On March 10, 2020 Avid Bioservices, Inc. (NASDAQ:CDMO) (NASDAQ:CDMOP), 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 and first nine months of fiscal 2020 ended January 31, 2020 (Press release, Avid Bioservices, MAR 10, 2020, View Source [SID1234555358]).
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Highlights Since October 31, 2019
"During the third quarter of 2020, Avid strengthened both its project pipeline and backlog, and the fundamentals of the business remained strong," said Rick Hancock, interim president and chief executive officer of Avid. "However, the company faced production challenges during the period related to a problem with a specific piece of equipment which resulted in the termination of in-process manufacturing runs, and the postponement of several other manufacturing runs scheduled to commence during the third quarter. Though we are now implementing the necessary corrections, the temporary production interruption resulted in lower revenue and profits for the third quarter, and we expect it to also impact revenues and profits for the fourth quarter of fiscal 2020. For this reason, we are adjusting our revenue guidance for fiscal 2020 to $55 – $59 million versus our prior guidance of $64 – $67 million. It is our expectation that this problem will be behind us soon, and as such, we anticipate that the impact will be contained to fiscal 2020.
"While we are disappointed that this temporary operational setback will negatively impact our fiscal 2020 results, we anticipate that we will be able to recover those revenues in fiscal 2021. We remain optimistic about Avid’s growth potential.
"Critical to achieving this growth is the continued expansion of Avid’s customer and project base. To lead this effort, we recently welcomed Timothy Compton to the Avid team as our chief commercial officer. During the third quarter, Tim launched the first phase of an aggressive business development campaign. As a result, we signed agreements to add one new customer and multiple additional manufacturing campaigns with existing customers during the period.
"With respect to operations, we continue to make progress on projects to optimize our existing Myford facility while finalizing plans for its future expansion. We will continue to update you moving forward as these plans progress."
Financial Highlights and Guidance
The company is adjusting revenue guidance for the full fiscal year 2020 to $55 million to $59 million from prior full fiscal year 2020 guidance of $64 million to $67 million.
Revenue was $13.6 million for the third quarter of fiscal 2020, consistent with $13.8 million for the third quarter of last fiscal year. For the nine months ended January 31, 2020, revenues were $47.2 million, a 29% increase as compared to revenues of $36.5 million during the same prior year period. The slight decrease during the third quarter of fiscal 2020 can primarily be attributed to a decrease in process development revenue, combined with the impact of the production interruption described above, which were largely offset by an increase in the number of in-process and completed manufacturing runs conducted during the quarter compared to the same prior year quarter. Likewise, the increase during the first nine months of fiscal 2020 was primarily due to an increase in the number of in-process and completed manufacturing runs, a result of growing demand from a more diverse client base, partially offset by a decrease in process development revenue and the third quarter production interruption.
As of January 31, 2020, revenue backlog was approximately $58 million, an increase of 12% compared to the second quarter of fiscal 2020. The company expects to recognize the majority of this backlog within the next 12 months.
Gross margin for the third quarter of fiscal 2020 was 6%, a decrease compared to the 15% gross margin for the third quarter of fiscal 2019. The decrease in gross margin for the quarter was primarily attributed to the costs associated with the aforementioned production interruption, an increase in depreciation expense from the acquisition of new equipment, and a net decrease in revenues. Gross margin for the nine months ended January 31, 2020 was 11%, up slightly compared to 10% in the prior year period. This increase was primarily due to an increase in manufacturing runs, partially offset by costs associated with payroll and related costs, higher facility and equipment related costs primarily associated with the production interruption described above, increased depreciation expense from the acquisition of new equipment, and general equipment repairs and maintenance costs.
Selling, general and administrative expenses ("SG&A") for the third quarter of fiscal 2020 were $3.0 million, a decrease of 8% compared to $3.2 million for the third quarter of fiscal 2019. This decrease was primarily due to a decrease in accrued bonuses for fiscal 2020, partially offset by an increase in employee separation costs. For the first nine months of fiscal 2020, SG&A expenses were $11.0 million, an 19% increase compared to $9.3 million for the first nine months of fiscal 2019. The increase in SG&A was primarily attributed to employee separation-related expenses and increased stock-based compensation. When excluding the separation-related expenses, SG&A increased by 10% during the first nine months of fiscal 2020 as compared to the prior year.
For the third quarter of fiscal 2020, the company recorded a consolidated net loss attributable to common stockholders of $3.5 million or $0.06 per share, compared to a consolidated net loss attributable to common stockholders of $2.6 million or $0.05 per share, for the third quarter of fiscal 2019. For the first nine months of fiscal 2020, the company recorded a consolidated net loss attributable to common stockholders of $9.3 million or $0.17 per share, compared to a consolidated net loss attributable to common stockholders of $8.2 million or $0.15 per share, for the first nine months of fiscal 2019.
Avid reported $30.7 million in cash and cash equivalents as of January 31, 2020, compared to $32.4 million on April 30, 2019.
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
Appointed Timothy (Tim) Compton as chief commercial officer. Mr. Compton has extensive experience in commercial operations, including sales team management, business development, marketing and corporate development. In his new role, he will be responsible for driving the continued growth of Avid’s CDMO business, including the ongoing expansion of the company’s commercial and clinical client base.
Expanded our customer base with the addition of one new customer and executed multiple project expansion orders with existing customers representing additional revenue backlog of $20 million during the third quarter.
Advanced planning and design to both enhance our Myford facility, and support its future expansion. These near-term improvements include installing a pharmaceutical grade water system, and upgrading key IT systems and general infrastructure. We expect the installation and validation of the water system to take place in late calendar year 2020 and the IT system enhancements and general infrastructure upgrades to be complete by the end of fiscal 2021.
Conference Call
Avid will host a conference call and webcast this afternoon, March 10, 2020, at 4:30 PM EDT (1:30 PM PDT).
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