Thank you. Good afternoon and thank you for joining us.

On today’s call, we have Roger Lias, President and CEO; and Dan Hart, Chief Financial 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 ended January 31, 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, March 11, 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 Roger Lias, President and CEO. Roger?

Thank you, Tim, and thanks to all of you who’ve dialed in or joined the webcast today. I’m pleased to be able to discuss an extremely productive third quarter with notable advancements and achievements taking place across the business.

From a financial perspective the third quarter was strong as we beat the consensus estimates on both revenue and earnings per share while also increasing backlog. We achieved these results while continuing to manage our cash carefully and maintaining a positive bottom-line trajectory.

Dan will provide more details regarding our financial performance in a moment. Operationally we made numerous positive developments during the quarter as we continued to upgrade our process development capabilities, advanced our new business discussions and completed a process validation campaign in anticipation of future commercial production.

In addition we have expanded scopes of work for multiple existing customer projects, contributing significantly to our revenue and backlog. To support this growth we’ve been successfully hiring the necessary additional talent.

And most importantly, we continued to deliver high-quality pharmaceutical products to our clients and their patients. All of this positions us well for growth and achieving profitability which we believe is now within reach in the coming fiscal year.

These developments are a result of the considerable efforts that are being made to transition the business since we announced Avid Bioservices as a dedicated contract development and manufacturing organization just 14 months ago. With that summary I will turn the call over to Dan to provide a financial overview.

Thanks, Roger. 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 discuss our financial results from continuing operations for the third quarter ended January 31, 2019, starting with revenue. The third quarter was a strong one as we experienced an increase in the number of manufacturing runs both in process and completed in the current period compared to the prior period primarily due to increased demand from a more diversified client base.

As a result, we recognized revenue of $13.8 million, an increase of 102% as compared to $6.8 million in the third quarter of the prior year. For the nine months ended January 31, 2019, revenues were $36.5 million a 22% decrease as compared to revenues of $46.7 million during the prior year period.

This decrease was primarily attributed to the previously discussed temporary reduction in demand from our largest customer, which primarily impacted the first six months of the fiscal year. Going forward, we expect client concentration to play less of a role in the business as we diversify our customer base and continue to hire top talent, refine our business practices, systems, and other conditions necessary to operate as a preferred biologics CDMO.

As we began our second year as a fully dedicated CDMO we’re proud to say that we have taken and we will continue to take the steps necessary to achieve profitability in the not-too-distant future. In addition, and importantly, during recent discussions with our customer Halozyme we were informed that they are planned to increase production levels which we believe will have a positive impact on our revenue and net income in the coming quarters.

Roger will further elaborate during his remarks. Our backlog had strong growth during the quarter growing to $43 million.

And it is continues to fuel our quarterly revenue goals. We expect to recognize a majority of this balance in fiscal 2020.

As a reminder, the company provided revenue guidance for the full fiscal year 2019 of between $51 million and $55 million under the ASC 606 revenue recognition standard. As we approach the end of our 2019 fiscal year, we believe that we will be within the lower half of this range.

Gross margins also increased for the three and nine months ended January 31, 2019. Gross margin for the third quarter was a positive 15%, a significant increase compared to the negative gross margin of 61% in the prior year period.

The increase in gross profit for the quarter was primarily attributed to product mix and volume, therefore resulting in increased cost absorption and decreased idle capacity costs. Now idle capacity costs of $1.7 million during the third quarter of 2019 negatively impacted gross margin by approximately 13 percentage points.

Gross margins for the nine months ended January 31, 2019 was 10%, a significant increase compared to a negative 2% in the prior year period. Similarly, this increase was primarily attributable to product mix and volume.

This was the third quarter in a row where we've seen positive improvement in our gross margins as compared to prior year. As we’ve stated previously given fixed costs associated with highly regulated biologics manufacturing under current Good Manufacturing Practices, we expect margins will continue to improve as we increase capacity utilization.

To this end, we continued an aggressive effort to both expand our customer base and extend current client projects to increase our backlog and improve overall capacity utilization. I will now shift to operating expenses, total SG&A for the third quarter of fiscal 2019 were $3.2 million a 33% decrease compared to the $4.8 million in the third quarter of fiscal 2018.

For the nine months of fiscal 2019 SG&A expenses were $9.3 million a 24% decrease compared to the $12.3 million in the first nine months of fiscal 2018. The decreases for the quarter and the first nine months of fiscal 2019 were primarily due to a reduction in personnel related costs, facility costs and professional fees, including legal costs during the current fiscal year as compared to last fiscal year.

For the quarter ended 2019 the company recorded consolidated net loss attributable to common stockholders of $2.6 million or $0.05 per share, compared to a consolidated net loss attributable to common stockholders of $12.4 million or $0.28 per share for the same period of prior year. For the nine months of fiscal 2019 the company recorded consolidated net loss attributable to common stockholders of the $8.2 million or $0.15 a share, compared to a consolidated net loss attributable to common stockholders of $28.4 million or $0.63 per share for the nine months ended in fiscal 2018.

Cash and cash equivalents as of January 31, 2019 were $27.8 million compared to $42.3 million at the fiscal year ended April 30, 2018. This concludes my financial overview.

I will now turn the call back over to Roger to provide a more detailed operational and commercial update. Roger?

Thank you, Dan. Given the continued strength of our biologics CDMO market and in particular the significant and persistent demand for products derived from mammalian cell culture, as expected our business development team remains exceptionally busy.

During the quarter, we actively participated in numerous industry events and conferences. We continue to see strong demand by the high-quality request for proposals that we are receiving and to work diligently to issue proposals for projects that are good fit for Avid’s technical capabilities and available capacity.

It’s important to remember that the receipt of a request for proposal is just the first step in a long and highly complex sales cycle that includes significant technical interactions, quality audits and so on in addition to commercial and legal negotiations. A period of 12 months from receipt of a request for proposals or execution of agreement is not uncommon, especially when dealing with major biotech and pharma companies that employ significant future planning.

We continue to execute a two-tiered strategy of pursuing both IND enabling early stage projects that contribute relatively quickly to revenue and build a pipeline of future manufacturing opportunities as well as maintaining dialogue on later stage and marketed [product] opportunities. Accordingly we remain engaged in discussions for multiple opportunities, many of which will require manufacturing in the year 2020 and beyond.

We see positive trends fueling near-term revenue growth. Our Process Development Group is increasingly busy generating over 20% of revenue during the third quarter.

As every project must pass through some phase process development we believe this important business unit will ultimately account for up to a third of our revenue. In addition to prosecuting new business discussions we continue to be highly successful in expanding scopes of work for existing customers as their projects progress through development.

During the third quarter we expanded multiple such projects, representing $23.8 million in future revenue. To illustrate the significant contribution that existing customers make to our business growth, it’s worth noting that since the beginning of the fiscal year project expansion orders from our current clients have increased by 68%.

This increase is in net of the discontinuation of one of our smaller earlier stage projects due to this client’s clinical outcomes are not related to work undertaken at Avid. Such discontinuations are out of our control, but are an unavoidable occurrence in the development stage of CDMO business.

Based on work undertaken recently Avid’s overall client portfolio was significantly stronger and more stable than it was 12 months ago and we believe that our expanding customer base continues to de-risk our business. I'm pleased to be able to report that contributing to this growth from current clients is an increasing demand from Halozyme Therapeutics a manufacturer of ecombinant human hyaluronidase supporting your enhanced technology platform.

Halozyme has recently announced that Avid manufacture its products not only for their current collaboration products but also for collaboration product candidates currently in development. We believe the strength and forecast was driven by both key Halozyme partner for who Avid is the exclusive supplier, depleting inventory as previously anticipated, and perhaps more importantly, new launches and market growth for that partner’s commercial products and their expanding list of newer partners and partnered projects in development.

We anticipate that this trend will continue into fiscal 2020 as Halozyme’s partners advance their clinical development programs and begin preparing for commercialization. We certainly maintain an extremely good relationship with Halozyme and we look forward to continuing to support their growing needs.

On the topic of commercialization we’re pleased to report that we’ve recently completed a process validation campaign for a new scaled up manufacturing process on behalf of Halozyme in anticipation of future commercial manufacturing. And we are also currently completing process validation campaigns for other clients.

As a reminder, these process validation campaigns are required prior to the manufacture launch and marketing of commercial biopharmaceutical products and the details all and specifications resulting from the process validation are included as part of our customers’ biologics license applications to the Food and Drug Administration and in other global registry filings. Depending on the timing of such filings and associated regulatory reviews it may be a significant period before production begins to generate additional revenue for Avid depending on the magnitude and duration of pivotal clinical trials and the time necessary for preparation, submission, review and approval of regulatory applications.

Once the process validation is completed however that customers is essentially locked into the process developed at Avid for commercial production within our facilities. Subject to completion of pivotal trials, the regulatory approval of these drugs each of these validation campaigns is highly likely therefore to result in future commercial production significantly expanding Avid’s current business.

Given advances with our process development infrastructure and capabilities, new business discussions, expansions of current customer projects and validation campaigns completed in ongoing, we're confident that we're building a robust pipeline that will generate sustainable business growth. To support anticipated growth we’re continuing to invest in upgrade of our facilities, in particular we’ve invested in and continue to invest in process development facilities and equipment, which were in significant need of enhancement in order to best service the new projects that come into Avid.

As a reminder every project that comes into Avid Bioservices, whether it's early development work or transfer of a well-established manufacturing process must first pass through our process development laboratories. Accordingly, these facilities are critically important part of our business and a key factor in attracting new customers.

As we reported last quarter, we’ve completed the upgrade to our first refurbished laboratory in the purification development area, work continues on other laboratories, including a major new upstream development laboratory suite to support development of cell culture processes as well as other refurbishment work within our existing buildings. These new laboratories are being fitted with state-of-the-art equipment and capability enhancements that we expect will introduce considerable efficiencies.

While we’re previously expected to take occupancy of the new upstream suite in the first quarter of calendar 2019, our permitting delay will push this date back several months. This delay is solely a timing issue and there are no other factors contributing.

The only upgrade to our process development capabilities, we’re evaluating the need to expand manufacturing capacity in order to support client needs and market demand. Our assessments are demand driven and based on a number of factors including increasing forecast related to current programs, visibility into the future needs of our current client base, ongoing business development discussions and a robust pipeline of opportunities.

As a more immediate precursor to expansion we are implementing new operational procedures and systems to allow more efficient utilization of currently installed capacity. We are also planning capital improvement projects within our current facilities that will increase efficiency and throughput and prepare for future capacity build out.

During the third quarter, we continued hiring for operational positions in manufacturing, quality and process development, again in preparation for growth and expansion. Identifying training and retaining qualified personnel is critically important to our plans for growth.

And we continue to take steps to ensure that prospective qualified employees are favorably aware of the opportunities at the company, both within our geographic location and across a broader biomanufacturing marketplace. I strongly believe that another important factor in establishing Avid Bioservices as a preferred biologics CDMO is the adoption of new technologies that deliver value to clients by increasing the speed at which we can develop robust scalable and economically viable manufacturing processes and by greatly improving manufacturing throughput and facility utilization.

Both objectives deliver corresponding increase in revenue opportunity from installed capacity and differentiate Avid within our competitive marketplace. As a result, we are actively engaged in discussions with multiple vendors and leading industry stakeholders to evaluate possible technology collaborations and service extensions that will position Avid as a high value proposition, thought leader and also in some cases deliver pipeline of opportunities as a new client capture.

Avid was an early adopter of single-use manufacturing technologies and in our dynamic and fast-moving market it’s imperative that we remain state-of-the-art organization offering cutting edge technology to support the evolving needs of our customers. As I hope is evident we are rapidly putting into place the myriad components necessary to deliver sustainable growth and profitability.

While we would of course like this to happen at a faster pace, it is necessary to understand the cadence of the business and the speed with which we are making transformative changes to the company. We’re progressing incredibly quickly, given the position that we were in just 12 months ago as an excess capacity player with little commercial infrastructure and given the highly regulated technically challenging and customized work that we do and our long and incredibly complex sales cycles.

Given these factors I believe we made truly remarkable progress in our first year of operation as a dedicated contract development and manufacturing organization. To summarize, in the past 12 months, we have significantly diversified our client base plus reducing risk and building a pipeline of future manufacturing opportunities.

We’ve built commercial and operational infrastructure to support growth. We have right sized the organization, significantly cut costs and increased capacity utilization resulting improved margins.

As a result, we are firmly on track towards profitability and positive EBITDA. Driving these achievements is a truly exceptional team at Avid Bioservices, whose dedication and hard work have contributed to our successes to-date.

Together, we continue to execute the plan as we build sustainably profitable and admired company and firmly established Avid Bioservices as an acknowledged leader in the CDMO sector. This concludes my prepared remarks for today and I think we can now open the call up for questions.

Operator?

A couple of questions if you don’t mind Roger. First, since you mentioned this a couple of times during your prepared comments, several quarters ago, you were obviously discussing being in such a hot area for manufacturing capacity in the CDMO business.

So how is hiring going and the ability to attract the right talent?

Yes, I think it’s going -- I am prepared now to say Joe it’s going well. If you would have asked me six months ago it was giving me some concern, we had some turnover as we expected in the transition of the business and we were keeping our heads above pretty well but not bringing in the talent but at that time I thought we needed to grow but that's changed quite dramatically.

It’s a subfield in general, not just for Avid across biomanufacturing right now it's -- hiring I think it’s critical than retention but we’re at the point now where we’re quite comfortable. We got the numbers under control and have a pretty nice plan for hiring to sustain the growth in the next 12 months.

So I think right now I'm pretty comfortable.

And then I guess my next question is a two-parter that I guess has to do with the backlog. First very nice to hear about the Halozyme increasing commitment and I was just curious how much of this commitment is in sort of your current backlog that you discussed?

And also the particular client that sort of went away due to our negative clinical outcome. What was the impact size of data from a backlog perspective?

Thanks.

Yes, I don’t know if we’re in a position to give numbers because of client sensitivity. Certainly, the impact from the client that went away was negligible to us, it wasn’t significant, it’s one of our smaller programs.

So we’re comfortable with that. With respect to the actual magnitude of the Halozyme, we have both increased forecast and we have better visibility to their longer-term needs as well.

Certainly it’s significant contributor to the backlog, but again we've been working hard to diverse it. While we’re happy to have growth from Halozyme we’re still looking to decrease the percentage contribution as a total from any individual customer and we’re being successful in doing that.

So it’s meaningful but it’s not half the backlog or anything like that.

Hi, Roger. So the increase in the backlog, part of that was Halozyme or no?

Yes part of it was Halozyme. Yes.

And then when do you talk about the process development being 20% of revenue, what was that, a year ago?

Oh boy, off of, top of my -- probably it was approximately 10% last year.

Okay. And we talk to -- when we do business, there doesn't seem to be a shortage of MAB manufacturing around, is it the same in your region, do you believe there is a shortage?

Yes, I think it’s -- the devil is in the details Paul but I think overall capacity is certainly still tight, it’s very difficult to talk on a -- or it’s much as easier to talk on a macro level, but on a specific client-by-client, project-by-project basis of course individual timelines scales of capacity, so on and so forth, even geographical location, IP, these will come into play. So I think there was a survey, which was published in April of this year by our [Bio Recliner] and BioPlan Associates where almost exactly 50% of respondents in a large survey listed concerns about capacity availability, that wasn't just monoclonals that was across biospace but I think that’s about right, I think on a macro level where we as an industry are still relatively balanced compared to where we were a few years back.

But on a project-by-project basis I would suggest that capacity is still tight.

Okay. And then you talked to about gross margin I didn't quite catch about.

There was -- was there still some impact on gross margin due to idle capacity in the January end quarter? What was that commentary I didn’t quite catch?

Yes, Paul. We had about $1.7 million of idle capacity costs that hit us in the quarter.

So as we continue to grow, though we're seeing pretty healthy margins on the service side, we have some dilutions in the amount of pass through costs and material costs that we have are very low margin below 10% that gets added to our overall margin and then further diluted by this ideal capacity costs. But as we continue forward and continue to grow the top-line and to fill out the capacity on the floor, those margins will start to increase.

That 1.7 was a cost?

Yes.

Okay. And then you had talked about achieving profitability in fiscal year FY '20.

I guess when we think about quarterly rollout, are you basically as we get to the end of the year in those quarters you do hope you can get to profitability?

Yes Paul. We're making improvements every day to our business.

We'll give more thoughts on the timing of that when we come out with the fiscal 2020 plan.

Okay got it. got it.

On the rollout. And then lastly, when you talk about the new technology like single use, is this a lineup that you believe you're not -- you're able to offer that others aren't, or you're doing it faster?

What's the dynamic around its technology like single use?

Yes. It's, I guess it's subset of single use.

We've been doing single use for some time now. So I'm sure if we would call it core single uses of concept new particularly anymore.

Although we were very early adopters, so we have a lot of experience. Individual assets within single use processing.

So anytime we could for instance, if there were Fast Flow resins which reduce the resident’s time in our facility so we could process in 5 hours instead of 10 or whatever it might be, that's also a benefit and to the benefit of our clients. So there is a whole host of -- it's not one sort of suite of technologies.

I think we -- there are some interesting concepts out there like continuous processing, you're lot closer to smaller molecules and they are for biologics right now, but that's certainly something we very much involved in discussions about. But it's taking a holistic look at the new technologies that are out there.

High density cultures, there is a whole host of impose, not specifically that are single use. Are we better positioned than some of our competitors?

In some ways we are. We have a lot more flexibility.

Of course the market has become through M&A, some of our competitors are not truly independent, they don’t actually have the ability probably to bring on some of the technologies that we do. Because it's parent company relationships and so on and so forth.

But I don't overstate that, obviously the technology vendors out there are keen to get their technologies deployed in CDMOs as well as in product companies manufacturing their products actively. But I think we do have the ability to move more quickly.

And of course we have space available and we're not quite as hampered by sort of some of the systems that are out there as well. So I think our -- and it comes back to the same differentiator that we have in general in the marketplace.

It’s combination of being agile and able to move quickly alongside the long regulatory track record is really exceptionally unusual. So we will make the most of that.

So I guess I could start off with SG&A expense and the hiring dynamics that are going on. I think in answering Joe's question, you highlighted that not only you’ve brought people on but you lost a few people.

So I think you know if you could net it all out what should we expect with respect to SG&A spending and salaries?

SG&A we’re basically where we need to be, we’re flat. We don't expect any great change to SG&A as I said during the call, the hiring we’re doing is operational, these are revenue generating people whether it’s process development or quality lab folks releasing product or manufacturing operators.

So SG&A wise we don’t anticipate any great change in the coming 12 months. If it is it will be based on things like project manager, for instance, as we bring in more projects, but it really should be minimal.

Got it, okay. With respect to the pipeline, how would you parse out the 43 million between manufacturing and process development?

It’s interesting question, I’m not sure we have it right at hand. I mean it’s probably somewhere between currently we're 20% PD and we are aiming toward 33%.

So, I'm guessing it will still be 20% or a little bit higher PD as PD grows. But it's -- the process development contribution for this coming year will probably be greater than 20% and less than 30%, before I would guess.

Got it. Okay.

No. That's good.

That's helpful to walk through.

And percentage wise, Steve, it doesn't take much of a change in manufacturing to put the percentages out the window anyway, so --

Yes. Yes.

Understood. With respect to Halozyme, in FY '18, they were about 55% of your revenue stream and certainly the news today that they've come to you for additional development work and what have you in manufacturing.

That's fantastic news. Where do you think they finish up FY '19 and even in FY '20, where do you think they stand relative to that 55% of FY '18?

Yes. I think, probably, they will be reduced maybe the -- again we -- before the nice increase in forecast that we got, I would have given you a lower number, but for fiscal -- the coming fiscal year, maybe they'll achieve as much as 40% because of some growth in -- significant growth in forecast.

But again, over time, we should see -- it's not a bad problem to have, but we should see continue -- continued reduction in the percentage contribution. But we were happy to take a significant kick up recently.

Yes. Yes.

No. It's fantastic news on both sides.

So, and then my last question is, so you mentioned capital spending on some laboratory projects and the one got pushed out, it sounds like into what the first quarter of FY '20, because of the permitting situation. Can you just guide us for what your CapEx could be over the next couple of quarters given these projects?

Sure, Steve. The CapEx related to the build-out of the PD labs is substantially -- a little more than 50%.

So, I'm going to say substantially spent going into this last quarter here. The delays aren't adding significant costs it's just a matter of timing.

So, I would anticipate that our fourth quarter, I'd call it, about $1 million in CapEx, if not less.

No. In the closing remarks, I'd just like to thank everybody for dialing in and joining by webcast.

We're certainly looking forward to continuing on our current trajectory and I feel that we've put in a strong quarter. So, we appreciate everybody's support and we are -- we look forward to the next earnings call.

Thank you.