Q4 2020 Repro Med Systems Inc Earnings Call
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Greetings and welcome to the Corium Medical systems fourth quarter 2020 earnings Conference call. At this time, all participants are in a listen only.
Only mode of question answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Please note this conference is being recorded.
I will now turn the conference over to your host Greg Heart attack you may begin.
Thank you Alex and good.
Afternoon, everyone earlier today cover the medical system released financial results for the fourth quarter and year ended December 31, 2020, a copy of the press release is available on the company's website.
During this call, we will discuss our business outlook and make certain forward looking statements.
These comments are based on our predictions and expectations as.
Of today actual events or results could differ materially due to several risks and uncertainties, including those mentioned in the associated slide presentation and our most recent filings with the SEC along with the associated press releases.
We assume no obligation to update any forward looking statements and the associated.
Slide presentation will be posted in the Investor Relations section on our website at Www Dot co room medical Dot com.
We encourage listeners to have our press release in front of you, which includes our financial results as well as commentary on the quarter and full year.
During the call management will discuss certain non-GAAP financial measures.
In our press release and slide presentation accompanying this website and our filings with the SEC each of which are posted on our website.
You will find additional disclosure regarding these non-GAAP measures, including reconciliations of these measures with the comparable GAAP measures.
Our results are inherently unpredictable and may be two maybe.
Materially affected by many factors <unk>.
Including the introduction of competitive products the availability of insurance reimbursement the success of our research and development efforts acceptance of and the band for our new and existing products expanded marketing acceptance of the freedom system, the cost duration and ultimate outcome of any litigation.
General economic and business conditions in the United States and abroad, the impact of COVID-19, and other factors described in our filings with the SEC.
Therefore, our actual results could differ materially from those goals.
For the benefit of those listening to the replay this call was held and recorded on Tuesday.
March 23rd 2021 at approximately 430 P M eastern time.
Since then the company May have made additional comments related to the topics discussed.
Please reference the company's most recent press releases of filings with the S E C.
With that said I'd like the turn the call over to Jim back interim CEO of <unk> medical.
System Jim. Please go ahead.
Thanks, Greg and good afternoon, everyone. We appreciate you taking the time to join us today.
Before reviewing our year of 2020 operational highlights.
I would like to thank the cover of medical systems team for their hard work and dedication throughout the past 12 months.
Despite the many challenges that they encountered this past year the.
Team rose to the occasion.
Colorado is stronger and more dedicated than ever.
And we look to use this perseverance to drive more robust outcomes in 2021.
We are also excited about our new CEO announced last.
Yeah.
We are confident that under Linda <unk> leadership.
<unk> medical is well positioned for our next phase of growth.
I would now like to turn to our results.
I'd like to take a few minutes to talk about our net sales and add some transparency to our business.
Last week, we break down our net sales into three categories.
Domestic core.
Novel therapies, which currently includes clinical trial sales.
And international core.
The largest of the three as our domestic core net sales.
Which is derived from sales of our easy to use mechanical infusion pumps.
And the corresponding consumables.
These pumps are currently used to deliver subcutaneous I gene therapy to patients suffering from chronic primary immune deficiency disorders.
Net sales growth in all three of these categories was disrupted in 2020.
Starting with domestic core net sales with the.
For the disruptions related to both pricing and volume dynamics.
Beginning January one 'twenty 'twenty current decided to strengthen its contractual position as the vendor of choice.
With key customers by providing allowances including growth rebates.
As of the beginning of 2021 we have lap these allowance agreements and our net sales for more more closely track our actual volume growth going forward.
Regarding the quarterly cadence of our domestic core net sales for the emergence of COVID-19 in the U S.
Altered the ordering patterns of our largest.
Or just customers.
At the beginning of the pandemic these customers, including our largest distributor increase.
The increase their inventory of our products.
In the second half of the year, and especially the fourth quarter, those customers and distributor of reduced their inventories by purchasing less product from us.
Based on our.
Our conversation with these customers, we believe that purchases in the first half of the year, where because customers and distributor we're concerned about future availability.
And that their inventory levels have now returned to normal levels.
Switching to our novel therapy sales, although novel therapies, which.
Currently includes sales in the clinical trials with.
It was $900000 higher than last year.
This revenue experienced purchase volume variability throughout the year.
Further.
We were made aware of delays in trial activity due to COVID-19.
We continue to advance the strategy of novel.
Peace with potential form of customers, although we anticipate novel therapies will continue to be an unpredictable portion of our overall revenue.
Yeah.
2020 was also a challenging year for our international business.
COVID-19 hampered our ability to create new opportunities for our products overseas.
Third we believe there is demand for our infusion systems in Europe and Asia.
And we will continue to pursue these opportunities.
This past June core ROE of medical had several significant accomplishments.
<unk> entering into an agreement with command medical products to manufacturer of our sub assemblies.
So that's and tubing for future supply continuity and cost savings.
In addition, the completion of the capital raise of net $26 $6 million.
And the announcement of a stock repurchase program through December of 2021.
The company remains committed.
Neil it's looked over the long term as we make short term investments.
Execute on our strategic initiatives.
The company's primary areas of focus for the year 2021 will include.
Continued focus on improving the customer and patient experience.
Continued research and development efforts to introduce.
To grow the products into the markets we serve.
The expansion of sales into other drug therapies, both existing and new and then and an expanded presence in international markets.
And the implementation of secondary sourcing of our needle of tubing sets.
Before turning things over to Karen.
Karen I just wanted to add that I'm thrilled about the appointment of the length of therapy is called room Medical's press.
President and Chief Executive Officer effective April 12.
Linda brings our company of wealth of relevant executive experience and the successful track record of building and leading robust global organizations.
Throughout her 24 years of Becton Dickinson when they had developed and commercialized multiple product and service innovations and delivered solutions to patients in the home setting.
The board and I look forward to working with Linda as colder medical enters its next stage of growth.
I would now like to turn the call over to Karen.
To review, our 2020 financial summary.
Okay.
Thank you Jim and good afternoon, everyone.
Total net sales for the fourth quarter were for 1 million a decrease of 35 per cent from the fourth quarter of 2019 the.
The decrease of net sales is due to tighter inventory management.
Large customers after precautionary buying in the first half of 2020, a large early order placed in the third quarter lower novel therapy sales and lower international sales.
Higher allowances also unfavorably impacted the quarter.
Net sales for the full year of 2020.
Several of increased 4% over the full year 2019.
The increase was principally due to an increase in domestic of core product sales volume as well as higher domestic novel therapies of 800000.
Offsetting this increase were higher allowances, which include rebates, resulting from the net.
<unk> act of pricing increases at our largest distributor in the second half of 2019 and pricing decreases in growth rebates to strengthen our contractual position with several large customers in 2020.
Further increasing allowances for payment discounts and distribution fees that our largest distributor under new contracts.
Contract terms entered into in the fourth quarter of 2019.
Gross profit as a percentage of revenue, which we refer to as gross margin.
It was 50 57 per cent and the fourth quarter down from 63 in the same period in 2019 impacted by scale and higher <unk>.
Allowances.
For the full year 2020, gross margin was 62% down from 64% in 2019 impacted by higher allowances overtime costs related to COVID-19 absenteeism.
And the discontinued product line reserve.
Offset by some favorable production day.
Yes.
Selling general and administrative expenses were $3 million in the fourth quarter of 2020 compared to $2 8 million of in the same period in 2019.
Slightly higher due to consulting fees related to sustainability and strategic initiatives, partially offset by a lower bonus expenses.
Compared with last year.
For the for for the full year 2020, selling general and administrative expenses were $12 million compared to $9 8 million in 2019.
The increase was primarily driven by new hires and consulting fees related to sustainability and strategic initiatives partially.
The range set by lower trade show and <unk> expenses to COVID-19 travel restrictions.
R&D expenses were 352000 in the fourth quarter of 2020, and $1 3 million for the full year 2020.
Fourth quarter and full year of 2020 R&D costs were 62.
We often and 556000 higher respectively, mostly due to development initiatives and new hires.
Net loss in the fourth quarter was 835000 compared to net loss of 80000 in the fourth quarter of 2019.
For the full year 2020.
The loss was $1 2 million compared to net income of 564000 for the full year 2019, which 2020 included a $2 $2 million noncash litigation settlement expense with our competitor.
Turning to our balance sheet, we ended 2020 with $27.
Net loss and cash and cash equivalents compared to $5 9 million of the <unk>.
End of the year 2019.
This increase includes net proceeds of approximately $26 6 million from the company's public offering completed in June of 2020.
And is net of stock repurchases of $3 five.
3 million.
As of March 'twenty, three 2021 we may repurchase up to an additional $6 5 million under the stock repurchase program through December 2021.
Our inventory position grill.
From $2 4 million of December 31, 2019.
To $6 8 million at December 31, 2020, mostly to ensure timely order fulfillment as we transition manufacturing of our needle sets and tubing products for supply continuity to command.
As transition is completed this inventory is expected to convert to a source of cash in the future.
Now turning to the outlook for the first quarter of 2021.
While we do not intend to provide quarterly guidance in the future and giving the timing of our release in the quarter.
We expect our net sales for the first quarter of 2021 to be at least $5 million.
I'll now turn the call back over to Jim.
Yeah.
In summary, again I want to thank everyone again for your time this afternoon and for your interest in Colorado.
Over the past few months of had the opportunity work with the code of routine.
All of a talented group at co room.
Very dedicated providing life sustaining products to the patients we share.
The market opportunities for infusion pumps are significant.
Our balance sheet is solid.
It's been my pleasure to be the interim CEO of Covid medical and I look forward to assist to Linda She assumes leadership of <unk>.
Medical.
Okay.
We can now turn it back over to the operator for Q&A.
At this time, we will be conducting a question and answer session.
Who'd like.
The ask a question. Please press star one on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys. Our first question is from Alex Nowak with Craig Hallum Capital Group.
Please proceed with your question.
Good day, everyone. Jim I wanted to touch on that last point you mentioned there is Lynda joins the company next month, what are you and the board of directors are to be the primary focus over the next 12 months of debt what are the primary goal for the next few years here.
Well.
Linda what the advice that she has the two mandates.
Growth and innovation.
And.
Might have seen that we referenced.
On the spend a good deal with time with the limited too.
Reframe the the strategic plan that we laid.
The fully committed to achieving the same targets we had set.
Just reset on the on the on a in terms of the timing of.
We've also got a pretty comprehensive.
Transition plan laid out with the information is already flowing back and forth.
The dollar share occurring.
So we're already ahead of or April 12th start date and the board.
Particularly.
Of the nominating governance Committee is.
Then way out ahead of us of a very well defined very disciplined transition plan.
That's great maybe go into the guidance for Q1, you know just given everything we saw in 2020 with the first half 'twenty 'twenty up and then second half I mean down as you're going into Q1 here is it fair to say that all of the excess inventory of the channel has been washed out and then I guess as you're going through.
Just wondering what's the right that we see a similar effect, where we see lumpy sales occur in Q1 Q2, and then all of that inventory gets flushed out again in the second half of FY 'twenty one what's the what's sort of protections are you putting into the business there.
What's the.
'twenty, we think we believed that the.
The information gleaned from our customers and our largest distributor.
That their inventory of you have inventories have been returned to normal levels.
I'd also add that we think the we've lapped through all of the allowance noise that happened.
This past year.
If there is going to be anything lumpy going forward.
Alex.
I think it all fits within the context of.
The comments I made earlier.
About the novel therapy revenues, they are unpredictable it could be lumpy.
Through all of them. They have also been impacted by trial efforts for COVID-19, So they're also going to be a bit unpredictable.
Yeah that makes sense and then just last question for me the the hematology jog, it's expected to launch sometime this year and they've already been out there doing an early access launch do you know how much of.
The current inventory is out there already in the channel for that drug and then the follow up question of that is what is the expectation for sales to start the flow to crew of ROE at the drug begin selling into the market.
I'd have to defer to take care of and if she can help me with the how much inventory is out.
Out there Karen do we.
If we even yet we don't really we don't really know what they have sitting on the shelf at this point Alex.
Okay got it and just last thing any clinical trial revenue in the Q1 guidance.
Oh I do.
Yeah.
I think low last year.
Okay. The platform from Q2 from Q1 'twenty nine torn from Q1 2020, not Q4 of 25.
Oh, Q Q1 of zero.
Sorry the island.
All of the 2021.
Karen referenced.
Reference to two the target for <unk>.
Revenues for the first quarter does not include any clinical trial revenue.
Got it okay perfect. Thank you I appreciate it.
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Thank you. Our next question is from Kyle Rose.
Those with Canaccord. Please proceed with your question.
Great. Thank you for taking the question.
I wanted to ask another question just kind of follow up of Alex There just about how you think about guidance.
So when I think about the $5 million.
Can you help us understand how.
How that breaks down the U S vs O U S.
And I'm, just trying to get a baseline on the business. When we think about moving forward, if you're comfortable with where the channel inventory is you're comfortable with the pricing dynamics.
It feels like $5 million is a fair place to start moving forward. Obviously, you don't know about novel therapies, but consider that upside, but maybe help level set what the U S O U S.
The mix should be moving forward and is this kind of the baseline 5 million that we should think about.
On a go forward basis.
Now, let me make a run at it and then you can add in here.
We're not expecting a lot of out of the international sales given the impacts of the pandemic throughout this past year.
Here in the supply constraints.
Two of our distributor.
The group over in Europe. So.
The the the mix is going to be an increase of the of what we've referred to as the domestic core.
Does that help kind.
Yes, so the the fair way to think about it is that $5 million is reflective of the U S core business.
Moving forward.
And the relative and a relatively year over year stable International book.
Okay.
Okay.
And then just your overall confidence with where the market is now.
With respect to underlying growth dynamics of the market from a patient perspective.
Obviously theres a lot of disruption in 2020, just getting into the sea physicians getting.
Diagnosed for PID was the challenge to.
With I'm sure. It was exacerbated this year, maybe just help us understand of how you think about the market growth broadly.
And then secondarily.
<unk>.
How we should think about that translating to the core of growth with the backdrop of potential.
It began constraints and things of that sort of.
Most of we closed 2020.
That growth was in the low double digits, if you'll recall.
But and it's it's it's it's it's.
<unk> remained relatively flat over the past six.
Months.
Flat at that low digit growth low double digit growth that the wood.
That's from the only external data sources that we have kind of we also have.
Anecdotal information from a few customers.
Some that we hear from so that.
That they're seeing fewer patients the difficulty with.
Leaning in on a few few customers the seats.
Not quite so sure whether they're losing share or it's a real true indication of the marketplace.
Okay.
And then I.
I don't mean to put.
Words in either of your arms.
The particularly given you've got I think the CEO, joining but I'm just trying to think about all of the moving pieces in the business.
You kind of a balance of their baseline of us here at about $5 million is it fair to think obviously, there's quarter to quarter volatility in ordering patterns, but $5 million.
And then you've got you know you're going to have the the end market patient growth and low double digits and that's kind of how we should think about this business on an annual basis moving forward.
I would think so we've I think the earlier comments would suggest that the novel therapy revenues are.
Unpredictable.
That the international markets have been impacted significantly by COVID-19, So we're not expecting.
The significant amount of growth in the 2021.
So we lean heavily in terms of our domestic for the most of the largest component of our revenue stream.
<unk>.
Okay.
Thank you very much I appreciate you taking the questions Thats all Ive got.
Thank you. Our final question is from Matthew O'brien with Piper Jaffray. Please proceed with your question.
Thanks for taking the questions I guess just to follow up on costs.
The question, a little bit Jim or Karen.
Can the overall business growth year in 2020 years, it kind of feels like we should assume it's kind of a down year from a revenue perspective for.
Of this year unless a couple of things break elsewhere in the are in the business.
We have we have.
Put forth the budget the.
Does show growth of Matthew It's a I think that will kind of size of the domestic core business in the world.
And moving at a low double digits.
We'd carry forward for total sales growth for 2021.
Got it okay. That's it for our total company out of total company basis versus the 24, you did last year in total.
Yes.
Got it Okay and then how do we think about the EBITDA line I mean, you know a little bit of of a loss here in Q4, which typically is a pretty strong seasonal quarter for you.
Is this something that.
Have can be flat against last year to up slightly or is that something that that could continue to contract a bit versus what we saw in 'twenty.
And that again versus 19, or how do we think about that metric.
Oh, no no I'll, let the.
Cameron the answer that question yeah.
Should the.
At the coming on that line.
This year I remember we had the.
We had some anomalies in 'twenty 'twenty and are our costs R. R.
Lately.
Other coming into the year, so we should see an improvement there.
Okay.
Some improvement of can those anomalies are they included or excluded from the adjusted EBITDA number.
Yeah, they're excluded.
Okay.
And then I guess well just just curious about the the tone within the business at the moment you know in terms of employee turnover.
And character of how stable are things are what's the what's the enthusiasm of Linda coming in and I guess, maybe the Alex's first question what does she really gonna be tasked with right off the bat is it is it really the core business or is it going to be all of these potential other applications for for the technology.
Well from a culture.
For Dan point until the first of all of it.
This is a solid business there are good people in this organization and.
And they do a nice job they make it I've said it earlier, but they've been through a whole lot of dedicated group.
So I think of one on one side.
One is very fortunate to have this opportunity to work with these pitches team on the other side of it.
When you finally, when you get to hear from Linda the energy and the enthusiasm is just.
Tremendous.
And she's she has met a few people who have had only all over it.
Out of it and the positive comments about it so.
So where where are the board.
Is excited I'm excited to turn the business over to her I think I think this is a I think this is gonna be of the winning winning team going forward.
Got it and then any turnover of note in the organization.
Versus theirs.
There's nothing the traditional numbers not nothing of note.
Nothing of note.
Got it thank you.
Yeah.
Okay.
Thank you ladies and.
We have reached the end of the question and answer session. This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation and have a great day.
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