Avid Bioservices(CDMO) - 2023 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Condensed Consolidated Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of operations and comprehensive income (loss), statements of stockholders' equity, and statements of cash flows, along with detailed notes explaining the company's accounting policies, debt, leases, equity compensation, income taxes, and commitments and contingencies Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific points in time Condensed Consolidated Balance Sheet Highlights (in thousands): | Metric | October 31, 2022 | April 30, 2022 | | :---------------------------------- | :--------------- | :------------- | | Total Current Assets | $145,941 | $180,023 | | Property and Equipment, Net | $139,386 | $92,955 | | Total Assets | $441,850 | $429,843 | | Total Current Liabilities | $82,377 | $75,761 | | Convertible Senior Notes, Net | $140,097 | $139,577 | | Total Liabilities | $260,655 | $255,317 | | Total Stockholders' Equity | $181,195 | $174,526 | - Total assets increased by $12 million from April 30, 2022, to October 31, 2022, primarily driven by an increase in property and equipment, net, which grew by approximately $46.4 million[11] - Cash and cash equivalents decreased significantly from $126.2 million to $77.3 million during the six-month period[11] Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) This section outlines the company's financial performance over specific periods, including revenues, expenses, and net income or loss Condensed Consolidated Statements of Operations Highlights (in thousands, except per share): | Metric | Three Months Ended Oct 31, 2022 | Three Months Ended Oct 31, 2021 | Six Months Ended Oct 31, 2022 | Six Months Ended Oct 31, 2021 | | :---------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Revenues | $34,757 | $26,109 | $71,449 | $56,863 | | Gross Profit | $4,147 | $9,186 | $13,264 | $20,577 | | Operating Income (Loss) | $(2,684) | $4,153 | $51 | $11,084 | | Net Income (Loss) | $(1,156) | $3,522 | $408 | $9,826 | | Basic Net Income (Loss) Per Share | $(0.02) | $0.06 | $0.01 | $0.16 | | Diluted Net Income (Loss) Per Share | $(0.02) | $0.06 | $0.01 | $0.15 | - Revenues increased by 33% for the three months ended October 31, 2022, and by 26% for the six months ended October 31, 2022, compared to the prior year periods[13] - Gross profit decreased significantly, resulting in an operating loss for the three months and a substantial drop in operating income for the six months, primarily due to increased cost of revenues[13] Condensed Consolidated Statements of Stockholders' Equity This section details changes in the company's equity over time, reflecting contributions, distributions, and net income or loss Condensed Consolidated Statements of Stockholders' Equity Highlights (in thousands): | Metric | October 31, 2022 | April 30, 2022 | October 31, 2021 | | :---------------------------------- | :--------------- | :------------- | :--------------- | | Total Stockholders' Equity | $181,195 | $174,526 | $51,105 | | Additional Paid-In Capital | $612,102 | $605,841 | $600,266 | | Accumulated Deficit | $(430,969) | $(431,377) | $(549,223) | - Total stockholders' equity increased from $174.5 million at April 30, 2022, to $181.2 million at October 31, 2022, driven by common stock issued under equity compensation plans and stock-based compensation expense, partially offset by net loss[15] Condensed Consolidated Statements of Cash Flows This section reports on the cash generated and used by the company across operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows Highlights (Six Months Ended October 31, in thousands): | Metric | 2022 | 2021 | | :------------------------------------------ | :------- | :------- | | Net Cash (Used in) Provided by Operating Activities | $(8,771) | $3,661 | | Net Cash Used in Investing Activities | $(41,432) | $(11,824) | | Net Cash Provided by Financing Activities | $1,329 | $1,923 | | Net Decrease in Cash, Cash Equivalents and Restricted Cash | $(48,874) | $(6,240) | | Cash, Cash Equivalents and Restricted Cash, End of Period | $77,642 | $164,025 | - The company experienced a significant net decrease in cash, cash equivalents, and restricted cash of $48.9 million for the six months ended October 31, 2022, primarily due to cash used in operating and investing activities[19] - Investing activities saw a substantial increase in cash usage, primarily for the purchase of property and equipment, rising from $11.8 million in 2021 to $41.4 million in 2022[19] Notes to Condensed Consolidated Financial Statements (Unaudited) This section provides detailed explanations and additional information supporting the condensed consolidated financial statements Note 1 – Description of Company and Basis of Presentation This note describes the company's business and the accounting principles used in preparing the financial statements - Avid Bioservices, Inc. operates as a dedicated contract development and manufacturing organization (CDMO) providing comprehensive services for biologics in the biotechnology and biopharmaceutical industries[21] - The unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP and SEC regulations for Form 10-Q, reflecting all necessary recurring adjustments[22] Note 2 – Summary of Significant Accounting Policies This note outlines the key accounting policies applied in the preparation of the condensed consolidated financial statements Revenue Recognition This section details the company's policies and methods for recognizing revenue from its various service offerings - Revenue is disaggregated into manufacturing and process development streams, both recognized over time using an input method based on work-in-process costs[25][26][28] Revenue Streams (in thousands): | Revenue Type | Three Months Ended Oct 31, 2022 | Three Months Ended Oct 31, 2021 | Six Months Ended Oct 31, 2022 | Six Months Ended Oct 31, 2021 | | :----------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Manufacturing Revenues | $27,614 | $22,013 | $59,095 | $47,688 | | Process Development Revenues | $7,143 | $4,096 | $12,354 | $9,175 | | Total Revenues | $34,757 | $26,109 | $71,449 | $56,863 | - During the three and six months ended October 31, 2022, the company recognized $8.3 million and $26.9 million, respectively, from contract liabilities recorded in prior periods[30] - Changes in estimates for variable consideration resulted in an $11.2 million decrease in revenues for the three and six months ended October 31, 2021, due to a customer dispute over cancellation fees[36] Restricted Cash This section explains the nature and amount of cash held for specific purposes and not available for general use - Restricted cash of $0.4 million is maintained as collateral for a letter of credit under an operating lease[39] Cash, Cash Equivalents and Restricted Cash (in thousands): | Metric | October 31, 2022 | April 30, 2022 | October 31, 2021 | April 30, 2021 | | :------------------------------------------ | :--------------- | :------------- | :--------------- | :------------- | | Cash and Cash Equivalents | $77,292 | $126,166 | $163,675 | $169,915 | | Restricted Cash | $350 | $350 | $350 | $350 | | Total Cash, Cash Equivalents and Restricted Cash | $77,642 | $126,516 | $164,025 | $170,265 | Accounts Receivable, Net This section describes the company's policies for managing and valuing its outstanding customer balances - An allowance for doubtful accounts of $17.2 million as of October 31, 2022, and $18.4 million as of April 30, 2022, was deemed necessary, primarily due to a dispute with a customer over cancellation fees[42] Inventory This section outlines the valuation methods and composition of the company's inventory - Inventory consists of raw materials, valued at the lower of cost (FIFO method) or net realizable value, with periodic reviews for impairment[43] Property and Equipment This section details the company's fixed assets, including their valuation, depreciation, and amortization policies - Property and equipment are recorded at cost less accumulated depreciation, computed using the straight-line method over estimated useful lives[44] Property and Equipment, Net (in thousands): | Category | October 31, 2022 | April 30, 2022 | | :---------------------------------- | :--------------- | :------------- | | Leasehold Improvements | $48,349 | $37,345 | | Laboratory and Manufacturing Equipment | $34,360 | $30,089 | | Construction-in-Progress | $77,138 | $43,809 | | Total Property and Equipment, Gross | $166,823 | $117,412 | | Less: Accumulated Depreciation and Amortization | $(27,437) | $(24,457) | | Total Property and Equipment, Net | $139,386 | $92,955 | - Depreciation and amortization expense increased to $1.8 million for the three months and $3.4 million for the six months ended October 31, 2022, from $1.0 million and $2.0 million, respectively, in the prior year[46] Leases This section describes the company's accounting for operating and finance leases, including related assets and liabilities - Operating leases with terms greater than one year are included in ROU assets and lease liabilities, recognized at the lease commencement date based on the present value of lease payments[47] - Finance leases are included as assets within property and equipment, net, and a lease liability equal to the present value of minimum lease payments[49] Impairment This section explains the company's policy for assessing and recognizing impairment losses on long-lived assets - Long-lived assets are reviewed for impairment when events or changes in circumstances indicate that their carrying value may not be recoverable; no impairment losses were recognized for the six months ended October 31, 2022 and 2021[51] Stock-Based Compensation This section details the accounting treatment for stock options, restricted stock units, and other equity awards - Stock options, restricted stock units (RSUs), and performance stock units (PSUs) are accounted for under ASC 718, with fair value measured at grant date and expensed over requisite service periods[52] Debt Issuance Costs This section describes the accounting for costs incurred in connection with issuing debt instruments - Debt issuance costs for convertible senior notes are recorded as a deduction against the principal value of the debt and amortized to interest expense using the effective interest method[54] Comprehensive Income (Loss) This section clarifies the components of comprehensive income or loss beyond net income - Comprehensive income (loss) equals net income (loss) for all periods presented, indicating no other comprehensive income components[55] Fair Value Measurements This section outlines the methodologies and hierarchy used for fair value measurements of financial instruments - Fair value measurements are categorized into a three-level hierarchy based on input observability[56] - Cash equivalents are classified as Level 1, while convertible senior notes are considered a Level 2 financial liability due to limited trading activity[57] Accounting Standards Not Yet Adopted This section discusses new accounting pronouncements that have not yet been implemented and their potential impact - The company is evaluating the impact of ASU No. 2016-13, 'Financial Instruments – Credit Losses (Topic 326)', which is effective for fiscal years beginning after December 15, 2022 (fiscal year 2024)[58] Note 3 – Debt This note provides details on the company's debt obligations, including convertible senior notes and related terms Convertible Senior Notes Due 2026 This section details the terms, carrying amounts, and interest expense associated with the company's convertible senior notes - In March 2021, the company issued $143.8 million in 1.25% exchangeable senior notes due 2026, with net proceeds of $138.5 million[60] - The notes are senior unsecured obligations, convertible into cash, common stock, or a combination, at an initial conversion price of approximately $21.21 per share[61][62] Convertible Senior Notes Carrying Amount (in thousands): | Metric | October 31, 2022 | April 30, 2022 | | :----------------------- | :--------------- | :------------- | | Principal | $143,750 | $143,750 | | Unamortized Issuance Costs | $(3,653) | $(4,173) | | Net Carrying Amount | $140,097 | $139,577 | - As of October 31, 2022, the estimated fair value of the Convertible Notes was approximately $149.7 million (Level 2 fair value)[70] Interest Expense on Convertible Notes (in thousands): | Metric | Three Months Ended Oct 31, 2022 | Three Months Ended Oct 31, 2021 | Six Months Ended Oct 31, 2022 | Six Months Ended Oct 31, 2021 | | :--------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Contractual Interest Expense | $411 | $449 | $635 | $898 | | Amortization of Issuance Costs | $260 | $255 | $520 | $509 | | Total Interest Expense | $671 | $704 | $1,155 | $1,407 | Capped Call Transactions This section describes the capped call transactions entered into to mitigate potential dilution from convertible notes - The company entered into capped call transactions for $12.8 million to reduce potential dilution from convertible notes, with a cap share price of approximately $28.02 per share[72] - The capped calls are accounted for as equity classification and were recorded as a reduction to additional paid-in capital[74] Note 4 – Leases This note provides information on the company's lease agreements, including lease costs and maturity schedules - The company leases office, manufacturing, laboratory, and warehouse space under operating lease agreements with terms ranging from 7 to 12 years, including renewal options and scheduled rent increases[75] Components of Operating Lease Cost (in thousands): | Metric | Three Months Ended Oct 31, 2022 | Three Months Ended Oct 31, 2021 | Six Months Ended Oct 31, 2022 | Six Months Ended Oct 31, 2021 | | :------------------ | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Operating Lease Cost | $1,090 | $989 | $2,173 | $1,777 | | Variable Lease Cost | $408 | $201 | $797 | $399 | | Short-Term Lease Cost | $197 | $114 | $327 | $216 | | Total Lease Cost | $1,695 | $1,304 | $3,297 | $2,392 | Lease Liabilities Maturities as of October 31, 2022 (in thousands): | Fiscal Year Ending April 30, | Operating Leases | Finance Lease | Total | | :--------------------------- | :--------------- | :------------ | :------ | | 2023 (remaining period) | $2,216 | $314 | $2,530 | | 2024 | $4,140 | $629 | $4,769 | | 2025 | $4,060 | $629 | $4,689 | | 2026 | $4,167 | $629 | $4,796 | | 2027 | $4,199 | $419 | $4,618 | | Thereafter | $28,708 | $0 | $28,708 | | Total Lease Payments | $47,490 | $2,620 | $50,110 | | Less: Imputed Interest | $(8,029) | $(272) | $(8,301) | | Total Lease Liabilities | $39,461 | $2,348 | $41,809 | Note 5 – Equity Compensation Plans This note details the various equity compensation plans, including stock options, RSUs, PSUs, and the ESPP Stock Incentive Plans This section outlines the shares reserved and available for issuance under the company's stock incentive plans - As of October 31, 2022, 8,522,436 shares of common stock were reserved for issuance under stock incentive plans, with 4,191,195 shares outstanding and 4,331,241 available for future grants[81] Stock Options This section summarizes the activity and outstanding balances of stock options granted to employees and directors Stock Option Activity (Six Months Ended October 31, 2022, in thousands): | Metric | Stock Options | Weighted Average Exercise Price | | :-------------------------- | :------------ | :------------------------------ | | Outstanding at May 1, 2022 | 2,505 | $6.88 | | Exercised | (180) | $6.79 | | Canceled or Expired | (36) | $8.57 | | Outstanding at October 31, 2022 | 2,289 | $6.86 | Restricted Stock Units This section details the activity and outstanding balances of restricted stock units granted by the company Restricted Stock Unit Activity (Six Months Ended October 31, 2022, in thousands): | Metric | Shares | Weighted Average Grant Fair Value | | :-------------------------- | :----- | :-------------------------------- | | Outstanding at May 1, 2022 | 642 | $14.89 | | Granted | 652 | $18.05 | | Vested | (209) | $11.67 | | Forfeited | (24) | $16.64 | | Outstanding at October 31, 2022 | 1,061 | $17.43 | Performance Stock Units This section describes the performance-based equity awards granted to executives, contingent on financial metrics - PSUs are granted to executives with annual vesting over three fiscal year performance periods, with the number of shares vesting dependent on predetermined financial metrics (0% to 200% of target)[84] Performance Stock Unit Activity (Six Months Ended October 31, 2022, in thousands): | Metric | Shares | Weighted Average Grant Fair Value | | :-------------------------- | :----- | :-------------------------------- | | Outstanding at May 1, 2022 | 233 | $25.31 | | Granted | 609 | $18.09 | | Outstanding at October 31, 2022 | 842 | $20.09 | Employee Stock Purchase Plan This section explains the terms and activity of the employee stock purchase plan - Under the ESPP, employees can purchase common stock at 85% of the lower fair market value on the first or last trading day of the six-month offering period[87] - During the six months ended October 31, 2022, 27,711 shares were purchased at $12.97 per share, with 1,004,251 shares reserved for issuance[87] Stock-Based Compensation This section reports the total stock-based compensation expense recognized across different financial statement categories Stock-Based Compensation Expense (in thousands): | Category | Three Months Ended Oct 31, 2022 | Three Months Ended Oct 31, 2021 | Six Months Ended Oct 31, 2022 | Six Months Ended Oct 31, 2021 | | :---------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Cost of Revenues | $1,045 | $693 | $1,732 | $1,161 | | Selling, General and Administrative | $1,741 | $1,249 | $2,951 | $2,080 | | Total Stock-Based Compensation | $2,786 | $1,942 | $4,683 | $3,241 | - Total estimated unrecognized compensation cost for non-vested stock options and RSUs was $2.0 million and $17.1 million, respectively, as of October 31, 2022[89] - Unrecognized compensation cost for non-vested PSUs was $11.8 million, expected to be recognized over a weighted average vesting period of 1.4 years, subject to performance metric achievement[89] Note 6 – Income Taxes This note provides details on the company's income tax expense or benefit and the reconciliation of the effective tax rate - For the three and six months ended October 31, 2022, the company recorded an income tax benefit of $(2.1) million and $(1.4) million, respectively, with effective tax rates of 64.3% and 141.8%[92] - The tax benefit differs from the U.S. federal statutory rate of 21% due to state income taxes, stock-based compensation, non-deductible officers' compensation, and transportation fringe benefits[92] Note 7 – Net Income (Loss) Per Common Share This note explains the calculation of basic and diluted net income or loss per common share - Basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding[94] - Diluted net income (loss) per common share includes the potential dilutive effects of stock options, unvested RSUs and PSUs, ESPP shares, and Convertible Notes, if not anti-dilutive[94] Net Income (Loss) Per Share (in thousands, except per share amounts): | Metric | Three Months Ended Oct 31, 2022 | Three Months Ended Oct 31, 2021 | Six Months Ended Oct 31, 2022 | Six Months Ended Oct 31, 2021 | | :------------------------------------------ | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net Income (Loss) | $(1,156) | $3,522 | $408 | $9,826 | | Weighted Average Basic Common Shares Outstanding | 62,204 | 61,414 | 62,054 | 61,276 | | Weighted Average Dilutive Common Shares Outstanding | 62,204 | 63,602 | 63,574 | 63,606 | | Basic Net Income (Loss) Per Share | $(0.02) | $0.06 | $0.01 | $0.16 | | Diluted Net Income (Loss) Per Share | $(0.02) | $0.06 | $0.01 | $0.15 | Potential Dilutive Securities Excluded (in thousands): | Security Type | Three Months Ended Oct 31, 2022 | Three Months Ended Oct 31, 2021 | Six Months Ended Oct 31, 2022 | Six Months Ended Oct 31, 2021 | | :---------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Stock Options | 1,404 | 47 | 51 | 38 | | RSUs and PSUs | 429 | 247 | 640 | 157 | | ESPP | 4 | 0 | 0 | 0 | | Convertible Notes | 6,776 | 6,776 | 6,776 | 6,776 | | Total | 8,613 | 7,070 | 7,467 | 6,971 | Note 8 – Commitments and Contingencies This note discloses the company's significant commitments and potential contingent liabilities, including legal proceedings Humanigen Arbitration This section details the ongoing arbitration proceedings with Humanigen, Inc. regarding alleged breach of contract - The company filed a Demand for Arbitration against Humanigen, Inc. in December 2021, claiming over $20.5 million in damages for breach of contract and anticipatory breach[99] - Humanigen filed counterclaims, which the state court compelled to arbitration in October 2022, leading Humanigen to refile its claims in arbitration in November 2022[99] - The company withdrew its claim for anticipatory breach under the Letter Agreement due to Humanigen's failure to obtain Emergency Use Authorization[99] Item 2. Management's Discussion and Analysis of Financial Condition And Results of Operations This section provides management's perspective on the company's financial condition and results of operations, including an overview of the business, strategic objectives, key highlights, facility expansions, and a detailed comparison of financial performance for the three and six months ended October 31, 2022, versus the prior year Overview This section provides a general description of the company's business as a contract development and manufacturing organization - Avid Bioservices, Inc. is a CDMO specializing in process development and CGMP clinical and commercial manufacturing of biologics for the biotechnology and biopharmaceutical industries[104] - The company has 29 years of experience in producing monoclonal antibodies and recombinant proteins, offering services including product manufacturing, bulk packaging, testing, and regulatory support[104] Strategic Objectives This section outlines the company's key goals for growth, market expansion, and operational efficiency - The company's growth strategy includes investing in additional manufacturing capacity, broadening market awareness, expanding its customer base and service offerings, exploring strategic opportunities, and increasing operating profit margin[105] Second Quarter Highlights This section summarizes the company's significant achievements and financial performance during the second fiscal quarter - Revenues for the second quarter ended October 31, 2022, were $34.8 million, a 33% increase year-over-year[107] - The company expanded its customer base and ended the quarter with a backlog of approximately $147 million[107] - Progress continued on the second phase of the Myford facility expansion and the construction of the cell and gene therapy facility[107] Facility Expansions This section details the ongoing projects to increase manufacturing and development capacity, including estimated costs and timelines - The second phase of the Myford facility expansion, adding a second manufacturing train, is anticipated to be online in Q1 2023, with an estimated remaining cost of $14 million[108] - The new cell and gene therapy (CGT) facility's analytical and process development laboratories are operational, with CGMP manufacturing suites expected online in mid-2023, at an estimated remaining cost of $39 million[109] - An expansion of mammalian cell culture process development capacity is expected to be completed by the end of Q1 2023, costing approximately $6 million[110] - Upon completion, combined facilities are estimated to have the potential for up to $400 million in annual revenue generating capacity[111] Impact of COVID-19 Pandemic This section assesses the effects of the COVID-19 pandemic on the company's operations and financial performance - The COVID-19 pandemic has not had a significant impact on operations to date, as manufacturing facilities have continued to operate and provide essential services[112] Performance and Financial Measures This section identifies the key metrics used by management to evaluate the company's business performance - Key indicators for assessing business performance include revenues, gross profit, selling, general and administrative expenses, operating income, and interest expense[114] Results of Operations This section provides a detailed analysis of the company's revenues, expenses, and profitability for the reported periods Consolidated Statements of Operations Comparison (in thousands): | Metric | 3 Months Ended Oct 31, 2022 | 3 Months Ended Oct 31, 2021 | Change (3 Months) | 6 Months Ended Oct 31, 2022 | 6 Months Ended Oct 31, 2021 | Change (6 Months) | | :---------------------------------- | :-------------------------- | :-------------------------- | :---------------- | :-------------------------- | :-------------------------- | :---------------- | | Revenues | $34,757 | $26,109 | $8,648 | $71,449 | $56,863 | $14,586 | | Cost of Revenues | $30,610 | $16,923 | $13,687 | $58,185 | $36,286 | $21,899 | | Gross Profit | $4,147 | $9,186 | $(5,039) | $13,264 | $20,577 | $(7,313) | | Selling, General and Administrative | $6,831 | $5,033 | $1,798 | $13,213 | $9,493 | $3,720 | | Operating Income (Loss) | $(2,684) | $4,153 | $(6,837) | $51 | $11,084 | $(11,033) | | Net Income (Loss) | $(1,156) | $3,522 | $(4,678) | $408 | $9,826 | $(9,418) | Three Months Ended October 31, 2022 Compared to Three Months Ended October 31, 2021 This section compares the company's financial performance for the three-month period ending October 31, 2022, against the same period in the prior year Revenues This section analyzes the changes in revenue for the three-month period, highlighting key drivers of growth or decline - Revenues increased by $8.6 million (33%) to $34.8 million, primarily due to an increase in manufacturing runs and process development services for new customers[122] Gross Profit This section examines the factors influencing the company's gross profit and gross margin for the three-month period - Gross profit decreased by $5.0 million to $4.1 million (12% gross margin) from $9.2 million (35% gross margin), mainly due to increased compensation, benefits, facility, and equipment costs[123] - Growth-related costs, including labor, overhead, and depreciation, contributed an incremental 11% decrease in margin, split evenly between mammalian and cell and gene therapy operations[123] - Gross profit is expected to continue to be impacted in the short-term by ongoing hiring and additional facility/equipment costs for anticipated growth[124] Selling, General and Administrative Expenses This section details the changes in selling, general, and administrative expenses and their impact on profitability - SG&A expenses increased by $1.8 million (36%) to $6.8 million, primarily driven by higher compensation and benefit-related expenses ($1.1 million), legal and accounting fees ($0.2 million), and consulting fees ($0.2 million)[125] Operating Income (Loss) This section discusses the company's operating income or loss, reflecting the overall profitability from core operations - Operating income shifted to a loss of $2.7 million from an income of $4.2 million, a $6.8 million decrease, attributed to the $5.0 million decrease in gross profit and $1.8 million increase in SG&A expenses[127] Income Tax Benefit This section explains the income tax benefit recorded and its effect on the company's net income - An income tax benefit of $2.1 million was recorded, compared to no benefit in the prior year, due to the recording of a full quarter of income tax benefit in the current period[128] Six Months Ended October 31, 2022 Compared to Six Months Ended October 31, 2021 This section compares the company's financial performance for the six-month period ending October 31, 2022, against the same period in the prior year Revenues This section analyzes the changes in revenue for the six-month period, highlighting key drivers of growth or decline - Revenues increased by $14.6 million (26%) to $71.4 million, driven by increased manufacturing runs and process development services for new customers[129] Revenue Streams Increase (Six Months Ended October 31, in millions): | Revenue Type | Increase | | :--------------------------- | :------- | | Net Increase in Manufacturing Revenues | $11.4 | | Net Increase in Process Development Revenues | $3.2 | | Total Increase in Revenues | $14.6 | Gross Profit This section examines the factors influencing the company's gross profit and gross margin for the six-month period - Gross profit decreased by $7.3 million to $13.3 million (19% gross margin) from $20.6 million (36% gross margin), primarily due to higher compensation, benefits, facility, and equipment costs[130] - Growth-related costs, including labor, overhead, and depreciation, contributed an incremental 9% decrease in margin, split evenly between mammalian and cell and gene therapy operations[130] Selling, General and Administrative Expenses This section details the changes in selling, general, and administrative expenses and their impact on profitability - SG&A expenses increased by $3.7 million (39%) to $13.2 million, mainly due to higher compensation and benefit-related expenses ($2.3 million), legal and accounting fees ($0.5 million), and consulting fees ($0.3 million)[133] Operating Income This section discusses the company's operating income, reflecting the overall profitability from core operations - Operating income decreased by $11.0 million to $0.1 million, attributed to the $7.3 million decrease in gross profit and $3.7 million increase in SG&A expenses[134] Interest Expense This section analyzes the company's interest expense, including factors contributing to its change - Interest expense decreased by $0.2 million (13%) to $1.2 million, primarily due to $0.3 million in interest capitalized as construction-in-progress during the current year[135] Income Tax Benefit This section explains the income tax benefit recorded and its effect on the company's net income - An income tax benefit of $1.4 million was recorded, compared to no benefit in the prior year, due to the recording of net income tax benefit in the current period[136] Liquidity and Capital Resources This section discusses the company's ability to generate and manage cash, including its cash position and funding needs - As of October 31, 2022, the company had $77.3 million in cash and cash equivalents, which is believed to be sufficient to fund operations for at least the next 12 months[137] - Additional equity or debt financing may be required to support operations or capital requirements, particularly for facility expansions, with availability and terms dependent on market conditions[139] Cash Flows This section analyzes the company's cash movements from operating, investing, and financing activities Cash Flow Activities (Six Months Ended October 31, in thousands): | Activity | 2022 | 2021 | Change | | :------------------------------------------ | :------- | :------- | :------- | | Net Cash (Used in) Provided by Operating Activities | $(8,771) | $3,661 | $(12,432) | | Net Cash Used in Investing Activities | $(41,432) | $(11,824) | $(29,608) | | Net Cash Provided by Financing Activities | $1,329 | $1,923 | $(594) | - Net cash used in operating activities was $8.8 million in 2022, a decrease from $3.7 million provided in 2021, primarily due to a net change in operating assets and liabilities of $16.3 million[141] - Net cash used in investing activities significantly increased to $41.4 million in 2022 from $11.8 million in 2021, mainly for property and equipment acquisitions related to facility expansions[143] - Net cash provided by financing activities decreased to $1.3 million in 2022 from $1.9 million in 2021, due to lower proceeds from common stock issuance and principal payments on a finance lease[144] Cash Requirements This section outlines the company's future cash obligations, including debt, lease payments, and capital expenditures Convertible Senior Notes This section details the principal amount outstanding for the company's convertible senior notes - As of October 31, 2022, the aggregate principal amount outstanding for the 1.25% exchangeable senior notes due 2026 was $143.8 million[149] Leases This section summarizes the company's outstanding lease obligations and their maturity schedule - Outstanding lease obligations totaled $50.1 million as of October 31, 2022, with $2.5 million payable in the remainder of fiscal 2023 and $4.8 million in fiscal 2024[150] Capital Expenditures This section discusses the company's investments in property and equipment, including planned future expenditures - Capital expenditures for the six months ended October 31, 2022, were $41.4 million, with an additional $8.5 million in accrued capital expenditures[151] - Total capital expenditures for fiscal 2023 are anticipated to be approximately $85 million to $95 million, primarily for mammalian and cell and gene therapy facility expansions[151] Critical Accounting Policies and Estimates This section confirms that there were no significant changes to critical accounting policies during the reporting period - There were no significant changes in critical accounting policies during the six months ended October 31, 2022, as previously disclosed in the Annual Report on Form 10-K[152] Recent Accounting Pronouncements This section refers to the notes to financial statements for information on recently issued accounting standards - Information on recent accounting pronouncements is provided in Note 2, 'Summary of Significant Accounting Policies,' of the condensed consolidated financial statements[154] Backlog This section provides information on the company's current backlog of orders and its anticipated revenue recognition - As of October 31, 2022, the company's backlog was approximately $147 million, a decrease from $153 million as of April 30, 2022[155] - The majority of the backlog is anticipated to be recognized as revenue over the next twelve months, but it is subject to risks such as customer cancellations, postponements, and supply chain delays[155] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there were no material changes in market risks during the six months ended October 31, 2022, compared to those described in the Annual Report on Form 10-K - No material changes in market risks occurred during the six months ended October 31, 2022, as compared to the disclosures in the Annual Report on Form 10-K[156] Item 4. Controls And Procedures This section details the evaluation of the company's disclosure controls and procedures and reports on any changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures This section reports on management's assessment of the effectiveness of the company's disclosure controls and procedures - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of October 31, 2022[158] Changes in Internal Control over Financial Reporting This section discloses any material changes in the company's internal control over financial reporting during the period - There were no significant changes in internal control over financial reporting during the quarter ended October 31, 2022, that materially affected or are reasonably likely to materially affect it[159] PART II - OTHER INFORMATION This section includes information on legal proceedings, risk factors, and exhibits filed with the report Item 1. Legal Proceedings This section refers to Note 8, 'Commitments and Contingencies,' for details on legal proceedings, including the Humanigen arbitration - Legal proceedings information is incorporated by reference from Note 8, 'Commitments and Contingencies,' in the unaudited condensed consolidated financial statements[162] Item 1A. Risk Factors This section refers to the Annual Report on Form 10-K for a detailed discussion of business risks and states that no material changes to these risk factors have occurred - For a detailed discussion of business risks, refer to Part I, Item 1A, 'Risk Factors' in the Annual Report on Form 10-K for the fiscal year ended April 30, 2022[163] - There have been no material changes to the previously disclosed risk factors[163] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certificates, certifications, and XBRL data files - The exhibits include the Restated Certificate of Incorporation, certifications from the Executive Officer and Financial Officer, and various XBRL data files[164] SIGNATURES This section contains the signatures of the company's authorized officers, including the President and Chief Executive Officer, and the Chief Financial Officer, certifying the report - The report is signed by Nicholas S. Green, President and Chief Executive Officer, and Daniel R. Hart, Chief Financial Officer, on December 6, 2022[170]