8-K: Avid Bioservices Reports Q3 2024 Results: Revenue Declines but Backlog Hits Record High

Avid Bioservices reported a decrease in revenue for the third quarter of fiscal year 2024, but achieved a record backlog of $206 million and completed a significant facility expansion.

Summary

• Avid Bioservices announced its financial results for the third quarter ended January 31, 2024, revealing a revenue of $33.8 million, which is an 11% decrease compared to the same period last year.
• The company's backlog reached a record high of $206 million, a 17% increase year-over-year, with a significant portion expected to be recognized as revenue over the next five fiscal quarters.
• Gross profit for the quarter was $2.4 million, a 7% gross margin, significantly lower than the $9.8 million and 26% margin in the same quarter of the previous year.
• The company experienced an operating loss of $4.0 million for the quarter, compared to an operating income of $2.7 million in the prior year's third quarter.
• Net loss for the quarter was $6.0 million, or $0.09 per share, compared to a net loss of $0.2 million, or $0.00 per share, in the same quarter of the previous year.
• Avid completed its cell and gene therapy facility expansion, increasing its total estimated annual revenue generating capacity to approximately $400 million.
• The company maintained its full fiscal year 2024 revenue guidance of $137 million to $147 million.
• A convertible debt offering was completed subsequent to the quarter end, extending debt maturity to 2029.

Sentiment

Score: 5

Explanation: The document presents mixed results with a significant decrease in revenue and profitability, but a record backlog and completed expansion. The sentiment is neutral to slightly negative due to the financial losses, but the future outlook is positive.

Positives

• The company achieved a record high backlog of $206 million, indicating strong future revenue potential.
• The completion of the cell and gene therapy facility expansion significantly increases the company's service offerings and revenue generating capacity.
• The company's commercial team signed $41 million in net new business during the quarter.
• The convertible debt offering extends debt maturity to 2029, improving the company's financial stability.
• The company observed an incremental improvement in its pipeline mix with new later stage programs.

Negatives

• Third quarter revenue decreased by 11% compared to the same period last year, totaling $33.8 million.
• Gross profit decreased significantly to $2.4 million, with a gross margin of 7%, compared to $9.8 million and 26% in the prior year's third quarter.
• The company reported an operating loss of $4.0 million for the quarter, a decrease from the $2.7 million operating income in the same quarter of the previous year.
• Net loss for the quarter was $6.0 million, or $0.09 per share, compared to a net loss of $0.2 million, or $0.00 per share, in the same quarter of the previous year.
• The decrease in revenues was primarily attributed to fewer manufacturing runs and a reduction in process development services from early-stage customers.

Risks

• The company may experience delays in engaging new customers.
• There is a risk that the company may not be successful in executing customer projects.
• Changing economic conditions may delay or adversely impact the realization of the company's backlog.
• The company may not be able to convert its backlog into revenue within the contemplated time periods.
• Technical difficulties in completing customer projects could result in project terminations or delays.
• Later-stage customers may not receive regulatory approval or commercial demand for approved products may be less than forecast.
• Existing customers may terminate contracts or reduce demand for services.
• Expanding into a new biologics manufacturing capability may distract senior management's focus.
• The company may experience delays in hiring qualified individuals into the cell and gene therapy business.
• The cell and gene therapy business may not become profitable for several years, if ever.

Future Outlook

The company expects continued momentum and anticipates a significant amount of its backlog will be recognized as revenue over the next five fiscal quarters. They also expect to benefit from their recent expansion and believe they are well-positioned to achieve growth and sustainable profitability.

Management Comments

• Nick Green, president and CEO of Avid Bioservices, addressed the reasons for the delayed 10-Q filing due to the note acceleration of convertible notes.
• Management stated that the quarter is consistent with the revenue and backlog ramp that they projected for the second half of the year.
• Management believes they are well-positioned to realize the strategic objectives behind their expansion investment.
• Management believes they are well on their way to achieving the growth trajectory and sustainable profitability that will establish Avid as the supplier of choice for the industry.

Industry Context

The announcement reflects the competitive landscape of the CDMO industry, where companies are investing in capacity expansion to meet the growing demand for biologics manufacturing. Avid's focus on later-stage programs aligns with the industry trend of seeking more stable and recurring revenue streams.

Comparison to Industry Standards

• While Avid's revenue decreased year-over-year, the record backlog suggests strong future demand, which is a positive sign compared to other CDMOs that may be facing similar challenges in the current economic climate.
• The completion of the cell and gene therapy facility puts Avid in a position to compete with other CDMOs that have invested in this high-growth area, such as Lonza and Catalent.
• The decrease in gross margin is a concern and may be worse than some of its peers, indicating potential issues with cost management or pricing strategies.
• The company's estimated annual revenue generating capacity of $400 million is a significant increase and positions them well against smaller CDMOs, but they still need to demonstrate they can achieve this level of revenue.

Stakeholder Impact

• Shareholders may be concerned about the decrease in revenue and profitability, but encouraged by the record backlog and expansion.
• Employees may benefit from the company's growth and expansion, but may also be affected by the financial performance.
• Customers may benefit from the increased capacity and service offerings.
• Suppliers may see increased business opportunities due to the company's expansion.
• Creditors may be reassured by the company's debt refinancing and extended maturity.

Next Steps

• The company will host a conference call on April 29, 2024, to discuss the third quarter financial results.
• The company anticipates a significant amount of its backlog will be recognized as revenue over the next five fiscal quarters.
• The company will focus on filling capacity and attracting customers to its new capabilities.

Key Dates

Keywords

CDMO, biologics, contract manufacturing, revenue, backlog, cell and gene therapy, financial results, manufacturing, biotechnology, pharmaceutical