Good day, ladies and gentlemen. And welcome to the Avid Bioservices' Fourth Quarter and Year-End 2019 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session and instructions will follow at that time. As a reminder, this conference call may be recorded. I would now like to hand the conference over to Tim Brons of Avid's Investor Relations Group. Please go ahead.

Thank you. Good afternoon and thank you for joining us. On today's call, we have Rick Hancock, Interim President and CEO; Dan Hart, Chief Financial Officer; and Tracy Kinjerski, Vice President of Business Operations. Today, we will be providing an overview of Avid Bioservices' contract development and manufacturing business, including updates on corporate activities and financial results for the quarter and full year ended April 30, 2019. After our prepared remarks, we will welcome your questions. Before we begin, I'd like to caution that comments made during this conference call today, June 27, 2019, will contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, concerning the current belief of the Company, which involves a number of assumptions, risks and uncertainties. Actual results could differ from these statements, and the Company undertakes no obligation to revise or update any statement made today. I encourage you to review all of the Company's filings with the Securities and Exchange Commission concerning these and other matters. With that, I will turn the call over to Rick Hancock, Interim President and CEO. Rick?

Thank you, Tim. And thank you to all of you who've dialed in and to those who are participating today via the webcast. This is my first earnings call in this role with Avid, I would like to say that I'm very pleased to be working closely with our team as we continue to transition the business and build upon the accomplishments of my predecessor, Roger Lias. I am particularly pleased to have the opportunity to discuss the achievements of Q4 fiscal 2019, Avid's strongest quarter since becoming a dedicated CDMO. With respect to our financial performance, fourth quarter 2019 results beat industry estimates for both revenue and EPS. Most importantly, during the fourth quarter, the Company achieved positive income, generating cash from development and manufacturing operations for the first time since the beginning of the transition. The growth realized during the quarter was reflected in other metrics as well. And Dan will provide more details regarding our financial performance in a moment. Multiple successes on the business development front drove the quarter's strong financial performance. In the fourth quarter, our BD team advanced new business opportunities and won multiple new projects with existing customers. Though these new projects are with existing customers, many are for the development and manufacture of additional molecules, which were not part of the initial contract. Each of these programs represents a new opportunity for commercial production down the road. Tracy will provide more color on these developments shortly. With that, I'll turn the call over to Dan to provide a financial overview.

Thanks, Rick. Before I begin, I'd like to recommend that everyone participating today refer to our 10-Q filing with the Securities and Exchange Commission, which we filed today for additional details. I will now discuss our financial results from continuing operations for the fourth quarter ended April 30, 2019, starting with revenue. As Rick stated, the fourth quarter was our strongest to-date since officially beginning the transition to a dedicated CDMO. Revenue for the fourth quarter of 2019 was $17.1 million, an increase of 146% as compared to $6.9 million for the same period of the prior year. This increase was primarily the result of the growing in the number and scope of customer projects. Revenue for the full fiscal year 2019 was $53.6 million. And while that was flat compared to fiscal 2018, it exceeded our guidance, which we had expected to come in within the lower half of the range between $51 million and $55 million. For both the fourth quarter and the full fiscal year 2019, margins increased significantly as compared to prior year periods. Gross margin for the fourth quarter was 21% and gross margin for the full fiscal year 2019 was 13%. These margins are compared to a negative 28% for the fourth quarter of 2018 and a negative 5% for fiscal 2018. These increases reflect the growth in customer projects, the increased utility of our existing capacity, a judicious management of expenses and increasing operational efficiencies. Turning now to operating expenses. Total SG&A expenses for the fourth quarter of fiscal 2019 were $3.6 million compared to $4.2 million for the fourth quarter of fiscal 2018. For the full fiscal year 2019, total SG&A expenses were $12.8 million or 24% of revenue compared to $16.5 million or 31% of revenue for the full fiscal year 2018. It's important to note that SG&A results for the prior year included non-recurring expenses of approximately $4.4 million related to the transition of our business to a pure-play CDMO. These prior year expenses included reductions in payroll and related costs, legal fees and other professional consulting fees, administrative costs and the write-off related to a deposit of capital equipment. Excluding these non-recurring charges, SG&A increased $0.8 million, primarily due to increases in bonuses related to achievement levels of corporate goals and stock-based compensation. During the fourth quarter of 2019, we generated income from continuing operations of $0.2 million compared to a loss from continuing operations of $6.1 million for the fourth quarter of fiscal 2018. This marks the first quarter of positive income from continuing operations since announcing our transition to a dedicated CDMO back in January of 2018. Fiscal year 2019 loss from continuing operations was $5.1 million compared to a prior year loss from continuing operations of $20.6 million. The decrease during the full fiscal year was partially driven by reduction in both costs of revenues and SG&A resulting in higher profitability margins. For the fourth quarter of fiscal 2019, the Company recorded consolidated net loss attributable to common stockholders of $1.1 million or $0.02 per share compared to a consolidated net income attributable to common stockholders of $1.6 million or $0.03 per share for the same prior year quarter. For the full year fiscal 2019, the Company recorded a consolidated net loss attributable to common stockholders of $8.9 million or $0.16 per share compared to a consolidated net loss attributable to common stockholders of $26.5 million or $0.56 per share for full year fiscal 2018. Both the prior fourth quarter and the full fiscal year 2018, net income and loss were favorably impacted by the sale of Avid's legacy R&D assets to Oncologie, Inc. for $8 million and the associated discontinued operations. Our backlog at the end of the fourth quarter 2019 was approximately $46 million, an increase compared to backlog of $43 million at the end of Q3 2019. We are pleased to maintain the strong backlog that will continue to contribute to our growth trend, and we expect to recognize the majority of this balance in fiscal 2020. Lastly, during the fourth quarter of fiscal 2019, we generated $5.6 million in operating cash flow, thus, increasing our cash and cash equivalents as of April 30, 2019 to $32.4 million. Cash and cash equivalents were $42.3 million as of the prior fiscal year ended April 30, 2018. As we stated consistently throughout the last year, achieving positive income from continuing operations has been a major milestone for the Company. By aggressively pursuing and winning new business from existing clients, carefully managing cash and expenses and consistently incorporating new efficiencies into our processes, we have successfully delivered on this goal. Based on our current backlog, as well as our forecast for typical expansion of ongoing projects, we believe the Company has reached the very important position from which they expect to achieve sustainable growth and continued profitability. This concludes my financial overview. I will now turn the call over to Tracy for an update on business activities and achievements for the quarter.

Thanks Dan. During the fourth quarter, Avid's increased visibility in industry and our aggressive work to expand both our client base, as well as our project pipeline yielded great dividend. During the quarter, we had a strong presence at several of the industry's best attended events and conferences, including but not limited to, DCAT Week and Interfax. As the quarter was coming to an end, we were heavily focused on our preparation for the 2019 BIO International Convention, which commenced subsequent to quarter end. Part of this conference was to further build our brand awareness and messaging in the bio therapeutics industry, while also meeting with current and potential new customers and sponsoring and supporting key industry organizations, such as DCAT and Women In Bio. As a result of this continuous exposure, as well as our customer outreach efforts, our log of new business discussions continues to grow. As evidenced by the high number of key meetings and conferences and subsequent influx of new request for proposals, we are gaining important traction with potential for customers and industry partners. Equally important, as we believe today's financial results have demonstrated, is the new business we continue to win with the existing customers. While some of these business results from the expansion of a current project, many of these projects are completely new, requiring development and or manufacture of new molecules. These wins are incredibly valuable for several reasons. First, the earlier phase projects represent opportunities for both early stage, as well as commercial production as the program advances through the various regulatory stages. Other follow-on molecules from existing customers maybe later phase, leading to validation and commercial stage with more certainty and providing assurance of need for long-term manufacturing. Second, as we already have a working relationship with these companies, on-boarding and other aspects of the process are much more efficient and less costly, making these projects more profitable for Avid. And finally, the repeat business is a great testimonial for Avid. The fact that many of our clients have come back from multiple projects speaks to the collaborative relationships we established with our clients, the expertise of our team, the state-of-the-art nature of our facilities and processes and most importantly, the quality of our product. I would now like to provide an update with respect to one of our largest customers. Halozyme Therapeutics continues to increase demand for manufacture of the recombinant human hyaluronidase enzyme, supporting their ENHANZE technology platform. Avid currently manufactures product, not only for Halozyme's collaboration product but also for collaboration product candidates currently in development. We believe that the strengthened forecasts are partially due to a key Halozyme partner for whom Avid is the exclusive supplier depleting their inventories. More importantly, this demand is also driven by new development projects and new product launches by Halozyme's partners, as well as market growth for their commercial products. We anticipate that this trend will continue into fiscal year 2020 as Halozyme's partners advance their clinical development program and begin preparing for commercialization. As we discussed last quarter, Avid recently completed a process validation campaign for a new scaled up manufacturing process on behalf of Halozyme in anticipation of future commercial manufacturing. In addition, we have recently completed a second process validation campaign of fiscal 2019 with another campaign in progress. Once the process validation is completed, the associated specification for that process represents a key part of global regulatory filings. The manufacturing process becomes part of the product approval and the consumers required to manufacture in specified facility using the specified process. Of course clinical trials and regulatory reviews take years, and there's no guarantee of a drug approval at the end of the process. However, for those products approved using processes validated at Avid is likely that the commercial manufacturing will be conducted at Avid. To move the business to another CDMO at that point would require a new process validation and re-filing with the regulatory agency, which are highly risky, expensive and time consuming propositions. For these reasons, we see each process validation completed today as a great opportunity to build commercial business in the future. We remain very excited about the demand in the biopharmaceutical community, in general. And with our regulatory history, we believe we are uniquely positioned to serve clients who are developing products with accelerated approval time line. Importantly, the strategy allows us to support rare disease product development partners. As a CDMO, our aim is to support our clients to ensure availability of medicines for all regardless of the size of the patient population. The flexibility is built into our facility configuration and design, combined with the mindset of our leadership continues to foster this goal. During the year, our business development and project management team members set and met the high standards essential to our customer centric approach. Looking forward, we are excited by the new and expanding opportunities that we expect to fuel continued growth and increasing capacity utilization in fiscal 2020. This concludes my business overview. And I'll now hand the call back to Rick. Rick?

Thank you, Tracy. I would also like to congratulate the business operations team on its accomplishments during fiscal 2019. The new business won in the past year has put Avid in a stronger position to continue its growth trajectory. I'd now like to provide a brief update regarding operations at Avid. We continue to make progress with the expansion of the Franklin process development lab, which will primarily house upstream processing. It is currently our expectation that this work will be completed in the fall. Concurrent with this work, we are evaluating all of our facilities, equipment and processes as part of a three-year plan in an effort to incorporate additional efficiencies where possible and new technologies where applicable. This ongoing process is essential in ensuring that Avid's processes remain at the forefront of development and manufacturing, and that our facilities represent the state-of-the-art among CDMOs. All these enhancements are taking place to improve our existing Franklin and Myford facilities. We have significant room to expand our operations and anticipate doing so as demand for our services continues to increase. Until then, we will remain focused on filling and optimizing our existing capacity. I'll now turn to leadership at Avid. I recently stepped into serve as Avid's Interim President and CEO, following the departure of Roger Lias last month. Given my 20 years of experience in the CDMO sector and my tenure on Avid's board, I am thrilled that the opportunity to assume temporary leadership at this exciting time of growth and transition. The Avid board has initiated a search for the Company's new permanent CEO. Having said that, we are being very deliberate in this crucial process, we recognize the significant progress that has been made to date at Avid. And we will take our time to find the ideal candidate to lead the Company to ongoing success. We do not have a timeline for this process. We'll update you as there is news to report. In closing, I'd like to emphasize that during fiscal 2019, the Avid team successfully achieved the most critical goals for the business. Most notably, we converted the losses and negative margins this fiscal 2018 into a sustainable position of financial strength and operational profitability. And we expect to continue revenue growth, moving forward. With respect to business development, the five new clients signed in late fiscal 2018, contributed significantly to revenue diversification in fiscal 2019. These projects substantially increased capacity utilization, which drove a meaningful improvement in margins during the year. Avid is stronger today than it has been at any point in its history. For that, we offer our sincere thanks to Roger Lias who led the transition from a drug development company to a leading and profitable CDMO. Looking ahead, we will continue to execute according to plan with even higher goals for revenue and new customer projects. As in fiscal 2019, we expect to continue to achieve great successes in the coming years. With that, I'm happy to announce that for fiscal 2020, we expect to record revenue of between $64 million and $67 million, representing growth of approximately 20% to 25% over fiscal 2019. And as we continue to achieve revenue growth, we expect the improvement in margins to track accordingly. Thank you to all of our investors, industry colleagues and friends who have continued to support Avid during its transition. But most importantly, I'd like to offer a big thank you to the entire Avid team. Our employees work tirelessly and diligently to make Avid the best CDMO it can be. It is because of their unwavering commitment to excellence that I am confident in Avid's growth potential and very excited about the successes that lie ahead. This concludes my prepared remarks for today. We can now open the call up for questions. Operator?

Thank you, sir [Operator Instructions]. And our first question will come from the line of Joe Pantginis with H.C. Wainwright. Your line is now open.

Hi everyone good afternoon, thanks for taking the questions. First, just curious with the five new clients that were signed in late fiscal '19. Can you talk about what the mix is? Are they all early stage for process development and early process development?

Yes, so I'll take a stab at that. So, we did, as you mentioned there, there are several projects that we signed and they vary. Some of those projects came in immediately from sell line development stage. So they are very early on. And we also had at least one project that came in that was more at the phase two stage. So that pretty much covers it. We're at pretty good stage when you look at those customers. And yes, just to reiterate, those customers are signed at the tender of late 2018.

Yes, it’s too hard to predict.

I just wanted to share that comments.

Sure, sure. No, thanks for the clarification. And then my next two questions, it's more of a reminder or refresher, if you don't mind. And it's focusing on backlog. So the first part is with regard to the backlog increasing and your prepared comments talking about the facilities that you already have with regard to Franklin and Myford. What is a trigger number, if you will, that will allow you to then actively extend your capacity?

Joe, this is Dan. Appreciate the question. The backlog is a little tricky, because as we've discussed in the past, the backlog is only the signed contractual firm relationship that we have with the clients. It's not the entirety of our opportunity pipeline and any work that we see from our customer forecast. So, it just depends on the overall operation and financial forecast that we're looking at from our customers, not necessarily just the backlog number that is reported.

And then you actually answered part of the next question with regard to, when you talk about the backlog number, you did remind us obviously that it's the signed contractual work. So what else does the number not include?

So, there's a lot of -- so the programs that we're running for our clients, they run multiple months, multiple quarters, multiple years. And those forecasts that we have from our clients, we can see as to where that particular project or program is going. However, contractually, we may only sign up for some limited portion of that entire program.

Thank you. And our next question will come from the line of Paul Knight with Janney Montgomery. Your line is now open.

Rick and maybe Tracy as well on this question and that is I think you were considering expanding the sales force. Where are you with those efforts? What do you want to do for spurs on that?

So we do have one current opening for a sales rep. And Tracy and her team are continuing to evaluate where to put additional resources. Tracy has built a very, very strong internal business operations team. And they hand some of the activities that might normally be handled by external sales reps. So, we don't feel that we need a tremendous number of field representatives at this time to cover our industry, but we are monitoring that, so looking for people, field representatives to be focused in the hubs of biotech activity.

And then, Dan, on the cadence of backlog. Is there a change in the way you're recognizing or reporting backlog? You're talking about it being in the next 12 months. But is your recording of it any different than you've done in the past? Is it a more conservative approach or no change? And then on the second question regarding I think, Dan, would want to talk to this is, the rollout of quarters in 2020. Will it start, let's say, down sequentially? How do you want us to think about rolling out quarters in upcoming fiscal or current, rather?

As far as your first question on backlog, there's no change into how we account for or report our backlog. So, the cadence of that backlog is merely a factor of, if you're looking at a period-over-period, the beginning balance, if you take out any revenue, you recognize in anything that we've signed yet back to it. There's no difference as far as the content of that backlog, it's all based on contractual relationships. As far as far as your second question, we're not necessarily giving a quarter-over-quarter guidance as far as what that revenue looks like. But as we've said in our prepared remarks, the revenues -- the guidance that we're providing from fiscal '20 is $64 million to $67 million.

And Rick, if you could talk to business conditions now, customer interest, customer inquiries. How was it now versus one year ago? Is it better, expanded? What's the tone of customer and demand right now?

So, it remains extremely strong. As Tracy mentioned, we were just a buyer recently. And our customers and our potential customers, we had quite a number of meetings. They continue to be very healthy. They're able to access the funds that they need to bring innovative molecules to the market. And we continue to be in a sweet spot for where a lot of those drugs are being developed. So not really huge blockbuster products but more niche orphan indications and follow along biosimilars that really fit very well with our capacity. And as Tracy mentioned in her remarks, quite a number of those products move through the clinical development process very quickly. So having a CDMO with a commercial history is very critical. But we see the industry is very, very strong. At this point, a lot of antibodies and other mammalian derived proteins being developed from early research all the way through later clinical trials and moving towards approval.

And then my last question, Rick, is. What are the two or three things that customers you think are finding most appealing about your offering? Is it you can do early-stage work? Is it your physical location? And what do you think are the key touch points that customers are liking?

So, I think first and foremost, it's our tremendous regulatory history. That's one of the key differentiators that makes Avid unique compared to a lot of other people who can develop mammalian proteins. So, the number of years that we've had a commercial experience, the number of countries that we have approval for that really sets us apart. And then as you hit on, I think the ability to take projects from early phase development up through clinical trials and rapidly to commercialization is very attractive. The flexibility in our platforms and I think the expertise and process development, in regulatory, in quality and of course in manufacturing. In terms of geography, which you mentioned, that is just something that does help us with the Bay Area, Seattle, Sand Diego clients in the Los Angeles area. Certainly, being in the same time zone when we have a person in the plant and we're doing production, they can just fly down from San Francisco, be here for the day and fly back. So that is very attractive. We also do get quite a bit of work in the East Coast as well. And those POPs love to come out to beautiful southern California, particularly in the winter. So, we use our geography as a strong advantage. So, I'd say it's a combination of those factors but really one of our keys I think is our regulatory history.

Thank you. And our next question will come from the line of Steve Schwartz with First Analyst. Your line is open.

Well, to carry on one question from Joe and Paul with respect to the backlog. So in the press release, you note $19.7 million from existing customers. And I think as you stated in one of your early responses, you back up the $17.1 million in revenue book. Looks like you've added $2.6 million to the backlog from existing customers with the $3 million difference then -- does that mean there's about $400,000 added to the backlog from new customers? Am I reading those numbers right?

No, I think, Steve, if I were to help clarify that. We've began the quarter with backlog of $43 million. And during the quarter, we recognized $17.1 million of revenue. In addition, we signed additional contractual relationships with existing customers of $19.7 million. So, adding those three numbers together is where we end up at our $46 million backlog at the end of April.

But then that would suggest that the backlog add from $43 million to $46 million was all from existing customers?

That's right.

Okay, that clarifies it, that's perfect now. And then not to harp on the question that Paul suggested about the roll out of revenue across the year, but it would really be helpful. There is really no way you can tell us maybe what the first half looks like versus second half. Is it -- should we just presume like 50:50? Is it more like 40:60?

Steve, we're not giving quarterly guidance at this point. All that I can tell you is that our annual is $64 million to $67 million.

And in Tracy's prepared remarks talking about the validations, just so I understand this correctly. In FY19, you did two process validations. It sounds like the first one was for Halozyme and then the second one was not, or was that also a Halozyme process?

Yes, there was only one for Halozyme.

And then the one that's underway for FY'20 is not Halozyme either. Is that correct?

It is not, that's correct.

And just to echo what you stated in your -- and make sure I got this correctly. There's really no way for us to get a sense of when that might transform itself into revenue from a validation to actual production. Is that correct?

To commercial, right. We really need to wait for the filings and the approval, and the inspections, et cetera.

A lot of those activities are -- and essentially all of those activities are beyond our control.

And then with respect to gross margin, so there very nice improvement in FY '19 and in the release, you stated a couple of reasons behind that. So I just want to make sure I understand with respect to product mix. You are starting to present these numbers in the filings, but if you could just talk about it. When you refer to mix, is it the mix between development work versus production work, is it a mix of what's going through actual production? Can you give us a little color around that?

It's all of the above. In addition to that, it's also the type of effort whether it's just the service or service includes materials. And also based on the type of work that we're doing, if we're doing analytical development or if we're doing straight up manufacturing in addition to the scale of the manufacturing is also different in that type of margin. So, it's all of the above.

And then how was that you saw the reduction in direct manufacturing cost? Is that sustainable? Or was it just within the quarter?

No, that overall reduction was essentially a change that we went through near the end of last year into this year. So going forward, we won't see significant reduction such as that. Though, we'll continue to focus on cost control and looking at spending wisely just anything that's affecting our gross profit margins but that was as we transitioned into a pure-play CDMO.

And then my last question is around SG&A. And you saw significant reduction in FY '19. What should we expect going forward for FY '20? I mean, there's going to be $0.5 million in there paid out to Roger. So there you're going to have like double CEO salary that's going to be in there. But aside from that, is there anything else we need to be aware of, considering the big gap between FY '18 and FY '19?

Steve, what we've said in the past that still holds true is we don't see any significant increases in SG&A. We're not at a point where we need to add a bunch of headcount or any other type of operational costs within SG&A. We can fully leverage that. We'll see some growth as the business grows, but it's not going to be anywhere near the growth of the revenue rate or cost of sales.

Yes, okay, fantastic. Well, very nice quarter everyone, nice to see you to the inflection coming through here.

Thank you, Steve.

Thank you. At this time, I would like to hand the call back over to Rick Hancock for closing remarks.

Thank you, again for participating today. And thank you for your continued support of Avid Bioservices. We look forward to updating you again in the near future.

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude our program and we may all disconnect. Everybody, have a wonderful day.