Avid Bioservices, Inc. (CDMO)·Q3 2024 Earnings Summary

Executive Summary

• Q3 FY2024 revenue was $33.8M; gross margin improved to 7% from -18% in Q2 as volumes recovered and expansion costs began to be absorbed; management reiterated FY24 revenue guidance of $137–$147M and highlighted a “more than 30%” sequential revenue increase vs Q2 with a strong Q4 expected to finish the year within guidance .
• Bookings were $41M, pushing backlog to a record $206M (+17% YoY), with mix still skewed to later-stage programs that extend conversion timelines but enhance medium-term visibility and potential commercial ramp; early-stage signings ticked up for a second consecutive quarter, signaling improved biotech funding conditions .
• Profitability remained pressured YoY (Q3 GAAP net loss $(6.0)M; diluted EPS $(0.09)), driven by fewer manufacturing runs, reduced process development work from early-stage customers, and higher expansion-related costs; sequential profitability improved with better throughput and utilization vs Q2 .
• Capital structure de-risked post-quarter: Avid issued $160M of 7.00% Convertible Senior Notes due 2029 and retired the 2026 notes, extending maturity and stabilizing liquidity; the 10-Q delay and restatements were limited to reclassifying 2026 notes and incremental interest accounting, with no other material adjustments .

What Went Well and What Went Wrong

• What Went Well

  • Record backlog and solid bookings: $41M of new orders; backlog reached $206M (+17% YoY), with broader capacity to address larger/later-stage programs and an uptick in early-stage mix QoQ .
  • Sequential revenue inflection and operational progress: “more than 30%” revenue increase vs Q2; successful completion of a PPQ campaign on new Line 3 (Myford South), setting up additional PPQ campaigns and near-term utilization gains .
  • Expansion completion and capacity: CGT facility opened (grand opening Jan 2024), completing a three-year program; combined revenue-generating capacity now “up to approximately $400M” annually .

• What Went Wrong

  • YoY declines and margin pressure: Q3 revenue down 11% YoY ($33.8M vs $38.0M) and gross margin fell to 7% from 26%, driven by fewer manufacturing runs, reduced process development from early-stage customers, and expansion-related costs .
  • Non-operational headwinds: Variable consideration adjustments, a terminated project tied to a customer insolvency, and a revenue recognition delay pending a process change weighed on YTD margins .
  • Financing/filing overhangs: Technical default/acceleration of 2026 converts required refinancing; company restated certain periods to reclassify 2026 notes to current liabilities and include incremental interest; 10-Q filing was delayed though no other material adjustments occurred .

Financial Results

KPIs and Cash Flow

Drivers/Context

• Q3 revenue and margins: Lower YoY due to fewer manufacturing runs and reduced early-stage process development; sequential improvement as throughput rose and some PPQ/lateness issues from Q2 abated .
• Mix and backlog: Later-stage weighting elongates conversion but increases probability of commercial wins; early-stage pipeline showed a second consecutive quarterly increase, suggesting improved biotech funding conditions .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “During the third quarter, we recorded an increase in revenues of more than 30% as compared with the second quarter of 2024. And we continue to anticipate a strong quarter 4.”
• “We ended the quarter with a record high backlog of $206 million… We expect… momentum to continue as we transition into our fiscal year 2025 with new business wins starting to flow through our financials.”
• “It was necessary to refinance our 2026 convertible notes… With the new instrument, we have extended our maturity of our debt to 2029, which provides us stability…”
• “With our expansion program now complete, we expect to reap the benefits… Avid estimates that its combined facilities now have a total revenue generating capacity of up to approximately $400 million annually.”
• “PPQ campaign… has now been successfully completed… first of a number of PPQ campaigns slated for… Line 3 in coming quarters.”

Q&A Highlights

• Market tailwinds and competitive dynamics: Management sees correlation between sector events (BIOSECURE, Novo/Catalent) and increased inbound opportunities, albeit with long conversion cycles typical of CDMO engagements .
• Bookings cadence: Q3 bookings were $41M with record backlog; caution that quarterly bookings can be lumpy given the size/timing of late-stage orders .
• Backlog conversion: Later-stage mix lengthens conversion; as early-stage work returns, conversion timelines could begin to shorten next fiscal year .
• Margin trajectory and drop-through: Expect margin expansion as utilization rises; near-term drop-through impacted by expansion costs and noncash depreciation; straight-line path to ~40% gross margin over time with capacity fill .
• CapEx and maintenance: Expansion CapEx complete; FY24 CapEx “~$32M,” with maintenance CapEx at 2–5% of revenue and at the low end initially .

Estimates Context

• S&P Global consensus could not be retrieved via our SPGI feed for CDMO due to a current mapping gap; as a result, we cannot provide numeric revenue/EPS consensus or beat/miss analysis for Q3 FY2024 at this time. Management stated they are comfortable with consensus and expect a strong Q4 to finish within the FY24 range .
• Where estimate comparisons are critical, we recommend cross-checking updated S&P Global figures once the CIQ mapping is restored; this quarter’s recap anchors on primary filings and the call.

Key Takeaways for Investors

• Sequential turn with improved revenue and margin versus Q2, underpinned by stronger volumes and initial operating leverage; late-stage pipeline and completed PPQ campaign support near-term utilization gains .
• Backlog reached a record $206M, bookings of $41M, and early-stage activity is re-emerging—signals of healthier demand breadth and a path to improved backlog conversion in FY25 .
• Expansion cycle is complete; combined capacity of up to ~$400M positions Avid to capture larger programs and commercial ramps, a potential step-function for medium-term growth and margin .
• Balance sheet de-risked via 2029 converts; maturity extension lowers refinancing risk while management targets stronger cash flow as CapEx normalizes to maintenance levels .
• Near-term watch items: Q4 execution to meet FY24 guide, bookings cadence given order lumpiness, early-stage funding follow-through, CGT facility commercialization trajectory, and margin progression as utilization rises .

Appendix: Additional Detail from Q3 Press Release and Filings

• YoY revenue decline and margin pressure drivers: fewer manufacturing runs, earlier-stage process development reductions, expansion cost increases; YTD also affected by variable consideration, a terminated project (customer insolvency), and a revenue recognition delay pending a process change .
• Q3 GAAP details: Operating loss $(4.0)M, net loss $(6.0)M, diluted EPS $(0.09); adjusted EBITDA $(1.117)M; free cash flow $(0.801)M .
• Cash & equivalents: $30.7M at Jan 31, 2024 .
• FY24 revenue guidance maintained: $137–$147M .

Sources: Q3 FY2024 8-K/press release and exhibits ; Q3 FY2024 earnings call transcript ; Q2 FY2024 8-K/press release and call ; Q1 FY2024 call .