Avid Bioservices(CDMO) - 2021 Q4 - Annual Report

PART I Business Avid Bioservices is a dedicated CDMO specializing in biopharmaceutical drug substances from mammalian cell culture, focusing on expanding manufacturing capacity and market awareness - Avid operates as a dedicated CDMO, offering a comprehensive range of services from process development to CGMP clinical and commercial manufacturing of biopharmaceutical drug substances derived from mammalian cell culture[16] - The company's growth strategy includes investing in additional manufacturing capacity, broadening market awareness, expanding its customer base, exploring strategic opportunities, and increasing operating profit margins[17] - A two-phase expansion of the Myford Facility was initiated in fiscal 2021, which is estimated to increase the total revenue-generating capacity to up to $270 million annually upon completion[28][33] Customer Concentration | Fiscal Year | Revenue from Top 3 Customers | | :--- | :--- | | 2021 | 76% | | 2020 | 63% | | 2019 | 64% | Backlog Growth | Date | Backlog Amount | | :--- | :--- | | April 30, 2021 | ~$118 million | | April 30, 2020 | ~$65 million | - As of April 30, 2021, the company had 257 employees (252 full-time and 5 part-time), an increase from 227 employees as of April 30, 2020[52][78] Risk Factors The company faces key risks from the COVID-19 pandemic, significant customer concentration, capital investment in facility expansion, and reliance on third-party suppliers - The business may be adversely affected by global health events like the COVID-19 pandemic, which could disrupt customer operations, clinical trials, and the supply chain for key raw materials[68][69] - A significant portion of revenue comes from a limited number of customers; in fiscal 2021, the top three customers accounted for approximately 76% of total revenues, making the company vulnerable to the loss of any major customer[72] - The company is making a significant capital investment in its Myford facility expansion; failure to attract new business and utilize this additional capacity could adversely affect margins and results of operations[75][76] - Operations depend on third-party suppliers for necessary raw materials, with some materials coming from single sources, and any disruption could adversely impact financial results[80][81] - All manufacturing facilities are located in Tustin, California, which increases exposure to business disruption from catastrophic events in a single geographic area[82][83] - The company has significant federal and state Net Operating Loss (NOL) carryforwards ($407 million and $272 million, respectively, as of April 30, 2021), but their future use may be limited[98][99] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - Not applicable[151] Properties Avid's corporate offices and manufacturing facilities are all located in Tustin, California, encompassing approximately 158,000 square feet of leased space Leased Properties Summary | Property Use | Square Footage (approx) | Lease Expiration | | :--- | :--- | :--- | | Corporate Headquarters | 26,000 sq ft | August 2023 | | Office, Mfg, Lab | 48,000 sq ft | December 2027 | | Mfg and Lab | 84,000 sq ft | January 2027 | Legal Proceedings The company is not currently a party to any material legal proceedings - The company is not currently a party to any legal proceedings expected to have a material adverse effect on its financial condition or operations[156] Mine Safety Disclosures This item is not applicable to the company - Not applicable[157] PART II Market For Registrant's Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities The company's common stock trades on NASDAQ under "CDMO", and it does not anticipate paying cash dividends, having recently redeemed its Series E Preferred Stock - The company's common stock is listed on The NASDAQ Capital Market under the trading symbol "CDMO"[160] - The company has never declared or paid cash dividends on its common stock and does not anticipate paying any in the foreseeable future[162] - On April 12, 2021, the company redeemed all outstanding shares of its 10.50% Series E Convertible Preferred Stock[163] Series E Preferred Stock Dividends Paid | Fiscal Year | Aggregate Cash Dividends | | :--- | :--- | | 2021 | ~$4.5 million | | 2020 | ~$4.3 million | | 2019 | ~$4.3 million | Selected Financial Data Fiscal year 2021 showed significant growth with revenues of $95.9 million and a return to profitability, alongside substantial increases in total assets and stockholders' equity Selected Financial Data (in thousands) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Revenues | $95,868 | $59,702 | $53,603 | | Gross profit (loss) | $29,307 | $3,932 | $7,224 | | Income (loss) from continuing operations | $11,212 | $(10,466) | $(5,056) | | Net income (loss) | $11,212 | $(10,466) | $(4,215) | | Net income (loss) attributable to common stockholders | $3,318 | $(15,152) | $(8,901) | | Total assets | $265,510 | $107,620 | $78,395 | | Total stockholders' equity | $77,736 | $41,896 | $53,068 | Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2021 saw record revenues of $95.9 million, a 61% increase driving profitability, while the balance sheet was strengthened by financing activities to support facility expansion Fiscal Year 2021 Highlights - Reported record revenues of $95.9 million, a 61% increase compared to fiscal 2020[177] - Reported net income attributable to common stockholders of $3.3 million, or $0.06 per share[177] - Backlog grew to $118 million at year-end, up from $65 million at the end of fiscal 2020[177] - Optimized capital structure by completing a $32.1 million net public offering of common stock, issuing $143.8 million in convertible senior notes, and redeeming all outstanding Series E Preferred Stock[177] Results of Operations Fiscal Year 2021 vs 2020 Results (in thousands) | Metric | FY 2021 | FY 2020 | Change | | :--- | :--- | :--- | :--- | | Revenues | $95,868 | $59,702 | $36,166 | | Gross Profit | $29,307 | $3,932 | $25,375 | | Operating Income (Loss) | $12,243 | $(10,940) | $23,183 | | Net Income (Loss) | $11,212 | $(10,466) | $21,678 | - The 61% increase in revenue was driven by a $31.7 million increase in manufacturing revenues and a $4.5 million increase in process development revenues[190] - Gross margin improved to 31% in fiscal 2021 from 7% in fiscal 2020, primarily due to increased revenues and higher facility utilization[192] - Selling, General and Administrative (SG&A) expenses increased by $2.5 million, or 18%, mainly due to higher accrued bonus and stock-based compensation expenses[193] Liquidity and Capital Resources - As of April 30, 2021, the company had cash and cash equivalents of $169.9 million, which management believes is sufficient to fund operations for at least the next 12 months[218] - In December 2020, completed a public offering of common stock with net proceeds of $32.1 million, intended for the expansion of the Myford Facility[214] - In March 2021, issued $143.8 million of 1.250% convertible senior notes due 2026, with net proceeds of $138.5 million[215] Cash Flow Summary (in thousands) | Activity | FY 2021 | FY 2020 | FY 2019 | | :--- | :--- | :--- | :--- | | Net cash from operating activities | $31,182 | $5,827 | $(11,595) | | Net cash used in investing activities | $(9,864) | $(3,812) | $4,544 | | Net cash from financing activities | $112,335 | $1,096 | $(2,863) | - Capital expenditures for fiscal 2022 are expected to be approximately $50 to $60 million, primarily related to the Myford Facility expansion[231] Critical Accounting Policies and Estimates - Revenue from manufacturing and process development contracts is recognized over time using an input method that compares cumulative costs incurred to date against the total estimated costs[203][204] - The company adopted ASC 606 (Revenue from Contracts with Customers) on May 1, 2018, using the modified retrospective method[200] - Stock-based compensation for stock options is measured at the grant date using a Black-Scholes model and recognized as expense on a straight-line basis over the vesting period[210] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is minimal, relating to interest income on cash equivalents, as its convertible notes carry a fixed interest rate - Cash and cash equivalents are primarily invested in money market funds, exposing the company to credit risk from the holding bank, though this is considered minimal[235] - The company's Convertible Notes have a fixed interest rate of 1.250% and are therefore not subject to interest rate fluctuation risk[236] Financial Statements and Supplementary Data This section includes the company's audited consolidated financial statements for the three years ended April 30, 2021, and the independent auditor's report Notes to Consolidated Financial Statements - The company operates in a single reportable segment, CDMO services, with all identifiable assets located in the United States[272] Revenue by Type (in thousands) | Revenue Stream | FY 2021 | FY 2020 | FY 2019 | | :--- | :--- | :--- | :--- | | Manufacturing | $83,678 | $52,046 | $43,432 | | Process development | $12,190 | $7,656 | $10,171 | | Total | $95,868 | $59,702 | $53,603 | Significant Customer Revenue Concentration | Customer | FY 2021 | FY 2020 | FY 2019 | | :--- | :--- | :--- | :--- | | Halozyme Therapeutics, Inc | 51% | 28% | 30% | | Gilead Sciences, Inc | 16% | 24% | – | - In March 2021, the company issued $143.8 million in 1.250% convertible senior notes due 2026, with debt and equity components separated for accounting purposes[321][334] - On April 12, 2021, the company redeemed all outstanding shares of its Series E Preferred Stock, resulting in a $3.4 million charge related to the excess of redemption value over carrying value[351] - The company has significant net operating loss (NOL) carryforwards of approximately $406.7 million (federal) and $272.1 million (California) as of April 30, 2021, which are fully offset by a valuation allowance[384] Changes In and Disagreements With Accountants On Accounting and Financial Disclosures The company reports no changes in or disagreements with its accountants on accounting and financial disclosures - None[412] Controls and Procedures Management concluded that the company's disclosure controls, procedures, and internal control over financial reporting were effective as of April 30, 2021 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of April 30, 2021[413] - Management concluded that the company's internal control over financial reporting was effective as of April 30, 2021, an assessment audited by Ernst & Young LLP which issued an unqualified opinion[417][422] - No significant changes in internal control over financial reporting occurred during the fourth quarter of fiscal year 2021[418] Other Information The company reports no other information for this item - None[429] PART III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2021 Definitive Proxy Statement - Information required by this item is incorporated by reference from the registrant's 2021 Definitive Proxy Statement[432][433] Executive Compensation Information regarding director and executive compensation is incorporated by reference from the company's 2021 Definitive Proxy Statement - Information required by this item is incorporated by reference from the registrant's 2021 Definitive Proxy Statement[434] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section provides information on equity compensation plans, with other security ownership details incorporated by reference from the 2021 Definitive Proxy Statement Equity Compensation Plan Information as of April 30, 2021 | Plan Category | Securities to be Issued Upon Exercise | Weighted-Average Exercise Price | Securities Remaining for Future Issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by stockholders | 3,688,392 | $6.56 | 2,600,193 | | Employee Stock Purchase Plan approved by stockholders | – | – | 1,076,326 | | Total | 3,689,364 | $6.56 | 3,676,519 | Certain Relationships and Related Transactions, and Director Independence Information regarding related transactions and director independence is incorporated by reference from the company's 2021 Definitive Proxy Statement - Information required by this item is incorporated by reference from the registrant's 2021 Definitive Proxy Statement[438] Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the company's 2021 Definitive Proxy Statement - Information required by this item is incorporated by reference from the registrant's 2021 Definitive Proxy Statement[439] PART IV Exhibits and Financial Statement Schedules This section lists the documents filed as part of the Annual Report, including consolidated financial statements and an index of exhibits - This section contains the index to the Consolidated Financial Statements and lists all exhibits filed with or incorporated by reference into the Form 10-K[442][443] Form 10-K Summary The company reports no Form 10-K summary - None[443]