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
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
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.
20 First Quarter Highlights
The following summarizes select highlights from our first quarter ended
· Reported revenues of
compared to the same prior year period;
· Reported net income of
diluted share;
· Expanded our customer base and programs with existing customers and ended the
quarter with a backlog of approximately
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
In
In
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
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
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.
21
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
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 ) 22
Three Months Ended
Revenues
Revenues for the three months ended
$ millions
Net increase in manufacturing revenues
0.1 Total increase in revenues$ 5.9 Gross Profit
Gross profit for the three months ended
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
$ millions
Increase in compensation and benefit 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
23 Interest Expense
Interest expense was
Income Tax Expense
Income tax expense was
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
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
Three Months Ended July 31, 2022 2021 $ Change
Net cash used in operating activities
Net cash used in operating activities for the three months ended
24
Net cash used in operating activities for the three months ended
Net cash used in investing activities for the three months ended
Net Cash Provided by Financing Activities
Net cash provided by financing activities for the three months ended
Net cash provided by financing activities for the three months ended
Cash Requirements
Our material cash requirements include the following contractual and other obligations.
Convertible Senior Notes
In
The Convertible Notes are senior unsecured obligations and accrue at a rate of
1.25% per annum, payable semi-annually in arrears on
As of
Leases
We lease certain office, manufacturing, laboratory, and warehouse space located
in
25 Capital Expenditures
During the three months ended
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
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
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