In a recent earnings call for the second quarter of fiscal year 2024, Avid Bioservices (NASDAQ:CDMO) presented a nuanced financial landscape. Despite a reported decrease in revenue, attributed to fewer manufacturing runs and reduced process development services, the company remains optimistic about its future. Avid Bioservices has completed significant expansion projects, including the construction of new CGMP manufacturing suites, which are expected to triple its revenue-generating capacity to $400 million annually. The company's backlog reached a record $199 million, bolstered by $35 million in new business wins during the quarter. However, a net loss was reported for both the quarter and the six-month period. The company's CEO, Nick Green, and other executives expressed confidence in the firm's growth trajectory, citing increased cash reserves, a strong commercial team performance, and a strategic partnership with the California Institute of Regenerative Medicine to accelerate gene therapy development.
Key Takeaways
- Avid Bioservices reported a revenue decline in Q2 fiscal 2024 but expects growth in the second half of the year.
- The company's backlog reached a record high of $199 million, with $35 million in new business wins.
- Avid completed the construction of its new CGMP manufacturing suites, aiming to triple annual revenue capacity.
- A partnership with CIRM was announced to provide development and manufacturing services for gene therapy.
- The company reported a net loss and negative gross margin for the quarter and six months.
- The company's cash and cash equivalents have increased, and it has amended its revolving credit agreement.
Company Outlook
Avid Bioservices has expressed a strong outlook for the second half of the fiscal year and into 2024, despite the reported revenue decline in the first half. The company's CEO, Nick Green, has shown confidence in the firm's ability to maintain its current backlog, which typically converts at a rate of over 95%. Green also noted the potential for cash generation and sustainable profitability in the near future.
Bearish Highlights
The company faced challenges in the first half of the fiscal year, marked by a decrease in revenue due to fewer manufacturing runs and reduced process development services. The financial overview also indicated a negative gross margin and a net loss for both the quarter and the six-month period. Additionally, the company did not secure a large pharma bid from a competitor in the previous quarter.
Bullish Highlights
Despite the revenue dip, Avid Bioservices has completed its expansion program, which is expected to significantly increase its revenue-generating capacity. The partnership with CIRM and the new CGMP manufacturing suites position the company to capitalize on the growing demand for gene therapy development and manufacturing services. The company's backlog and new business wins suggest a strong commercial performance.
Misses
The company's earnings call highlighted a shortfall in revenue compared to the previous year, primarily due to biotech defunding and the deferral of a PPQ campaign. The company also acknowledged the erratic nature of quarter-to-quarter signings and the binary outcomes of certain opportunities, which can lead to substantial gains or no revenue.
QA Highlights
During the Q&A session, the CEO addressed the quality and status of the company's backlog, affirming its solidity with a high conversion rate. The discussion also touched on the impact of estimated variable consideration changes on financials and the lumpiness in signing new contracts. The company clarified that a new cell-gene therapy contract was not won through the CIRM partnership and that no substantial pharma bids were secured from competitors recently.
In conclusion, Avid Bioservices has reported a mixed financial performance for the second quarter of fiscal 2024, with challenges in revenue but a strong foundation for future growth. The company's expansion efforts and strategic partnerships, alongside a robust backlog, provide a basis for optimism as it aims to capitalize on opportunities in the burgeoning gene therapy market.
InvestingPro Insights
In light of Avid Bioservices' recent financial performance and future prospects, key metrics and insights from InvestingPro offer additional context for investors. The company's current Market Cap stands at $333.87 million, indicating its size within the biotech manufacturing sector. Despite a challenging fiscal quarter, Avid Bioservices has a P/E Ratio of -28.99, reflecting investor expectations of future earnings growth. This is further underscored by a Revenue Growth of 19.73% for the last twelve months as of Q1 2024, showcasing the company's ability to expand its top line amidst industry headwinds.
InvestingPro Tips highlight that the company's net income is expected to grow this year, aligning with the optimistic outlook shared by Avid Bioservices' CEO. However, it is important to note that the company is quickly burning through cash and that the stock price has experienced significant volatility, with a 6-month Price Total Return of -69.1%. These factors could be of particular interest to investors considering the company's future profitability and financial stability.
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