Q4 2020 Assertio Holdings Inc Earnings Call
Gentlemen, thank you for standing by and welcome to the Q4, 'twenty 'twenty and full year assertion Holdings incorporated earnings Conference call. At this time, all participants lines are in a listen only mode. After the speakers' presentation there.
Will be a question and answer session.
Ask your question. Your question you will need to press star one on your telephone.
Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today, Mr. Max Nemmers. Thank you. Please go ahead Sir.
Thank you Bob and good afternoon, and thank you all for joining us today to discuss this or any other fourth quarter and full year 2020 financial.
The news release covering our earnings for this period is now available on the Investor page of our website.
They're not necessarily O T X dot com I would encourage you to review the release as it is important to today's discussion.
With me today are Dan <unk>, President and Chief Executive Officer.
Pulse Schwichtenberg senior Vice President and Chief Financial Officer, Dan will open B.
Remarks, and provide an overview of the business followed by Paul who will review our financial results. After that we'll open the call for your questions.
During this call management will make projections and other forward looking statements regarding our future.
Performance.
Such forward looking statements are not guarantees of future.
Performance and involve risks and uncertainties, including those noted in this afternoon's press release as well as <unk> filings with the SEC. These and other risks are more fully described in the risk factors section and other sections of our annual report on form 10-K, our actual results may differ materially from those projected in the forward.
Looking statements and <unk>, specifically disclaims any intent or obligation to update these forward looking statements, except as required by law with that I will now turn the call over to Dan Yeah. Thank you Max and thank you everyone for joining us this back from it.
Yes, you are all staying safe and healthy during these challenging times I want to start by welcoming our long term shareholders, new shareholders and those that are considering investing in history.
I'm excited to share my priorities, our new strategy and the results are positioning our company for future success.
Since becoming CEO I've taken some time to reflect upon the comments and concerns I've heard from investors over the past year.
A few teams kept repeating such as our ability to service our debt and reduce the cost of the debt.
Our operating costs and how we could reduce expenses and how we can deliver on our 45 million of restructuring synergies, especially after having just delivered on 40 million of merger synergies.
Understanding our legal challenges their risks and what management is doing to address them.
Our ability and financial wherewithal to acquire new assets and refresh our portfolio and finally, our ability to address the near term impact of COVID-19.
As I established my goals and priorities as new CEO of a share deal I wanted to make sure I address some historical investor concerns. So we can put them to rest until the discussions towards the progress we've made and the significant transformation of the company since I arrived 2017.
The priorities for 2021 are as follows.
Build a strong and committed team with a culture of teamwork inclusion and results delivering.
Delivering on our 45 million of restructuring synergies.
Ensuring the company generated strong operating cash flow.
Ensuring our debt never becomes a constraint in running the business.
Mitigate our legacy legal uncertainties.
And develop a sustainable business model that reflects the changing environment.
It's been an incredibly busy 10 weeks in 2020, one so far so while we still have a lot to do we have taken decisive action to make sure. We are addressing these priorities.
I'm incredibly proud of the progress we've made as a team and I believe that as we continue to demonstrate further advances we will unlock more value that you as shareholders will appreciate.
Yes.
Today, we announced the promotions of pulse with converting to CFO, who you'll hear from in a minute and a J Patel to chief accounting officer.
In addition, we've made a number of promotions joined the executive team.
Paul in Asia have been instrumental in all of the positive change happening into Sergio and especially in fostering a culture, we want to continue to improve upon.
I'm excited to see what we can accomplish together with them in their new roles. The same goes for the rest of our new executive team. All are extremely talented leaders committed to common goals do we all have the same mentality that results speak louder than words.
I Trust. This is already evident by what we've been able to accomplish so far early in 2021.
And regarding to the second priority of our synergies.
Happy to say that we've already actually everything we need to do in order to achieve the goal of 45 million in annualized synergies.
As a result, we expect to realize 40 million in cost savings this year relative to our run rate from the second half of 2020.
Combined with the previously achieved $40 million in merger related synergies, we are rapidly and radically changed the operating cost structure of the business.
I will elaborate on later, we're evaluating the acceleration of some other long term investments given our improved liquidity.
Our previous merger related synergies, we're largely duplicative costs that were no longer necessary for the combined organization.
The restructuring synergies are largely in the form of head count going forward, we will have a much smaller agile organization and rely more on outsourcing of resources to provide the right offerings to better match our business.
<unk> placed on face to face interactions due to COVID-19 accelerated a preexisting trend towards reduced in person access for field reps.
As a result, the most significant of the changes we've taken the prudent step to eliminate our in house field force and all of the support costs associated with it.
At the moment very few would debate the diminished value of in person promotion, we believe that for products like ours in this market environment there'll be far more productive means of promotion.
During the past year, we've learned a different way to do sales to non traditional and hybrid models, we're rapidly accelerating our investments to further execute on digital and virtual promotion.
We will continue to see Howard market and portfolio evolves and keep an open mind towards working collaboratively with others and going back in person ourselves, where and when there is a benefit to the business.
These synergies will ensure we achieve my third priority of being a strong cash flow positive business. Once we get past the cost of restructuring that will mostly be incurred prior to March 31.
We're also looking across our business to manage working capital and improve our cash management.
Regarding my fourth priority concerning our debt I'd like to remind you that the only covenant. We have is pertaining to minimum liquidity and with our recent equity raises this issue is completely off the table.
This enhanced liquidity is a major win for a sturdy O for three primary reasons.
First we're now evaluating accelerated investments in both English and.
And our commercial model. This is extremely important for the long term success of our business that we have the resources to make these investments sooner.
Second we've historically been active in business development, and we will continue to do so however, having immediate access to capital allows us better positioning when opportunities arise.
And third we have significantly improved our ability to achieve better terms and cost if we were to refinance our debt over the next 12 to 18 months.
My fifth priority and how we manage our litigation challenges is in my mind one of the most important opportunities we have to remove a historical overhang that is coloring the way investors an outside business partners have perceived as Sergio.
All of these challenges our old legacy Depomed issues.
And if we're successful at mitigating them. It will have an enormous impact on our business and its reputation.
We've created goal specifically targeted to each individual situation and we will look to get each suit dismissed or settled where appropriate.
We're resolution is not possible, we will attempt to define what the potential outcomes may be.
With a bare minimum result is lowering her ongoing external legal costs.
Simply stated our goal is to put these legacy legal issues, where they belong behind us.
Our settlement and insurance litigation in February exemplifies this is when approaching the situation with business judgment. It made the most sense to settle and in this case. The result was great for the business.
<unk> 5 million in the bank and leaves open the potential claims against other insurers.
Looking forward, we see a rapidly changing environment around us this is far more evident and impactful smaller companies like Sergio.
The last priority addresses this.
We've made a strategic shift to get ahead of where our environment is headed.
And we were looking at the best way to approach our markets, we want to build a platform of digital and virtual promotion set by analytics that most effectively reaches the four PS that worked together to make prescription decisions patients prescribers payers and pharmacies.
With our focus on profitability and growth we've made the strategic decision quickly and decisively we.
We believe this shift represents the best way to create value moving forward and we are confident that we can turn this platform into a substantial meaningful competitive advantage that can be applied to other assets as well.
Covid has had a profound impact on our society or and has or will likely change all of our lives in some way.
But what it's also done is taught us that we can interact digitally and virtually without detriment in many situations that we're finding that it is a preferred mode of communication.
I believe our industry could see a profound shift in how we commercialized products and we are just at the beginning.
We've already seen at some of our peers are already making small steps in this direction.
Whether it is the success of virtual peer to peer educational meetings on demand information more targeted engagement or more personalized digital content. Our industry is beginning to make this shift building.
Building upon our experience in the past year, we've begun our own first steps in this direction by continuing wood pellet sales tell a sampling and email campaigns.
Net of CRD as products are excellent candidates to be promoted in this manner.
Now I'll turn the call over to Paul who will walk through the quarterly results.
Thank you Dan.
This afternoon I'll review, the financial highlights from our fourth quarter and full year 2020.
As was the case in the last two quarters, our year over year comparisons are challenging through the many changes in our business for clarity.
Any references to the pro forma results are reflective of our product divestitures and the xylem merger.
Pro forma net product sales were $30 1 million for the three months ended December 31, 2020, compared to pro forma net product sales of $31 1 million in the prior year quarter.
And $33 7 million last quarter.
Full year pro forma net sales were $119 2 million in line with our guidance of a 5% decrease from.
From the prior year pro forma net sales of $125 seven zone.
As you absorbed fourth quarter net sales showed growth over the third quarter and prior year quarter.
In addition, the fourth quarter net sales reflect better than expected sales from the volumetric brands as we prepared to exit commercialization of these products.
And did some sales were lower than the prior quarter, which was our highest quarterly result in the past two years, primarily due to lower volume and price index.
The remainder of the portfolio continues to be impacted by lower volume due to COVID-19.
And the third quarter commercial coverage transfer spreads.
For Cambria and sensor, we're continuing to shift towards a hub model.
A portion of the prescriptions that flow through the hub model.
Are considered consignment sales are specifically for non covered patients.
These consignment sales are not reported by the major prescription reporting services, which will result in a decline of overall reported prescription volume. However, our net sales will not reflect the same level of decline in fact, this model will generate overall cost savings from the company due to a reduction in overall distribution fees.
<unk>.
Reported cost of sales was $6 8 million from the three months ended December 31, 2020, and $19 9 million for full year 2020.
The increase over the prior year was influenced by the addition of the xylem product portfolio.
And the inventory step up expense associated with the fair value adjustments as part of the xylem merger.
Additionally, in the fourth quarter cost of sales reflected a greater contribution from sales of lower margin products, particularly the <unk> matrix brands and an inventory obsolescence write off for sprouts.
Our non-GAAP adjusted operating expenses.
R&D and SG&A in the fourth quarter were $16 1 million.
Compared to $21 9 million from the fourth quarter of 2019, and $21 7 million in the prior quarter.
The results for the quarter reflect approximately $3 million.
Of year to date payroll expenses that were previously accounted for in our reported in SG&A.
They've been reclassified into restructuring costs in the fourth quarter.
There are three tranches of cost savings that the company has realized from 2020 and expect to realize from 2021 and beyond.
First the Q4 2019 restructuring resulted in $15 million of annual savings in 2020.
Second the merger with Xylem has resulted in the elimination of duplicative operating structures.
And we have achieved our goal of $40 million of SG&A synergies in 2020 relative to the pre merger combined operating expenses of the two businesses.
Third because of the recent restructuring we expect in 2021 to achieve additional SG&A savings off of the annualized second half 2020.
Operating expense run rate, including opioid legal cost for.
For clarity, our pre restructuring operating expense run rate, including our opioid legal costs for the second half from 2020 is $43 7 million, which translates into an annual.
Operating expense run rate of approximately $87 4 million in 2021, we expect to achieve $40 million of savings off of this run rate and ultimately a $45 million in annual savings beginning in 2022.
Non-GAAP adjusted EBITDA for the fourth quarter was $9 4 million, an EBITDA margin of 31%.
Compared to $7 million in the third quarter of this year. The improvement is reflective of both the realization of the synergies and the impact of the payroll cost transfer to restructuring costs.
Net loss from the three months ended December 31, 2020 was $24 4 million compared to the prior year's fourth quarter loss of $192 6 million.
This comparison is especially challenging given all the changes to the business. However, the largest change drivers of a loss on asset impairment from a divested product recorded in the prior year and substantially higher interest and amortization expense.
Business previously incurred.
The fourth quarter 2020 results also reflect severance charges of $10 7 million and we expect to recognize in total $11 million to $12 million, which accounts for additional non cash charges relating to the write off of certain office lease in furniture assets.
The results also reflect a $17 4 million noncash goodwill impairment in the quarter.
During the quarter the company paid $10 $3 million of our senior secured debt and accrued interest, leaving us with $80 2 million of third party debt, which will not mature.
Until Q1 2024.
And as Dan stated, we have improved our ability to achieve better terms and cost if we were to refinance our remaining debt over the next 12 to 18 months.
Ending cash on December 31, 2020 was $20 8 million.
The decline in cash of $13 9 million from our September 30th balance of $34 7 million.
Primarily attributable to the debt payment.
Cash royalties restructuring payments a final payment on 2020 inventory commitment purchases and a delay in the timing of expense reimbursements due from partners.
The company expects additional cash restructuring payments of approximately $8 million in the first half of 2021.
The 45 3 million of cash raised from the recent registered direct offerings, we will be seeking to accelerate potential investments in 2021.
As the incoming CFO over to Sergio My overarching goal is to help the organization achieved the priorities that Dan mentioned in his earlier comments to.
To that end my priorities are the following.
<unk> Castle maximization and management of working capital to actively exploring opportunities to reduce cost of capital.
Free execution of operating expense savings and for supporting the development of our sustainable business model through effective commercial strategies and new investments.
Lastly, like many other companies in our industry. We believe it is prudent for us to hold in providing guidance at this time.
Staff are intended to give guidance for 2021 on our first quarter earnings call in May.
And now today due to the volatility created by Covid and the possibility for accelerated investments now.
Now I will turn the call back over to Max.
Thanks, Paul cleanup, we can open up the call for Q&A.
Absolutely share as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press and.
And please limit your questions to two or one plus one follow up.
Your first question is from Scott Henry of Roth Capital. Your line is open.
Thank you and good afternoon.
A couple of questions.
First could.
Could you give any color on the revenues for I mean, I know you gave some directional.
Directional comment.
Could you give us sales for endo.
Bricks.
Cambria.
Trying to get a sense of what those numbers were in the quarter.
He will report those are there'll be available in the 10-K that will be filed tomorrow.
Okay.
Alright fair enough.
And I think you I mean, I know you gave some color around it.
But.
But could you talk about what real time cash and debt are right now I just want to make sure I have those there's a lot correct. There's a lot of moving levers.
Okay.
So real time cash right now is gonna be north zone.
Hi, <unk>, yes.
And then.
The debt is $82 million of principal outstanding.
Okay perfect.
Go over the two limit on question from my apologies.
Right.
The SG&A.
Thought I heard you say non-GAAP SG&A was around 16.
<unk> million dollars in the quarter and I just did a back of that.
You can get around $15 million.
Literally but then when I when I look at your.
Your guidance for 2021, it sounds like it may even come down from those levels.
Just wanted to get your thoughts on how we should think about that SG&A line.
Yeah, I mean, what I would say is that if you what I was trying to explain in the script. This is Paul here.
Is that if you take our our back half run rate.
For 2020, and the last two quarters you added in our opioid legal expense.
And you look at what that annualized number will be we will save 40 million off of that number in 2021. So the short answer is yes, he SG&A will come down.
Okay, Yeah, I guess it all depends what you include in line.
You don't include.
And then I promise.
Final question.
I wanted to get a sense under the new business model, you've got some experience through COVID-19.
<unk> got some experience through the last quarter.
When you do less face to face promotion for our product.
You know what what kind of script declines do you typically see I mean is it reasonable to think that scripture declined 10%, which maybe you'll make some of that up on pricing or you know, maybe you're doing better than that or worse from that I. Just wanted to get kind of your thoughts based on your early experience.
Well.
I don't want to comment too much in the early experience that we've seen so far this year what day.
What I can say is unfortunately, there's not a great analog and we're also not.
Just giving up so yes, we are not going to be doing the same in person that we would have been doing in the past, but I'd say that COVID-19 last year.
It could be very good case study, we had 80 reps in the field are 80 territories that we had.
At Best we were seeing 40%, 50% of our calls made in person.
So we had a very strong virtual promotion last year, just because of what Covid did in Covid was also.
In some ways worse than what you would expect normally because patients weren't going to go visit their physicians.
So I think we saw a resilience in the portfolio last year and net debt does bode well for what we expect going forward.
The biggest thing that I'd point out for.
It might be obvious to you from our portfolio going forward is spring did have that debt payer reimbursement change in early September of 2020. So the go forward run rate for 2021 will be more like what we saw here in the fourth quarter.
And then also notable is that the solid new matrix products of which Paul will comment in a second on what the total sales were that we recognized this year that will not be happening.
Might be continuing going forward as we exited the promotion of those brands from the distribution of those brands with any other year. Since do you have the non Brian on a pro forma basis of Saudi matrix sales were $8 2 million or so.
So we will not be seeing that same level of.
Sales for those products going forward.
I know that doesn't help you Scott and I apologize that I can't give you a good solid answer there but.
I hope my commentary.
When you say on a pro forma basis does that mean on a pro forma annualized basis.
Those are the sales per cell you matrix for both the dialogue and certainly also the full calendar year of 2020 across both companies.
Okay perfect. Thank you.
Thank you for taking the question.
Your next question is from Kevin cadre of G Research. Your line is open.
Hi, Thanks for taking my questions you mentioned the.
Shifting the commercial model I'm wondering.
How has it impacted.
The business development Arena I know you guys have been.
Looking for a while but has that.
A shift in the model.
James the sort of opportunities that youre looking for.
For business development.
So when it comes to business development I think the types of products that would work well force. So if we looked at a product level acquisition, but are a lot like the products that we have in the portfolio today, we think that what we what we've got now will benefit a lot from this digital virtual platform that we want to build.
In combination with the hub and pharmacy networks that we have.
So I think what it does for US is it actually opens up more opportunities for us to possibly bid on assets that we might have not changed in the past because we had a fixed infrastructure, calling on a certain set of physicians that isn't the case today, we can send an email to cross any therapeutic category we can.
Display a banner ad or an add in.
Electronic prescribing platform.
Across any therapeutic pizza category, and we can leverage our distribution model to effectively get that two patients. So I think it creates more opportunities and combined with the liquidity on the balance sheet will actually put us in a better position to be able to go after these assets.
Great.
Thinking more about business development opportunities.
A year ago, when you guys announced.
Merger.
So it's fair to say if things haven't gone quite the plan.
With that obviously, there's a lot that's been going on that's out of your control with Covid, but.
Any learnings you can take from.
The combination with over the past year and that you can apply to future business development opportunities.
Negatives.
Relative to your expectations going into that merger.
It's a very good question, Kevin and I reflect on some of the other EDM I made a mistake once in my career here at a sturdy over almost promise to BD deal and it didn't happen and.
Now reflecting on what has happened since you are seeing in hindsight, what that company did with those assets Covid was.
It has been really ruined that acquisition for them.
And Covid did play a big hand than what we experienced last year.
<unk>.
What I would still say, though is our revenues were not down materially from what we did expect.
It wasn't as bad as it probably could have been and I think that speaks to how resilient. This portfolio is going forward one of the things that we will do is it.
We're taking the possibly a more conservative approach to underwriting. These these opportunities and making sure that we've got a conservative forecast.
And can build an infrastructure that if it needs to be adults.
It will be included in that evaluation.
Great if I can squeeze one more.
You talked about.
From the changes that we can expect to see.
Absorb Scripps may not come through third party.
So that's kind of.
You know, obviously, making revenue look better than what the scripts would see but in terms of gross to net should we expect.
Improvement there.
In 2021 given.
The distribution model shift that you have.
Yeah.
You will we will see a profound impact on gross to net actually.
But what it does is it's also a lowering of gross revenue for any product that is just that is dispensed via consignment, we won't recognize the gross nor the gross to net so.
Better aligns the two components, where it's what what goes in and what goes out are closer together. So it does have an impact a positive impact on gross to net but it also has a reduction in gross sales.
Great. Thanks.
Okay. Thank you that's it for Q&A today.
I will turn the call over to Dan persons closing comments.
So in conclusion, we have clear and ambitious priorities for the year ahead, and I Trust that you can see from our excellent start that we're truly focused on execution and results.
This cannot be possible with our people I'm very proud of the team we have here to Sergio and I want to thank all of my colleagues to help shape, our company and are positioned for an exciting future and I. Thank you all for joining US. This afternoon and hope you have a good evening.
Ladies and gentlemen, this concludes today's conference call and thank you for participating you may now disconnect.
Okay.
[music].
Hi.
Hum.
Uh huh.
Yes.
Yeah.
Okay.
[music].
Yeah.
Yes.
[music].
Yeah.
Yeah.
Sure.
Uh huh.
[music].
Okay.
[music].
Yes.
[music].
Hum.
Hum.
[music].
Hum.
Yes.
Okay.
Yeah.
Hum.
Sure.
[music].
Yes.
Hum.
Yeah.
[music].
No.
Yes.
[music].
Okay.
Yeah.
Yeah.
[music].
Yeah.
Yeah.