Q2 2020 Teligent Inc (NEW JERSEY) Earnings Call
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Bye and welcome to the Teligent Inc. second quarter 2020 results conference call.
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Except for historical facts the statements in this presentation the goals oral statements rather written statements made or to be made by telephony are forward looking statements within the meaning of the private Securities Litigation Reform Act 90, 95 involve risks and uncertainties.
Forward looking statements are merely the company's current predictions of future events. The statements are inherently uncertain and actual results could differ materially.
From the statements made herein.
There is no assurance that the company will achieve the sales levels that will make its operations profitable or that FDA filings and approvals will be completed and obtained as anticipated.
For a description of additional risks and uncertainties. Please refer to the company's filings with the Securities and Exchange Commission, including its latest annual report on form 10-K, and its latest quarterly report on form 10-Q.
The company assumes no obligation to update as forward looking statements to reflect new information and developments.
I would now like to hand conference over to your speaker today, Mr., Tim Sawyer President and CEO. Thank you. Please go ahead Sir.
Thank you Daniel good morning, everybody.
I'm, Tom Sawyer, President and CEO intelligent.
Joining this morning.
Our Chief Financial Officer Damian video.
First and most importantly, I'm happy to report that Teligent employees around the world and particularly those in unit, New Jersey are still safe and sound. Although we've had a handful of employees test positive for cobot 19, they were not exposed to the virus on company presses premises.
And because of safety procedures, we put in place at the onset of the pandemic none of our facilities were impacted nor their colleagues infected.
Each of these employees have been thankfully managing their symptoms at home.
We continue to remain open at all company locations and will be as long as permitted by local authorities and can additions remains safe for our employees to continue manufacturing pharmaceutical products for the patients that need them.
All non production quality or R&D employees continue to work from home in accordance with state and local guidelines.
As a consequence of cobot 19, dermatology visits are still down versus pre pandemic levels.
As states and municipalities continued to reopen.
We began to see an uptick in second quarter patient demand.
Current estimates show the market has returned to approximately 80% of pre pandemic levels at least for now.
We remain cautiously optimistic as we have all learned that this situation can change very rapidly.
Despite the cobot 19 challenges.
We posted solid second quarter revenues of $13.6 million gross profit of 2.5 million.
And the gross margin of 18%, resulting in an adjusted EBITDA loss of $2.3 million.
Paul improvements over the first quarter of 2020.
If we continue to control our operating expenses focus on execution drive topline revenues and improve margins. We can get there I'm confident confident our employees are up to the task.
Although the PPP loan we received in May helped us to keep employees onboard for an extended period of time.
In late June we took another big step towards Rightsizing the business.
We initiated a reduction in force at our facility in Buner.
These decisions are never easy, especially during a global pandemic.
We did what we could to assist the impacted employees and their families.
In order to maintain business operations. It was critically important to take this step we ramped down production in line with patient demand.
And to maintain appropriate inventory levels and preserve cash.
In fact, I'm pleased to report to that as of today, we have no topical products on back order for the first time since 2018.
Our focus on execution is beginning to pay off.
We are regaining our reputation as a result reliable supplier for our customers and taking action to be more cost competitive on costs.
Given the recurring challenges, we had fulfilling customer orders, we recognize it will take further effort and time to rebuild sustained credibility.
But without a doubt we are seeing traction.
We are committed to being a customer focused organization.
In addition to doing what is needed to right size the business and preserve cash.
We remain focused on quality and preparing for the FDA inspection.
However.
On August 13th.
The company received an additional comment letter from the FDA relating to our responses to the warning letter issued in November of 2019.
The comment letter indicated that the FDA.
Has reviewed the company's responses and dean them to be inadequate as the company failed to address and or provide sorting supporting documentation to several of the concerns raised in the warning letter.
This news as both disappointing and unexpected.
However, the letter is not an indication of further imminent action on the FDA part, but the opportunity for Teligent to make further improvements and provide additional responses and supporting documentation to the FDA prior to their coming in for an inspection.
I remain confident in our quality department and the strides we have made over the course of the last 15 months. Since we received the agencies 43 observations in may of 2019.
The company is targeting a written response to the FDA. His most recent correspondence by mid September 2020.
What excites me right now is the team work on seeing across all departments on a daily basis, the resilience tenacity and sheer grit of our employees.
That they continually display is motivating for me and others I'll continue to be the execution drum insisting that everyone pays attention to the details as not doing so is often the root cause a poor execution.
Given the level of an uncertainty and potential consequences of less than just state and local cobot 19 related guidelines.
It is extremely challenging to predict patient demand and whether or not there might be a second wave of declining dermatology visits however, with current patient demand data and the June reduction enforce we project third quarter financial results in line with the actual second quarter performance.
As for the strategic review of Noncore assets initiated in October of 2019.
Within the bids received inadequate to continue the process.
The majority of the attention was on Teligent, Canada, we value our Canadian business as it generates positive cash flow in EBITDA and represents a market where we can further lucky that we can further leverage when we launch our India injectables from the U.S.
The bids received were simply not competitive are representative of what we see as the commercial value of Teligent, Canada to our organization, we closed down the process as we have other priorities to address that require our full focus and attention.
Lastly, we received word from our development partner that the FDIC issued a disciplined review letter on our complex drug and be a submission.
Additional work on the application in the analytical validation area is necessary.
The required corrective actions will take until the end of the year.
To generate and we would expect final FDA action on the filing in the third quarter of 2021.
We will provide additional updates as appropriate as this progress progresses.
Excuse me this process progresses.
Cobot 19 has changed everything we once now.
And unfortunately, it appears as if we're all be dealing with the impacts for some time.
But the world is resilient and we have all started to establish a new normal for ourselves.
For Teligent, the new normal looks like a reduced employee base that is hyper focused on execution.
For our manufacturing related employees it looks like arriving at the facility each day strictly adhering to multiple safety procedures, while performing the usual tasks.
And for we nonmanufacturing employees, the new normal is working from home adjusting to a new routine and schedule leveraging technology and finding new ways to be more efficient and effective.
However.
What has not changed is the fact that teligent as a us based pharmaceutical manufacturer with topical and expected injectable manufacturing capacity with a simplified and leading infrastructure.
I remain confident that teligent is positioned for future growth and there's value in saying made in America now, let me turn the call over to our Chief Financial Officer, Dan Infinium to provide more detail on Teligent financial performance and other key highlights from the second quarter of 2020.
After we hear from Damian I'll share some final thoughts before opening the call up to questions.
Daniel.
Thank you, Tim and good morning, everyone.
On today's call I will provide detail on four topics first our second quarter 2020 financial performance.
Second an update on more aggressive actions taken to reduce expenses and preserve cash.
Third our NASDAQ listing status and fourth that transaction, we executed with bondholders and announced to the market on July 20.
So, let's start with second quarter financial performance.
On our last call I mentioned that we are projecting improvement in both top and Bottomline financial performance in the second quarter over the first quarter.
In line with that projection, we reported second quarter revenues of $13.6 million, representing a 6.1 million or 82% improvement over the prior quarter. We are encouraged by the partial recovery to pre covert 19 level revenues.
Of the 6.1 million improvement in revenue over the prior quarter $3.4 million was driven by strong sales of U.S. topical products $2.3 million was attributable to improve performance of our injectable line of products sold by Teligent, Canada and the remainder was derived from improved U.S. injectable contact Manny.
Factoring and product development revenues.
In the second quarter, we recorded point $3 million, a failure to supply penalties point 2 million of which were in Canada.
We also recorded incremental inventory reserves of point $4 million gross profit in gross margin for the second quarter were dampened by these adjustments. However, we posted improved gross profits of $2.5 million and returned to a positive gross margin of 18% margins are still well below mid year 2019 levels due to failure.
Supply incremental inventory reserves, changing customer and product mix and price erosion.
Second quarter development cost of $1.9 million were in line with reported first quarter results and our internal expectations.
First quarter 2020, selling general and administrative costs included continued incremental legal fees associated with ongoing litigation, NASDAQ delisting challenges and amended that agreement, but in the second quarter selling general and administrative costs declined to $5 million. This is a $1.7 million decline over the prior call.
<unk> driven by the company's ongoing efforts to reduce discretionary spending and less litigation and debt related professional fees.
All in all as projected in our last call. These improvements and financial performance drove an increase in adjusted EBITDA from a loss of $7.5 million in the first quarter, two a loss of $2.3 million in the second quarter.
As disclosed in form 8-K filed on July 20, Onest 2020, the company is projecting revenues of $13.5 million and $15.5 million for the third and fourth quarters of 2020, respectively, and we are projecting negative adjusted EBITDA of $1.8 million and point $4 million for the third and fourth quarters of 2000.
20, respectively.
Our revenue projections for the third and fourth quarter assume that demand for our portfolio products will remain at 80% of pre covert 19 levels of course with the virus continuing spread in the United States and many states pulling back on their plans to reopen these assumptions are subject to change.
In recent weeks the situation in Canada is more stable than the U.S., but elective surgeries are still well below pre covert 19 levels.
Second switching gears, we continue to work diligently to control what we can from a top line perspective, as Tim mentioned and as reflected in our second quarter results. We're encouraged by the positive signs, suggesting patients are beginning to return of the dermatologists and demand for our products is improving.
We continue to take aggressive actions to reduce costs and preserve cash.
On our last call I mentioned that we implemented an eight week reduction and pay for employees, earning more than $100000, an annual salary furloughed a portion of our staff and introduce the company wide effort to reduce discretionary spending.
In the first quarter, we also froze most of our recruiting efforts and scrutinized roles left vacant by employees exiting the organization.
In late June we made the difficult decision to implement a reduction in force in Bunin, New Jersey as a consequence of this action in the actions taken in the first quarter, our employee base at the end of the second quarter is down 31% year to date.
Impacted employees were offered severance much of which will be paid before the end of the third quarter, but a point 3 million dollar charge was recorded in the second quarter results announced today.
We will continue to actively monitor discretionary spending and maintained staffing levels in parallel with customer demand.
Regarding the third topic intelligence NASDAQ listing status on May 20, Eightth, we initiated a reverse stock split on the ratio basis of 10 to one in order to remove the uncertainty that a potential delisting presented to current and future investors on our first day of trading after the reverse split our share price closed at $4.
Three cents.
On June 18th we were informed that NASDAQ that we had regain compliance with continued listing requirements. Unfortunately since that time, our share price has continued to decline.
Although still trading above one dollar we received notice from NASDAQ on July 28 that the company no longer met the NASDAQ Global markets continued listing requirement to maintain a minimum market value of publicly held shares exceeding $15 million.
Intelligence market value of publicly held shares dipped below $15 million for the 30 consecutive trading days prior to receiving the delisting notice from NASDAQ.
The company's deadline to regain compliance is January 20, Fiveth 2021.
Lastly, I wanted to provide a summary of our most recent financing transaction. The transaction was announced on July Twentyth 2020 for specific details. Please refer to form 8-K filed with the FCC at that time that said, let me provide you with some of the key highlights.
The intent of the transaction was to provide further liquidity. So we can continue to navigate through covert 19 related headwinds, while we await the FDA inspection of our manufacturing facility immuno.
As we've discussed on multiple occasions, the FDA inspection is necessary to both lift the warning letter received in November 2019, and improve our newly constructed injectable facility for commercial production.
And as Tim mentioned previously just last week, we were informed by the FDA via an additional comment letter that our response to the warning letter was deemed inadequate.
But on July Twentyth existing series, a and series B convertible notes were swapped for newly issued series C. Convertible notes from a liquidity perspective. The net result of the transaction was an incremental $10 million of cash proceeds to the company, which taking the price of the swap agreed into consideration resulted in a 6.4 million.
Dollars increase and total debt outstanding at closing.
No that prior to the transaction was $221.1 million of which $119.2 million well secured by first and second lien.
Total debt after the transaction is $227.5 million of which 169 million is now secured by first second and third lien on all company assets.
Upon transaction close on a pro forma basis, there was 49 point.
$8 million of new third lien convertible notes outstanding.
$10 million relating to new money third lien notes $36 million of exchanged series, a and series B convertible notes.
$2 million relating to the cost of deal specific professional and advisor fees and $1.8 million of original issue discount.
The new third lien convertible notes bear interest at 9.5% per annum, and we are exercising our right to pick interest to preserve cash.
Increased cost of capital translates into a $1.5 million increase an estimated annual total interest expense, but given the pick option reduces estimated annual cash paid interest by $400000.
Putting the terms of the series C that transaction aside Tim and I were most encouraged by the collaboration between the board of directors secured creditors and unsecured creditors required to get this deal done and the confidence that reflected in the management team and the future of our business.
We will continue to seize opportunities to preserve cash in order to provide the company with the liquidity needed to resolve the warning letter passed the pre approval inspection and navigate through whatever challenges covert 19 may present.
Let me now turn the call back over to Tim for his final remarks before we moved to the question and answer portion of today's call.
Tim.
Thanks, Daniel as we highlighted the company posted a decent second quarter results.
And we continued to make the tough decisions needed to right size of streamline the organization and our expenses.
We will continue to navigate through some significant headwinds and no one knows exactly how cobot 19 will continue to play out.
We will focus on addressing the FDA recent communication subsequent inspection and launching Injectables soon thereafter.
Amidst all these challenges remain we remain proud to run the U.S. pharmaceutical manufacturing facility. We believe made in America has value. We hope that you and your families are safe and in good health.
Daniel if you could open the call up for questions. We would appreciate it.
Thank you.
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Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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