Q4 2020 Earnings Call
Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
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Tenant 2020 earnings conference call at this time, all participants are in listen only mode.
Speaker presentation, there will be a question and answer session. You asked a question during the session you will need to press Star then one on your telephone. Please be advised of todays conference is being recorded if you're acquiring it further assistance. Please press Star then zero I'd now like to hand, the converts over to your speaker today Mr. William too. Thank you. Please go ahead.
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Speakers you May now begin your conference.
Good morning, everyone welcome to our Q4 in full year 2000, 1920 earnings conference call.
We hope everyone is healthy and safer and he's trying times. That's just help safety is our top priority. We're conducting this called virtually.
Joining me today are on the call are Mr. Dilip Shanghvi chairman of the board of Directors <unk> Day Bell Delta.
Parents CEO.
Is that the white house new CFO.
We hope you received a copy of the earnings press release, which can be found on our website at <unk> Dot com.
We anticipate that many of you may have questions concerning not only this quarters and full year financial performance.
But also our markets operations strategies and other matters.
Well, we try to respond to most of your queries, we will not be able to share product specific and commercially sensitive information including pipeline detail.
As a reminder, this call is being recorded a replay of the transcript will be made on our website.
Well I appreciate I must remind you that today's discussion may include certain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Although the company believes the expectations reflected in such forward looking statements it'd be based on reasonable assumptions. He can give no assurances that its expectations will be attain that should be viewed in conjunction with the risks that are businesses face a detailed from time to time and the company's FCC record.
With this I will now turn the call over to Mr. Dilip shopping.
Well come on fuel and thank you for joining us today, what Todd was earning call. After the announcement on the fourth quarter and full year 90 into into financial results.
I hope that all of you.
Including your family friends and colleagues remain.
She is an hendi.
The fourth quarter results.
Pretty slick that challenging times that we out on fishing.
Not only due to the <unk> 19 endemic.
But also the continuing headwinds in d. genetic industry and weinman that Donato has been all predicting for some time.
Well I read did did did weakness a higher than normal James Jane and be much twentytwenty, owing to de stocking up by customers at the old break off course, <unk> 90 was there anything.
We've witnessed it.
Little softness in demand for our products since then.
Right the long term impact from pool with 19 is difficult to measure at this time.
We believe that the U.S. genetic market.
We continue to be completed do you.
In the foreseeable future.
If we specifically look at opportunities available in force thoughtful.
On the positive side.
Last year to be well gain.
Nine new drug product up the ones.
And some of these upper ones.
I've come recently and dad interesting products products with relatively small competition.
And should help us make up for some of those losses.
On behalf of the entire board of directors.
I would like to think or dato employees for their continuing dedication and commitment.
The customers and patients we suffered during this trying times.
I didn't know handover the call to date.
Thank you Mr. summary.
Right some of it everyone and thank you for joining the study.
I hope you at all in good hands.
I won't go start off by changing the 15 and that strong.
The most title dedicated employees, what making sacrifices every day.
I Love this crisis.
To keep our products I'm going to customers and ultimately the patients who need them.
During this crisis they focused on keeping it yes.
Do you feel part in place.
Business continuity.
And sourcing and production.
What our employees 50 has been as far as they ought to be wonder work hard to deliver did essentially products to market.
We implemented both locally and globally the caution in order to state operation.
Keep a safe and healthy working environment.
Including a three screening process before anyone can entered into the facility.
Hi, Sunny dilution procedures.
Hi, good shifts to ensure what's left social distancing.
And eliminating non essential trabzon.
Even before the federal travel bans spend into effect.
But steady communication with hard work force.
It has been important for us to secure business continuity nostra not just because of the need of two business, but also because not many people who depend on nod medicines every day.
But as we see reaching people touching lives.
In addition, we also wanted to minimize the impact on our quality and R&D programs to ensure that nuclear progress towards new product launches.
However, we anticipate that some of the clinical trials that I'm debate what had been line.
Maybe deemed it and to be lives and then depend on how long the effect of the logged on the lost individual countries.
A card into white and part of what all petition is sourcing and production.
Production and distribution facilities have been meant open to meet demand.
As you may be aware, we produce <unk>, especially for several critical products.
Yes, I did good inventory the most of the at all mosquitoes and the majority of finished products to meet customer demand.
We have maintained a safe operating supply chain.
Before I hand order flow definitely along our neil's yeah for just a lot on her background.
Yes, there has been.
That's helpful wouldn't be you're still seeing that had begun didn't experience in finance.
Most recently, serving as Chief financial Officer, Human Ren and skin, U.S. and burak up internationally.
Financial or side or the generic pharmaceutical and we'll just see portfolios.
Doug talking one will definitely had progressive need a sponsor buddy responsible positions in different lunch inside of this sector and debt capital markets looking for companies such as.
Pricewaterhousecoopers neat Boston GE capital and it just means.
Had extensive diversified financial background and experience, let's spend than our management team I'm confident we'll be continuing growth and expansion of fund business.
Let me come down.
Thank you would say.
Hello, everyone and welcome I'm very happy and excited to join Carol and I look forward to working with the entire taro team and making a meaningful contribution to the company and its growth.
My goal is to provide strong financial and strategic leadership alongside.
The executive management team and the board.
Keeping in mind, or so that providing quality caught up to the market and creating shareholder value is paramount to what we do.
Let me discuss some of the key financial highlights.
Which are in comparison with the comparable prior year periods.
First Q4 highlights then followed by the full year comparisons.
Net sales were $175 million in Q4 and decreased $5 million.
Gross profit of $102 million in Q4 decreased $17 million.
And as a percentage of net sales was 59% compared to 66%.
Cost of goods sold increased $12 million over last year's a comparable quarter, reflecting higher product costs.
Principally due to a 13% increase in overall volume as compared to higher product costs.
And that's due to a double digit increase in volume.
Ah royalties and other costs.
Some of these costs and occurring in nature.
And not a structural change in.
In general in operation.
R&D expenses of $16 million decreased $5 million.
Our R&D expenses are not evenly distributed across quarters, and primarily buried due to the timing of our R&D activities, including clinical study and certain other expenses.
Selling marketing general and administrative expenses of $29 million.
Increased 6 million, mainly due to higher legal and professional fees higher sales and marketing expenses as a result of scheduled activities early in the quarter.
Initiation and some items.
That are non recurring in nature.
As a result of the above our Q4 EBITDA of 62 million decreased 18 million with EBITDA margin of 36% compared to 45% in the prior year quarter.
Oh into the above operating income of 57 million decreased 18 million and as a percentage of net sales was 33% compared to 42% in the prior year quarter.
Interest and other financial income decreased 2 million to 7 million as a result at the low rate environment.
You know Q4 foreign exchange income a was $4 million compared to FX expense of 9 million in last years same period.
It's a 13 million favorable impact on our earnings. This impact is principally the result of the commencement of pageant accounting in accordance with it gets you to their old one seven dashed 12.
And our Canadian subsidiary change.
To the U.S. dollar as its functional currency, Israel, and obviously you I say have historically been report it in U.S. dollar.
In majority of the revenue and a substantial portion of the costs of the company is U.S. dollar.
Management believes that the U.S. dollar is the primary currency of the economic environment in which the company and our subsidiaries operate.
Our Texas says a 14 million decreased 2 million, resulting in an effective tax rate of 20% compared to 21% in Q4 last year.
Net income attributable to Taro was 54 million as compared to 58 million.
The decrease in operating income and interest revenue were partially offset by the favorable FX impact and decrease in Texas expense.
Resulting in diluted earnings per share of dollar 42 compared to $1.52 for the fourth quarter last year.
Let me now discuss the full year performance in comparison to last year.
Net sales of 645 million decreased 25 in Atlanta.
Gross profit of 400 million decreased 46 million and as a percentage of net sales were 62% compared to 67% in the prior year.
Primarily that's the result of product mix throughout the year.
Margins were also impacted in part by the aforementioned onetime items.
R&D expenses of 16 million decreased 3 million, that's mainly due to the timing and types of clinical study as well as a continuous evaluation and rationalization of our portfolio.
X gene a expenses 93 million increased 3 million principally due to higher legal fees.
Our EBITDA for the full year was $216 million would the decrease in margin from 47% to 42%.
Operating income of 247 million decreased 49 million.
As a percentage of net sales was 38% as compared to 44% in the prior year.
Interest and other financial income remained in line with the prior year at 34 million.
Our efforts income in the fiscal year 2019 to 20 of 15 million.
Compared to 25 million in the prior fiscal year, that's a 10 million and favorable impact on our earning.
Tax expense decreased 21 million to 53 million.
Resulting in an effective tax rate up 18% compared to 21%.
That's principally the result of nonrecurring items in the current here.
Net income attributable to Taro was 244 million.
Prior to 282 million, resulting in diluted EPS of $6.35.
Compared to $7.23.
No our cash flow and balance sheet remain very strong.
Cash and cash equivalents, including short and long term marketable securities increased 215 million to 1.6 billion from March 31st 2019.
This reflects the impact from the 27 million tender offer which was paid in December 2019.
Cash provided by operations for the year ended March 31st 2020 was 272 million.
Our 300 million share repurchase program.
With 273 million remaining.
Which was approved last November will remain in place.
I'll now hand, the floor back to day.
Thanks, Stephanie.
Concerning the industry wide governmental onto trust investigations, and the multi district civil litigation.
We continue to work with our cone said to corporate or could the department of Justice and the state.
And we believe the allegations had without murdered and are defending against them because.
Furthermore, we remain committed to strong corporate governance, and fostering a culture of compliance that though.
Oh, that's or something we indicate the.
Regenerative landscape the men's already competitive industry.
Well you are not completely satisfied with the year. So those we have some accomplishments and trends we are encouraged fun.
Volumes for the years being produced in low single digits for last year at low teens into fourth quarter. These volumes at present, all time highs. This is not afford kwanza could the yodle for them girls.
Products ranked number one number two by market should the U.S. genetic marker in over 70% of our portfolio.
From a quality and compliance standpoint, we continue to maintain an excellent track record for DFT and other regulatory agencies.
We continue to enlist an odd business.
In R&D, we have reported five filings and nine up there was the theater.
We maintained a healthy pipeline up then do run in did everything at the airport with fight interoperability.
Regarding not investment the full your spend is lower than the prior to your principally due to the continuous evaluation of our portfolio and adjusting put waibel developmental Curtis.
We invest only endorsed products, which are feasible and have a strong business cards.
We'll also made significant technology investments in manufacturing operations quality and financial systems, and we'll continue to invest in literature.
Turning to discussions on strategy.
You're always looking at opportunities to strengthen nudge American or do you see revenue streams into your worse.
Hi, good through organic growth strategic acquisition or alliances.
We will continue to bid discipline Tonight evaluation of all opportunities in order to ensure that the meat boycott business and financial criteria.
We also continue to look for video opportunities to strengthen our positions in the Canadian Andy Israel market.
Finally, I would like to time, <unk>, Dod Dido team and all our employees for that continuing outstanding Airport and total commitment to our primary objective, which is delivering quality products to those who meet them.
With this I would like to open the floor up for questions.
<unk>.
Thank you as a reminder to ask a question you will need to press Star then one and your Touchtone telephone to withdraw your question from the Q. Please press the pound key.
Please standby well, we compile the Cuban a roster.
Our first question comes from Ram Selvaraju with H.C. Wainwright. Your line is now open.
Thank you very much for taking my question, Firstly I wanted to ask whether.
Any slowdown.
And up office in fine you to covert 19, or if there appears to be no change on that front with respect to be agency.
Oh, I think Oh.
I can probably Gulf of Dodd with expedience here.
And not necessarily be under the industry comment.
Mr. Thunder mentioned at the beginning of the call it and I repeated that that you've seen a book slow, but it was from the if you're doing the yet including in that he sent month.
And and I have to say at least one of these up it was getting ahead of audit done any anticipated timeline.
I think there'll be a via the company and I think the industry continues to work where do you call for that they would be up do you have to ensure that.
All the products that have filed and another thing.
Turning up the world.
Continued to get up the world's had anticipated.
Okay and then you mentioned previously that you are evaluating on organic strategic alternative can you comment at this time, whether you have.
Re evaluated at any point recently, the possibility of reentering, the U.S. branded pharmaceutical business or is that something that you don't intend to do at this point.
I think as part of our long term strategy.
And getting into the U.S branded pharmaceutical space.
It's something that that is important for us.
And we do look at opportunities in that business.
Difficult for me to comment.
On anything specific that you might have looked up.
Okay, and then just two very quick financial things firstly.
Do you have the Theodore things stand with respect to the overall attitude toward share buyback at this time and then secondly can you comment on the outlook for the effective tax rate mentioned in the press release that.
The reduction of the effective tax rate on a year over year basis was due to nonrecurring item. There should we expect the tax rate going forward. The for example, looking ahead for next year to revert back to what we have seen historically or if the tax rate as you have reported it currently for the most recently reported year is what we should expect to pick the score.
Forward.
Let me let me do first attempt and then maybe adopting can can join me.
Moving on the on the buyback.
Dusty mentioned or do you had about.
The board approval for the buyback it remains in place.
And and that's something that did not changing so what I think the intent.
Reflected in that up a little that's better than blues.
That's photos it back just concerned typically we don't we don't give any specific guidance I think I'd definitely another though did mention that.
He got Unstack that you see both in the yard and the quarter.
It's something that has been in park impacted by at least one or two nonrecurring item that we witnessed during the year.
And typically we would as it did giving any next year at on a longer term guidance on the accident.
I would agree with you today.
Could you just clarify what's the nonrecurring items were.
I think these specific.
Tax benefits thought or tax provision that had been enacted by by governments.
And.
And we sort of.
Being able to.
Apply for those benefits and good book I think some of these other than that that politically forward 19 situation and some of the other long, but some program.
That's something that's helpful.
Thank you.
Thank you at our next question comes on Gregg Gilbert with Suntrust. Your line is now open.
Hi, Good day I realize you make some of your own a p. ice, but in light of the pandemic and what you've learned.
Lately are you considering any changes to how you source key starting materials, where a p. eyes or or where you do finished dosage manufacturing.
And secondly on on organic pipeline growth are you seeing enough targets to go after that fit your technology in your financial criteria or are you running into difficulty finding enough organic opportunities to go after with your R&D platform and therefore, you need to become more reliant on alliances or external growth drivers going.
Forward for the U.S. market. Thanks.
Sure. So let me take your first question because I think in them. So.
The oral sourcing and the production base that we have I think at the moment or let's say at the strategy that has not dramatic shift that that we're looking at I think we have very strong production. This one is right and one in Canada and I think a whole what are the years to continue to invest and ensure that.
We have much stronger capabilities on capacitors in both of these locations and that's something that you will continue to invest awards.
I think almost sourcing perspective, we have a pretty diversified sourcing base and a and b will continue to evaluate it more in terms of the ability of two suppliers to sort of continued to supply to us.
Other than any waterboarding country criteria and I think that's something that we've done order period of time as I said, we already have a day looks like its forcing base, we will continue to.
Work on that and then show that being the eaten up pretty diversified sourcing base for our products.
On be Oh, I'm forgetting what was the second question.
Organic pipeline opportunities are you running into a limitation and the number of targets that fit your criteria and your technology.
Yeah I think.
And as I said in Mighty though.
I think that's part of our opportunity that concern given the dynamic offers analytic industry that I think prices.
I have declined quite sharply over the last four or five years.
And the investment has continued to go up but a product.
It does often difficult for us to necessarily justified in less than done a large number of products and that does result in odd that north selecting the product for development or probably your one discontinuing some of the existing products and we have seen some I would say shrinkage in the oil at all by Plano product that we ought to look into it.
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But I would say that you have a pretty despite all of that you have a healthy biplane offer like that under development, which are sort of all.
I'd justified on the under financial criteria that we use.
So while the oral number of.
Got it gets may have gone down, but at least from from our pipeline perspective, I can be yeah, you ever used symbolic looks like.
Thank you.
Thank you and as a reminder to ask a question you will need to press Star then one on your Touchtone telephone.
If your question has been answered you may press the pound key.
Please standby will be compound mark you in any roster.
And our next question comes on so he'll didn't grow with JP Morgan. Your line is now open.
Once again, our next question comes from so he'll didn't grow with JP Morgan. Your line is now open. Please state your question.
Hi, Thanks for taking my question told here was a neat.
Two quick ones from I'd say, Oh, posting on the gross margin is entirely on the.
<unk>.
Is it entirely based on the one thing in each of those Oh I'm, taking the on the bill muscle that specifically due to their own didn't go with pandemic argues he.
Huge declining volume as compared to other goods. Thank you.
I think on the gross margin.
But im definitely mentioned specifically that part of it was on account of the product mix.
And part did on account of.
Some some nonrecurring items I think it would be difficult put us what sort of quantify that that beyond beyond that.
As far as demott products are concerned and and we did mention a upfront that.
March was a March 20 was higher Oh higher demand month for us and we've seen some softness in demand.
Post marched drink.
Okay. Thank you.
Thank you and again as a reminder to ask a question you will need to press Star then one of your Touchtone telephone. If your question has been answered you may press the pound key.
Please standby will we can check for any last questions.
And we have a follow up on Gregg Gilbert with Suntrust. Your line is now open.
Yes at the risk of putting the new ship on the spot I was hoping definitely could just when generally speaking on the flexibility that the company has to.
Utilize the cash and cash flow and away that could enhance shareholder value versus any limitations, you see and being able to do so thanks.
Yep.
Thank you crack and thank him for putting me on the spot [laughter].
I think you know I've I've been here for lit over a mouse.
And I have reached and I'm in agreement with Carol management as well as the board of directors that yes, we are constantly looking to enhance shareholder value, but in the same time given the competitive.
Nature of the market that we're in a given the macroeconomic environment. We're in we need to be very cognizant about.
Being very disciplined.
In order to you know alternatives and mathur options to increase enhanced shareholder value, including.
But not limited to a lesser the share buyback one to execute a as well as.
Tediously looking at acquisition, none organic opportunities either by you know product portfolio to.
Complement what parallel thickness strategy or any potential other acquisition us opportunities. So hopefully that's a good answer for you.
Thank you very much.
No problem.
Yes.
I'm showing no further questions in the queue at this time, ladies and gentlemen, Thank you for your participation on today's conference. This does conclude your program you may now disconnect.
Thank you.
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