8-K: Avid Bioservices Reports Strong Revenue Growth Amidst Acquisition Agreement

Avid Bioservices announced a 32% increase in second-quarter revenue and a definitive agreement to be acquired by GHO Capital Partners and Ampersand Capital Partners for approximately $1.1 billion.

Summary

• Avid Bioservices reported a 32% increase in revenue for the second quarter of fiscal year 2025, reaching $33.5 million, compared to $25.4 million in the same period last year.
• The company's revenue for the first six months of fiscal 2025 was $73.7 million, a 17% increase from $63.1 million in the prior year period.
• The revenue growth was primarily driven by increases in manufacturing and process development revenues.
• Avid's backlog increased to $220 million as of October 31, 2024, up 11% from $199 million at the end of the same quarter last year.
• The company anticipates recognizing a significant portion of this backlog as revenue over the next five fiscal quarters.
• The company reported a gross loss of $2.0 million for the second quarter, an improvement from a $4.7 million loss in the same period last year.
• For the first six months of fiscal 2025, the company achieved a gross profit of $3.7 million, compared to a gross loss of $0.6 million in the prior year period.
• SG&A expenses increased by 61% to $10.6 million in the second quarter and by 46% to $18.8 million for the first six months of fiscal 2025, primarily due to increased compensation and legal fees.
• The company reported a net loss of $17.4 million, or $0.27 per share, for the second quarter, compared to a net loss of $9.5 million, or $0.15 per share, in the same period last year.
• For the first six months of fiscal 2025, the net loss was $22.9 million, or $0.36 per share, compared to a net loss of $11.6 million, or $0.18 per share, in the prior year period.
• As of October 31, 2024, the company had $33.4 million in cash and cash equivalents, down from $38.1 million on April 30, 2024.
• Avid Bioservices has entered into a definitive merger agreement to be acquired by GHO Capital Partners and Ampersand Capital Partners in an all-cash transaction valued at approximately $1.1 billion.
• The acquisition price is $12.50 per share, representing a 13.8% premium to the closing share price on November 6, 2024, and a 21.9% premium to the 20-day volume-weighted average share price.
• The transaction is expected to close in the first quarter of 2025, subject to customary closing conditions, including stockholder and regulatory approvals.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to strong revenue growth and a significant acquisition agreement, but tempered by increased losses and expenses. The acquisition provides a positive exit for shareholders, but the underlying financial performance shows some weaknesses.

Positives

• The company experienced a significant 32% increase in revenue for the second quarter of fiscal year 2025.
• The backlog increased by 11% to $220 million, indicating strong future revenue potential.
• The gross loss improved significantly compared to the same period last year.
• The acquisition agreement provides stockholders with a significant premium on their shares.
• The acquisition is not subject to a financing condition, increasing the likelihood of completion.

Negatives

• The company reported a net loss of $17.4 million for the second quarter, which is higher than the $9.5 million loss in the same period last year.
• SG&A expenses increased significantly, by 61% in the second quarter and 46% for the first six months of fiscal 2025.
• Cash and cash equivalents decreased from $38.1 million to $33.4 million during the period.
• The company's revolving line of credit expired during the second quarter of fiscal 2025.

Risks

• The proposed acquisition is subject to customary closing conditions, including stockholder and regulatory approvals, which could delay or prevent the transaction.
• There is a risk of disruption to management time from ongoing business operations due to the proposed transaction.
• The announcement of the proposed transaction could have adverse effects on the market price of the company's common stock.
• There is a risk of litigation relating to the proposed transaction.
• The proposed transaction could have an adverse effect on the company's ability to retain and hire key personnel and maintain relationships with customers, vendors, and other business partners.
• The company may experience delays in engaging new customers or executing customer projects.
• Changing economic conditions may delay or adversely impact the realization of the company's backlog.
• The company may experience technical difficulties in completing customer projects due to unanticipated equipment or manufacturing facility issues.
• The company's 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, which could adversely affect revenue.
• Expanding into new biologics manufacturing capabilities may distract senior management's focus on existing operations.
• The company may experience delays in hiring qualified individuals into the cell and gene therapy business, and this business may not become profitable for several years.

Future Outlook

The company expects to recognize a significant amount of its backlog as revenue over the next five fiscal quarters. The acquisition by GHO Capital Partners and Ampersand Capital Partners is expected to close in the first quarter of 2025. The company has suspended its practice of providing financial guidance due to the pending acquisition.

Management Comments

• We delivered solid results in a competitive environment, with increased revenues and backlog offset by increased costs, stated Nick Green, president and CEO of Avid Bioservices.
• We are pleased to reach the separately announced agreement with GHO and Ampersand, which will provide our stockholders with significant, immediate and certain cash value for their shares.
• The transaction also provides us with partners who are committed to leveraging their deep industry experience, focused strategy, and collaborative approach to drive growth beyond the Company's standalone plan.

Industry Context

The announcement comes amid a period of consolidation in the CDMO sector, with private equity firms increasingly looking to acquire companies with strong growth potential. Avid's focus on biologics manufacturing aligns with the growing demand for these services in the biotechnology and pharmaceutical industries. The acquisition reflects the value placed on companies with established manufacturing capabilities and a strong backlog.

Comparison to Industry Standards

• Avid's 32% revenue growth in the second quarter is strong compared to some of its peers in the CDMO space, although specific comparisons are difficult without detailed financial data from competitors.
• Companies like Catalent and Lonza, which are larger CDMOs, have also seen growth in recent periods, but their scale and diversification make direct comparisons challenging.
• The 6.3x multiple to consensus FY2025E revenue for the acquisition is within the range of recent transactions in the sector, but the specific multiple depends on the growth prospects and profitability of the target company.
• The premium offered to Avid's shareholders is also in line with recent M&A activity in the sector, where acquirers often pay a premium to gain control of a company with a strong market position.

Stakeholder Impact

• Shareholders will receive $12.50 per share in cash, representing a premium over the recent trading price.
• Employees may experience changes in the company's structure and operations following the acquisition.
• Customers may see changes in the company's service offerings and management.
• Suppliers and creditors may be affected by the change in ownership.

Next Steps

• The company will file a proxy statement with the SEC for a special meeting of stockholders to approve the proposed acquisition.
• The company will mail the definitive proxy statement and a proxy card to each stockholder entitled to vote at the special meeting.
• The transaction is expected to close in the first quarter of 2025, subject to customary closing conditions.

Key Dates

Keywords

CDMO, biologics, contract manufacturing, acquisition, merger, revenue, backlog, financial results, GHO Capital Partners, Ampersand Capital Partners