Avid Bioservices, Inc. (NASDAQ:CDMO) Q1 2020 Earnings Conference Call September 5, 2019 4:30 PM ET
Tim Brons - IR
Rick Hancock - Interim President & CEO
Dan Hart - CFO
Tracy Kinjerski - VP of Business Operations
- 蒂姆布朗斯 - IR
- Rick Hancock - 临时总裁兼首席执行官
- Dan Hart - 首席财务官
- Tracy Kinjerski - 业务运营副总裁
Paul Knight - Janney Montgomery
Steve Schwartz - First Analyst
- 保罗奈特 - 詹尼蒙哥马利
- Steve Schwartz - 第一位分析师
Good day, ladies and gentlemen, and welcome to the Avid Bioservices First Quarter 2020 Financial Results Conference Call. [Operator Instructions]
I would now like to hand the conference over to Tim Brons of Avid's Investor Relations Group. Please go ahead.
美好的一天，女士们，先生们，欢迎参加Avid Bioservices 2020年第一季度财务业绩电话会议。 [操作说明]
我现在想把会议交给Avid投资者关系小组的Tim Brons。 请继续。
Thank you. Good afternoon, and thank you for joining us. On today's call, we have Rick Hancock, Interim President and CEO; Dan Hart, Chief Financial Officer; and Tracy Kinjerski, Vice President, Business Operations.
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, 2019. 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 5, 2019, 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.
With that, I will turn the call over to Rick Hancock, Interim President and CEO. Rick?
谢谢。下午好，谢谢你加入我们。在今天的电话会议上，我们有临时总裁兼首席执行官Rick Hancock; Dan Hart，首席财务官;和业务运营副总裁Tracy Kinjerski。
Thank you, Tim, and thank you to everyone who has dialed in, and to those who are participating today via webcast.
I am pleased to announce that Avid continued to make progress on multiple fronts during the first quarter of 2020. With respect to our financial performance, revenue for the first quarter of 2020 again beat consensus estimates and our backlog increased significantly. Dan will provide more details regarding our financial results in a moment.
With respect to business development, we signed two new contract manufacturing service agreements during the quarter, and began onboarding activities for these clients. In addition, we continued to pursue opportunities to expand existing client relationships with active discussions regarding additional batches and potential projects for the manufacture of new molecules. Activities with both potential new and existing customers were robust during the first quarter, and Tracy will provide more details on these developments.
With that, I'll turn the call over to Dan to provide a financial overview for fiscal first quarter results.
Thank you, Rick. Before I begin, I'd like to recommend that everyone participating referred to our 10-Q filing with the Securities and Exchange Commission, which we filed today for additional details.
I'll now discuss our financial results from continuing operations for the first quarter of fiscal 2020 ending July 31, 2019, starting with revenue. Revenue for the quarter was $15.3 million, an increase of 21% as compared to $12.6 million for the same period of the prior year. This increase was primarily the result of growth in the number and scope of customer projects.
For the first quarter of 2020, gross margin of 7% was down slightly as compared to 9% gross margin in the prior year period. Despite increased revenue during the first quarter of 2020, gross margin was impacted by hiring personnel to accommodate growth and production demand, a realignment of the company's compensation structure to secure our existing work force and equipment repairs that impacted efficiencies during the period.
Management does not expect these factors to impact our stated revenue guidance for the full year. And looking ahead, we expect expanding production demand to result in the increased utility of our existing capacity and improved margins.
I'll now address expenses. Total SG&A expenses for the first quarter of fiscal 2020 were $4.5 million, compared to $3.2 million for the first quarter of fiscal 2019. This increase was due primarily to employee separation-related expenses and increased stock-based compensation. Excluding the separation agreement expense and the increase in stock-based compensation, SG&A during the first quarter of 2020 would have been flat as compared to the prior year quarter.
For the first quarter of fiscal 2020, the company recorded consolidated net loss attributable to common stockholders of $4.6 million or $0.08 per share compared to a consolidated net loss attributable to common stockholders of $3.4 million or $0.06 per share for the first quarter of fiscal '19. The increase in the net loss results primarily from the previously discussed increase in cost of revenue, as well as the increase in SG&A from separation expenses and increased stock-based compensation expense.
Our backlog at the end of the first quarter of 2020 was approximately $61 million, an increase of 34% compared to the $46 million at the end of fiscal 2019, due primarily to our growing list of customers, as well as the expansion of the relationship with one of the company's existing biotechnology customers. We are pleased to maintain a strong backlog and we expect to recognize the majority of this balance in fiscal 2020.
We are reporting cash and cash equivalents as of July 31, 2019 of $28.9 million as compared to $32.4 million as of the prior fiscal year ended April 30, 2019.
This concludes my financial overview. I will now turn the call over to Tracy for an update on business development activities and achievements during the quarter.
Thanks, Dan. During and subsequent to the first quarter, Avid's business development team was extremely active on all fronts. We continued to build visibility with participation at industry events, such as BIO International in June, The Bioprocessing Summit in Boston last month, as well as more local industry events.
We are now preparing for the upcoming Biotech Week and Outsourced Pharma conferences. These events offer a particularly efficient forum to meet with potential new customers as well as current clients. With each event, recognition and enthusiasm builds for Avid and its services, and we continue to expand our book of new business as a result of this aggressive visibility campaign.
Also, during the quarter, we began the work of onboarding our newest manufacturing projects. As we announced in early July, Avid signed two new contract manufacturing service agreements to support the development of novel drug candidates during the quarter.
The agreements include the addition of one of the world's leading pharmaceutical companies to Avid's growing list of customers, as well as the expansion of the relationship with one of the company's existing biotechnology customers. The onboarding processes for both of these projects were initiated during the first quarter and they are proceeding well.
As a reminder, I'd like to restate the importance of winning new business with existing customers. While some of this business results from the expansion of a current project, much of this new business is from completely new projects, requiring development and/or manufacturing of new molecule.
Aside from the revenue generated by the expansion of any relationship, new project wins from existing customers are incredibly valuable for several reasons. Early phase projects represent opportunity for manufacturing work up to and including commercial production, onboarding follow-on molecules from existing customers, maybe later phased, leading to validation in commercial stage with more certainty and providing assurance of need for long-term manufacturing.
In addition, as we already have a working relationship with these companies, onboarding and other aspects of the process are much more efficient and less costly making these projects more profitable for Avid.
During the first quarter, Avid also successfully completed a process validation campaign for a scaled up manufacturing process on behalf of an existing customer in anticipation of future commercial manufacturing. This represents our first process validation of fiscal 2020, followed by the completion of two in fiscal 2019.
Once the process validation is completed, the associated specifications of that process are incorporated into global regulatory filings, if approved. The customers then required to manufacture in a specified facility using that specified process. Therefore, for those products approved using processes validated at Avid, it's anticipated that the commercial manufacturing will be conducted at Avid. For this reason, we see each process validation completed today as a great opportunity to build commercial business in the future.
我们正在为即将举行的Biotech Week和Outsourced Pharma会议做准备。这些活动提供了一个特别有效的论坛，以满足潜在的新客户和现有客户。随着每次活动，对Avid及其服务的认可和热情，我们将继续扩展我们的新业务，因为这一积极的可见性活动。
This concludes my business overview, and I'll now hand the call back over to Rick. Rick?
Thank you, Tracy. I'd now like to provide a brief update regarding operations at Avid. With respect to our expansion work, we continue to make progress with the process development lab at our Franklin facility. This purpose built state-of-the-art facility will house Avid's expanded upstream and downstream process development capabilities.
We remain on track to begin operations in this facility in the fall of calendar 2019. More broadly, we continue the ongoing evaluation of our facilities, equipment and processes. It is the goal of the organization to optimize where possible, update where necessary, and ensure that we are employing the most effective technologies and processes to ensure our standing as a leading CDMO. As we conduct this review, we are finding areas for improvement.
It is always our intent to identify any potential problems before they occur, and to this end, Avid conducts a comprehensive annual maintenance overhaul, during which time, our facilities may be partially or completely shut down. We are currently in the middle of this annual process.
Because of the significant amount of work that was done during last year's shutdown, this year will require less downtime. Last year, both facilities were shut down for more than three weeks. This year, Franklin was down for less than two weeks, and at Myford, we will only have a partial shutdown affecting only the exterior of the building.
As a result of our annual maintenance overhaul, we expect anomalies in both revenue and margins during the second quarter of fiscal 2020. But we do not expect this to impact our ability to achieve our stated revenue guidance for the year.
I'll now turn to leadership at Avid. As reported last quarter, the Avid Board has initiated a search for the company's new permanent CEO. Avid is well positioned for expansion and growth, and it is imperative that we find the ideal candidate to entrust with the future strategy and vision for the business. Accordingly, we will take our time with this process and we'll provide an update as there is news to report.
In closing, we recorded revenue that met our expectations for the period, significantly strengthened our backlog, and initiated a number of operational improvements in our facility during the first quarter of 2020. Important achievements during the period included the completion of an additional process validation campaign for a customer that anticipates conducting future commercial manufacturing at Avid.
The company also entered into two new contract manufacturing service agreements during the first quarter, adding one the world's leading pharmaceutical companies to Avid's customer list. These projects are currently in the onboarding process, both of which are proceeding well.
We continue to advance discussions with potential new customers and pursue expansion and new project opportunities with existing customers. As we've seen previously, each existing customer has the potential to create multiple new opportunities for growth, and for this reason, we remain committed to providing the best possible customer experience and producing the highest quality products.
我现在转向Avid的领导。据上个季度报道，Avid Board已开始寻找该公司新的常任CEO。 Avid已经为扩张和增长做好了准备，我们必须找到理想的候选人来委托未来的战略和业务愿景。因此，我们将花时间处理这个过程，我们将提供更新，因为有新闻报道。
The highlights for the first quarter of 2020 were new customer contracts, significant backlog growth and another successful process validation. We believe that each of these accomplishments will contribute significantly to the future growth and expansion of the business, and we are eager to build on this momentum.
This concludes my prepared remarks for today. We can now open the call up for questions. Operator?
[Operator Instructions] And our first question is from Paul Knight from Janney. Your line is now open.
[操作员说明]我们的第一个问题来自Janney的Paul Knight。 你的生产线现已开放。
Hi, there. All right, thanks for the time. And are you at this point with this kind of very strong backlog build, are you able to get better pricing? Are you looking at customer requests that seem, let's call it, more profitable than maybe in past periods in your experience? So can you just talk about the pricing environment for our projects? Thank you.
嗨，您好。 好的，谢谢你的时间。 在这一点上你是否有这种非常强大的积压版本，你能够获得更好的定价吗？ 您是否正在考虑客户的要求，让我们称之为，比您过去经历中的利润更有利可图？ 那么你能谈谈我们项目的定价环境吗？ 谢谢。
Great question, Paul. So as you know, we have a unique resource here. In that we can go from early stage process development all the way through commercial. So having the commercial operations, adds a certain amount of regulatory compliance and quality oversight to everything that we do here.
So typically, we don't -- I wouldn't say we're the lowest price provider, but for people who need the types of capabilities that we have, I think we're very competitive in our pricing. But again, we are differentiated from some of the other players in this space who maybe can do early stage development and maybe some very early pre-clinical and early clinical work. But for people who have operational capability, I think, we're very, very fairly priced.
好问题，保罗。 如您所知，我们这里有一个独特的资源。 因为我们可以从早期的流程开发一直到商业。 因此，进行商业运营，为我们在这里所做的一切增加了一定程度的监管合规性和质量监督。
通常情况下，我们不这样做 - 我不会说我们是价格最低的供应商，但对于那些需要我们拥有的各种功能的人来说，我认为我们的定价非常具有竞争力。 但同样，我们与这个领域的其他一些参与者区分开来，他们可能会做早期发展，也许还有一些非常早期的临床前和早期临床工作。 但对于那些有运营能力的人，我认为，我们的价格非常非常合理。
And then [indiscernible] next part of my question, with your backlog building to these levels, what's your thought on capacity expansion? We know that you've got space, but when do you start thinking about that part of your capital expenditure program?
Right. So we do have tentative plans for building out the remainder of our Myford facility, where we have quite a large area essentially equivalent to what's currently in production right now. We are in active discussion with our clients in terms of when we pull the trigger on that and exactly what capabilities we put in.
We are looking at some incremental expansions within that area that will add to our efficiency, but that would be short of building out the entire space. So we're looking at over the next 12 months making some of those incremental improvements, adding some additional downstream capability. Our focus right now today is really to process development area that we're very excited about, bringing that on line, and once that is fully operational, then we'll turn our attention back to our GMP manufacturing capabilities.
对。 所以我们确实有一些暂定计划来建造我们Myford工厂的剩余部分，在那里我们有相当大的面积，基本上相当于目前正在生产的工厂。 我们正在与客户进行积极的讨论，了解我们何时触发了这一点，以及我们投入的具体功能。
我们正在研究该领域内的一些增量扩展，这将增加我们的效率，但这将无法构建整个空间。 因此，我们将在接下来的12个月中考虑进行一些渐进式改进，增加一些额外的下游功能。 我们今天的重点是真正处理我们非常兴奋的开发领域，使其在线，一旦完全投入使用，我们就会将注意力转回到我们的GMP制造能力上。
Okay. Thank you. Congratulations.
Thank you. And our next question is from Steve Schwartz from First Analyst. Your line is now open.
谢谢。 我们的下一个问题来自First Analyst的Steve Schwartz。 你的生产线现已开放。
Well, good afternoon, everyone.
First -- you know, first question, just with respect to the backlog. So obviously, you've reached a nice level here. But in stating that you expect the majority of the backlog to flow through revenue this year, if we just do simple math, 61 plus 15 for the first quarter, it leaves you about $10 million of the current backlog at the end of the fiscal year.
I think that suggests that maybe at a certain point in the year, you kind of hit a peak number, and then maybe you've got some subsequent quarters where the backlog is maybe less than what it is here in the first quarter or even the second quarter. Can you give us any color maybe on how you expect the new business to flow in versus what will flow out through the year?
首先 - 你知道，第一个问题，只是关于积压。 显然，你已经达到了很好的水平。 但是在声明你预计今年积压的大部分都会通过收入时，如果我们只做一个简单的数学计算，第一季度的61加15，那么在本财政年度结束时，它会留下大约1000万美元的当前积压。
我认为这可能表明，在一年中的某个时刻，你有点达到一个高峰数，然后你可能会有一些后续的季度积压可能比第一季度或者甚至是 第二季度。 您能否告诉我们您对新业务的预期与全年流出的业务有何不同？
Sure, Steve. As far as backlog, backlog can increase or decrease in any given quarter, depending upon a couple of factors, one of which is how much business -- new business we sign and how much revenue we recognized during the period. So, backlog isn't necessarily a number that will continue to increase quarter over quarter over quarter, though that's definitely a challenge for us that we are up to the task. However, it's difficult in saying how much would translate during the period in any given quarter.
当然，史蒂夫。 至于积压，积压可以在任何一个季度增加或减少，具体取决于几个因素，其中之一是业务量 - 我们签署的新业务以及我们在此期间确认的收入。 因此，积压不一定是一个季度将继续比上季度增加的数字，尽管这对我们来说绝对是一个挑战，我们可以胜任这项任务。 但是，很难说在任何一个季度期间会有多少翻译。
Yes, yes, certainly, I understand that. I think, to your comment in the prepared remarks with respect to the shutdown, the second quarter is going to be light, right. And certainly the first quarter, while it came in as expected was less than 25% of your guidance level.
So if we look at the flow of revenue through the year, do you expect that maybe the first half of the fiscal year is 40% of total revenue? Is it 35%? Just trying to get a sense of what that second quarter looks like with the shutdowns and then what happens in third and fourth quarter?
是的，是的，当然，我理解这一点。 我认为，对于关于关闭的准备评论中的评论，第二季度将会很轻松，对吧。 当然，第一季度虽然按预期进入，但不到指导水平的25％。
因此，如果我们看一下今年的收入流量，您是否预计会计年度的上半年可能占总收入的40％？ 是35％吗？ 试图了解第二季度关闭时的情况，然后是第三季度和第四季度会发生什么？
You know, Steve, for the year, we're reaffirming our guidance of 64% to 67%. And as you pointed out, yes, our first quarter was under the 25% mark. So, that being said, we're a capacity business, and as we fill that capacity with revenue through our production, we're going to have some highs and lows in our revenue numbers. So we're still tied to what we're going to do this year, the 64% to 67%, not necessarily providing any guidance on a half year or quarterly.
你知道，史蒂夫，今年，我们重申了64％至67％的指导。 正如你所指出的，是的，我们的第一季度低于25％。 所以，话虽这么说，我们是一家容量企业，当我们通过生产填补这一产能时，我们的收入数字会有一些高点和低点。 因此，我们仍然与我们今年要做的事情有关，即64％至67％，不一定在半年或季度提供任何指导。
Yes, okay. And can you talk a little bit since it's come up here in this earnings report with respect to comp structure and what have you. Where's your business headcount expected to be from the end of FY '19 here in the first quarter and then as you move through the year? Are you adding people to the business?
是的，好的。 你可以谈一点，因为它在这份关于comp结构的收益报告中出现了，你有什么。 您的业务人员预计将从第一季度的19财年末开始，然后在您度过这一年的时候？ 您是否在为业务添加人员？
Right. We're not adding terribly significantly. We do need to add a few revenue producing positions in operations, process development, analytical development. Generally, in terms of the overhead positions, we're stable there. So we don't see a very significant increase in headcount. It will be commensurate with the -- as we convert the backlog to revenue.
对。 我们并没有非常显着地增加。 我们确实需要在运营，流程开发和分析开发中增加一些创收岗位。 一般来说，就头顶位置而言，我们在那里稳定。 所以我们看不到人数的显着增加。 它将与 - 与我们将积压转换为收入 - 相称。
Okay. And with respect to the comp structure and gross margin, can you give me a little bit of color around that? Does that -- basically, does your commentary relate to wages and on a unit produced basis costs, or is there a long-term comp component in there? What exactly is that? How do we look at that with respect to gross margin and production levels?
好的。 关于comp结构和毛利率，你可以给我一些颜色吗？ 这是否 - 基本上，你的评论是否与工资和单位生产的基础成本相关，或者是否存在长期的组成部分？ 究竟是什么？ 我们如何看待毛利率和生产水平？
The way I would structure that for you, Steve, is when we transitioned this business about two years ago from a development company to a pure play CDMO, we went through significant changes and reductions in costs during that process to stabilize the P&L and to move forward with growing a pure play CDMO.
So given the first year, we didn't have a lot of opportunity to provide wage growth or bonus or any of those overall total comp packages to our revenue producing individuals, where in fiscal '20, we're taking the opportunity to provide those costs to those individuals to further on, where we're going as far as a business and to align the overall comp structure for the existing workforce.
Got it. Okay. Well, thanks for answering the questions, and keep up the great progress. Thank you.
得到它了。 好的。 好吧，谢谢你回答问题，并保持良好的进步。 谢谢。
Thank you. At this time, I would like to hand the call back over to Rick Hancock for any closing remarks.
谢谢。 在这个时候，我想把这个电话交给Rick Hancock作任何结束语。
Thank you again for participating today, and for your continued support of Avid Bioservices. We look forward to updating you again in the near future.
再次感谢您今天的参与，以及您对Avid Bioservices的持续支持。 我们期待在不久的将来再次为您更新。
Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect.
女士们，先生们，感谢您参加今天的会议。 该计划到此结束。 您现在可以断开连接。
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