00:02 Good day, ladies and gentlemen, and welcome to the Avid Bioservices Second Quarter Fiscal twenty twenty two Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call may be recorded. 00:20 I would now like to hand the conference over to Tim Brons of Avid's Investor Relations Group. Please go ahead.

00:38 Thank you. Good afternoon, and thank you for joining us. On today's call, we have Nick Green, President and CEO; Dan Hart, Chief Financial Officer; and Matt Kwietniak, Avid’s Chief Commercial Officer. 00:52 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 ended October thirty one, twenty twenty one. After our prepared remarks, we will welcome your questions. 01:09 Before we begin, I'd like to caution that comments made during this conference call today, December seventh, twenty twenty one, will contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of nineteen ninety five, concerning the current belief of the company, which involves a number of assumptions, risks and uncertainties. 01:31 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. 01:45 Our earnings press release and this call will include discussion of certain non-GAAP information. You can find our earnings press release, including relevant non-GAAP reconciliations on our corporate website at avidbio.com. 02:01 With that, I will turn the call over to Nick Green, Avid's President and CEO.

02:07 Thank you, Tim, and thank you to everyone who has dialed-in today and to those participating today via webcast. I am pleased to announce another strong quarter of Avid, beginning with our financial results, for the sixth quarter in a row, we have recorded an increase in revenues compared to the prior year period. 02:26 On the new business front, our team signed numerous new clients and new orders further strengthening our pipeline. Finally, with respect to operations, the company successfully completed its annual maintenance shutdowns and broke ground on the Myford South construction. 02:43 Most significantly, the company recently announced its expansion into viral vector development and the manufacturing services for cell and gene therapy products. We believe this area offers significant opportunity for growth, and we are very excited to begin offering services to this sector. 03:02 Before I turn the call over to Dan for a review of the financial results, I would first like to welcome Matt, Avid’s new Chief Commercial Officer to the call. Matt is an accomplished Senior Global Sales Executive with a proven track record of driving revenue growth. In his new role, he will be responsible for the continuing growth of Avid’s business through the ongoing expansion of the company's commercial clinical client base. 03:29 We are extremely pleased to have Matt join our team and we look forward to working with him. Matt and I will provide additional details on business development and operations for the period following an overview of our second quarter financial results. 03:44 And for that, I'll turn the call over to Dan.

03:47 Thank you, Nick. Before I begin, in addition to the brief financial overview, I'll provide on the call today, additional details on our second quarter financial results are included in our press release issued prior to this call and in our Form ten Q, which was filed today with the SEC. I'll now provide an overview of our financial results from operations for the quarter and six months ended October thirty one, twenty twenty one. 04:11 Revenues for the second quarter of fiscal twenty twenty two were twenty six point one million, representing a twenty four percent increase compared to twenty one point one million recorded in the prior year period. 04:24 The increase in revenues can primarily be attributable to fees received from a customer during the current year period for underutilized reserve capacity, combined with an increase in our process development revenues, primarily associated with services provided to new customers. 04:39 For the first six months of fiscal twenty twenty two, revenues were fifty six point nine million, a twenty two percent increase compared to forty six point five million in the prior year period. The increase in revenues for the first six months of fiscal twenty twenty two can primarily be attributable to an increase in fees received from customers for unutilized reserve capacity, combined with an increase in process development revenues primarily associated with services provided to new customers. 05:07 Gross margin for the second quarter of fiscal twenty two was thirty five percent, compared to a gross margin of thirty percent for the second quarter of fiscal twenty twenty one. Gross margin for the first six months of fiscal twenty two was thirty six percent, compared to thirty two percent for the prior year period. The increases in gross margin for the quarter and the first six months were primarily from higher manufacturing and process development revenues during these periods. 05:36 While we are pleased to report these improvements in gross margin compared to prior years, we do expect to increase hiring in the coming months to support our growing manufacturing capacity and our new viral vector business, and this may impact margins in future quarters. 05:53 Total SG and A expenses for the second quarter of fiscal twenty two were five million dollars, an increase of twenty one percent compared to four point two million dollars recorded for the second quarter of fiscal twenty twenty one. 06:05 For the first six months of fiscal twenty two, SG and A expenses were nine point five million, as compared to eight million dollars for the prior year period. The increase in SG and A during the quarter in the first six months was primarily due to increases in stock based compensation, facility, and related expenses, advertising costs, partially offset by a decrease in payroll and benefit related costs. 06:31 For the second quarter of fiscal twenty twenty two, we recorded net income attributable to common stockholders of three point five million or zero point zero six dollars per basic and diluted share as compared to net income attributable to common stockholders of eight hundred thousand or zero point zero one dollars per basic and diluted share for the second quarter of fiscal twenty twenty one. 06:50 For the first six months of fiscal twenty twenty two, the company recorded a consolidated net income attributable to common stockholders of nine point eight million or zero point one six dollars and zero point one five dollars per basic and diluted share respectively, compared to a consolidated net income attributable to common stockholders of four point five million dollars or zero point zero eight dollars per basic and diluted share for the fiscal twenty twenty one period. 07:16 The second quarter of fiscal twenty two was the company's sixth consecutive quarter of operational profitability and we are pleased to report that we achieved adjusted EBITDA of seven point six million during the second quarter and seventeen point three million for the first six months of fiscal twenty two. 07:33 Our cash and cash equivalents on October thirty one, twenty twenty one were one hundred and sixty three point seven million, compared to our first quarter balance of one hundred and fifty nine point seven million on July thirty one, twenty twenty one and prior fiscal year in balance of one hundred and sixty nine point nine million on April thirty, twenty twenty one. 07:55 We are updating our previously announced planned capital spend for fiscal year twenty two from fifty million to sixty million to approximately fifty five million to sixty five million, which now includes anticipated spend on the viral vector facility. This concludes my financial overview. 08:12 I'll now turn the call over to Matt for an update on business development during the quarter.

08:17 Hello everyone. I am very pleased to be participating in my first earnings call as Avid’s Chief Commercial Officer. Throughout my career, I have had the good fortune of working with many leading companies in the development and CDMO sectors and in each role I've been charged with driving revenue growth in building the business development teams that achieved that growth. 08:37 I was eager to join Avid because I believe the opportunity to be substantial. And after my first two months on the job, I could say that my enthusiasm has only grown for this company, while the ongoing expansion and the company's move into viral vector manufacturing presents significant opportunities for growth in the future, our current team continues to deliver solid results for our existing mammalian cell business. 09:03 During the second quarter, the business development team signed new project orders totaling approximately thirty six million from the new and existing customers. This work will span process development, new projects with existing customers and additional orders for commercial products. As a result, we ended the second quarter with a backlog of approximately one hundred and twenty million and expect to recognize most of that backlog over the next twelve months. 09:28 We are also pleased to report that during the first six months of fiscal twenty two, we have signed as many new projects from new and existing clients as we did in the whole of fiscal twenty one. We believe this is an early indicator of the trajectory ahead and the entire business development team is looking forward with great optimism. This concludes my overview of business development activities for the quarter. 09:51 I will now turn the call back over to Nick, for an update on operations and other achievements during the quarter.

09:58 Thanks, Matt. The company made great progress in operations during the quarter. Most notably, Avid recently announced that the company was expanding its CDMO service offering into the rapidly growing cell and gene therapy market. This decision was driven by continued strong growth in this sector, combined with the CDMO Industry’s overall lack of proven, high-quality CGMP manufacturing expertise and capacity for viral vectors. 10:25 To lead the company’s strategic expansion into this market, we are actively building an industry leading team of experts. We’ve established track records of success in this field. To this end, Avid recently appointed Drew Brennan, an experienced executive from the viral vector sector of the CDMO market to lead the company's expansion into cell and gene therapy market. 10:47 Drew most recently spent more than a decade in senior commercial and operational positions at Novasep, where he was credited with driving significant growth of Novasep’s U.S. CDMO services business, including the securing of several major viral vector CDMO contracts. 11:07 In addition, the company recently appointed Elie Hanania, as Vice President, Process Development. Elie is a seasoned life science industry executive with more than thirty years of experience in the field of cell and gene therapy. 11:23 To house this new business, the company is constructing a world class purpose built fifty three thousand square feet viral vector development and GMP manufacturing facility in Costa Mesa, California. Approximately five miles from Avid’s existing operations in Tustin, California. 11:40 Based on current projections, Avid expects the entire new facility build-out to take up to eighteen months at an estimated cost of approximately seventy five million dollars. The new facility’s analytical and process development laboratories are expected to come online more rapidly with the potential to be operational during the first quarter of fiscal twenty twenty three. 12:03 Given Avid’s strong record of quality and manufacturing, our exceptional regulatory inspection history and our customer centric approach to business, we believe this company is uniquely qualified to bring these values and skills to the cell and gene therapy sector, and look forward to bringing this business online during fiscal year twenty three. 12:26 I'll now provide an update of other operational achievements. As of today, the company has successfully concluded its annual maintenance shutdowns [per ground] [ph] on Phase two of the Myford South expansion, untied in the Phase one expansion, which we expect to be available to operations by January twenty twenty two as we previously communicated. And we are also scheduling clients into this space during quarter one of calendar twenty twenty two. 12:56 As we've disclosed previously, we estimate that the addition of the viral vectors to the ongoing expansions will bring the company's total annual revenue generating capacity to approximately three fifty million dollars. As I hope is evident, the second quarter was highly productive and a transformative time for Avid. The company's financial status is increasingly strong supported by year over year revenue growth, continued new business wins and substantial backlog. 13:28 For these reasons, we believe we remain on track to achieve our stated full year twenty two revenue guidance between one hundred and fifteen million dollars and one hundred and seventeen million dollars. Our business development team continues to perform signing thirty six million in new business during the quarter and ending the period with a backlog of one hundred and twenty million dollars. And under the new leadership of Matt, we believe our new business opportunities will only grow. 13:58 Leveraging the company's operational strengths, we are pleased to expand our service offerings into the cell and gene therapy market, and we are confident in our ability to establish an industry leading viral vector CDMO business, and we are actively building the team and facilities that we believe will drive our success and expand our revenue generating capacity. 14:21 Also during the quarter, we are pleased to have our progress as measured in the value created for shareholders recognized as the company's stock was named for the first time to the S and P SmallCap 600 Index. We are honored to join this index, and we believe it speaks to the collective effort of everyone at Avid, while building greater visibility for the company with investors in the industry alike. 14:46 We are pleased with our progress, and we believe that each of our accomplishments during the quarter will facilitate the growth and move us towards our overarching goal of establishing Avid as a best in class CDMO focused on biologics. 15:01 This concludes my prepared remarks for today, and we can now open the call for questions. Operator?

15:09 Certainly. [Operator Instructions] Our first question comes from the line of Sean Dodge from RBC Capital Markets. Your question please.

15:25 Thanks. Good afternoon and congratulations on the success with the new business wins. Nick or Matt, you touched on it a bit in your prepared remarks, but can you talk a little bit more about the broader demand environment? Are you seeing any noise from supply chain challenges? And then maybe with the backlog and then the visibility you may have through your sales pipeline, can you just give us some kind of idea of how quickly you think you can fill the incremental capacity that will be coming online in the next couple of months here?

15:59 Yes, I think with the strong backlog already, and positive growth with our issuance in the last few months, I think that we're going to remain on track for continued growth.

16:16 Okay. And then maybe I guess the forward margin trajectory, there's a couple of different dynamics that'll be affecting you over the coming quarters. Dan you mentioned increasing hiring soon, but you also have this new space opening up in generating revenue. Is there any general direction you can give us on how we should be thinking about the trajectory and margins over the next year, year and a half?

16:44 Yes. I think I'll firm up Sean with what I’ve said in the past that with the current installed capacity, we should see a gross margin that's roughly thirty percent plus or minus depending on mix. Moving into the first phase and second phase for that matter of the mammalian expansion, we should see a good positive fifty to seventy percent or so margin expansion, but that's fully depended on the mix that comes through the timing of the revenues and filling that first phase and second phase and onboarding the cost. 17:20 So, in general, we should see continued growth as the top line increases, but just to point out in the near term, we'll have, you know based on mix and the costs associated with bringing on the new facilities and absorbing the depreciation and other costs, including personnel costs could impact how quick it expands.

17:45 Okay. And then just to follow on to that, the cell and gene therapy expansion, how quickly will you be hiring to begin to staff that? Are those kind of more G and A additions at this point and that will start to get to kind of more of the facility specific people or will those happen I guess soon?

18:09 Yes. So Sean, it’s Nick speaking. I think it's a mix just to be frank with you. Some of the first people we're bringing in, we've already got people in engineering, obviously, and we've obviously got Elie on the R and D side, but we also will – looking at bringing in operational people, quality people, we've got to build the quality systems and everything else ahead of opening of manufacturing, but I think you're probably going to see more in the development side of the business as we bring new clients initially into development and then move them into GMP, and that's the way we're bringing the facilities online. 18:46 So, we're bringing the development hopefully in quarter one of fiscal twenty three and then obviously we said the GMP completion is about an eighteen month program. So, that will be somewhat later on after that.

18:59 Okay. Super helpful. Thanks and congratulations again.

19:03 Thanks very much Sean.

19:05 Thank you. Our next question comes from the line of Jacob Johnson from Stephens. Your question please.

19:11 Hey, good afternoon, everybody. First, just because I'm getting a number of questions on it, just to get out of the way, on COVID-nineteen, can you just talk about how much of your backlog today is comprised of COVID-nineteen related work?

19:28 Yeah, I think we're around fifteen percent roughly give or take Jacob of the backlog.

19:36 Okay. And then, I guess shifting gears to the viral vector build-out, maybe first Nick, what kinds of viral vectors will you be manufacturing? Is it AAV, lenti, both? And then also any interest in getting into [plasmids] [ph]?

19:55 So, first question on the vectors, both AAV and lenti, Elie has a tremendous range, actually, I was shocked there were vectors that I haven't even heard of to be frank with you that he’s been involved within in his thirty year history. So, not that I would surprise anybody, but he’s been involved in a large number and a good variation, but clearly the lenti, the virus as a, sort of main, the main throws of the viral vector market for cell and gene therapy. But there will be others I'm sure. 20:33 We obviously need them as we go along to bring additional expertise around those to support Elie, which we're obviously out there looking for as we speak. So, but AAV and lenti will certainly, I think be a key cornerstone of the business.

20:47 Got it. And then just one last follow-up along the same lines. Nick, can you just remind us the synergies that exist between the mammalian capacity and the viral vector business?

21:02 Yes. I mean, obviously, we still grow the sales in a mammalian so and in heck and more often than not, which is not a lot different to what we do with [Joe] [ph] in the mammalian cell business. So, a lot of the key fundamentals, the size of reactors, the disposable technologies, the unit steps, the purification are all very common. Obviously, the quality systems under biologics operation as well is very similar, but there are other challenges obviously that are dissimilar, so air flows in construction of the facility are slightly different in terms of viral vectors. 21:41 And obviously, we've got to do the viral component, which is why we brought people like Elie and because that's the new technology that we need to add to what we already know how to do. So, a lot of commonality there. With respect to your comment regarding [plasmids] [ph], I mean, I think that obviously is an interesting field, every viral vector that requires a plasmid or two or three and so that clearly is an area that could be of potential interest going forward is I think we probably highlighted sometime in the past, but right at this moment in time, we've got a few things that we're occupied. We're getting up and running. So, not right at this minute.

22:26 Perfect. I'll leave it there. Thanks for taking the questions, Nick.

22:29 Thanks very much, Jacob.

22:31 Thank you. Our next question comes from the line of Matt Hewitt from Craig-Hallum Capital. Your question please.

22:37 Good afternoon, gentlemen. Congratulations on all the progress. Maybe the first one regarding the first phase at Myford and now that that's complete, I think early on, there was the potential that if that was completed on time, that there could be as much as twelve million of upside to your guidance for the year. If I'm reading the press release correctly, it sounds like that will be dependent upon validation. And I'm just curious what could delay that validation and push that into…?

23:10 We’re in pretty good shape. So, we're fully expect it to be on in January. I don't anticipate there be much in terms of validation that cause us not to be able to do that to be frank. So, I think the major issue for us was getting to where we are now coming out of shut down and having tied it into the existing operations, which we've done all of that. So, fundamentally, it's mechanically complete. 23:35 So, I guess the main thing is that upside is where you're getting at regarding the forecast and it remains the same as it was before, yes, there is. Now we've got it on-site obviously, we can leverage that, but we've got to have it up – it has to be operational before you can book people in. We are already starting booking people in and I think probably the sort of more positive one towards that one is the backlog that Matt highlighted, which is one hundred and twenty million. 24:06 So, clearly, if Matt continues to add to that and so if we can squeeze into this year, then if our capacity is one twenty and hits one twenty five then we've got, we've got some additional revenue opportunities there. So, let's get Christmas out of the way. [Indiscernible] up and running and then obviously we’ll obviously be driving to do as much as we can, but at the moment, our guidance remains the sort of one fifteen, one seventeen mark and we'll work really hard in the New Year to try to see if we can find any opportunity to improve if it's possible.

24:44 That's great. And thank you for the color there. Shifting gears a little bit regarding the new viral vector opportunity, I would assume at this point you've had an opportunity to check with existing customers that are developing cell and gene therapies in addition to maybe their traditional large molecule products, and I'm curious if there is any overlap there and if those are the low hanging fruit of the existing customer base that could come in earlier or quickly once that new facility is up and ready to go?

25:19 Yeah. I mean, I think I would say that it's probably not just about going around on you – our customers and the like obviously, those were the people that we would go out to and talk to, but to be very frank, the main [indiscernible] of the focus of the moment is making sure we bring the right level of expertise and getting the construction and the design absolutely nailed on moving that forward as fast as we can and then putting a quality system. 25:19 And again, we're here to do this right. That's kind of one of the fundamentals of our business is quality first, and making sure that we have a real world class facility well equipped with the right level of competence. 26:00 I think the customer side of it is always a challenge in bringing new business in, but we feel that with those things in place that we'll be able to attract the attention that we need to the facility.

26:13 Understood. Alright. Thank very much.

26:17 Thank you. Our next question comes from the line of Paul Knight from KeyBanc. Your question please.

26:23 Hey, Dan, what was the contract fees in the quarter just posted?

26:33 I'm sorry. Could you repeat that question, Paul?

26:35 Effectively?

26:40 I'm sorry, Paul. Can you repeat that question for me?

26:43 Sorry. Certain part of the revenue is from manufacturing not performed, but still a charge of a revenue recognition, what was that level in the quarter?

26:59 That number was roughly five million dollars during the quarter.

27:05 Okay. And then the COVID is up fifteen percent of backlog, is that where you're getting the most non-recognition, non-manufacturing revenue?

27:26 No. Most the non-manufacturing revenue is coming just from the PD side of the house, which is the entry point into the mammalian side. New programs coming in and have the PD tech transfer what have you analytical before it gets to CGMP.

27:41 Okay. And then that five million, what was that a year ago?

27:47 Year ago it was three point one.

27:49 Okay. Thanks. And then on the cell and gene therapy expansion, how many square feet did you mentioned Nick?

27:58 Fifty four thousand square feet, Paul.

28:02 And seventy five million of CapEx, you're kind of employing about one hundred and – about eighty million of potential revenue, would you view that as kind of a conservative level of revenue out of the facility of that size?

28:25 It will depend on mix, obviously, and capacity utilization, but I think it's a little early for me to be absolutely frank on whether we could squeeze more out of it until we start getting it operational and see the opportunities, but I would be surprised if it was any less for sure.

28:45 Okay. Thank you.

28:49 Thank you. At this time, I'd like to hand the call back to Nick Green for any closing remarks.

28:56 Thank you, operator, and thank you to everyone participating on today's call. In closing, I'd just like to thank Avid’s customers, partners, and investors for their ongoing collaboration. And as always, I'd like to acknowledge Avid’s extraordinary employees who together are driving the continued company’s success. Thank you again for participating on the call today and for your continued support of Avid Bioservices.

29:22 Thank you ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.