Avid Bioservices(CDMO) - 2021 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Condensed Consolidated Financial Statements (Unaudited) Avid Bioservices presents unaudited consolidated financial statements, highlighting significant growth in assets, revenues, and a shift to net income - Avid Bioservices is a contract development and manufacturing organization (CDMO) specializing in biopharmaceutical drug substances derived from mammalian cell culture[22] Condensed Consolidated Balance Sheets (in thousands) | Balance Sheet Highlights | Jan 31, 2021 | Apr 30, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $70,894 | $36,262 | | Total current assets | $116,311 | $59,763 | | Total assets | $168,178 | $107,620 | | Total current liabilities | $62,575 | $44,480 | | Total liabilities | $82,808 | $65,724 | | Total stockholders' equity | $85,370 | $41,896 | Condensed Consolidated Statements of Operations (in thousands, except per share data) | Statement of Operations | Three Months Ended Jan 31, 2021 | Three Months Ended Jan 31, 2020 | Nine Months Ended Jan 31, 2021 | Nine Months Ended Jan 31, 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $21,806 | $13,585 | $68,262 | $47,152 | | Gross Profit | $6,202 | $785 | $21,164 | $5,231 | | Operating Income (Loss) | $2,184 | $(2,211) | $9,155 | $(6,113) | | Net Income (Loss) | $2,207 | $(2,104) | $9,221 | $(5,698) | | Diluted EPS | $0.01 | $(0.06) | $0.10 | $(0.17) | Revenue by Stream (in thousands) | Revenue Stream | Three Months Ended Jan 31, 2021 | Three Months Ended Jan 31, 2020 | Nine Months Ended Jan 31, 2021 | Nine Months Ended Jan 31, 2020 | | :--- | :--- | :--- | :--- | :--- | | Manufacturing revenues | $17,895 | $11,525 | $60,407 | $40,422 | | Process development revenues | $3,911 | $2,060 | $7,855 | $6,730 | | Total revenues | $21,806 | $13,585 | $68,262 | $47,152 | Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity (Nine Months Ended Jan 31) | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $13,322 | $2,780 | | Net cash used in investing activities | $(5,717) | $(3,025) | | Net cash provided by (used in) financing activities | $27,027 | $(2,219) | | Net increase (decrease) in cash | $34,632 | $(2,464) | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong Q3 FY2021 performance, with 61% revenue growth, record $120 million backlog, and significant profitability improvement - Key strategic objectives include investing in manufacturing capacity, broadening market awareness, expanding the customer base, and increasing operating profit margins[92] - The company is executing a two-phased expansion of its Myford facility, with phase one expected to cost ~$15 million and add up to $50 million in annual revenue capacity, and phase two estimated at $45-$55 million projected to add another $100 million in annual revenue capacity[95][96][97] - In December 2020, the company completed a public offering, raising net proceeds of $32.1 million, which are intended to be used for the facility expansions[94][98][124] Q3 FY2021 vs Q3 FY2020 Performance (Three Months Ended Jan 31) | Metric | Q3 2021 | Q3 2020 | Change | | :--- | :--- | :--- | :--- | | Revenues | $21.8M | $13.6M | +61% | | Gross Profit | $6.2M | $0.8M | +$5.4M | | Gross Margin | 28% | 6% | +22 p.p. | | Operating Income (Loss) | $2.2M | $(2.2)M | +$4.4M | YTD FY2021 vs YTD FY2020 Performance (Nine Months Ended Jan 31) | Metric | YTD 2021 | YTD 2020 | Change | | :--- | :--- | :--- | :--- | | Revenues | $68.3M | $47.2M | +45% | | Gross Profit | $21.2M | $5.2M | +$15.9M | | Gross Margin | 31% | 11% | +20 p.p. | | Operating Income (Loss) | $9.2M | $(6.1)M | +$15.3M | - The company's backlog reached an all-time high of $120 million as of January 31, 2021, a significant increase from $65 million as of April 30, 2020[94][141] Quantitative and Qualitative Disclosures About Market Risk No material changes occurred in market risks from those previously disclosed in the Annual Report on Form 10-K - During the nine months ended January 31, 2021, there were no material changes in the market risks from those described in the Annual Report on Form 10-K for the fiscal year ended April 30, 2020[142] Controls And Procedures Management concluded disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - Based on an evaluation as of January 31, 2021, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective[144] - There were no significant changes in internal control over financial reporting during the quarter ended January 31, 2021[145] PART II - OTHER INFORMATION Legal Proceedings The company is not currently involved in any legal proceedings that would materially affect its financial condition or operations - The company is not currently a party to any legal proceedings that would have a material adverse effect on its financial condition or operations[148] Risk Factors The company faces significant risks including COVID-19 impacts, business operational challenges, industry competition, customer dependencies, and stock ownership volatility Risks Related to the COVID-19 Pandemic COVID-19 pandemic may adversely affect operations through customer disruptions, supply chain delays, and workforce impacts - The COVID-19 pandemic may affect operations through disruptions in customer activities, supply chain delays (especially for materials prioritized for COVID-19 vaccines), and impacts on the workforce[151] Risks Related to Our Business Key business risks include a history of losses, customer concentration, reliance on single-source suppliers, geographic concentration, and challenges in managing facility expansion - The company has a history of losses, with an accumulated deficit of $562 million as of January 31, 2021[152] - Revenue is concentrated with a small number of customers, with the top three accounting for 63% of revenue in fiscal year 2020[156] - All manufacturing facilities are located in Tustin, California, increasing exposure to disruption from catastrophic events in a single geographic area[162][163] - The company is in the early stages of a major manufacturing expansion that could strain organizational and operational infrastructure[167] Risks Related to Our Customers Company success depends on customer product demand, regulatory approvals, and overall R&D spending, with approval failures impacting revenue - Business success depends on consumer demand for customers' products, which can be affected by regulatory approvals, competition, and marketing strategies[192] - A delay or failure by customers to receive regulatory approval for their product candidates could adversely affect the company's revenue and profitability[194][195] Risks Related to the Industry in Which We Operate The company operates in a highly regulated and competitive industry, facing compliance risks with CGMPs and intense competition from CDMOs and large pharma - The company is subject to extensive regulation by the FDA and other bodies, and noncompliance with CGMPs can lead to production stoppages, facility closure, and other penalties[201][203][205] - The contract manufacturing market is highly competitive, with competition from other CDMOs and the internal manufacturing operations of large pharmaceutical companies[206] Risks Related to the Ownership of Our Common Stock Risks for common stockholders include potential dilution, stock price volatility, anti-takeover provisions, and no anticipated dividends - A significant number of shares are issuable upon exercise of options, RSUs, and conversion of Series E Preferred Stock, which could dilute existing stockholders[207][208] - The company's stock price has been highly volatile, ranging from $2.24 to $8.44 per share over the last three fiscal years ended April 30, 2020[209] - The company has never paid a cash dividend on its common stock and does not anticipate doing so in the foreseeable future[219] Other Information Mr. Patrick Walsh resigned from the Board of Directors effective March 2, 2021, for other opportunities, not due to disagreements - On March 2, 2021, director Patrick Walsh resigned from the Board of Directors, with the resignation not due to any disagreements with the company's operations, policies, or practices[222] Exhibits The exhibits filed include CEO and CFO certifications required by Sarbanes-Oxley Act, along with XBRL data files - The exhibits filed with the report include CEO and CFO certifications pursuant to Rule 13a-14(a) and Section 906 of the Sarbanes-Oxley Act, along with XBRL data files[218][223] Signatures The report is signed by President and CEO Nicholas S. Green and CFO Daniel R. Hart on March 8, 2021 - The Form 10-Q was signed on March 8, 2021, by Nicholas S. Green (President and CEO) and Daniel R. Hart (CFO)[228]