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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
☒ QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended
July 31, 2022
or
☐ TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from _____ to _____
Commission file number:
001-32839
AVID BIOSERVICES, INC.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or
organization)
|
95-3698422
(I.R.S. Employer Identification No.)
|
14191 Myford Road,
Tustin,
California,
92780
(Address of principal executive offices, Zip Code)
(714)
508-6100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which
registered |
Common Stock, $0.001 par value per share |
CDMO |
The
NASDAQ Stock Market LLC |
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the
registrant has submitted electronically every Interactive Data File
required to be submitted pursuant to Rule 405 of Regulation S-T (§
232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit such
files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in
Rule 12b-2 of the Exchange Act.
|
Large accelerated filer |
☒ |
Accelerated filer |
☐ |
|
Non-accelerated filer |
☐ |
Smaller
reporting company |
☐ |
|
|
|
Emerging
growth company |
☐ |
If an emerging growth company,
indicate by check mark if the registrant has elected not to use the
extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a)
of the Exchange Act. ☐
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes ☐ No ☒
62,167,454
shares of registrant’s common stock were outstanding as of August
22, 2022.
AVID BIOSERVICES, INC.
Form 10-Q
For the Fiscal Quarter Ended July 31, 2022
TABLE OF
CONTENTS
Page
As used in this Quarterly Report on Form 10-Q, except where the
context otherwise requires or where otherwise indicated, the terms
“we,” “us,” “our,” and the “Company” refer to Avid Bioservices,
Inc. and its subsidiary.
PART I—FINANCIAL
INFORMATION
|
Item 1. |
Condensed Consolidated Financial
Statements |
avid bioservices, INC.
CONDENSED CONSOLIDATED
BALANCE SHEETS
(Unaudited)
(In
thousands, except par value)
|
|
|
|
|
|
|
|
|
|
|
July 31,
2022
|
|
|
April 30,
2022
|
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash
and cash equivalents |
|
$ |
115,137 |
|
|
$ |
126,166 |
|
Accounts
receivable, net |
|
|
25,945 |
|
|
|
20,547 |
|
Contract
assets |
|
|
7,078 |
|
|
|
5,369 |
|
Inventory |
|
|
30,354 |
|
|
|
26,062 |
|
Prepaid
expenses |
|
|
2,121 |
|
|
|
1,879 |
|
Total current
assets |
|
|
180,635 |
|
|
|
180,023 |
|
Property and equipment, net |
|
|
114,929 |
|
|
|
92,955 |
|
Operating lease right-of-use
assets |
|
|
36,093 |
|
|
|
36,806 |
|
Deferred tax assets |
|
|
114,472 |
|
|
|
115,082 |
|
Other assets |
|
|
4,740 |
|
|
|
4,627 |
|
Restricted
cash |
|
|
350 |
|
|
|
350 |
|
Total assets |
|
$ |
451,219 |
|
|
$ |
429,843 |
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts
payable |
|
$ |
30,461 |
|
|
$ |
9,504 |
|
Accrued
compensation and benefits |
|
|
5,300 |
|
|
|
8,418 |
|
Contract
liabilities |
|
|
52,775 |
|
|
|
53,798 |
|
Current portion of
operating lease liabilities |
|
|
3,152 |
|
|
|
2,969 |
|
Other
current liabilities |
|
|
1,655 |
|
|
|
1,072 |
|
Total current
liabilities |
|
|
93,343 |
|
|
|
75,761 |
|
Convertible senior
notes, net |
|
|
139,837 |
|
|
|
139,577 |
|
Operating lease
liabilities, less current portion |
|
|
37,077 |
|
|
|
37,886 |
|
Finance
lease liabilities, less current portion |
|
|
1,963 |
|
|
|
2,093 |
|
Total
liabilities |
|
|
272,220 |
|
|
|
255,317 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
– |
|
|
|
– |
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
Preferred stock, $0.001
par value; 5,000
shares authorized; no
shares issued and outstanding at respective dates |
|
|
– |
|
|
|
– |
|
Common
stock, $0.001
par value; 150,000
shares authorized; 62,165 and
61,807
shares issued and outstanding at respective dates |
|
|
62 |
|
|
|
62 |
|
Additional paid-in capital |
|
|
608,750 |
|
|
|
605,841 |
|
Accumulated deficit |
|
|
(429,813 |
) |
|
|
(431,377 |
) |
Total
stockholders’ equity |
|
|
178,999 |
|
|
|
174,526 |
|
Total liabilities and stockholders’ equity |
|
$ |
451,219 |
|
|
$ |
429,843 |
|
See accompanying notes to consolidated financial
statements.
avid bioservices, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Unaudited)
(In
thousands, except per share information)
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
|
|
2022 |
|
|
2021 |
|
|
|
|
|
|
|
|
Revenues |
|
$ |
36,692 |
|
|
$ |
30,754 |
|
Cost of
revenues |
|
|
27,575 |
|
|
|
19,363 |
|
Gross
profit
|
|
|
9,117 |
|
|
|
11,391 |
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
6,382 |
|
|
|
4,460 |
|
Total
operating expenses |
|
|
6,382 |
|
|
|
4,460 |
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
2,735 |
|
|
|
6,931 |
|
Interest expense |
|
|
(518 |
) |
|
|
(703 |
) |
Other income
(expense), net |
|
|
50 |
|
|
|
76 |
|
Income tax
expense |
|
|
703 |
|
|
|
– |
|
Net income |
|
$ |
1,564 |
|
|
$ |
6,304 |
|
|
|
|
|
|
|
|
|
|
Comprehensive
income |
|
$ |
1,564 |
|
|
$ |
6,304 |
|
|
|
|
|
|
|
|
|
|
Net income per share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.03 |
|
|
$ |
0.10 |
|
Diluted |
|
$ |
0.02 |
|
|
$ |
0.10 |
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding:
|
|
|
|
|
|
|
|
|
Basic |
|
|
61,905 |
|
|
|
61,137 |
|
Diluted |
|
|
63,333 |
|
|
|
63,571 |
|
See accompanying notes to consolidated financial
statements.
avid bioservices, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In
thousands, except per share information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Month Ended July 31, 2022 |
|
|
|
Common Stock |
|
|
Additional
Paid-In
|
|
|
Accumulated |
|
|
Total
Stockholders’ |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Equity |
|
Balance at April 30, 2022 |
|
|
61,807 |
|
|
$ |
62 |
|
|
$ |
605,841 |
|
|
$ |
(431,377 |
) |
|
$ |
174,526 |
|
Common
stock issued under equity compensation plans |
|
|
358 |
|
|
|
– |
|
|
|
1,012 |
|
|
|
– |
|
|
|
1,012 |
|
Stock-based compensation expense |
|
|
– |
|
|
|
– |
|
|
|
1,897 |
|
|
|
– |
|
|
|
1,897 |
|
Net income |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
1,564 |
|
|
|
1,564 |
|
Balance at July 31, 2022 |
|
|
62,165 |
|
|
$ |
62 |
|
|
$ |
608,750 |
|
|
$ |
(429,813 |
) |
|
$ |
178,999 |
|
|
|
Three Month Ended July 31, 2021 |
|
|
|
Common Stock
|
|
|
Additional Paid-In |
|
|
Accumulated |
|
|
Total
Stockholders’ |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Equity |
|
Balance at April 30, 2021 |
|
|
61,069 |
|
|
$ |
61 |
|
|
$ |
637,534 |
|
|
$ |
(559,859 |
) |
|
$ |
77,736 |
|
Cumulative-effect adjustment from modified retrospective adoption
of ASU 2020-06 |
|
|
– |
|
|
|
– |
|
|
|
(42,431 |
) |
|
|
810 |
|
|
|
(41,621 |
) |
Common
stock issued under equity compensation plans |
|
|
272 |
|
|
|
– |
|
|
|
918 |
|
|
|
– |
|
|
|
918 |
|
Stock-based compensation expense |
|
|
– |
|
|
|
– |
|
|
|
1,299 |
|
|
|
– |
|
|
|
1,299 |
|
Net income |
|
|
– |
|
|
|
– |
|
|
|
– |
|
|
|
6,304 |
|
|
|
6,304 |
|
Balance at July 31, 2021 |
|
|
61,341 |
|
|
$ |
61 |
|
|
$ |
597,320 |
|
|
$ |
(552,745 |
) |
|
$ |
44,636 |
|
See accompanying notes to consolidated financial
statements.
avid bioservices,
INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
|
|
2022 |
|
|
2021 |
|
|
|
|
|
|
|
|
Cash flows from operating
activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,564 |
|
|
$ |
6,304 |
|
Adjustments to reconcile net income to net cash used in operating
activities: |
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
1,897 |
|
|
|
1,299 |
|
Depreciation and amortization |
|
|
1,590 |
|
|
|
1,009 |
|
Amortization of debt issuance costs |
|
|
260 |
|
|
|
254 |
|
Deferred
income taxes |
|
|
610 |
|
|
|
– |
|
Loss on
disposal of property and equipment |
|
|
34 |
|
|
|
– |
|
Changes
in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts
receivable, net |
|
|
(5,398 |
) |
|
|
488 |
|
Contract
assets |
|
|
(1,709 |
) |
|
|
156 |
|
Inventory |
|
|
(4,292 |
) |
|
|
(3,371 |
) |
Prepaid
expenses and other assets |
|
|
(355 |
) |
|
|
(1,217 |
) |
Accounts
payable |
|
|
4,242 |
|
|
|
(3,570 |
) |
Accrued
compensation and benefits |
|
|
(3,118 |
) |
|
|
(4,680 |
) |
Contract
liabilities |
|
|
(1,023 |
) |
|
|
(4,507 |
) |
Other accrued expenses and liabilities |
|
|
664 |
|
|
|
893 |
|
Net cash
used in operating activities |
|
|
(5,034 |
) |
|
|
(6,942 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities: |
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(6,924 |
) |
|
|
(4,199 |
) |
Net cash
used in investing activities |
|
|
(6,924 |
) |
|
|
(4,199 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities: |
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock under equity compensation plans |
|
|
1,012 |
|
|
|
918 |
|
Principal payments on finance lease |
|
|
(83 |
) |
|
|
– |
|
Net cash provided by financing activities |
|
|
929 |
|
|
|
918 |
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash, cash equivalents and restricted cash |
|
|
(11,029 |
) |
|
|
(10,223 |
) |
|
|
|
|
|
|
|
|
|
Cash, cash
equivalents and restricted cash, beginning of period |
|
|
126,516 |
|
|
|
170,265 |
|
|
|
|
|
|
|
|
|
|
Cash, cash
equivalents and restricted cash, end of period |
|
$ |
115,487 |
|
|
$ |
160,042 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow
information: |
|
|
|
|
|
|
|
|
Cash
paid for interest |
|
$ |
23 |
|
|
$ |
– |
|
Cash
paid for income taxes |
|
$ |
40 |
|
|
$ |
– |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of non-cash
activities: |
|
|
|
|
|
|
|
|
Unpaid
purchases of property and equipment |
|
$ |
16,674 |
|
|
$ |
3,924 |
|
Unpaid
financial lease obligation |
|
$ |
41 |
|
|
$ |
– |
|
Right-of-use assets obtained upon operating lease modification,
net |
|
$ |
– |
|
|
$ |
4,554 |
|
See accompanying notes to consolidated financial
statements.
avid bioservices,
INC.
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1 – Description of Company
and Basis of Presentation
We are a dedicated contract development and manufacturing
organization (“CDMO”) that provides a comprehensive range of
services from process development to Current Good Manufacturing
Practices (“CGMP”) clinical and commercial manufacturing of
biologics for the biotechnology and biopharmaceutical
industries.
Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States (“U.S. GAAP”)
and with the rules and regulations of the U.S. Securities and
Exchange Commission (“SEC”) related to quarterly reports on Form
10-Q, and accordingly, they do not include all of the information
and disclosures required by U.S. GAAP for annual financial
statements. These unaudited condensed consolidated financial
statements and notes thereto should be read in conjunction with the
audited consolidated financial statements and notes thereto
included in our Annual Report on Form 10-K for the fiscal year
ended April 30, 2022, as filed with the SEC on June 29, 2022. The
unaudited financial information for the interim periods presented
herein reflects all adjustments which, in the opinion of
management, are necessary for a fair presentation of the financial
condition and results of operations for the periods presented, with
such adjustments consisting only of normal recurring adjustments.
Results of operations for interim periods covered by this Quarterly
Report on Form 10-Q may not necessarily be indicative of results of
operations for the full fiscal year or any other interim
period.
The unaudited condensed consolidated financial statements include
the accounts of Avid Bioservices, Inc. and its subsidiary. All
intercompany accounts and transactions among the consolidated
entities have been eliminated in the unaudited condensed
consolidated financial statements.
The preparation of financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that
affect the reported amounts, as well as disclosures of commitments
and contingencies in the financial statements and accompanying
notes. Actual results could differ materially from those estimates
and assumptions.
Note 2 – Summary of Significant
Accounting Policies
Information regarding our significant accounting policies is
contained in Note 2, “Summary of Significant Accounting Policies,”
of the consolidated financial statements in our Annual Report on
Form 10-K for the fiscal year ended April 30, 2022.
Revenue
Recognition
Revenue recognized from services provided under our customer
contracts is disaggregated into manufacturing and process
development revenue streams.
Manufacturing revenue
Manufacturing revenue generally represents revenue from the
manufacturing of customer products recognized over time utilizing
an input method that compares the cost of cumulative
work-in-process to date to the most current estimates for the
entire cost of the performance obligation. Under a manufacturing
contract, a quantity of manufacturing runs are ordered at a
specified scale with prescribed dates, where the product is
manufactured according to the customer’s specifications and
typically includes only one performance obligation. Each
manufacturing run represents a distinct service that is sold
separately and has stand-alone value to the customer. The products
are manufactured exclusively for a specific customer and have no
alternative use. The customer retains control of its product during
the entire manufacturing process and can make changes to the
process or specifications at its request. Under these agreements,
we are entitled to consideration for progress to date that includes
an element of profit margin.
Process development revenue
Process development revenue generally represents revenue from
services associated with the custom development of a manufacturing
process and analytical methods for a customer’s product. Process
development revenue is recognized over time utilizing an input
method that compares the cost of cumulative work-in-process to date
to the most current estimates for the entire cost of the
performance obligation. Under a process development contract, the
customer owns the product details and process, which has no
alternative use. These process development projects are customized
to each customer to meet its specifications and typically includes
only one performance obligation. Each process represents a distinct
service that is sold separately and has stand-alone value to the
customer. The customer also retains control of its product as the
product is being created or enhanced by our services and can make
changes to its process or specifications upon request. Under these
agreements, we are entitled to consideration for progress to date
that includes an element of profit margin.
The following table summarizes our manufacturing and process
development revenue streams (in thousands):
Schedule of revenues |
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
|
|
2022 |
|
|
2021 |
|
Manufacturing revenues |
|
$ |
31,481 |
|
|
$ |
25,675 |
|
Process development revenues |
|
|
5,211 |
|
|
|
5,079 |
|
Total revenues |
|
$ |
36,692 |
|
|
$ |
30,754 |
|
The timing of revenue recognition, billings and cash collections
results in billed accounts receivable, contract assets (unbilled
receivables), and contract liabilities (customer deposits and
deferred revenue). Contract assets are recorded when our right to
consideration is conditioned on something other than the passage of
time. Contract assets are reclassified to accounts receivable on
the consolidated balance sheet when our rights become
unconditional. Contract liabilities represent customer deposits and
deferred revenue billed and/or received in advance of our
fulfillment of performance obligations. Contract liabilities
convert to revenue as we perform our obligations under the
contract.
During the three months ended July 31, 2022 and 2021, we recognized
revenue of $18.6
million and $17.5
million, respectively, for which the contract liability was
recorded in a prior period.
The transaction price for services provided under our customer
contracts reflects our best estimates of the amount of
consideration to which we are entitled in exchange for providing
goods and services to our customers. For contracts with multiple
performance obligations, we allocate transaction price to each
performance obligation identified in a contract on a relative
standalone selling price basis. We generally determine relative
standalone selling prices based on the price observed in the
customer contract for each distinct performance obligation. If
observable standalone selling prices are not available, we may
estimate the applicable standalone selling price based on the
pricing of other comparable services or on a price that we believe
the market is willing to pay for the applicable service.
In determining the transaction price, we also considered the
different sources of variable consideration including, but not
limited to, discounts, credits, refunds, price concessions or other
similar items. We have included in the transaction price some or
all of an amount of variable consideration, utilizing the most
likely method, only to the extent that it is probable that a
significant reversal in the amount of cumulative revenue recognized
will not occur when the uncertainty associated with the variable
consideration is subsequently resolved. The actual amount of
consideration ultimately received may differ.
In addition, our customer contracts generally include provisions
entitling us to a cancellation or postponement fee when a customer
cancels or postpones its commitments prior to our initiation of
services, therefore not utilizing their reserved capacity. The
determination of such cancellation and postponement fees are based
on the terms stated in the related customer contract but are
generally considered substantive for accounting purposes and create
an enforceable right and obligation due to us when the cancellation
or postponement occurs. Accordingly, we recognize such fees,
subject to variable consideration, as revenue upon the cancellation
or postponement date utilizing the most likely method.
Management may be required to exercise judgement in estimating
revenue to be recognized. Judgement is required in identifying
performance obligations, estimating the transaction price,
estimating the stand-alone selling prices of identified performance
obligations, estimating variable consideration, and estimating the
progress towards the satisfaction of performance obligations. If
actual results in the future vary from our estimates, the estimates
will be adjusted, which will affect revenues in the period that
such variances become known. There were
no material adjustments in estimates for variable
consideration for the three months ended July 31, 2022 and
2021.
We apply the practical expedient available under ASC 606 that
permits us not to disclose the value of unsatisfied performance
obligations for contracts with an original expected length of one
year or less. As of July 31, 2022, we do not have any unsatisfied
performance obligations for contracts greater than one year.
Costs incurred to obtain a contract are not material. These costs
are generally employee sales commissions, which are expensed as
incurred and included in selling, general and administrative
expense in the unaudited condensed consolidated statements of
operations and comprehensive income.
Restricted
Cash
Under the terms of an operating lease related to one of our
facilities (Note 4), we are required to maintain a letter of credit
as collateral. Accordingly, at July 31, 2022 and April 30, 2022,
restricted cash of $0.4
million was pledged as collateral under the letter of credit.
The following table provides a reconciliation of cash, cash
equivalents and restricted cash reported within the unaudited
condensed consolidated balance sheets that sum to the total of the
same amounts shown in the unaudited condensed consolidated
statements of cash flows (in thousands):
Schedule of cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2022 |
|
|
April 30, 2022
|
|
|
July 31, 2021 |
|
|
April 30, 2021
|
|
Cash and cash
equivalents |
|
$ |
115,137 |
|
|
$ |
126,166 |
|
|
$ |
159,692 |
|
|
$ |
169,915 |
|
Restricted
cash |
|
|
350 |
|
|
|
350 |
|
|
|
350 |
|
|
|
350 |
|
Total cash, cash equivalents and restricted cash |
|
$ |
115,487 |
|
|
$ |
126,516 |
|
|
$ |
160,042 |
|
|
$ |
170,265 |
|
Accounts
Receivable, Net
Accounts receivable is primarily comprised of amounts owed to us
for services provided under our customer contracts and are recorded
at the invoiced amount net of an allowance for doubtful accounts,
if necessary. We apply judgement in assessing the ultimate
realization of our receivables and we estimate an allowance for
doubtful accounts based on various factors, such as the aging of
our receivables, historical experience, and the financial condition
of our customers.
Based on our analysis of our accounts receivable balance as of July
31, 2022 and April 30, 2022, we determined an allowance for
doubtful accounts for both periods of $18.4
million was deemed necessary. For both periods, the amount is
primarily due to a dispute with a customer over the payment of
certain cancellation fees due to us under the terms of the related
customer contract. We believe we have a contractual right to this
amount, but as this contractual right is being disputed and
therefore may be uncollectible, we have chosen to reserve the
disputed amount.
Inventory
Inventory consists of raw materials inventory and is valued at the
lower of cost, determined by the first-in, first-out method, or net
realizable value. We periodically review raw materials inventory
for potential impairment and adjust inventory to its net realizable
value based on the estimate of future use and reduce the carrying
value of inventory as deemed necessary.
Property
and Equipment
Property and equipment is recorded at cost, less accumulated
depreciation and amortization. Depreciation and amortization are
computed using the straight-line method over the estimated useful
lives of the related asset, which are generally as
follows:
Schedule of estimated useful lives of
property |
|
|
Description |
|
Estimated
Useful Life |
Leasehold improvements |
|
Shorter of estimated
useful life or lease term |
Laboratory and manufacturing equipment |
|
5 – 10
years |
Computer equipment and software |
|
3 – 5
years |
Furniture, fixtures and office equipment |
|
5 – 10
years |
Costs for property and equipment net yet placed into service have
been capitalized as construction-in-progress. These costs are
primarily related to equipment and leasehold improvements
associated with our manufacturing facilities, and will be
depreciated in accordance with the above guidelines once placed
into service. Interest costs incurred during construction of major
capital projects are capitalized as construction-in-progress until
the underlying asset is ready for its intended use, at which point
the interest costs are amortized as depreciation expense over the
life of the underlying asset. Interest capitalized as
construction-in-progress was $0.2
million for the three months ended July 31, 2022 and $0.2
million for the fiscal year ended April 30, 2022. All of our
property and equipment are located in the United States. Property
and equipment consist of the following (in thousands):
Schedule of property and equipment |
|
|
|
|
|
|
|
|
|
|
July 31, 2022 |
|
|
April 30, 2022 |
|
Leasehold improvements |
|
$ |
47,180 |
|
|
$ |
37,345 |
|
Laboratory and
manufacturing equipment |
|
|
30,071 |
|
|
|
30,089 |
|
Computer
equipment and software |
|
|
5,031 |
|
|
|
5,326 |
|
Furniture,
fixtures and office equipment |
|
|
843 |
|
|
|
843 |
|
Construction-in-progress |
|
|
57,460 |
|
|
|
43,809 |
|
Total
property and equipment, gross |
|
|
140,585 |
|
|
|
117,412 |
|
Less:
accumulated depreciation and amortization |
|
|
(25,656 |
) |
|
|
(24,457 |
) |
Total property and equipment, net |
|
$ |
114,929 |
|
|
$ |
92,955 |
|
Depreciation and amortization expense for the three months ended
July 31, 2022 and 2021 was $1.6 million and
$1.0 million,
respectively.
Leases
We determine if an arrangement is or contains a lease at inception.
Our operating leases with a term greater than one year are included
in operating lease right-of-use (“ROU”) assets, operating lease
liabilities and operating lease liabilities, less current portion
in our consolidated balance sheets. ROU assets represent our right
to use an underlying asset during the lease term and lease
liabilities represent our obligation to make lease payments arising
from the lease. Operating lease ROU assets and liabilities are
recognized at the lease commencement date, based on the present
value of lease payments over the lease term. In determining the net
present value of lease payments, we use our incremental borrowing
rate which represents an estimated rate of interest that we would
have to pay to borrow equivalent funds on a collateralized basis at
the lease commencement date.
Our operating leases may include options to extend the lease which
are included in the lease term when it is reasonably certain that
we will exercise a renewal option. Operating lease expense is
recognized on a straight-line basis over the expected lease
term.
Our finance lease with a term greater than one year is included as
an asset within property and equipment, net and a lease liability
equal to the present value of the minimum lease payments is
included in other current liabilities and finance lease
liabilities, less current portion in our consolidated balance
sheets. The present value of the finance lease payments is
calculated using the implicit interest rate in the lease. Finance
lease ROU assets are amortized on a straight-line basis over the
expected useful life of the asset and the carrying amount of the
lease liability is adjusted to reflect interest, which is recorded
as interest expense.
Leases with an initial term of 12 months or less are not recorded
on our consolidated balance sheets and lease expense for these
short-term leases is recognized on a straight-line basis over the
lease term. We have also elected the practical expedient to not
separate lease components from non-lease components.
Impairment
Long-lived assets are reviewed for impairment in accordance with
authoritative guidance for impairment or disposal of long-lived
assets. Long-lived assets are reviewed for events or changes in
circumstances that indicate that their carrying value may not be
recoverable. If such events or changes in circumstances arise, we
compare the carrying amount of the long-lived assets to the
estimated future undiscounted cash flows expected to be generated
by the long-lived assets. If the long-lived assets are determined
to be impaired, any excess of the carrying value of the long-lived
assets over its estimated fair value is recognized as an impairment
loss. For the three months ended July 31, 2022 and 2021, there were
no indicators
of impairment of the value of our long-lived assets and no
cumulative impairment losses were recognized as of July 31,
2022.
Stock-Based
Compensation
We account for stock options, restricted stock units, performance
stock units and other stock-based awards granted under our equity
compensation plans in accordance with the authoritative guidance of
ASC 718, Compensation – Stock Compensation. The estimated
fair value of stock options granted to employees in exchange for
services is measured at the grant date, using a fair value based
method, such as a Black-Scholes option valuation model, and is
recognized as an expense on a straight-line basis over the
requisite service periods. The fair value of restricted stock units
and performance stock units is measured at the grant date based on
the closing market price of our common stock on the date of grant.
For restricted stock units, the fair value is recognized as an
expense on a straight-line basis over the requisite service
periods. For performance stock units, which are subject to
performance conditions, the fair value is recognized as an expense
on a straight-line basis over the requisite service periods when
the achievement of such performance condition is determined to be
probable. If a performance condition is not determined to be
probable or is not met, no stock-based compensation expense is
recognized, and any previously recognized expense is reversed.
Forfeitures are recognized as a reduction of stock-based
compensation expense as they occur.
Debt
Issuance Costs
Debt issuance costs related to convertible senior notes are
recorded as a deduction that is netted against the principal value
of the debt and are amortized to interest expense using the
effective interest method over the contractual term of the debt
(Note 3).
Comprehensive
Income
Comprehensive income is the change in equity during a period from
transactions and other events and circumstances from non-owner
sources. Comprehensive income is equal to our net income for all
periods presented.
Fair Value
Measurements
Fair value is defined as the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The guidance
prioritizes the inputs used in measuring fair value into the
following hierarchy:
|
· |
Level 1 – Observable inputs, such as unadjusted quoted prices
in active markets for identical assets or liabilities. |
|
· |
Level 2 – Observable inputs other
than quoted prices included in Level 1, such as assets or
liabilities whose values are based on quoted market prices in
markets where trading occurs infrequently or whose values are based
on quoted prices of instruments with similar attributes in active
markets. |
|
· |
Level 3 – Unobservable inputs that
are supported by little or no market activity and significant to
the overall fair value measurement of the assets or liabilities;
therefore, requiring the company to develop its own valuation
techniques and assumptions. |
As of July 31, 2022 and April 30, 2022, we did not have any Level 2
or Level 3 financial assets and our cash equivalents of $102.9 million and $116.3 million, respectively, were
invested in money market funds with one major commercial bank and
carried at fair value based on quoted market prices for identical
securities (Level 1 input). We consider the fair value of our
convertible senior notes to be a Level 2 financial liability due to
limited trading activity of the senior convertible notes (Note 3).
We did not have any other Level 2 or Level 3 financial liabilities
as of July 31, 2022 and April 30, 2022.
Accounting
Standards Not Yet Adopted
In June 2016, the Financial Accounting Standards Board (“FASB”)
issued ASU No. 2016-13, Financial Instruments – Credit Losses
(Topic 326): Measurement of Credit Losses of Financial
Instruments (“ASU 2016-13”). The standard changes the
methodology for measuring credit losses on financial instruments
and the timing of when such losses are recorded. In November 2019,
the FASB issued ASU 2019-10, Financial Instruments—Credit Losses
(Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic
842): Effective Dates, which required entities to make a
one-time determination of whether an entity is eligible to be a
smaller reporting company as of November 15, 2019 for the purpose
of determining the effective date of ASU 2016-13. We determined
that we were eligible to be a smaller reporting company as of
November 15, 2019, and therefore, ASU 2016-13 is effective for
fiscal years beginning after December 15, 2022, which will be our
fiscal year 2024 beginning May 1, 2023. Early adoption is
permitted. We are currently evaluating the timing and impact the
adoption of this standard will have on our condensed consolidated
financial statements.
Note 3 – Debt
Convertible Senior Notes Due 2026
In March 2021, we issued $143.8 million in aggregate
principal amount of 1.25% exchangeable senior notes due 2026
(“Convertible Notes”) in a private offering to qualified
institutional buyers pursuant to Rule 144A under the Securities
Act. The net proceeds we received from the issuance of Convertible
Notes was $138.5 million, after
deducting initial purchaser discounts and other debt issuance
related expenses of $5.3 million.
The Convertible Notes are senior unsecured obligations and accrue
interest at a rate of 1.25% per annum, payable semi-annually
in arrears on March 15 and September 15 of each year. The
Convertible Notes mature on March 15, 2026, unless earlier
redeemed or repurchased by us or converted at the option of the
holders. The Convertible Notes are convertible into cash, shares of
our common stock or a combination of cash and shares of our common
stock, at our election in the manner and subject to the terms and
conditions provided in the indenture (the “Indenture”) governing
the Convertible Notes.
The initial conversion rate for the Convertible Notes is
approximately 47.1403 shares of our common stock per $1,000
principal amount, which represents an initial conversion price of
approximately $21.21 per share of our common stock. The conversion
rate is subject to adjustments upon the occurrence of certain
events in accordance with the terms of the Indenture. In addition,
following certain corporate events that occur prior to the maturity
date, we will, in certain circumstances, increase the conversion
rate for a holder who elects to convert their Convertible Notes in
connection with such a fundamental change, as defined in the
Indenture.
Holders of the Convertible Notes may convert their Convertible
Notes at their option at any time prior to the close of business on
the business day immediately preceding September 15, 2025, only
under the following circumstances: (1) During any fiscal quarter
commencing after the fiscal quarter ending July 31, 2021, if the
last reported sale price of our common stock for at least 20
trading days (whether or not consecutive) during any 30 consecutive
trading days ending on, and including, the last trading day of the
immediately preceding fiscal quarter is greater than or equal to
130% of the conversion price on each applicable trading day; (2)
During the five business day period after any five consecutive
trading day period (the “measurement period”) in which the trading
price (as defined in the Indenture) per $1,000 principal amount of
the Convertible Notes for each trading day of the measurement
period was less than 98% of the product of the last reported sale
price of our common stock and the exchange rate on each such
trading day; (3) If we call any or all of the Convertible Notes for
redemption, at any time prior to the close of business on the
second scheduled trading day immediately preceding the redemption
date; and (4) Upon the occurrence of specified corporate events as
described in the Indenture.
On or after September 15, 2025 until the close of business on the
second scheduled trading day immediately preceding the maturity
date, holders at their option may convert their Convertible Notes
at any time, regardless of the foregoing circumstances.
We may not redeem the Convertible Notes prior to March 20, 2024. On
or after March 20, 2024, the Convertible Notes are redeemable for
cash, whole or in part, at our option, if the last reported sale
price of our common stock has been at least 130% of the conversion
price then in effect for at least 20 trading days (whether or not
consecutive) during any 30 consecutive trading day period
(including the last trading day of such period) ending on, and
including, the trading day immediately preceding the date on which
we provide notice of redemption at a redemption price equal to 100%
of the principal amount to be redeemed, plus accrued and unpaid
interest to, but excluding, the redemption date.
If we undergo a fundamental change (as defined in the Indenture),
holders may require us to repurchase for cash all or any portion of
their Convertible Notes at a fundamental change repurchase price
equal to 100% of the principal amount of the Convertible Notes to
be repurchased, plus accrued and unpaid interest to, but excluding
the redemption date.
The Indenture contains customary terms and covenants, including
that upon certain events of default occurring and continuing, the
trustee or the holders of at least 25% in aggregate principal
amount of the outstanding Convertible Notes may declare the entire
principal of all the Convertible Notes plus accrued and unpaid
interest to be immediately due and payable.
As of July 31, 2022, the conditions allowing holders of the
Convertible Notes to convert had not been met and, therefore, the
Convertible Notes are classified as a long-term liability on the
unaudited condensed consolidated balance sheets at July 31, 2022
and April 30, 2022.
The net carrying amount of the Convertible Notes is as follows (in
thousands):
Schedule of net carrying amount of the debt
component |
|
|
|
|
|
|
|
|
July 31, 2022 |
|
|
April 30, 2022 |
|
Principal |
|
$ |
143,750 |
|
|
$ |
143,750 |
|
Unamortized
issuance costs |
|
|
(3,913 |
) |
|
|
(4,173 |
) |
Net carrying amount |
|
$ |
139,837 |
|
|
$ |
139,577 |
|
As of July 31, 2022, the estimated fair value of the Convertible
Notes was approximately $163.9 million.
The fair value was determined based on the last actively traded
price per $100 of the Convertible Notes
for the period ended July 31, 2022 (Level 2).
The following table summarizes the interest expense recognized
related to the Convertible Notes for the three months ended July
31, 2022 and 2021 (in thousands).
Schedule of interest expense |
|
|
|
|
|
|
|
|
|
|
Three Months Ended
July 31, 2022
|
|
|
Three Months Ended July 31, 2021 |
|
Contractual interest
expense |
|
$ |
224 |
|
|
$ |
449 |
|
Amortization
of issuance costs |
|
|
260 |
|
|
|
254 |
|
Total interest expense |
|
$ |
484 |
|
|
$ |
703 |
|
Capped Call Transactions
In connection with the issuance of the Convertible Notes, we
entered into privately negotiated capped call transactions (the
“Capped Calls”) with certain financial institution counterparties
(the “Option Counterparties”). We used $12.8 million of the net
proceeds from the issuance of the Convertible Notes to pay the cost
of the Capped Calls. The Capped Calls cover, subject to customary
anti-dilution adjustments, the aggregate number of shares of our
common stock that initially underlie the Convertible Notes, and are
generally expected to reduce the potential dilution of our common
stock upon any conversion of the Convertible Notes, as the case may
be, with such reduction and/or offset subject to a cap, based on
the cap price of the Capped Calls. The cap share price of the
Capped Calls is approximately $28.02 per share, which represents a
premium of 75% over the last reported sale price of our common
stock on March 9, 2021 and is subject to certain adjustments under
the terms of the Capped Calls. However, there would nevertheless be
dilution upon conversion of the Convertible Notes to the extent
that such market price exceeds the capped share price as measured
under the terms of the Capped Calls.
We evaluated the Capped Calls under ASC 815-10 and determined that
they should be accounted for as a separate transaction from the
Convertible Notes and that the Capped Calls met the criteria for
equity classification. Therefore, the cost of $12.8 million to
purchase the Capped Calls was recorded as a reduction to additional
paid-in capital in the consolidated balance sheet at April 30,
2021. The Capped Calls will not be subsequently remeasured as long
as the conditions for equity classification continue to be met. As
of July 31, 2022 and April 30, 2022, there were no conversions of
our Convertible Notes, and therefore, there was no activity with
respect to the Capped Calls. We believe the conditions for equity
classification continue to be met as of July 31, 2022 and April 30,
2022.
Note 4 – Leases
We currently lease certain office, manufacturing, laboratory and
warehouse space located in Orange County, California under
operating lease agreements. Our leased facilities have original
lease terms ranging from 7 to 12 years, contain multi-year renewal
options, and scheduled rent increases of 3% on either an annual or
biennial basis. A multi-year renewal option was included in
determining the right-of-use asset and lease liability for one of
our leases as we considered it reasonably certain that we would
exercise such renewal option. In addition, three of our leases
provide for periods of free rent, lessor improvements and tenant
improvement allowances, of which certain of these improvements have
been classified as leasehold improvements and/or are being
amortized over the shorter of the estimated useful life of the
improvements or the remaining life of the lease.
Certain of our operating facility leases require us to pay property
taxes, insurance and common area maintenance. While these payments
are not included as part of our lease liabilities, they are
recognized as variable lease cost in the period they are
incurred.
The components of operating lease cost for the three months ended
July 31, 2022 and 2021 were as follows (in thousands):
Schedule of lease costs |
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
|
|
2022 |
|
|
2021 |
|
Operating lease cost |
|
$ |
1,083 |
|
|
$ |
788 |
|
Variable lease
cost |
|
|
389 |
|
|
|
198 |
|
Short-term lease cost |
|
|
130 |
|
|
|
102 |
|
Total operating lease cost |
|
$ |
1,602 |
|
|
$ |
1,088 |
|
We also lease certain manufacturing equipment under a 5-year
finance lease that commenced in the second quarter of fiscal year
2022. Finance lease costs were immaterial for the three months
ended July 31, 2022.
`
Supplemental consolidated balance sheet and other information
related to our operating and finance leases as of July 31, 2022 and
April 30, 2022 were as follows (in thousands, expect weighted
average data):
Balance sheet classification of leases |
|
|
|
|
|
|
|
|
|
|
Leases |
|
Classification |
|
July 31, 2022 |
|
|
April 30, 2022 |
|
Assets |
|
|
|
|
|
|
|
|
|
|
Operating |
|
Operating lease right-of-use assets |
|
$ |
36,093 |
|
|
$ |
36,806 |
|
Finance |
|
Property
and equipment, net |
|
|
2,680 |
|
|
|
2,728 |
|
Total leased assets |
|
|
|
$ |
38,773 |
|
|
$ |
39,534 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
Operating |
|
Current portion of
operating lease liabilities |
|
$ |
3,152 |
|
|
$ |
2,969 |
|
Finance |
|
Other current
liabilities |
|
|
511 |
|
|
|
505 |
|
Non-current: |
|
|
|
|
|
|
|
|
|
|
Operating |
|
Operating lease
liabilities, less current portion |
|
|
37,077 |
|
|
|
37,886 |
|
Finance |
|
Finance
lease liabilities, less current portion |
|
|
1,963 |
|
|
|
2,093 |
|
Total lease liabilities |
|
|
|
$ |
42,703 |
|
|
$ |
43,453 |
|
Operating and finance leases |
|
|
|
|
|
|
|
|
Weighted average
remaining lease term (years): |
|
|
|
|
|
|
|
|
Operating leases |
|
|
12.2 |
|
|
|
12.4 |
|
Finance
lease |
|
|
4.4 |
|
|
|
4.7 |
|
Weighted average discount rate |
|
|
|
|
|
|
|
|
Operating
leases |
|
|
3.3% |
|
|
|
3.3% |
|
Finance
lease |
|
|
5.3% |
|
|
|
5.3% |
|
Cash paid for amounts included in the measurement of operating
lease liabilities was $1.0 million and $0.8 million for the three
months ended July 31, 2022 and 2021, respectively, and is included
in net cash used in operating activities in our accompanying
unaudited condensed consolidated statements of cash flows. Cash
paid for amounts included in the measurement of finance lease
liabilities was immaterial for the three months ended July 31,
2022.
As of July 31, 2022, the maturities of our lease liabilities, which
includes those derived from lease renewal options that we
considered it reasonably certain that we would exercise, were as
follows (in thousands):
Schedule of maturities of operating lease
liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ending April 30, |
|
Operating Leases |
|
|
Finance Lease |
|
|
Total |
|
2023
(remaining period) |
|
$ |
3,316 |
|
|
$ |
472 |
|
|
$ |
3,788 |
|
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 |
|
|
|
– |
|
|
|
28,708 |
|
Total
lease payments |
|
$ |
48,590 |
|
|
$ |
2,778 |
|
|
$ |
51,368 |
|
Less: imputed interest |
|
|
(8,361 |
) |
|
|
(304 |
) |
|
|
(8,665 |
) |
Total lease liabilities |
|
$ |
40,229 |
|
|
$ |
2,474 |
|
|
$ |
42,703 |
|
Note 5 –
Equity Compensation
Plans
Stock Incentive Plans
As of July 31, 2022, we had an aggregate of 8,665,188 shares of our
common stock reserved for issuance under our stock incentive plans,
of which 4,277,289 shares were
subject to outstanding stock options, restricted stock units
(“RSUs”) and performance stock units (“PSUs”) and 4,387,899 shares were
available for future grants of stock-based awards.
Stock Options
The following summarizes our stock option transaction activity for
the three months ended July 31, 2022:
Schedule of stock option activity |
|
|
|
|
|
|
|
|
Stock Options |
|
|
Grant Date Weighted Average Exercise Price |
|
|
|
(in
thousands) |
|
|
|
|
Outstanding at May 1, 2022 |
|
|
2,505 |
|
|
$ |
6.88 |
|
Granted |
|
|
– |
|
|
$ |
– |
|
Exercised |
|
|
(95 |
) |
|
$ |
6.83 |
|
Canceled or expired |
|
|
(22 |
) |
|
$ |
9.48 |
|
Outstanding at July 31, 2022 |
|
|
2,388 |
|
|
$ |
6.86 |
|
Restricted Stock Units
The following summarizes our RSUs transaction activity for the
three months ended July 31, 2022:
Schedule of RSU activity |
|
|
|
|
|
|
|
|
Shares |
|
|
Weighted Average Grant Date
Fair Value |
|
|
|
(in
thousands) |
|
|
|
|
Outstanding at May 1, 2022 |
|
|
642 |
|
|
$ |
14.89 |
|
Granted |
|
|
602 |
|
|
$ |
18.00 |
|
Vested |
|
|
(151 |
) |
|
$ |
8.19 |
|
Forfeited |
|
|
(10 |
) |
|
$ |
15.73 |
|
Outstanding at July 31, 2022 |
|
|
1,083 |
|
|
$ |
17.54 |
|
Performance Stock Units
During the three months ended July 31, 2022, the Compensation
Committee of the Board of Directors granted PSUs as part of the
annual grant of equity incentive awards to our executives. The PSUs
are subject to annual vesting, as to one-third of the PSUs, over
our three fiscal years ending April 30, 2023, 2024 and 2025 (each a
“Performance Period”) based upon our attainment of certain
predetermined financial metrics for each such Performance Period.
Each PSU that vests represents the right to receive one share of
our common stock. Depending on the actual financial metrics
achieved relative to the target financial metrics for such
Performance Periods, the number of PSUs issued could range from 0%
to 200% of the target amount. The number of granted shares included
in the table below is based on a maximum 200% achievement of each
financial metric during each Performance Period (the “Maximum
Performance Target”). If a financial metric is achieved at a rate
below the Maximum Performance Target, or is not achieved, the
corresponding portion of the PSUs that do not vest will be
forfeited.
The following summarizes our PSUs transaction activity for the
three months ended July 31, 2022:
Schedule of PSU activity |
|
|
|
|
|
|
|
|
Shares |
|
|
Weighted Average Grant Date
Fair Value |
|
|
|
(in
thousands) |
|
|
|
|
Outstanding at May 1, 2022 |
|
|
233 |
|
|
$ |
25.31 |
|
Granted |
|
|
573 |
|
|
$ |
18.09 |
|
Vested |
|
|
– |
|
|
$ |
– |
|
Forfeited |
|
|
– |
|
|
$ |
– |
|
Outstanding at July 31, 2022 |
|
|
806 |
|
|
$ |
20.18 |
|
Employee Stock Purchase Plan
The Avid Bioservices, Inc. 2010 Employee Stock Purchase Plan (the
“ESPP”) is a stockholder-approved plan under which employees can
purchase shares of our common stock, based on a percentage of their
compensation, subject to certain limits. The purchase price per
share is equal to the lower of 85% of the fair market value of our
common stock on the first trading day of the six-month offering
period or on the last trading day of the six-month offering period.
During the three months ended July 31, 2022, a total of 27,711 shares of
our common stock were purchased under the ESPP at a purchase price
$12.97 per
share. As of July 31, 2022, we had 1,004,251 shares of our
common stock reserved for issuance under the ESPP.
Stock-Based Compensation
Stock-based compensation expense for the three months ended July
31, 2022 and 2021 was comprised of the following (in
thousands):
Share-based compensation expense |
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
|
|
2022 |
|
|
2021 |
|
Cost
of revenues |
|
$ |
687 |
|
|
$ |
468 |
|
Selling, general and administrative |
|
|
1,210 |
|
|
|
831 |
|
Total |
|
$ |
1,897 |
|
|
$ |
1,299 |
|
As of July 31, 2022, the total estimated unrecognized compensation
cost related to non-vested stock options and RSUs was $2.5 million and
$17.9 million,
respectively. These costs are expected to be recognized over
weighted average vesting periods of 1.5
and 3.2
years, respectively.
As of July 31, 2022, there was $12.2 million of
total estimated unrecognized compensation cost related to
non-vested PSUs associated with the Performance Periods ending
April 30, 2023, 2024 and 2025. These costs are expected to be
recognized over the weighted average vesting period of 1.6
years, however, we will assess the likelihood of achieving the
predetermined financial metrics associated with each Performance
Period on a quarterly basis and the expense recognized, if any,
will be adjusted accordingly.
Note 6 – Income
Taxes
We are subject to taxation in the United States and various states
jurisdictions in which we conduct our business.
Our tax provision for interim periods is determined using an
estimate of our annual effective tax rate, adjusted for discrete
items arising in that quarter. On a quarterly basis, we update our
estimate of the annual effective tax rate, and if the estimated
annual tax rate changes, we make a cumulative adjustment in that
quarter.
The tax expenses recorded for the first quarter of fiscal year 2023
differs from the U.S. federal statutory tax rate of 21% due
primarily to the tax impact of state income taxes, stock-based
compensation, non-deductible officers’ compensation and
transportation fringe benefits.
For the three months ended July 31, 2022, we recorded income tax
expense of $0.7 million resulting in an
effective tax rate of 31%.
We have no material uncertain tax
positions as of July 31, 2022. It is our policy to recognize
interest and penalties related to income tax matters in interest
expense and other income (expense), net, respectively, in our
unaudited condensed consolidated statements of operations and
comprehensive income. There was no accrued interest or penalties
associated with uncertain tax positions as of July 31, 2022.
Note 7 – Net Income Per Common
Share
Basic net income per common share is computed by dividing our net
income by the weighted average number of shares of common stock
outstanding during the period. Diluted net income per common share
is computed by dividing our net income by the sum of the weighted
average number of shares of common stock outstanding during the
period plus the potential dilutive effects of stock options,
unvested RSUs and PSUs, shares of common stock expected to be
issued under our ESPP, and Convertible Notes.
The potential dilutive effect of stock options, unvested RSUs and
PSUs, and shares of common stock expected to be issued under our
ESPP during the period are calculated in accordance with the
treasury stock method, but are excluded if their effect is
anti-dilutive. The potential dilutive effect of our Convertible
Notes are calculated using the if-converted method assuming the
conversion of our Convertible Notes as of the earliest period
reported or at the date of issuance, if later, but are excluded if
their effect is anti-dilutive. A reconciliation of the numerators
and the denominators of the basic and dilutive net income per
common share computations are as follows (in thousands, except per
share amounts):
Reconciliation of earnings per share |
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
|
|
2022 |
|
|
2021 |
|
Numerator |
|
|
|
|
|
|
|
|
Net
income |
|
$ |
1,564 |
|
|
$ |
6,304 |
|
Denominator |
|
|
|
|
|
|
|
|
Weighted average basic common shares
outstanding |
|
|
61,905 |
|
|
|
61,137 |
|
Effect of dilutive
securities: |
|
|
|
|
|
|
|
|
Stock
options |
|
|
1,195 |
|
|
|
2,008 |
|
RSUs and ESPP |
|
|
233 |
|
|
|
426 |
|
Weighted
average dilutive common shares outstanding |
|
|
63,333 |
|
|
|
63,571 |
|
|
|
|
|
|
|
|
|
|
Net Income
per share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.03 |
|
|
$ |
0.10 |
|
Diluted |
|
$ |
0.02 |
|
|
$ |
0.10 |
|
The following table presents the potential dilutive securities
excluded from the calculation of diluted net income per share for
the periods presented as the effect of their inclusion would have
been anti-dilutive (in thousands):
Schedule of antidilutive shares |
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
|
|
2022 |
|
|
2021 |
|
Stock
options |
|
|
55 |
|
|
|
29 |
|
RSUs and
PSUs |
|
|
466 |
|
|
|
83 |
|
Convertible Notes |
|
|
6,776 |
|
|
|
6,776 |
|
Total |
|
|
7,297 |
|
|
|
6,888 |
|
Note 8 – Commitments and
Contingencies
In the ordinary course of business, we are at times subject to
various legal proceedings and disputes. We make provisions for
liabilities when it is both probable that a liability has been
incurred and the amount of the loss can be reasonably
estimated. Such provisions, if any, are reviewed at least
quarterly and adjusted to reflect the impact of any settlement
negotiations, judicial and administrative rulings, advice of legal
counsel, and other information and events pertaining to a
particular case. We currently are not a party to any legal
proceedings, the adverse outcome of which, in management’s opinion,
individually or in the aggregate, would have a material adverse
effect on our consolidated financial condition or results of
operations.
Humanigen Arbitration
On December 17, 2021, we filed a Demand for Arbitration claiming
more than $20.5 million in damages against Humanigen, Inc.
(“Humanigen”) with the American Arbitration Association (“AAA”)
entitled, Avid Bioservices, Inc. v. Humanigen, Inc. (AAA Case
No. 01-21-0018-0523). The Demand contains three claims for: (1)
breach of contract concerning the process development and
manufacturing master services agreement (“MSA”); (2) anticipatory
breach of contract concerning the capacity expansion and
contribution/commitment letter (“Letter Agreement”); and (3) trade
libel and commercial disparagement. We claim that per the terms of
the MSA Humanigen’s cancellation triggered an obligation to pay
certain fees and reimburse us for certain costs with respect to the
contracted committed manufacturing runs, which amounts remain
unpaid. On January 6, 2022, Humanigen filed an Answer to our
Demand, denying the allegations and asserting affirmative defenses.
On July 1, 2022, Humanigen filed its counterclaims against us in
the form of a complaint in the Orange County Superior Court (Case
No. 30-2022-01268184) alleging three claims for (1) breach of the
MSA seeking return or reimbursement of the amounts Humanigen paid
us before cancelling the MSA, (2) declaratory relief that Humanigen
has no remaining obligations under the Letter Agreement, and (3)
unfair business practices. On July 19, 2022, we filed a motion with
the state court to compel all claims by Humanigen against us to
arbitration before the AAA. On August 29, 2022, Humanigen filed a
motion with the state court to stay the arbitration and consolidate
all proceedings in state court, which motion we will oppose.
While we intend to vigorously pursue this arbitration against
Humanigen, we cannot offer any assurances that we will recover any
damages from Humanigen.
|
Item 2. |
Management’s Discussion and
Analysis of Financial Condition And Results of Operations |
The following discussion and analysis of the financial condition
and results of our operations should be read together with the
financial statements and related notes of Avid Bioservices, Inc.
included in Part I Item 1 of this Quarterly Report on Form
10-Q and with our audited consolidated financial statements and the
related notes included in our Annual Report on Form 10-K for the
fiscal year ended April 30, 2022.
Cautionary Statement Regarding Forward-Looking
Statements
This Quarterly Report on Form 10-Q contains forward-looking
statements, including the anticipated future impact of the ongoing
COVID-19 global pandemic on our business operations, that involve
risks and uncertainties, as well as assumptions that, if they never
materialize or prove incorrect, could cause our results of
operations to differ materially from those expressed or implied by
such forward-looking statements. The statements contained in this
Quarterly Report on Form 10-Q that are not purely historical are
“forward-looking statements” within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). Forward-looking statements are often identified by the use
of words such as, but not limited to, “anticipate,” “believe,”
“can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,”
“plan,” “project,” “seek,” “should,” “target,” “will,” “would” and
similar expressions or variations intended to identify
forward-looking statements. These statements are based on the
beliefs and assumptions of our management based on information
currently available to management. These forward-looking statements
are subject to numerous risks and uncertainties, including the
risks and uncertainties described under the section titled “Risk
Factors” in our Annual Report on Form 10-K for the fiscal year
ended April 30, 2022, those identified in this “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” and elsewhere in this Quarterly Report on Form 10-Q,
and in other filings we may make with the Securities and Exchange
Commission from time to time. Moreover, we operate in an evolving
environment. New risk factors and uncertainties emerge from time to
time and it is not possible for our management to predict all risk
factors and uncertainties, nor can we assess the impact of all
factors on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statement.
We qualify all of our forward-looking statements by these
cautionary statements and, except as required by law, assume no
obligation and do not intend to update these forward-looking
statements.
Overview
We are a dedicated contract development and manufacturing
organization (“CDMO”) that provides a comprehensive range of
services from process development to Current Good Manufacturing
Practices (“CGMP”) clinical and commercial manufacturing of
biologics for the biotechnology and biopharmaceutical industries.
With 29 years of experience producing monoclonal antibodies and
recombinant proteins, our services include clinical and commercial
product manufacturing, bulk packaging, release and stability
testing and regulatory submissions support. We also provide a
variety of process development services, including upstream and
downstream development and optimization, analytical methods
development, testing and characterization.
Strategic Objectives
We continue to execute on a growth strategy that seeks to align
with the growth of the biopharmaceutical drug substance contract
services market. That strategy encompasses the following
objectives:
|
· |
Invest in additional manufacturing
capacity and resources required for us to achieve our long-term
growth strategy and meet the growth-demand of our customers’
programs, moving from development through to commercial
manufacturing; |
|
· |
Broaden market awareness through a
diversified yet flexible marketing strategy; |
|
· |
Expand our customer base and
programs with existing customers for both process development and
manufacturing service offerings; |
|
· |
Explore strategic opportunities
both within our core business as well as in adjacent and/or
synergistic service offerings in order to enhance and/or broaden
our capabilities; and |
|
· |
Increase our operating profit
margin to best in class industry standards. |
First Quarter Highlights
The following summarizes select highlights from our first quarter
ended July 31, 2022:
|
· |
Reported revenues of $36.7 million,
an increase of 19%, or $5.9 million, compared to the same prior
year period; |
|
· |
Reported net income of $1.6
million, or $0.03 per basic share and $0.02 per diluted share; |
|
· |
Expanded our customer base and
programs with existing customers and ended the quarter with a
backlog of approximately $157 million, representing our highest
backlog to date; |
|
· |
Continued to advance the second
phase of expansion of our Myford facility and the construction of
our cell and gene therapy facility; and |
|
· |
Announced plans to further expand
the process development capacity of our mammalian cell culture
services. |
Facility Expansions
During fiscal year 2021, we announced plans for a two-phased
expansion of our Myford facility. The first phase, which expanded
the production capacity of our Myford facility by adding an
additional downstream processing suite, was completed in January
2022. The second phase, which was initiated during the fourth
quarter of fiscal 2021 and is anticipated to be online during the
first calendar quarter of 2023, will further expand our capacity
with the addition of a second manufacturing train, including both
upstream and downstream processing suites. We estimate that as of
July 31, 2022, the remaining cost to complete our Myford facility
expansion will be approximately $22 million to $25 million.
In October 2021, we announced plans to expand our CDMO service
offerings into viral vector development and manufacturing services
for the rapidly growing cell and gene therapy (“CGT”) market. This
expansion will consist of a two-phased approach including
constructing a world-class, single purpose-built CGT development
and CGMP manufacturing facility in Costa Mesa, California (the “CGT
Facility”). In June 2022, we completed the first phase with the
opening of our new analytical and process development laboratories.
This phase is now operational, and we are actively scheduling new
business into the laboratories. The second phase of construction
includes the build out of CGMP manufacturing suites, which are
expected to be online in mid calendar 2023. We estimate that as of
July 31, 2022, the remaining cost to complete our CGT Facility
construction will be approximately $42 million to $47 million.
In June 2022, we announced plans to further expand the process
development capacity of our mammalian cell culture services, by
adding new suites within our existing process development
laboratory space. This expansion is expected to be completed by the
end of calendar 2022 at an estimated total cost of approximately $6
million.
Upon completion of these expansions, we estimate that our combined
facilities will have the potential to bring our total revenue
generating capacity to up to approximately $400 million annually,
depending on the mix of future customer projects.
Impact of COVID-19 Pandemic
To date, the COVID-19 pandemic has not had a significant impact on
our operations, as we have been able to continue to operate our
manufacturing facilities and provide essential services to our
customers.
We will continue to assess the potential impact of the COVID-19
pandemic on our business, financial condition, and results of
operations. For a further discussion of potential risks to our
business from the COVID-19 pandemic, please refer to “Part I,
Item 1A—Risk Factors” in our Annual Report on Form 10-K for the
fiscal year ended April 30, 2022.
Performance and Financial Measures
In assessing the performance of our business, we consider a variety
of performance and financial measures. The key indicators of the
financial condition and operating performance of our business are
revenues, gross profit, selling, general and administrative
expenses, operating income and interest expense.
We intend for this discussion to provide the reader with
information that will assist in understanding our consolidated
financial statements, the changes in certain key items in those
consolidated financial statements from period to period and the
primary factors that accounted for those changes.
Revenues
Revenues are derived from services provided under our customer
contracts and are disaggregated into manufacturing and process
development revenue streams. Manufacturing revenue generally
represents revenue from the manufacturing of customer products
derived from mammalian cell culture covering clinical through
commercial manufacturing runs. Process development revenue
generally represents revenue from services associated with the
custom development of a manufacturing process and analytical
methods for a customer’s product.
Gross Profit
Gross profit is equal to revenues less cost of revenues. Cost of
revenues reflects the direct cost of labor, overhead and material
costs. Direct labor costs include compensation, benefits,
recruiting fees, and stock-based compensation within the
manufacturing, process and analytical development, quality
assurance, quality control, validation, supply chain, project
management and facilities functions. Overhead costs primarily
include the rent, common area maintenance, utilities, property
taxes, security, materials and supplies, software, small equipment
and deprecation costs incurred at all of our manufacturing and
laboratory locations.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses are
composed of corporate-level expenses, including compensation,
benefits, recruiting fees, and stock-based compensation of
corporate functions such as executive management, finance and
accounting, business development, legal, human resources,
information technology, and other centralized services. SG&A
expenses also include corporate legal fees, audit and accounting
fees, investor relation expenses, non-employee director fees,
corporate facility related expenses, and other expenses relating to
our general management, administration, and business development
activities. SG&A expenses are generally not directly
proportional to revenues, but we expect such expenses to increase
over time to support the needs of our growing company.
Results of Operations
The following table compares the unaudited condensed consolidated
statements of operations for the three months ended July 31, 2022
and 2021 (in thousands):
|
|
Three Months Ended July 31, |
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
Revenues |
|
$ |
36,692 |
|
|
$ |
30,754 |
|
|
$ |
5,938 |
|
Cost of
revenues |
|
|
27,575 |
|
|
|
19,363 |
|
|
|
8,212 |
|
Gross profit |
|
|
9,117 |
|
|
|
11,391 |
|
|
|
(2,274 |
) |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative |
|
|
6,382 |
|
|
|
4,460 |
|
|
|
1,922 |
|
Total operating expenses |
|
|
6,382 |
|
|
|
4,460 |
|
|
|
1,922 |
|
Operating income |
|
|
2,735 |
|
|
|
6,931 |
|
|
|
(4,196 |
) |
Interest expense |
|
|
(518 |
) |
|
|
(703 |
) |
|
|
185 |
|
Other income
(expense), net |
|
|
50 |
|
|
|
76 |
|
|
|
(26 |
) |
Net
income before income taxes |
|
|
2,267 |
|
|
|
6,304 |
|
|
|
(4,037 |
) |
Income tax expense |
|
|
703 |
|
|
|
– |
|
|
|
703 |
|
Net income |
|
$ |
1,564 |
|
|
$ |
6,304 |
|
|
$ |
(4,740 |
) |
Three Months Ended July 31, 2022
Compared to Three Months Ended July 31, 2021
Revenues
Revenues for
the three months ended July 31, 2022 were $36.7 million compared to
$30.8 million for the same period in the prior year, an increase of
$5.9 million, or 19%. The increase in revenues can primarily be
attributed to an increase in manufacturing runs during the current
year period compared to the prior year period. The increase in
revenues was attributed to the following components of our revenue
streams:
|
|
$ millions |
|
Net
increase in manufacturing revenues |
|
$ |
5.8 |
|
Net
increase in process development revenues |
|
|
0.1 |
|
Total increase in revenues |
|
$ |
5.9 |
|
Gross Profit
Gross profit for the three months ended July 31, 2022 was $9.1
million (25% gross margin) compared to $11.4 million (37% gross
margin) for the same period in the prior year, a decrease of $2.3
million. The $2.3 million decrease in gross profit for the
current-year period can primarily be attributed to increases in
compensation and benefit related expenses and facility and
equipment related costs, partially offset by increased revenues.
Excluding the prior year’s margin benefit from unutilized capacity
fees, and the current quarter’s increase in costs associated with
the establishment of our cell and gene therapy business and ahead
of our mammalian capacity expansions, including increasing our
headcount and incremental depreciation from newly released facility
expansions, our first quarter gross margin was on par with the
prior year period.
We expect our gross profit will continue to be impacted in the
short-term by these and future costs as we continue to increase the
hiring of personnel and incur additional facility and equipment
related costs to support our rapidly growing capacity and expanded
service offerings.
Selling, General and Administrative Expenses
SG&A expenses were $6.4 million for the three months ended July
31, 2022 compared to $4.5 million for the same period in the prior
year, an increase of approximately $1.9 million, or 43%. As a
percentage of revenues, SG&A expenses for the three months
ended July 31, 2022 and 2021 were 17% and 15%, respectively. The
net increase in SG&A expenses was attributed to the following
components:
|
|
$ millions |
|
Increase in compensation and benefit related expenses |
|
$ |
1.2 |
|
Increase in
facility and related expenses |
|
|
0.2 |
|
Increase in legal
and accounting fees |
|
|
0.2 |
|
Net
increase in all other SG&A expenses |
|
|
0.3 |
|
Total increase in SG&A expenses |
|
$ |
1.9 |
|
Operating Income
Operating income was $2.7 million for the three months ended July
31, 2022 compared to $6.9 million for the same period in the prior
year. This $4.2 million decrease in year-over-year operating income
can primarily be attributed to a $2.3 million decrease in gross
profit combined with a $1.9 million increase in SG&A
expense.
Interest Expense
Interest expense was $0.5 million for the three months ended July
31, 2022 compared to $0.7 million for the same period in the prior
year, a decrease of $0.2 million, or 26%. The decrease of
$0.2 million can be attributed to interest expense capitalized as
construction-in-progress during the current year period compared to
no interest capitalized during the same prior year period.
Income Tax Expense
Income tax expense was $0.7 million for the three months ended July
31, 2022 compared to no income tax expense for the same period in
the prior year. The increase in income tax expense can be
attributed to the recording of a full quarter of income tax expense
in the current year period whereas in the prior year period there
was no income tax expense due to a full valuation allowance in
place.
Liquidity and Capital Resources
Our principal sources of liquidity are our existing cash and cash
equivalents on hand and cash flows generated from operations. As of
July 31, 2022, we had cash and cash equivalents of $115.1 million.
We believe that our existing cash on hand and our anticipated cash
flows from operating activities will be sufficient to fund our
operations for at least the next 12 months from the date of this
Quarterly Report.
If cash flows from operations are not sufficient to support our
operations or capital requirements, including our mammalian and
cell and gene therapy facility expansions, then we may need to
obtain additional equity or debt financing to fund our future
operations and/or such expansions. We may raise these funds at the
appropriate time, accessing the form of capital that we determine
is most appropriate considering the markets available to us and
their respective costs of capital, such as through the issuance of
debt or through the public offering of securities. These financings
may not be available on acceptable terms, or at all. Our ability to
raise additional capital in the equity and debt markets is
dependent on several factors including, but not limited to, the
market demand for our common stock. The market demand or liquidity
of our common stock is subject to a number of risks and
uncertainties including, but not limited to, our financial results,
economic and market conditions, and global financial crises and
economic downturns, which may cause extreme volatility and
disruptions in capital and credit markets. In addition, even if we
are able to raise additional capital, it may not be at a price or
on terms that are favorable to us.
Cash Flows
The following table compares our cash flow activities for the three
months ended July 31, 2022 and 2021 (in thousands):
|
|
Three Months Ended July 31, |
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
$ Change |
|
Net cash used in operating
activities |
|
$ |
(5,034 |
) |
|
$ |
(6,942 |
) |
|
$ |
1,908 |
|
Net cash used in investing
activities |
|
$ |
(6,924 |
) |
|
$ |
(4,199 |
) |
|
$ |
(2,725 |
) |
Net cash provided by financing
activities |
|
$ |
929 |
|
|
$ |
918 |
|
|
$ |
11 |
|
Net Cash Used in Operating Activities
Net cash used in operating activities for the three months ended
July 31, 2022 was a result of a net change in operating assets and
liabilities of $11.0 million, offset by $1.6 million of net income
and non-cash adjustments to net income of $4.4 million primarily
related to stock-based compensation and depreciation and
amortization expense.
Net cash used in operating activities for the three months ended
July 31, 2021 was a result of a net change in operating assets and
liabilities of $15.8 million, offset by $6.3 million of net income
and non-cash adjustments to net income of $2.6 million related to
stock-based compensation, depreciation and amortization and
amortization of debt issuance costs.
Net Cash Used in Investing Activities
Net cash used in investing activities for the three months ended
July 31, 2022 and 2021 consisted of $6.9 million and $4.2 million,
respectively, used to acquire property and equipment primarily
related to projects associated with the expansion of our
manufacturing operations.
Net Cash Provided by Financing Activities
Net cash provided by financing activities for the three months
ended July 31, 2022 consisted of $1.0 million in net proceeds from
the issuance of common stock under our equity compensation plans,
offset by $0.1 million in principal payments on a finance
lease.
Net cash provided by financing activities for the three months
ended July 31, 2021 consisted of $0.9 million in net proceeds from
the issuance of common stock under our equity compensation
plans.
Cash Requirements
Our material cash requirements include the following contractual
and other obligations.
Convertible Senior Notes
In March 2021, we issued $143.8 million in aggregate principal
amount of 1.25% exchangeable senior notes due 2026 (“Convertible
Notes”) in a private offering to qualified institutional buyers
pursuant to Rule 144A under the Securities Act. The net proceeds we
received from the issuance of Convertible Notes was $138.5 million,
after deducting initial purchaser discounts and other debt issuance
related expenses of $5.3 million.
The Convertible Notes are senior unsecured obligations and accrue
at a rate of 1.25% per annum, payable semi-annually in arrears on
March 15 and September 15 of each year, beginning on September 15,
2021. The Convertible Notes mature on March 15, 2026, unless
earlier redeemed or repurchased by us or converted at the option of
the holders. The Convertible Notes are convertible into cash,
shares of our common stock or a combination of cash and shares of
our common stock, at our election in the manner and subject to the
terms and conditions provided in the indenture governing the
Convertible Notes.
As of July 31, 2022, the aggregate principal amount outstanding or
our Convertible Notes was $143.8 million. For additional
information regarding the Convertible Notes, see Note 3 of the
notes to unaudited condensed consolidated financial statements.
Leases
We lease certain office, manufacturing, laboratory, and warehouse
space located in Orange County, California under operating lease
agreements. Our leased facilities have original lease terms ranging
from 7 to 12 years, contain multi-year renewal options, and
scheduled rent increases of 3% on either an annual or biennial
basis. We also lease certain manufacturing equipment under a 5-year
finance lease that expires in December 2026. As of July 31, 2022,
we had outstanding lease obligations of $51.4 million, of which
$3.8 million is payable in the remainder of fiscal 2023, $4.8
million is payable in fiscal 2024, $4.7 million is payable in
fiscal 2025, $4.8 million is payable in fiscal 2026, $4.6 million
is payable in fiscal 2027, and $28.7 million is payable
thereafter.
Capital Expenditures
During the three months ended July 31, 2022, our capital
expenditures were $6.9 million, and additionally our accrued
capital expenditure balance was $16.4 million. We currently
anticipate that our capital expenditures for fiscal 2023 to be
approximately $85 million to $95 million, related to our mammalian
and cell and gene therapy facility expansions in Orange County,
California as further discussed in the “Facility Expansions”
section above.
Critical Accounting Policies and Estimates
Our discussion and analysis of our consolidated financial condition
and results of operations are based on our consolidated financial
statements, which have been prepared in accordance with accounting
principles generally accepted in the United States (“U.S. GAAP”).
The preparation of our consolidated financial statements requires
us to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues, expenses, and related
disclosures. We review our estimates and assumptions on an ongoing
basis. We base our estimates on historical experience and on
assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for our
judgments about the carrying value of assets and liabilities that
are not readily apparent from other sources. Actual results may
vary from what we anticipate and different assumptions or estimates
about the future could change our reported results. During the
three months ended July 31, 2022, there were no significant changes
in our critical accounting policies as previously disclosed by us
in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal
year ended April 30, 2022.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements applicable to
us, please refer to Note 2, Summary of Significant Accounting
Policies, in the accompanying notes to our unaudited condensed
consolidated financial statements.
Backlog
Our backlog represents, as of a point in time, future revenue from
work not yet completed under signed contracts. As of July 31, 2022,
our backlog was approximately $157 million, as compared to
approximately $153 million as of April 30, 2022. While we
anticipate the majority of our backlog will be recognized as
revenue over the next twelve (12) months, our backlog is subject to
a number of risks and uncertainties, including but not limited to:
the risk that a customer cancels its commitments prior to our
initiation of services, in which case we may be required to refund
some or all of the amounts paid to us in advance under those
canceled commitments; the risk that a customer may experience
delays in its program(s) or otherwise, which could result in the
postponement of anticipated services; the risk that we may not
successfully execute on all customer projects; the risk that
commencement of customer projects may be postponed due to supply
chain delays; and the risk of a potential negative impact from the
COVID-19 global pandemic, any of which could have a negative impact
on our liquidity, reported backlog and future revenues and
profitability.
|
Item 3. |
Quantitative and Qualitative
Disclosures About Market Risk |
During the three months ended July 31, 2022, there were no material
changes in the market risks described in the “Quantitative and
Qualitative Disclosures About Market Risk” section of our Annual
Report on Form 10-K for the fiscal year ended April 30, 2022.
|
Item 4. |
Controls And Procedures |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e)) under the Exchange Act that are
designed to ensure that information required to be disclosed in our
reports filed under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the
SEC’s rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
We carried out an evaluation, under the supervision and with the
participation of management, including our principal executive
officer and principal financial officer, of the effectiveness of
the design and operation of our disclosure controls and procedures
as of July 31, 2022, the end of the period covered by this
Quarterly Report. Based on that evaluation, our principal executive
officer and principal financial officer concluded that our
disclosure controls and procedures were effective as of July 31,
2022.
Changes in Internal Control over Financial Reporting
There were no significant changes in our internal control over
financial reporting, during the quarter ended July 31, 2022, that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
PART II—OTHER
INFORMATION
|
Item 1. |
Legal Proceedings |
Please refer to Note 8, Commitments and Contingencies, in
the unaudited condensed consolidated financial statements included
in Part I, Item 1 of this Quarterly Report, which is incorporated
into this item by reference.
We operate in a rapidly changing environment that involves a number
of risks that could materially and adversely affect our business,
financial condition, results of operations and cash flows. For a
detailed discussion of the risks that affect our business, please
refer to Part I, Item IA, “Risk Factors” in our Annual Report on
Form 10-K for the fiscal year ended April 30, 2022. There have been
no material changes to the risk factors as previously disclosed in
our Annual Report on Form 10-K.
|
101.INS |
Inline XBRL Instance Document
(the instance document does not appear in the Interactive Data File
because its XBRL tags are embedded within the Inline XBRL
document).* |
|
101.SCH |
Inline XBRL Taxonomy Extension
Schema Document.* |
|
101.CAL |
Inline XBRL Taxonomy Extension
Calculation Linkbase Document.* |
|
101.DEF |
Inline XBRL Taxonomy Extension
Definition Linkbase Document.* |
|
101.LAB |
Inline XBRL Taxonomy Extension
Label Linkbase Document.* |
|
101.PRE |
Inline XBRL Taxonomy Extension
Presentation Linkbase Document.* |
|
104 |
Cover Page Interactive Data File
(formatted in iXBRL, and included in exhibit 101).* |
____________________
|
(1) |
Incorporated by reference to
Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed
with the Securities and Exchange Commission on July 14, 2022. |
|
† |
Indicates management contract or
compensatory plan. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
|
AVID BIOSERVICES, INC. |
|
|
|
|
|
Dated: September 6,
2022 |
By: |
/s/ Nicholas S. Green |
|
|
|
Nicholas S. Green |
|
|
|
President and Chief Executive Officer |
|
|
|
(Principal Executive Officer) |
|
Dated: September 6,
2022 |
By: |
/s/ Daniel R. Hart |
|
|
|
Daniel R. Hart |
|
|
|
Chief
Financial Officer |
|
|
|
(Principal Financial Officer) |
|
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