8 million, an increase of 45% compared to $4.0 million recorded for the third quarter of fiscal 2021. The increase in SG&A for the third quarter was primarily due to stock-based compensation, compensation and benefits, and facility and related expenses. For the first nine months of fiscal 2022, SG&A expenses were $15.3 million as compared to $12.0 million for the prior year period. The increase in SG&A during the nine months was primarily due to stock-based compensation, facility and related expenses, advertising costs, compensation and benefits, and legal and accounting fees.
For the third quarter of fiscal 2022, the company recorded net income attributable to common stockholders of $2.2 million or $0.04 per basic and diluted share, as compared to net income attributable to common stockholders of $0.8 million or $0.01 per basic and diluted share, for the third quarter of fiscal 2021. For the first nine months of fiscal 2022, the company recorded net income attributable to common stockholders of $12.1 million or $0.20 per basic and $0.19 per diluted share, compared to net income attributable to common stockholders of $5.6 million or $0.10 per basic and diluted share, for the fiscal 2021 period.
Avid reported $150.0 million in cash and cash equivalents as of January 31, 2022 compared to $169.9 million as of the prior fiscal year ended April 30, 2021.
More detailed financial information and analysis may be found in Avid Bioservices’ Quarterly Report on Form 10-Q, which will be filed with the Securities and Exchange Commission today.
Recent Corporate Developments
Drew Brennan, general manager of Avid’s viral vectors business, has successfully recruited key leadership for the viral vector business to manage process development, quality, operations and facilities. The process of adding additional strength and depth to the team is also well underway, as is the construction of our 53,000 square foot dedicated viral vector facility in Costa Mesa, CA.
The company’s commercial team signed multiple new orders during the third quarter, totaling approximately a net $52 million. These projects span all areas of the business, from process development to commercial manufacturing.
Phase I of the company’s Myford, mammalian facility was completed and is now operational, increasing annual revenue generating capacity from $120 million to $170 million. This expansion was strategically timed to accommodate the company’s growing backlog, which reached $140 million by the end of the third quarter. The company currently expects to complete the second phase of our Myford South expansion, which includes both upstream and downstream GMP manufacturing suites, during the first quarter of calendar 2023. With respect to the viral vectors business, the company expects to bring its process and analytical development capacity on line in mid-calendar 2022 and ultimately the GMP manufacturing suites on line approximately one year later. Please visit the Avid website Facilities page for more information about the company’s expansions and videos documenting progress (View Source).
Statement Regarding Use of Non-GAAP Financial Measures
The company uses certain non-GAAP financial measures such as non-GAAP adjusted net income, free cash flow, as well as adjusted EBITDA. The company uses these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. The company believes that they provide useful information about operating results, enhance the overall understanding of our operating performance and future prospects, and allow for greater transparency with respect to key metrics used by management in our financial and operational decision making. These non-GAAP financial measures exclude amounts that the company does not consider part of ongoing operating results when planning and forecasting and when assessing the performance of the organization and our senior management. The company computes non-GAAP financial measures using the same consistent method from quarter to quarter and year to year, and may consider whether other significant items that arise in the future should be excluded from our non-GAAP financial measures.
The company reports non-GAAP financial measures in addition to, and not as a substitute for, or superior to, measures of financial performance prepared in accordance with U.S. generally accepted accounting principles (GAAP). These non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles, differ from GAAP measures with the same names, and may differ from non-GAAP financial measures with the same or similar names that are used by other companies. The company believes that non-GAAP financial measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP financial measures, and encourages investors to carefully consider our results under GAAP, as well as the supplemental non-GAAP information and the reconciliations between these presentations, to more fully understand our business.
Non-GAAP net income excludes stock-based compensation; business transition and related costs including corporate initiatives into new business activities such as our expansion into viral vectors for the cell and gene therapy sector of the market and other costs directly associated with such activities, and severance and related expenses; non-cash interest expense on convertible senior notes for the accretion of the issuance costs associated with our convertible senior notes; and other income or expense items. Adjusted EBITDA excludes non-cash operating charges for stock-based compensation, depreciation and amortization as well as non-operating items such as interest income, interest expense, gain or loss on disposal or sale of assets, and income tax expense or benefit. For the reasons explained above, adjusted EBITDA also excludes certain business transition and related costs. The company also uses measures such as free cash flow, which represents cash flow from operations less cash used in the acquisition and disposition of capital.
Additionally, non-GAAP net income and adjusted EBITDA are key components of the financial metrics utilized by the company’s compensation committee to measure, in part, management’s performance and determine significant elements of management’s compensation. The company encourages investors to carefully consider its results under GAAP, as well as its supplemental non-GAAP information and the reconciliation between these presentations, to more fully understand its business. Reconciliations between GAAP and non-GAAP financial measures included at the end of this press release.
Conference Call
Avid will host a conference call and webcast this afternoon, March 8, 2022, at 4:30 PM EST (1:30 PM PST).
To listen to the conference call, please dial (877) 312-5443 or (253) 237-1126 and request the Avid Bioservices conference call. To listen to the live webcast, or access the archived webcast, please visit: View Source