Avid Bioservices, Inc. (NASDAQ:CDMO) announced its fourth quarter and full fiscal year 2024 results, delivering the highest quarterly revenue in its history at $43 million, an 8% increase over the same quarter last year. However, the company faced a 6% decrease in full fiscal year revenues, amounting to $139.9 million. The gross margin for the quarter stood at 13%, with a full-year gross margin of 5%.
Looking forward, Avid Bioservices provided an optimistic revenue guidance for fiscal year 2025, projecting revenues between $160 million and $168 million. This forecast suggests a significant year-over-year growth, buoyed by the company's new cell and gene therapy manufacturing facility and a trend towards onshoring drug manufacturing in the U.S.
Key Takeaways
- Avid Bioservices reported a record $43 million in quarterly revenues, an 8% year-over-year increase.
- Full fiscal year revenues saw a decline of 6% to $139.9 million.
- Fiscal year 2025 revenue guidance is set between $160 million and $168 million, indicating a 17% growth at the midpoint.
- The company launched a new cell and gene therapy manufacturing facility, enhancing capacity and technical capabilities.
- Avid Bioservices anticipates improved margins and increased capacity utilization in the upcoming fiscal year.
- The company is positive about the biotech financial market and the onshoring of drug manufacturing to the U.S.
Company Outlook
- Avid Bioservices expects fiscal year 2025 to show growth with projected revenues of $160 million to $168 million.
- The company has completed the expansion of mammalian cell facilities and launched a new manufacturing facility.
- Avid sees increased larger and later-stage programs in its production pipeline.
- The CDMO market capacity remains tight, with high demand for late-phase commercial-grade capacity.
Bearish Highlights
- Full fiscal year revenues decreased by approximately 6%.
- The company mentioned a slow process in penetrating the large pharma market.
Bullish Highlights
- Record revenues in Q4 of fiscal year 2024.
- Positive outlook for fiscal year 2025 with anticipated growth.
- Expansion of capacity and technical capabilities to serve a broader range of customers.
- Improving financial market conditions for biotech companies.
Misses
- Gross profit for the full fiscal year was relatively low at $7.3 million with a gross margin of 5%.
Q&A Highlights
- CEO Nick Green discussed exceeding margin expectations in Q3 and Q4, with the anticipation of continued margin improvement.
- The majority of fiscal 2025 growth is expected to come from non-Halozyme sources.
- Depreciation is set to increase by 40-45% over fiscal 2024, affecting margins but not cash flow.
Avid Bioservices' CEO Nick Green conveyed confidence in the company's performance and future prospects despite a challenging financial market. The company's strategic expansions and the positive trend in onshoring drug manufacturing to the U.S. are expected to drive business growth and improve financials in the upcoming year. The CDMO market's tight capacity, particularly for high-quality late-phase commercial-grade capacity, positions Avid to potentially benefit from increased demand. With approximately $80 million in interest and activity in their pipeline, Avid Bioservices anticipates a pickup in business in the coming months. The company's focus on diversification and the expansion of its manufacturing capabilities are central to its strategy for capturing a larger market share and delivering on its optimistic revenue guidance for fiscal 2025.
InvestingPro Insights
Avid Bioservices, Inc. (CDMO) has shown a notable quarterly revenue increase, yet the company's full fiscal year paints a different picture, with a 6% decrease. The InvestingPro data reinforces this dichotomy, revealing a revenue decline over the last twelve months as of Q3 2024 by approximately 2.81%. Additionally, the gross profit margin stands at a modest 7.47%, which aligns with the reported full-year gross margin of 5%.
InvestingPro Tips indicate several challenges that Avid Bioservices may face. Analysts have revised their earnings downwards for the upcoming period, and the company is expected to suffer from weak gross profit margins. Furthermore, Avid Bioservices is not anticipated to be profitable this year, which could be a concern for investors considering the company's optimistic revenue guidance for fiscal year 2025.
For those interested in a deeper analysis, there are 7 additional InvestingPro Tips available that could provide further insights into Avid Bioservices' financial health and market expectations. These tips, along with comprehensive metrics, can be accessed through the dedicated page for Avid Bioservices at https://www.investing.com/pro/CDMO.
Investors looking to leverage these insights and tips can use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, providing a valuable tool for making informed investment decisions.
InvestingPro Data:
- Market Cap (Adjusted): 425.31M USD
- P/E Ratio (Adjusted) as of Q3 2024: -24.13
- Revenue as of Q3 2024: 136.74M USD
The data and tips from InvestingPro suggest that while Avid Bioservices is optimistic about its future, investors should consider the company's current financial performance and analyst expectations when evaluating its stock. The volatile stock price and the challenges in achieving profitability underscore the importance of a cautious approach.
Full transcript - Peregrine Pharmaceuticals (CDMO) Q4 2024:
Operator: Thank you for standing by, and welcome to the Avid Bioservices Fourth Quarter Fiscal Year 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, today's program is being recorded. And now, I'd like to introduce your host for today's program, Tim Brons, Avid's Investor Relations. Please go ahead, sir.
Tim Brons: 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. 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 fiscal year ended April 30, 2024. 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, July 2, 2024 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 the company's filings with the Securities and Exchange Commission concerning these and other matters. Our earnings press release includes 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. With that, I will turn the call over to Nick Green, Avid's President and CEO.
Nick Green: Thank you, Tim, and thank you to everyone participating today via webcast. The fourth quarter of fiscal 2024 was a high point for the company. We generated the highest quarterly revenues in Avid's history, meeting our current revenue expectations for the year. We also signed multiple new project agreements and we continue to see positive signs in the broader business environment, which bodes well for the business development in the year ahead. In operations, our additional capacity is being put to good use. New projects in all of our facilities are being onboarded. And as a result, our gross margin for quarter four is approximately double that reported for quarter three. While rebuilding our margins will take time, we are pleased to see this movement in the right direction, as new bookings remain strong and capacity utilization increases. Matt and I will provide additional details on business development and operations for the period following an overview of our fourth quarter fiscal year 2024 financial results. And for that, I'll turn the call over to Dan.
Dan Hart: Thank you, Nick. Before I begin, in addition to the brief financial overview, I'll provide on the call today, additional details on our financial results are included in our press release issued prior to this call and in our Form 10-K, which was filed today with the SEC. I'll now provide an overview of our financial results from operations for the quarter and fiscal year ended April 30, 2024. Revenues for the fourth quarter of fiscal 2024 were $43 million, representing 8% increase as compared to revenues of $39.8 million recorded in the same prior year period. The increase in revenue for the fourth quarter as compared to the same prior year period was primarily due to increases in the mix and scale of manufacturing runs and process development services primarily associated with the onboarding of new programs. For the 2024 full fiscal year, revenues were $139.9 million, a decrease of approximately 6% compared to $149.3 million in the same prior year period. The decrease in revenues for the fiscal year ended April 30, 2024, compared to the same prior year period was primarily attributed to fewer manufacturing runs, a reduction in process development services primarily from early stage programs and by a reduction of revenue for changes in estimated variable consideration under a contract where uncertainties have been resolved. Gross profit for the fourth quarter of fiscal 2024 was $5.5 million or 13% gross margin compared to $8.4 million or 21% gross margin in the fourth quarter of fiscal 2023. Gross profit for the 2024 full fiscal year was $7.3 million or 5% gross margin, compared to a gross profit of $31.5 million or 21% gross margin for the 2023 full fiscal year. The decrease in gross profit for the fourth quarter and fiscal year ended April 30, 2024, compared to the same prior year periods was primarily driven by fewer manufacturing runs, partially offset by increases in the mix and scale of manufacturing runs, a reduction of process development services and an increase in costs related to expansions of both our company's capacity and technical capabilities. Gross profit during the fiscal year ended April 30, 2024, was also impacted by a reduction of revenue for changes in estimated variable consideration under a contract where uncertainties have been resolved. A terminated project related to the insolvency of one of our company's smaller customers and a delay in the ability to recognize revenues of a customer product pending the implementation of a process change. SG&A expenses for the fourth quarter of fiscal 2024 were $6.8 million, a decrease of 10% compared to $7.6 million recorded in the fourth quarter of fiscal 2023. SG&A expenses for the 2024 full fiscal year were $26 million, a decrease of approximately 7% compared to $27.9 million recorded in the same prior year period. The decrease in SG&A for both the fourth quarter and the fiscal year ended April 30, 2024, compared to the same prior year period was primarily due to decreases in compensation and benefit related expenses, facility expenses and consulting fees. Income tax expense for the fourth quarter of fiscal 2024 was $117.9 million, an increase as compared to $0.9 million in the fourth quarter of fiscal 2023. Income tax expense for the 2024 full fiscal year was $113.8 million, an increase as compared to $1.3 million for the prior year period. During the fourth quarter of fiscal 2024, we recorded a valuation allowance of $118.5 million against our deferred tax assets. We recognized deferred tax assets to the extent that we believe these assets are more likely than not to be realized. On a periodic basis, management assesses the available positive and negative evidence to estimate whether sufficient future income will be generated to permit use of the existing deferred tax assets. In making such a determination, we consider all available positive and negative evidence. A significant piece of the objective negative evidence evaluated was the net loss in fiscal 2024 resulting in a net cumulative loss incurred over the three year fiscal period ended April 30, 2024. A significant contributor to the loss has been the costs associated with our strategy to expand our available capacity and add technical capabilities over this three year period, which included an increase in incremental costs associated with increased labor, facility costs and depreciation, accumulating into a net loss in fiscal 2024. On the basis of this evaluation, as of April 30, 2024, evaluation allowance of $118.5 million has been recorded to recognize the portion of the deferred tax asset that is more likely than not to be realized. The amount of the deferred tax assets considered realizable however, could be adjusted in the future quarters if objective positive evidence in the form of cumulative income and additional weight is given to subjective evidence, such as our projections for growth. During the fourth quarter of fiscal 2024, the company's net loss was $123.1 million or $1.94 per basic and diluted share compared to a net loss of $0.3 million or $0.01 per basic diluted share for the fourth quarter of fiscal 2023. For the 2024 full fiscal year, the company recorded a net loss of $140.8 million or $2.23 per basic diluted share as compared to the net income of approximately $0.3 million or $0.00 per basic diluted share during the same prior year period. Excluding the income tax provision recorded due to our valuation allowance of $118.5 million recorded during the fourth quarter of fiscal 2024, the company's adjusted net loss was approximately $4.6 million or $0.07 per basic and diluted share for the quarter and an adjusted net loss of $22.3 million or $0.35 per basic and diluted share for the full fiscal year 2024. Our cash and cash equivalents on April 30, 2024, were $38.1 million compared to $38.5 million on April 30, 2023. This concludes my financial overview. I'll now turn the call over to Matt for an update on commercial activities during the quarter and year.
Matt Kwietniak: Thanks, Dan. During the fourth quarter, the company signed multiple new projects spanning a wide range of capabilities, capping off a successful year for our commercial team. With new project agreements of $30 million during the period, we ended the quarter and fiscal year with a strong backlog of $193 million. For the fiscal year 2024, we not only added a significant number of new projects to our production pipeline, but we added multiple new customers as well. This includes the addition of another big pharma customer during the year. . While the sales cycle for big pharma business takes time, we are actively engaged in discussions with other pharma companies and optimistic with respect to these potential opportunities. In addition, we are beginning to see improvements in the biotech financial markets overall, which we are hopeful will allow for advancement of manufacturing programs that were deferred by drug developers due to cash conservation strategies implemented last year. With respect to building Avid's visibility and positive reputation in the industry, we recently chose EcoVadis, one of the most trusted providers of business sustainability ratings to assist the company in not only evaluating our supply chain, but also ourselves. The EcoVadis assessment evaluates 21 sustainability criteria across four core themes: environment, labor and human rights, ethics and sustainable procurement, and more than 125,000 companies globally have been rated by EcoVadis. The core themes are not only important to Avid, but also our employees as well as other stakeholders, including investors and customers. The company was delighted to have earned a score of 56 from EcoVadis, placing the company in the 62nd percentile globally, which recognizes the culture and values of the business. Equally important, this exercise has enabled the business to identify areas of improvement, and we look forward to continuing Avid's journey of continuing to make our impact on those with whom we interact more and more positive one. In conclusion, despite facing some challenging headwinds in the market during the year, our team continued to perform and deliver. Today, Avid has the largest and most diverse customer base than at any point in its history. Our production pipeline is the largest and most valuable ever, and our backlog remains strong going into the year ahead. We are pleased with the performance of our commercial team in fiscal 2024 and look forward to the new opportunities we anticipate in fiscal 2025. This concludes my overview of commercial activities. I will now turn the call back over to Nick for an update on operations and other achievements during the quarter and year.
Nick Green: Thanks, Matt. Fiscal 2024 was a challenging, but validating year for Avid. There's no doubt that the status of the financial market impacted our results and most notably the first half. There is also no doubt that we recovered extremely well during the balance of the year, achieving an upward trend with higher revenues during the second half, ending with quarter four revenues of $43 million, the highest in the company's history. Given this momentum, combined with our strong backlog we are looking ahead to a promising 2025 and providing 2025 full fiscal year revenue guidance of between $160 million and $168 million, representing a 17% growth year-over-year at the midpoint. Supporting our optimism is the growing interest we've seen in our newly completed facilities and expanded capabilities. In late fiscal 2023, we unveiled our completed mammalian cell facilities expansion. And during fiscal 2024, the company completed and launched its new cell and gene therapy manufacturing facility. With the completion of this three year construction program as well as the associated capital expense, the company has dramatically expanded its capacity and technical capabilities, and increased the company's annual revenue-generating capacity from approximately $120 million annually in fiscal 2021 to more than $400 million today. The enhancements and expansion not only allow Avid to better service new and existing biotech customers, but importantly, enable the company to address the needs of large pharma as well. The expanded addressable market and improvements in the broader business environment have resulted in an increase in the larger and later stage programs in our production pipeline. With respect to capacity, our utilization is expected to increase as we onboard and execute new programs in both our mammalian and CGT facilities. As we've discussed in prior quarters, this expected increase in utilization should improve our margins, and we are pleased to see an approximate doubling of our gross margin in quarter four as compared to quarter three of this year. We expect the capacity utilization will further increase in connection with the series of ongoing PPQ campaigns for several of our late phase customers. And while the execution of a PPQ campaign is only the beginning of a one to two year journey toward commercial approval and subsequent manufacturer, we are pleased to be partnering in so many of these late phase programs, which we anticipate will contribute to the future stability and growth of the business. In closing, I wish to highlight the company's resilience and execution in the face of difficult market environment. We end the year in a position of strength with positive revenue momentum building, particularly in the second half of fiscal 2024, continued new business wins and line of sight to margin expansion. We recorded our highest ever quarterly revenue of $43 million in quarter four, logged our highest record backlog of $206 million in quarter three and ended the year with double our gross margin in Q4 as compared to Q3 of the year. We are encouraged by the improving financial market for biotech companies along with the continued trend of onshoring of drug manufacturing back to the U.S. This concludes my prepared remarks for today, and we can now open the call for questions. Operator?
Operator: Certainly, one moment for our next question. And our first question for today comes from the line of Sean Dodge from RBC (TSX:RY) Capital. Your question, please.
Sean Dodge: Yes. Thanks. All right. Good afternoon. Maybe, Nick, just starting with the fiscal '25 revenue guidance, with all the shifts in mix of late stage versus early stage that you've been signing, can you give us a sense of high level what proportion of that $160 million to $168 million is expected to come from your existing backlog and maybe how that compares to previous years with some of your comments around growing interest in your new capacity. It sounds like a lot more of that guidance is kind of dependent on stuff that you intend on signing in the year. Is that true or do you have kind of similar coverage ratios that 160 to 168 that you had before?
Nick Green: I don't have the number off in the top of my head, Sean, but I would say that it's not markedly different. I think the confidence that we've had over the forecasting for the last four years. Obviously, the first two quarters last year were a bit down on that. But apart from that, I think, it's come out pretty much where we expected, and I think that's probably a reasonable measure of the amount booked versus to get or go get that we saw in those periods as well.
Sean Dodge: Okay. And then just around the bookings. So you mentioned growing interest you've been seeing in the newly completed capacity. I guess, is there any more color you can give on that and then maybe any time lines on when you think that interest will begin to convert into signed new business?
Nick Green: I mean it's converting already. I mean we've completed or in the final stages of completing the second PPQ campaign in the new facility, which is incredible when you think that we've only been open just for a year, so or just over a year. So we've done numerous batches in there. But as you know, the time between doing a PPQ campaign and ultimately getting the commercial volume, obviously, you've got to complete the campaign. You've got to -- that data is then got to be taken by the client, converted into a filing with the FDA, FDA approval. And hopefully, that ends up with a commercial product and then you start commercial revenues on there. So if I had a way of speeding that process up, I'd be a very wealthy month. But the fact that we've already completed two, we've got a range of those that we're continuing to do going forward, it bodes really well for filling that capacity.
Sean Dodge: Okay. Great. And then you mentioned -- increasing capacity utilization, certainly helping with margins. Aside from that, is there anything else that you can do or are doing at this point to help with margin recovery?
Nick Green: I think it is generally, frankly, the utilization of the capacity as we obviously see. I think at the midpoint, we highlighted guidance is 17% growth, that increased utilization of that facility will certainly improve the margins as long as we execute efficiently. I think in light of selling the facility, I don't think it's a cost cutting exercise to try to improve margin in the short term, which is the right strategy. So obviously, we're always cost conscious. But we're trying to facilitate growth. So I would say, the vast majority of the margin impact will come out of improved utilization and some efficiency in the way that we do things, but not necessarily cost cutting to try to get to just margins for the sake of margin as it were.
Sean Dodge: Great. Thanks again for the time.
Nick Green: Appreciate it, Sean.
Operator: Thank you. And our next question comes from the line of Jacob Johnson from Stephens. Your question, please.
Jacob Johnson: Hey, good afternoon, everybody. Maybe Nick, just going back to bookings, again, I think, $30 million in the quarter is maybe a little bit lighter than we would have expected. But this is maybe a couple of months old. And obviously, a lot of things going on in the end markets this year that you play in. So I'm just curious, are there any other metrics or any other maybe anecdotes you could share just on what you're seeing on the business development side. You mentioned you're seeing some things in the market that bode well for future business and development. So is there anything else you can flush out there for us?
Nick Green: Yeah. I mean, I think we've said this on numerous occasions, Jacob, which is quarter-by-quarter bookings can be fairly erratic. I've always been a proponent of the long-term trend. I think we saw good growth in our backlog last year and anticipate seeing that going forward into the future year or into this current year, should I say. Certainly, in terms -- I think Mike alluded to it in terms of the pipeline behind the backlog, we see positive dynamics in that area, customer interest, the amount of onshoring, we certainly see an easing in the financial markets for biotech. So being very frank, if I go back over the last couple of years. Last year, I would start here looking at finishing a really good year and looking at a tough year ahead of us, which took the shine off of fiscal '23. As we sit here today, -- there's no question about it, fiscal '24 was a tough year, but start here with much more optimism looking forward into almost every aspect of the market and the dynamics there. And obviously, it always takes time in the pharma industry to convert conversations to orders. But from what we can see at this moment in time, we're feeling pretty good about fiscal '25 and also what that could mean for '26 and forward.
Jacob Johnson: Got it. That's helpful. And maybe sticking with business development. I think Matt mentioned you picked up another large pharma customer in FY '24. Can you just update us on how that large pharma strategy is going?
Nick Green: Yeah. Again, I think Matt mentioned it. I've mentioned it before. It's a slow process, obviously, to get into big pharma, they're looking at key suppliers, people they can trust. Obviously, first and foremost, they don't just throw anybody on there. So it's normally a matter of displacing somebody else unless it's a specific need. So you can be doing all the right things and still not jumping on that list, but all the indicators, all the interaction, the number of customer visits, quality audits, interactions and proposals that we're being asked to look at and things like that have been very strong and very positive. And we keep picking them up. It may only be in singles at the moment, but I feel that, that’s a part of the marketplace that we’re exposing that we haven’t been able to capitalize on in the past that we will be capitalizing on in the future. So feeling good about where that’s going as well as the biotech sector. So it’s not one or the other, it’s both.
Jacob Johnson: Got it. I’ll leave it there. Thanks for taking my questions, Nick.
Operator: Thank you. And our next question comes from the line of Paul Knight from KeyBanc. Your question, please.
Paul Knight: Hi, Nick. What's the capacity of the CGT portion of the business and how is inquiry or business activity they're developing?
Nick Green: Yeah. So the capacity of that's about $80 million of the $400 million or so that we've got. In terms of interest and activity in that area, I think it continues to be where we've seen it in the past. It's lagging the mammalian by a few months, probably a quarter, maybe 1.5 quarters, but certainly picking up. I think we've seen some very encouraging signs in the last quarter in terms of interactions with clients, customer visits. And so again, it's -- I would -- the best way I could categorize it is about four to five months behind the mammalian side, but picking up nicely, which we started to see that pick up in, I would say, in November, December last year in the mammalian side. and that's continued all the way through. So kind of back in the sort of January, February sort of where we were then. And I think you started to hear some optimism in my tone and my comments around that time in the mammalian side.
Paul Knight: And then process development was what in the quarter and what's your read from that process development number?
Nick Green: Yeah. I mean, PD, I do see the activity on a day-to-day basis. The revenues don't always reflect the activity, but I can see what's going through there. It can vary quite enormously depending on the type of project that's coming in. Some late phase programs need very little because they've already been well developed where they were before, and therefore, don't really need a lot of PD activity. In other cases, they're not so well developed, and we have to do a lot of polishing to get them up to speed and ready for PPQ, so it can fluctuate. But just looking at what I've seen in the PD area and the level of activity we're seeing, that's looking very positive at the moment. And I think we'll see -- I expect to see a jump in that throughout this year, which, again, it's very project dependent there.
Paul Knight: We hear that the CDMO capacity is still fairly tight. So what do you feel about that dynamic in the industry or is it really your customers need capital?
Nick Green: I think -- I mean, I think there's -- obviously, there's one thing between customers getting funded, but then there's also the spending that funding. So I mean, if you've been short of money for quite a while, I don't think you just because you get some, you don't immediately rush out and spend it all. But I think that capacity and certainly in -- I would say the sort of what I would call a high quality late phase commercial grade CDMO capacity is in relatively short supply, should I say. I would say that the market is again picking up, but it's the speed that these transactions go. We're seeing more and more conversations around onshoring. But again, we've all heard of biosecure and drivers like that. But that doesn't -- I don't expect to see that turning up in backlog, probably until the second or third quarter this year. That's not to say that none of it would turn up in there, but hopefully, meaningful amounts would take a little bit longer to come through.
Paul Knight: Okay. Thanks.
Operator: Thank you. And our next question comes from the line of Matt Hewitt from Craig-Hallum. Your question, please.
Matt Hewitt: Good afternoon. Thank you for taking the questions. Maybe first up, continuing on the business development front. Could you talk a little bit about the cadence of inbound calls and the conversations you're having since Q4 into -- from Q3 -- fiscal Q3 into Q4, even to current day, have you seen an increase? Is that because of the onshoring and the Biosecure Act or is it tied more to just a better sense around the funding environment? Any additional metrics that you could provide there would be helpful?
Nick Green: Yeah. Thanks for the question, Matt. It is definitely up for sure. I think we are seeing a more positive outlook in terms of our customers, and that obviously is leading to more positive conversations. We don't give actual metrics on our pipeline behind the backlog, but I can say that, that is continuing to grow. The source of those is varied. I would say not all clients are telling you straight off the bat that they're transferring from onshore -- offshore to onshore. But obviously, as you get deeper and deeper into the conversation, that becomes more and more apparent. So what we see isn't always a perfect mirror into what's actually happening. But there is increasing amounts of onshoring, I think introducing amounts of early phase programs being coming out there in terms of opportunities from biotech. Obviously, we already just talked about signing another big pharma. So I would have to say that outside inflation reduction and interest rates coming down pretty much all the indicators for the vast majority of this calendar year, I think, have been generally positive. And so I think that's -- you see that in our -- in our guidance for next year and our general optimism, I think, for the future as we sit today.
Matt Hewitt: Got it. And then maybe one separate comment or question regarding gross margins. With some of the increased opportunities in the later stage, I would think that those contracts tend to be larger runs and should help boost or help the gross margins rebound maybe a little bit quicker on similar size type revenues. Is that a fair assessment or is there something else that would cause kind of a more gradual rebound in the gross margins? Thank you.
Dan Hart: Thanks for the question, Matt. Yeah, I mean, typically, they are larger runs because there's more effort going into those runs, which do command a slightly higher margin. But I think on a blended basis, margins will be fairly similar as far as the run of margins and how those margins come through as an incremental with the revenue load. As you can see for the fourth quarter, with the approximately 27% increase in revenues from the third quarter that we nearly doubled our gross margin. So that proves it proves the model in providing incremental margin as we increase the top line, which I think that's the metric that we had look at going forward.
Matt Hewitt: Got it. Thank you.
Nick Green: Thanks, Matt.
Operator: Thank you. And our next question comes from the line of Max Smock from William Blair. Your question, please.
Max Smock: Hey, good afternoon, guys. Thanks for taking our question. Maybe just following up on Sean's question and trying to get at it a different way here. So backlog was essentially flat year-over-year, but your guide for '25 calling for about 17% revenue growth at the midpoint. Can you just help us bridge the gap between those two data points, especially in light of your comment earlier about not needing to go out and win more work this year than you would in a typical year. And maybe it would be helpful just to hear what you think you have to hit in terms of growth in net bookings this year just to support your top line outlook for fiscal 2025?
Nick Green: Yeah. So I mean, I think one of the things that we suffered from in prior periods Max has been obviously an expanding backlog in terms of the period of time to recognize revenue. But as I've kind of alluded to in the past is that if a PPQ campaign for argument sake, takes 15 months and you booked all PPQ campaigns, once you hit 15 months, it no longer expands any further. So you can only go so far. So as you start to introduce earlier phase business or even maintain the mix, then you get more drop through from revenue -- from your backlog into your revenue. So I think that largely explains the dynamics that you see there. And then, obviously, in terms of the forecast going forward, I mean, I don't actually comment on the amount book versus to go get an articulated that it's in a similar field. But also in terms of the confidence, there are a lot of things that create confidence. So I mean we can be having negotiations going on for six or seven months before or even longer in some cases before it actually appears in a booking. So it doesn't have to be in bookings. It doesn't even have to be in backlog for us to be having a view of what's coming in on the go get as it were.
Max Smock: Okay. Makes sense. On margins, you talked a lot about rebuilding margins and just thinking about the incremental drop through to maybe give us a sense for some sort of target for adjusted EBITDA this year. Is it reasonable just to take the margins in 4Q as a baseline? And then think about -- I think in the past, we've talked about 40% to 60% incremental drop through on revenue. Is that a reasonable way to think about margins here in fiscal 2025?
Dan Hart: I think it's a start, Max. Clearly, we'll still have some full year items coming through our costs such as depreciation. Depreciation is probably going to go up somewhere around 40%, 45% over fiscal '24. So that's going to eat away at some of the margin, though it's not a cash component of the margin. So I still like the 40% to 60% fall through, but I think we've just kind of surpassed as you saw from Q3 to Q4. If we maintain those levels, I would imagine the margin will be plus or minus where we ended in the fourth quarter. But as we continue to grow that top line, then we'll start to see more of that margin fall through.
Max Smock: Sorry, again, just to confirm, when you're saying you'd expect to see margins kind of in line with the fourth quarter. Are you saying that if revenue comes through like you expect this year on a total basis for the year, like 9% adjusted EBITDA margin might be posted in the fourth quarter, that's a reasonable target for fiscal 2025?
Dan Hart: I was talking gross margins, not necessarily in line, but it will be plus or minus kind of where we ended in the fourth quarter. And we typically don't guide to the EBITDA margin.
Max Smock: Got you. And then maybe just last one for me on revenue composition. Can you give us an update on Halozyme (NASDAQ:HALO) growth this year and then growth from non-Halozyme customers? And then how you're thinking about growth from each of those two major buckets moving forward? And also a reset on how much revenue is coming from Halozyme in total for fiscal 2024 would also be helpful?
Nick Green: I think from my expectation, vast majority of the growth going into fiscal '25 will come from other sources as they’ve done, frankly, last year. So we've continued to grow and diversify the business, and that continues to drive the growth in the business.
Max Smock: Understood. Thanks for taking our questions.
Operator: Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Nick Green, President and CEO, for any further remarks.
Nick Green: Thank you, operator, and thank you to everyone participating on today's call. As we look ahead to fiscal '25, we are encouraged by multiple indicators including our revenue momentum and backlog. And we believe we are well positioned to generate cash from operations during the year. We thank our customers for their trust and partnership, our investors for their continued support and we wish to recognize our exceptional employees who continue to drive our success. I thank you again for participating today and for your continued support of Avid Bioservices.
Operator: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
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