Avid Bioservices - Q1 2025

Executive Summary

• Q1 FY2025 delivered steady execution: revenue rose 6% YoY to $40.2M with gross margin improving to 14% as process development drove growth; bookings were strong at $66M, lifting backlog to $219M.
• Management reiterated FY2025 revenue guidance of $160–$168M; the quarter’s mix skewed slightly toward earlier-phase work, which should modestly accelerate backlog conversion, while two PPQ wins (one for a commercial product) provide medium-term visibility.
• Operating expense pressure remained a headwind (SG&A +30% YoY), and net loss widened to $5.5M (-$0.09) as depreciation and higher personnel costs weighed; cash ended at $33.4M.
• Key near-term catalysts: continued large-pharma penetration, PPQ-to-commercial ramp, and potential onshoring tailwinds from the Biosecure narrative; management noted about half of China-sourced leads being Biosecure-related in the current pipeline view.

What Went Well and What Went Wrong

• What Went Well

  • Bookings and backlog strength: $66M net new orders (highest since Q3 FY2023), backlog up to $219M (+16% YoY), with a healthy mix of new customers and two PPQ campaigns (one for a commercial product).
  • Margin improvement and positive EBITDA on non-GAAP basis: gross margin improved to 14% (from 11% LY) and adjusted EBITDA reached $3.0M for the quarter, reflecting revenue growth and lower material costs.
  • Large pharma traction and diversification: management highlighted addition of another large pharma customer and confidence in broadening the customer base to support growth.

• What Went Wrong

  • Operating expense inflation: SG&A rose 30% YoY to $8.2M on compensation, audit, legal and consulting fees, pressuring operating income.
  • Net loss widened: GAAP net loss was $5.5M (-$0.09), vs. $2.1M (-$0.03) in Q1 FY2024, with depreciation and other costs offsetting gross profit gains.
  • Cell & gene therapy (CGT) lagging: bookings contribution remains small and demand is still trailing mammalian; management sees CGT momentum tracking a few quarters behind.

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to the Avid Bioservices First Quarter Fiscal Year 2025 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To restore your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today. Tim, please go ahead.

Tim Brubaker (Head of Investor Relations)

Thank you. Good afternoon, and thank you for joining us. On today's call, we have Nick Green, President and CEO, Dan Hart, Chief Financial Officer, and Matt Kwitniak, Avid's Chief Commercial Officer. 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 31st, 2024. 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 9th, 2024, 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 the company's filings with the Securities and Exchange Commission concerning these and other matters. Our earnings press release includes discussion of certain non-GAAP information. You can find our earnings press release, including relevant non-GAAP reconciliations, on our corporate website, avidbio.com. With that, I will turn the call over to Nick Green, Avid's President and CEO.

Nick Green (President and CEO)

Thank you, Tim, and thank you to everybody participating today via webcast. Building on the momentum from quarter four, fiscal twenty twenty-five is off to a good start, and we are delighted to be reporting what I can only describe as a solid first quarter. We are encouraged by the strong revenues and new business signings, which continue to build our backlog and improve our margins. Matt and I will provide additional details on business development and operations for the period following an overview of our first quarter fiscal twenty twenty-five financial results, and for that, I'll turn the call over to Dan.

Dan Hart (CFO)

Thank you, Nick. Before I begin, in addition to the brief financial overview I'll provide on the call today, additional details on our financial results are included in our press release issued prior to this call and in our Form 10-Q, which was filed today with the SEC. I'll now provide an overview of our financial results from operations for the quarter ended July 31st, 2024. Revenues for the first quarter of fiscal 2025 were $40.2 million, representing a 6% increase as compared to revenues of $37.7 million recorded in the same prior year period. The increase was primarily attributed to an increase in process development revenues during the period.

Gross profit for the first quarter of fiscal 2025 was $5.7 million, 14% gross margin, compared to $4.1 million or 11% gross margin in the first quarter of fiscal 2024. The increase in gross profit for the first quarter ended July 31, 2024, compared to the same prior year period, was primarily driven by the increased revenues and lower material costs used for customer programs, partially offset by increases in compensation and benefit-related expenses, facility, manufacturing, and other related expenses and depreciation expense. SG&A expenses for the first quarter of fiscal 2025 were $8.2 million, an increase of 30% compared to $6.3 million recorded in the first quarter of fiscal 2024.

The increase in SG&A for the first quarter ended July thirty-first, 2024, compared to the same prior year period, was primarily due to increases in compensation and benefit-related expenses and audit, legal, and other consulting fees. During the first quarter of fiscal 2025, the company's net loss was $5.5 million, or $0.09 per basic and diluted share, compared to a net loss of $2.1 million or $0.03 per basic and diluted share for the first quarter of fiscal 2024. For the first quarter of fiscal 2025, the company had an Adjusted EBITDA of $3 million. Our cash and cash equivalents on July 31st, 2024, were $33.4 million, compared to $38.1 million on April 13th, 2024. This concludes my financial overview.

I'll now turn the call over to Matt for an update on commercial activities during the quarter.

Matt Kwietniak (Chief Commercial Officer)

Thanks, Dan. Q1 2025 was a highly productive quarter for our team, as we signed $66 million net new in project agreements and ended the quarter with a backlog of $219 million. The backlog sets another record high for the company, and the net new wins are the highest since the third quarter of fiscal 2023. We are also pleased with the composition of these signings, as a significant majority are projects with new customers, including the addition of another large pharma customer. As we've discussed previously, the sales cycle with big pharma companies is generally long and involved. I am very proud of our team and the professionalism they showed in showcasing Avid's exceptional service, skill, and quality throughout this process.

... as we deliver for our new large pharma clients, we expect to capitalize on the reputation we build and increase our exposure to more large pharma over time. Our new signings also have a good mix of early and late-stage programs. Though we continue to be weighted more toward late stage, during the first quarter, we were successful in bringing in programs at both ends of the development spectrum. As we've discussed on prior earnings calls, a mix of early and late-stage programs provide the balance between near and longer-term revenues, as well as the opportunity to grow with new and existing customers. With respect to our newest late-stage programs, we are very pleased to report that two are PPQ programs, one of which is a phase three program advancing towards commercialization, and the other is a commercially approved product currently on the market.

As we've discussed in the past, PPQ programs are particularly attractive as they are a pre-commercialization requirement. And while we caution that the execution of a PPQ campaign is only the beginning of a one to two-year journey toward a potential commercial approval and subsequent manufacture, we cannot underestimate the importance that we believe such programs may have on our growth now and in the future, as we expect they will drive an increase in revenues, capacity utilization, and ultimately, our margins. In conclusion, I am extremely pleased with our performance during the first quarter of fiscal 2025, and we are looking forward to the balance of the year with great optimism. This concludes my overview of commercial activities. I will now turn the call back over to Nick for an update on operations and other achievements during the quarter.

Nick Green (President and CEO)

Thanks, Matt. During the quarter, we achieved several important high marks for the company, including strong revenues, new business signings, both of which continue to drive a robust backlog and improving margins. The investments of the last few years in infrastructure, facilities, capacity, and the expansion of our capabilities continue to attract new business and a wider range of opportunities. Our new infrastructure and organization are now better equipped to support the needs of large pharma with the same excellence and agility that we provide to smaller biotech companies. And we look forward to the continued diversification of our customer base and our project pipeline with key programs from early stage to commercialization. We're excited that our story has continued to unfold just as we have laid out in the past, and I'd like to thank all my colleagues at Avid Bioservices for their part in executing this strategy.

Looking ahead, our primary focus is on filling our remaining capacity. As we continue to sign new business and execute on our backlog, we expect revenues and capacity utilization to increase, generating stronger margins and positioning Avid to achieve strong growth going forward. This concludes my prepared remarks for today, and we can now open the call for questions. Operator?

Operator (participant)

Thank you. As a reminder, if you would like to ask a question, please press star one one on your telephone. We also ask that you wait for your name and company to be announced before proceeding with your question. One moment for the first question, and our first question today will be coming from Sean Dodge of RBC Capital Markets. Your line is open.

Sean Dodge (Analyst)

Yeah, thanks. Good afternoon. Congratulations on the strong bookings quarter. On those bookings, so Matt mentioned lots of different contributors there, new customers, early stage stuff, late stage, and then some stuff progressing towards commercial. I guess if we think about the mix there and compare it to your current backlog, including these $66 million of new wins, will this accelerate or decelerate your backlog burn rate over the next, you know, call it four or five quarters? Or is the makeup of this pretty similar to what's already in backlog, so it really shouldn't affect backlog conversion, if that makes sense?

Nick Green (President and CEO)

Yeah, Sean, it does make sense. I don't think it's gonna have a dramatic effect, but it is gonna be probably slightly more accelerating than decelerating, just due to the fact that we've got, I think, a better proportion of early phase clients in the quarter than we have in prior quarters. As you know, the prior quarters weren't the high water mark. So, but I think it was nice to see as I think Matt articulated, to see a sort of a nice balance to the signings. So slightly accelerating, but I wouldn't say it was worth, you know, being notable in that regard.

Sean Dodge (Analyst)

Okay, great. And then, you mentioned two PPQ campaigns you won in the quarter. I guess, any more detail you can share on those? Are these something you took away from another CDMO, or are you gonna be serving as a secondary supplier in those cases? And then any detail or bookends you can share on, once these things you know get fully ramped, what they could contribute kind of roughly in terms of annual revenue?

Nick Green (President and CEO)

Yeah, we don't really go forward too much in terms of the forecasting the future revenues, but in terms of where they came from, interestingly, one of them actually is a commercial product that is being outsourced from internal manufacture, so it's already approved, which is quite exciting. So, that one probably a little more advanced than most in regard, as I say, it's already on the market. The other one by virtue of the fact that it is coming in, it's coming in from another CDMO, and in phase three, obviously phase one and two have been manufactured somewhere else. So, that's kind of a, I guess, a win to some degree. Not-

Sean Dodge (Analyst)

Okay.

Nick Green (President and CEO)

No second suppliers, as far as I'm aware.

Sean Dodge (Analyst)

Okay, got it. Thanks, and congratulations again.

Nick Green (President and CEO)

Thanks very much, Sean. Appreciate it.

Operator (participant)

Thank you. One moment for the next question. Our next question will be coming from Jacob Johnson of Stephens. Your line is open.

Good afternoon. This is Matt on for Jacob. Just a few quick questions from me. Just on a large pharma strategy, I know you called out, another addition there, but given there's been some noise around large pharma pruning some earlier stage pipelines, in recent months, I guess there's two questions here: is there any update on how your large pharma strategy is progressing as compared to your internal expectations? And two, any changes in demand from these customers as of late?

Nick Green (President and CEO)

I'll answer your second question first, Matt. No changes from them as of late. So, and I think getting to your point of whether their strategies or issues have changed. Their demand from us personally, then that wouldn't seem to be the case. I think, you know, in terms of the strategy as a whole, it's one of those strategies that's long and as Matt has alluded to, it's very involved. There's a lot of audits, visits, establishing your reputation, et cetera. I think we're on track for where we'd like to be in general.

I think there are some areas we'd like to have moved a little bit quicker in some accounts, but there are other accounts that have developed that we didn't necessarily expect to develop as quick. So on the whole, roughly in line. Being a rather impatient individual, though, I would say I'd always want it to be faster if we could be. I can assure you, though, however, that speed is not down to anything that we're not trying to do ourselves.

Yep, I appreciate the color there. And then, just quickly on the cell and gene therapy side of things, I think you mentioned last quarter, this is a bit behind traditional biologics demand in terms of coming back and giving your early phase comments. Is this still the case, or what are you seeing in those end markets?

Yeah, I think that still is the case. I certainly don't see it. I haven't seen it catch up in any way, shape, or form at the moment. I do think the vast majority of the drive is in the mammalian. Conversations continue to be pretty, pretty nicely developing in the cell and gene therapy area, but I wouldn't say that the activity, the funding or what have you, is plowing back into that sector yet. So mammalian ahead for sure. I don't think it's cell and gene's caught up anything on from where we were last quarter.

We do have some interesting conversations, and hopefully in the next quarter or two, we can start to convert conversations into orders, but that's kind of where we are at the moment.

Thank you. I appreciate you taking the questions.

Appreciate it.

Operator (participant)

Thank you. One moment for the next question. And our next question will be coming from Matt Hewitt of Craig-Hallum Capital Group. Your line is open.

Matt Hewitt (Analyst)

Good afternoon. Congratulations on the strong quarter. Maybe first up, and I apologize, the vote was happening right as we were coming on, but the Biosecure Act made it to the House floor. I did not hear, but I'm just curious what your thoughts are. You know, and I know that your customers don't always call in and say, "Hey, because of this potential law, we're gonna sign up," but I'm just curious if you're seeing any change or any increase in conversations that could possibly be tied to that act.

Nick Green (President and CEO)

Yeah, I mean, in very high level, Matt, I think, you know, we obviously compete in that marketplace, and we compete against, Asian competitors and Chinese competitors in particular, on a regular day-to-day basis. I would say that of the pipeline that we get, from the numbers that we've managed to scratch through and be able to try to get some definition, about half of the ones that we see from China are probably Biosecure associated to date. There's an element of that. Some of them were, the others that we've already won or have been in progress with were prior to any Biosecure conversation that they initiated. So I think it's fairly safe to say the other half were nothing to do with that.

You know, how that builds up is gonna be interesting. I think there are two fundamental elements, is that whenever there, there's no definition about it, there's obviously concern and fear, so that can drive decision making. Although I do think there's also, in the absence of the law, there's also people who feel that, you know, can we get in and out, or can we progress as we might do in the past until it's more defined? So it's gonna be interesting to see how that actually pans out. I mean, it's difficult to say that it's a bad thing for a U.S.-based CDMO with capacity like we are. So it will be certainly interesting to see how that pans out over the near term.

Matt Hewitt (Analyst)

Got it. And then, second question, regarding seasonality, obviously, this is the quarter we're currently in is normally the quarter you're shut down and kind of going through some cleaning and all that. But given the newness of the facilities and the equipment, is it safe to expect that that shut down period will be lighter this year than you witnessed the last few years? And if that's the case, you know, you just maybe that normal seasonality isn't as big of a deal this year. Is that? Am I thinking about that right?

Nick Green (President and CEO)

... I mean, in general terms, I think you are. What I would say for this year is I wouldn't be looking at it that way right off the bat. We've just got the new facilities online, so we do still need to maintain those facilities. We still need to do certain activities to make sure everything's up to date and any calibrations and things like that are all done. So we are trying a few things that we think we'll be able to, in the longer term, reduce the scope of that shutdown. But I, on the basis that it's our first year with the new facilities, I wouldn't be building in too much to that effect, if you know what I mean.

Matt Hewitt (Analyst)

Got it. Understood. All right, thank you.

Operator (participant)

Thank you. One moment for the next question. And our next question is coming from Paul Knight of KeyBanc Capital Markets. Your line is open.

Paul Knight (Managing Director and Equity Research Analyst)

Hi, Nick. Did you spell out how much of the new orders, maybe Matt, were in the cell and gene therapy area?

Nick Green (President and CEO)

A small proportion, Paul. We don't break that one out, but it's certainly not material in the overall scheme of things. So, we don't segment those two just yet, but not enormous.

Paul Knight (Managing Director and Equity Research Analyst)

You know, a company kinda in the medium market has said they expect a four quarter lag on cell therapy funding. Do you think that's kind of in the ballpark?

Nick Green (President and CEO)

I'm not sure I'd go quite as far as four quarters. It depends on. It's a difficult way to look at. We've seen some pickup. I think if I'm looking back at the mammalian side, I think, you know, November was the low from end of October, beginning of November was the low. So we're not gone full four quarters. I think I've seen some pickup in certainly our activity in terms of the cell and gene therapy, but I wouldn't say it's accelerating at the level that we saw from November in the mammalian side. And even in the mammalian side, you know, we are getting some sort of conflicting data.

I think Charles River has indicated that they were seeing a reduction in the early phase. So, you know, I think it's coming through. I think I'd be probably a little more optimistic from what we've seen, but we're certainly no bellwether for the overall industry, so I'm not going to argue if somebody else sees it as four quarters, and we might see it at two or three. But, that's where we are at the moment, I think.

Paul Knight (Managing Director and Equity Research Analyst)

Nick, you had previously indicated that sometimes the backlog now would extend beyond a year. I'm assuming that that's still the case, but is it stretched even more in terms of duration of a project, or is it kinda similar to what you've been seeing?

Nick Green (President and CEO)

No, I think that was kind of the crux of Sean's question at the beginning, was that I think the mix of the signings that we've got this quarter are a little richer in the early phase than traditionally. Still, the majority of them are late phase, but there's a higher proportion than we and a higher number of early phase than we had seen in the last two or three quarters of last year. So, if anything, it's slightly accelerating it and maybe reducing it from 15 to a little bit less, but it's not material, but I would say it's a definite not extending, as it were.

Paul Knight (Managing Director and Equity Research Analyst)

And then, lastly, I know there's Biosecure here in the United States, but is there anything new on the regulatory front in Europe that puts you in a bit better of a position?

Nick Green (President and CEO)

No. I mean, I've heard some rumblings that people might be believing that they may take similar actions in Europe. I haven't seen anything definitive that suggests that that's gonna be the case, so really all we have today, as far as I can see, in the immediate horizon, is the Biosecure Act here in the U.S.

Paul Knight (Managing Director and Equity Research Analyst)

Okay, thanks.

Nick Green (President and CEO)

Thanks, Paul.

Operator (participant)

Thank you. One moment for the next question. Our next question will be coming from Max Smock of William Blair. Your line is open.

Max Smock (Analyst)

Hi, guys. Good afternoon, and thanks for taking our questions. So I just echo Sean's comments earlier, and congrats on the nice bookings quarter here in the first quarter. I wanted to ask a follow-up on Matt's question on Biosecure. It sounds like you have some customers that are still waiting to see how it plays out before moving away from China. But is it fair to say that most of the companies you're talking with are already committed to changing their behavior and moving away from China, kind of, regardless of what happens with the bill here near term? And in your conversations, are you picking up on any material differences in terms of how small biotech and large pharma are currently reacting or planning to react to the Biosecure Act?

Nick Green (President and CEO)

Good questions, Max. I think, you know, when people are talking to us, we obviously get a, I guess, a more biased view of the impact of Biosecure, because if you are in China and you're coming to Avid, and you're talking to me about it, then that suggests that you've already caused a problem. So the person who isn't looking to move won't even call me, so I won't even hear their voice. So that one's always a little bit difficult to judge on a, you know, on the total pipeline of customers. Is what we're seeing, obviously, is thinking of moving or are moving. So I'm not sure how much I would actually rely on that as a data point.

But I think we've certainly seen an increasing number of conversations around that area. Big pharma to emerging pharma, I think also is not necessarily the easiest one. Again, I don't deal with all big pharma, but I would say that we've seen interest in Avid. Is that interest in Avid more because they're looking at getting rid of somebody else or looking at other alternatives that may be backups? It could well be. I think also it depends what phase that you're in, in the biotech phase. I think if you're in early phase, then maybe there's the view that you could get in and out before that occurs, in which case, then you could still source from that region or those people.

In the case of the later phase, then that obviously becomes a little bit more concerning because, you know, you may have a regulatory filing that could get caught up in the outcome of whatever the outcome ends up being. So I think I would say that the larger concern from what we can see would be probably the later phase clinical candidates that are probably getting more attention than anybody else. But I do hasten to point out that we are not the bellwether of the whole industry, so it's the microcosm that we see.

Max Smock (Analyst)

Yeah, fair enough, and thanks for that comment. Nick, a lot of good stuff in there. Maybe following up on an unrelated one, I wanted to ask about Halozyme, which obviously a key customer, was over half your revenue in fiscal 2023, but that was down to about a third in fiscal 2024. Can you just give us an update around what exactly happened there in fiscal 2023, how Halozyme revenue has trended so far here in the first quarter? Again, what you're baking in for Halozyme revenue here in fiscal 2025, and just your overall level of visibility into revenue this year from this key customer.

Nick Green (President and CEO)

Yeah, again, I obviously do know what went on between ourselves and Halozyme. I don't think any of it's negative in any way, shape, or form, but I try to avoid commenting on somebody else's business, particularly in a public environment, in a public company, but rather. So I think that, I'll leave that one as is. But what I can say is that, I think the relationship remains strong. I think that what's been going on over the last few years is nothing but positive as far as I can see. We continue to be the best supplier we possibly can be and service that as well as our other clients to the highest possible standard that we can.

I've said it publicly in the past. I'd love to see the Halozyme revenues continue to grow, and I'd love to see them become a smaller proportion of our business as we continue to grow ourselves and diversify our customer base, and we remain pretty much the same. So I think what I would take out of the last year is that, you know, we're still growing compared to where we were over the last few years, and it is becoming a smaller number over the long term, and that's, I think, in the direction that we've been articulating. Again, I just hope that we can continue to grow along with Halozyme.

Max Smock (Analyst)

Yeah, understood. And again, not necessarily a bad thing, right? I think it speaks to the strength of your, the rest of your customer base there. Maybe just sneaking a final one in here for me. Wanted to ask about the margins and just whether or not there's any color you can give us in terms of expectations for Adjusted EBITDA or Adjusted EBITDA margin here in fiscal 2025. And from a modeling perspective, you know, is it reasonable to think about this quarter as kind of being a good jumping off point for the rest of the year and assuming something like, you know, that 40%-60% drop-through rate on incremental revenue that you pointed to in the past?

Dan Hart (CFO)

Hey, Max, good question. It was nice to see that we've built off the momentum of where we were coming off of Q2 of last year, looking at Q3 and Q4 increases and seeing where we ended up for Q4. As far as fall-through of overall gross margins right down to EBITDA margin, as we continue to grow and approach the guide for this year, I'd like to see EBITDA continue to grow. But as we always say, the quarters can be lumpy, so we will have some pluses and minuses as we grow. I'd like to see something similar and continue to grow as we go forward.

Max Smock (Analyst)

Understood. Thanks again for taking our questions.

Dan Hart (CFO)

Thanks, Max.

Operator (participant)

Thank you. And that does conclude today's Q&A session. I would like to turn the call back over to Nick's closing remarks. Please go ahead.

Nick Green (President and CEO)

Thank you, operator, and thank you to everyone participating on today's call. We are highly encouraged by the progress during the first quarter, and we look ahead to the remainder of fiscal 2025 with some optimism. We thank our customers for their trust and partnership, our investors for their continued support, and we wish to recognize the exceptional employees who continue to drive this success. Thank you again for participating today and for your continued support of Avid Bioservices.

Operator (participant)

This does conclude today's conference call. You may all disconnect.