Q2 2021 Aytu BioScience Inc Earnings Call
Good afternoon, and thank you for joining us for the HQ Bioscience second quarter fiscal 2021 business update call for the quarter ended December 31, 2020 with me. This afternoon are <unk>, Chairman and Chief Executive Officer, Josh Disbrow, and Chief Financial Officer, Dave Great. A two bioscience issued a press release earlier this afternoon.
Sales of the company's operational and financial results for the fiscal second quarter.
A copy of the press release is available on the news page of the company's website at H, who bio dot com.
To remind everyone that today's call is being recorded.
A replay of today's call will be available by using the telephone numbers and conference I'd provided in the earnings press release. In addition of web class of webcast will be accessible live and archived on <unk> website within the investors section under events and presentations at a two bio dot com. Finally, I'd also like to call your attention to the customary.
Safe Harbor disclosure regarding forward looking information the conference call today will contain certain forward looking statements, including statements regarding the goals strategies beliefs expectations and future potential operating results of <unk> Bioscience. Although management believes these statements are reasonable based on estimates assumptions and projections as of today.
February 11th 2021. These statements are not guarantees of future performance.
Tom sensitive information made low longer be accurate at the time of any telephonic or webcast replay actual results may differ materially as the results of risks uncertainties and other factors, including but not limited to the factors set forth in the company's filings with the SEC eight two undertakes no obligations to update or revise any of these forward looking.
I'd now like to turn the call over to <unk> CEO of cash but pittsboro.
Thanks, Amit.
Good afternoon. Thanks for joining today's call I'm excited to be speaking with you today as we reported the highest revenue quarter in <unk> history, we posted over $15 1 million in net revenue, which is up over our previous two quarters and up 377% over the same quarter last year.
In Q2, <unk> strategic transformation continued and the progress we have made over the past four quarters has been exceptional.
I'll remind you that Q2 represents just the third quarter third full quarter of integrating the <unk> consumer health business and the zero for prescription pediatric assets.
While we spent the last three plus quarters of integrating and growing those businesses in parallel we continue to identify additional growth drivers and target acquisitions that.
Of that culminated in late Q2 with the signing of our definitive merger agreement with <unk> Therapeutics, a specialty pharmaceutical company focused on commercializing ADHD brands. This merger expected to close by the second calendar quarter of 2021 will create a specialty pharmaceutical company with pro forma annual revenue of over $100 million.
And of portfolio of unique Rx and consumer health brands.
I'm happy to say that we're making very good progress towards the closing of the merger in fact, just yesterday morning, we announced that the meeting date for the special shareholders meeting for both companies is March the 18th so if both companies receive the requisite shareholder votes to approve the merger on March 18th we'd expect to close shortly thereafter.
We remain on track with our original timeline.
Before I remind our listeners about the strategic rationale for the planned nios merger I'll share some highlights from the current <unk> business from the court.
Again, we had our highest revenue quarter in company history with $15 1 million of 377% increase over the same quarter last year.
Tribute to that was the consumer health divisions, all time revenue high of $7 9 million in the Rx divisions, $7 2 million just shy of an all time high for that division.
<unk> revenue of $7 two is up 25% from last quarter during.
During the quarter <unk> continued to gain revenue scale, and importantly realize operational efficiencies as demonstrated by a significant reduction in adjusted EBITDA. We posted a loss of just one seven plus million dollars of 39% reduction from the same quarter last year.
We're progressing well on multiple fronts from a financial and operational perspective, the settlement that.
Dress, coupled with a strong cash balance of over $62 million positions us well as we prepare to close the nios merger and execute on our growth plans. So with that topline summary, I'll now hand, it over to Dave for some additional financial highlights.
Thank you Josh and thank you all for joining us overall as Josh previewed we have reported a robust second quarter.
Top line net revenue for Q2 was $15 1 million, representing an increase of 377% over the $3 2 million of net revenue reported for Q2 last year and 12% sequential quarterly growth over Q1 of this fiscal year.
Also as important as topline growth, we continue to make progress towards profitability.
During the second quarter, our adjusted EBITDA loss was approximately $1.8 million.
More than $1 million improvement compared to last year's Q2, adjusted EBITDA loss of $2 9 million.
Q2, gross profit was $9 1 million compared to $2 6 million in the year ago quarter Q.
Q2 gross profit margin was approximately 60% compared to the 81 per cent for Q2 last year.
The lower the normal gross profit margin was driven by COVID-19 test kit sales, which generated lower margins than in prior quarters.
While test kits lowered overall gross margin in the test kit business requires little operating resource and contributed nearly 900000 of positive cash flow.
Total operating expense excluding cost of sales for Q2 was $14 7 million compared to $7 5 billion last year for Q2.
The higher level of operating expense support of multiple of incremental topline revenue to make this point of more clear while operating expenses increased less than two times over Q2 last year net revenue was nearly five times greater compared to Q2 last year.
We also recognized approximately $1 $2 million of transaction expenses and operating expense that was associated with the newest merger and is non are occurring.
Without these transaction related expenses the revenue to operating expense ratio would be further improved.
Additionally, our noncash amortization expense for Q2 was approximately $1 $6 million compared to roughly $1 million in the year ago quarter.
So in summary, while operating expenses were higher this quarter when we compare revenue to total operating expenses and factor out transaction costs and the incremental non cash amortization costs. The comparison shows that we are running more efficiently today compared to prior periods.
<unk>.
We have been able to accomplish the relative cost reduction and narrowing losses by removing duplicative costs from the acquired operations yeah.
Using our larger revenue base to absorb proportionally less operating expense and managing the business with the dual mandate of growth and cost control.
The bottom line loss for the quarter was $9 5 million or 72 cents per share compared to a loss of $214000 of 12 cents per share in Q2 last year based on three months weighted average shares outstanding of $13 3 million and $1 $75 million.
Respectively.
Two below the line non cash expense items totaling approximately $3 6 million contributed to the Q2 loss there.
There was a 3.3 million charge to adjust the contingent consideration liability and the loss of $257000 connected to of debt for equity exchange.
On the balance sheet, we ended the quarter with assets of $167 million equity of 113 million and approximately $62 $3 million of cash we.
Also reduced liabilities by $3 8 million since June 30 of our most recent fiscal year end.
Also during the quarter, we completed a $28 $75 million public offering and issued for point 8 million of common shares.
This capital infusion positions the company to pay down of a substantial portion of the nios debt upon closing the merger with Nios net.
The net proceeds from the offering were $26 $2 million.
In summary for Q2 of this fiscal year, we are reporting much stronger results in improved financial positioning compared to the same quarter last year.
We substantially increased revenue reduced the adjusted EBITDA loss and ended the quarter with a stronger balance sheet.
As we move forward, we do so with a clear focus on top line growth and the expectation for continued strides towards profitability.
The let me turn the call back over the Josh for some additional commentary Josh Thanks, Dave focusing now on our operational performance I'm happy to share some highlights from Q2.
Since acquiring the Novus consumer health business the.
The team there has done an excellent job growing sales by gaining efficiencies to narrow the division's cash burn sales growth across a diverse range of consumer health products has been the key contributing to net sales growth was the strengthened strengthen E commerce business, driven biometric care regarding <unk> and fluid of care from Africa, I'll remind you was all over the.
One of our private label proton pump inhibitor for acid reflux, competing with private sector, where <unk> is our private label over the counter of foam formulation of minoxidil, where rogaine for hair loss.
Blue the care is our private label Fluticasone appropriate nasal spray competing the flonase.
We believe these products have strong growth potential and by virtue of being sold through our E. Commerce channels that can be sold efficiently with the lower marketing spend not surprisingly ecommerce has seen tremendous growth through the pandemic and this channel is expected to remain strong for us given the shift in consumer health care buying habits are direct to consumer business also continues to drive revenue.
Gail through a diverse range of our products.
Importantly through both the E commerce and the direct to consumer channels, we have numerous product launches lined up for the coming quarters.
On the Rx side again, we posted a 25% increase over our Q1.
Rx revenue growth was driven by growth in our pediatric segment led by poly VI Flor, our multi vitamin and floor I'd supplement product line. We also had revenue contribution from carbon all E. R is the openness and from COVID-19 test kits, both our newly acquired antigen tests and the antibody tests. Additionally, this quarter we in.
Bounce of the completion of the first ever clinical study evaluating the heel light ultra Violet a light catheter technology that we license from Cedars Sinai Medical Center.
This is an important milestone and we expect to report on the results as soon as they are published in parallel with the study submission.
Communications have continued with the FTA and planning for additional studies continues.
<unk> continues to move here like for theirs.
A great deal of excitement around here of late and we're engaged with our multiple partners as we move the project forward.
I'm personally more excited than I ever have been about what this innovation could mean in the treatment of COVID-19, and other respiratory diseases the potential.
Commercial opportunity is large with applications going well beyond COVID-19, the ventilator associated pneumonia severe influenza and other difficult to treat infections represent large market opportunities for the company.
Stay tuned because we're excited to share developments as they become available.
I've said before that the communication cadence on the hill light will be around significant key milestones and I'll reiterate that here today, there's a lot going on with the project.
And I'm enthusiastic about our progress.
Now a bit more about the amounts of announced merger with with Nielsen as announced yesterday from both companies set the special shareholders meeting date for March the 18th.
So we're moving forward swiftly to get this deal closed. This merger continues our significant transformation and creating a combined 100 million revenue specialty revenue in our specialty company and the New York transaction accelerates, our 12 plus month transformation to build of diversified spec pharma company a company with much higher revenue scale and the realization of significant.
Cost savings through synergies upon closing the transaction with news, we expect to begin realizing estimated annual cost synergies of approximately $15 million beginning in fiscal year 'twenty two.
With the acquisition of Nios, we gain of strong ADHD portfolio of micro particle platform technology and great sales momentum with their ADHD brands.
We will add Nielsen's established growing brands at <unk>, XR ODT and co temple of XR ODT. The addition of these two great products in the accompanying sales team will further enhance our footprint in pediatrics, while expanding a twos presence in adjacent specialty segments.
Further the acquisition creates the opportunity to leverage and further enhance <unk> Rx connect nios as best in class patient support program, we expect to continue to leverage <unk> connect for the ADHD brands as well as for our two heritage product portfolio.
In summary, the combination with <unk>, we believe will create substantial value through increased scale and expanded portfolio and the realization of cost savings and synergies and we're now just five weeks away from the stockholders' meetings.
Stay tuned as we move closer to the meeting date and upon a successful meeting outcome. The subsequent closing of this important merger.
I'll wrap up my prepared comments with this this quarter, we posted record financial results and announced the transformational merger agreement with news. We grew revenues on both the Rx and consumer health side of the business and we made solid progress in gaining operational efficiencies and finally, we advanced here led to an important point in its development of.
I'm very proud of the great work. This team has done and look forward to continuing our progress it was a strong quarter for us to be sure of.
Now open it up to open up the call to analysts questions Omar.
At this time, we'll be conducting a question and answer session. If you'd like to ask the question. Please press star one on your telephone keypad.
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One moment, please while we poll for questions.
And our first question comes from Vernon Bernardino with H C. Wainwright.
Please state your question.
Okay.
Hi, guys Hi, Dave.
Congratulations on the record revenue and the exciting new.
Merger acquisition.
Really.
Sounds like Youre, putting together the really a nice company here and these things.
A lot of assets.
No hard to find.
All of the combinations and looks like you are.
On the way to getting some really good the synergies.
Just wondering if you could talk a little bit more of box.
For the pediatric the side of the business.
Do you anticipate.
That growing compared to per.
Perhaps some of the legacy ICU.
Product revenue growth debt, you Uh huh.
Yeah. Thanks Vernon appreciate the the question and thanks for joining US I would say we yeah. We certainly do expect continuing growth and when we identified the Sarah for pediatrics pediatric assets of little over a year ago and subsequently closed that deal we felt like some degree we'd come home.
The some of the core principles here at.
At a two of the management team and started in pediatrics, and we certainly know and understand that market very well so.
Obviously with the nios transaction that enables us to parlay that experience in the pediatric portfolio brought over from <unk> to to enable some real synergies on the product line. When you think about the call point in PD pediatrician offices as well as in some.
The family practice of offices debt see children theres going to be very good overlap. So we will look to take advantage of that that having been said, we certainly expect growth across the portfolio and the Tesco to disrupt and the openness.
Continue to be key contributors for the company and of course, it's the diversity of the portfolio that we think is a key strength. So we will continue to move those products forward as well, but certainly the of nios transaction enables us to really entrench in pediatrics.
Perfect that sounds like.
The combination of an even more exciting.
If I can ask the follow up question.
Our second question that is.
I Wonder if you could talk a little bit more about the COVID-19 the.
Business in the.
Debt how much of the of your overall revenues.
Is it now and do you anticipate what kind of growth do you anticipate there I realize that all depends on how much testing is the done in the United States, but I was wondering if you could talk to perhaps supply that you might gain.
Vs ability and capability and you know of vision down the road as to how many tests of test.
The kits you'd be you'll be able to sell.
Yeah. So the Covid market continues to be robust from of testing perspective.
You know what I'll say is we were very opportunistic in acquiring an antigen test when we saw the need that arose for that is as rapid antigen in point of care testing became relevant so we were able to source of.
And antigen test, that's got great performance and good market acceptance and we certainly.
I had a hard time, keeping up with the demand quite frankly last quarter, so without commenting specifically on the contribution from the test kits I'll say it was meaningful and in terms of what we expect going forward. It is going to depend on how the market continues to play well.
We see on a regular basis demand sort of changing back and forth between.
Antigen and antibody and I think the future is probably more oriented towards the antibody testing would expect that market to continue to be robust. We've got good supply and the ability to continue to access supply is needed on on both sides. So I don't want to give any guidance to give any false expectation in terms of what it could be but we're going to continue to be opportunistic in the COVID-19 market.
We're not of Covid testing company per se.
I Dare say, there's really not there's no such thing as one because if that's all you are you won't be a company like two years from now, but we will continue to be opportunistic as we bring in other product opportunities and yes, we've been if nothing else we've been very swift very adept at identifying opportunities and it has helped build the company over the last several quarters. We will continue to look for ways to do that.
But the nios transaction, obviously, we're going to focus on the integration of that business and we're going to continue to focus on growing the consumer health care business and as that gains more scale and get to the profitability. So there's a whole heck of a lot more here than just COVID-19 test kits, but they are meaningful now.
And as we grow proportionately on the Rx side and the consumer health side.
They will they will be proportionately less important just by virtue of the fact that the rest of the portfolio. We expect to see big growth from so hopefully that gives you some insight to how we're thinking about it but excited about the quarter that was and certainly we'll have the ability to continue to you know.
To sell test kits I think as long as those are those are needed in the in the near term and mid term.
That's extremely helpful. Thank you for that I know of another question of ball again back in the queue for now.
Yes.
We may be able to actually take your take your question now Vernon.
Okay.
So David you talked a little bit about the margins can.
Can you talk a little bit more about.
Perhaps how the.
The evolution of the gross margin would've been if you had not.
Acquired Nios and what are your perhaps expectations now if you can.
C down that far down the road are actually provide.
I know it would be guidance, but if you could just give like a little insight as to how we may look at added in the next 12 months.
Yes, certainly the.
The test kit margins are.
The market as Josh described is a little bit of all over the place of its variable from quarter to quarter. The Rx business is pretty stable as well as the consumer health business is stable.
Together.
The ending gross profit margin with both of those business depends on the relative contribution last quarter, we reported 81% gross profit margin probably on the.
The higher side of what we expect going forward, but.
70% to 80% depending on the the various aspects of contribution from the two main businesses.
<unk> is really where the expectation is in the past I've commented the 70% to 75% is the range that should.
It should be.
We should be able to hedge going forward. So.
The 70 to 80 is is reasonable.
The result.
Little bit of Lumpiness in that we do use CMO and from time to time, there's you.
The larger acquisitions of products that are.
Sometimes you have to buy more than you could actually sell due to the minimums imposed by the CMO and such.
And that drives it a little bit of lumpiness, but outside of that it's fairly stable and in more of less depends on how much the consumer health segments contributes which is a little bit lower relative to the Rx side of the business, which is a little bit stronger.
So hopefully that gives you some context to work with.
Definitely sounds like that's the way we would want to see it if you are integrating the businesses.
I'm very well.
Thanks for that that's all I have the for.
For now.
Great. Thank you thanks Brandon.
As a reminder, if you'd like to ask a question by phone. Please press star one on your telephone keypad.
For me the total indicate your line is in the question queue. You May press star two if you'd like to move that question from the queue.
One moment, please as we poll for further questions.
Ladies and gentlemen, we have reached the end of the question and answer session and I'd like to turn the call back over to Josh.
Disbro for closing remarks.
Thanks, Omar and thanks to Vernon for the question. Thanks to everyone for their time and attending today's call look forward to providing additional updates as more progress is made but until then thanks again and have a good evening.
And this concludes today's meeting you may hang up your phone lines now at this moment have a good evening and thank you for your participation.