Q1 2021 Assertio Holdings Inc Earnings Call
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Welcome to the first quarter 2021 financial results of 30 of Holdings incorporated earnings Conference call.
My name is Hilda and I will be your operator for today.
At this time all participants are in a listen only mode and later, we will conduct a question and answer session.
During the question and answer session. If you have a question. Please press star and then one you're seeing your Touchtone phone.
Please note that this conference is being recorded.
I will now turn the call over to Max Nemmers head Investor Relations and administration.
Mr. <unk> you may begin.
Thank you.
Good afternoon, and thank you all for joining us today to discuss the <unk> first quarter 2021 financial results. The unusually covering the earnings for the period is now available on the Investor page of our website.
Investor day the stereo.
T ex dot com.
I would encourage you to review the release as it's important to today's discussion with me today are Dan <unk>, President and Chief Executive.
Our percentage of course, with the senior Vice President and Chief financial.
Officer, the envelope in the remarks and provide us.
The installed by Paul who will review our financials and after that we will open the call for your questions.
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.
The lease as well as the 30th 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 these projected in the forward looking statements and Australia of specifically disclaims any intent or obligation to update these forward looking statements except as required by law.
I will now turn the call over to Dan Dan.
Thank you Max.
Thank you everyone for joining us this afternoon.
We're approaching the one year anniversary of the xylem acquisition and with the changes we've made to our business at the start of this year. We're now seeing the benefits from the combined from the combination of the <unk>.
The diversification of the top line revenue healthy adjusted EBITDA margins.
Last quarter, we don't make all the priorities for our Serbia as the rim.
Mind, you our priorities for 2021 are as follows.
<unk> committed team with the culture of teamwork inclusion in the results.
Delivering on our $45 million of restructuring synergies.
The company generated strong operating cash flow.
During our debt net of becomes a constraint in running the business.
To mitigate our legacy legal uncertainties.
And developed the sustainable business model that reflects the chance of changing environment.
Since the beginning of this year, we've made tremendous progress towards each of these priorities.
We're continuing the strength of our team our new head of commercial who will start later this month the will.
Help us continue to build out of new commercial platform.
We're also starting to make comments to open in the office as soon and returned the working in person.
We like others have found the way to be productive with the remote work during the pandemic it.
It is important that we continue to ensure we're using the families are safe.
The exciting to get backs can the everyone in person and the benefits of a combined.
In regard to the second priority of our synergies as we said last quarter, we ultimately expect to realized $45 million in annual cost savings.
Moving to our run rate from the second half of 2020.
As you can see from our results this quarter, we're well on the way to achieving that goal.
We have and will continue to accelerate some investments towards our priorities as the results of our improved liquidity, but we're still confident that we can achieve the score.
We've already paid the majority of the restructure of the cost in Q4 2020 in Q1 2021.
Excluding the cash flow through restructuring.
We were operating cash flow positive this quarter due to the.
Timing of some larger regular payments such as debt and royalty payments.
Do not expect free cash flow positive every quarter as such we are managing our cash flows and the basis.
As for our fourth priority, we believe that of that is no longer constrained flow business. The capital that we raised in the first quarter has eliminated any concerns about meeting of the only maintenance covenant on our debt, which relates to minimum liquidity.
And as the team from a balance sheet, we're now in the positive working capital position.
This additional liquidity is enhanced their outlook on business development.
In the few months since the equity raise we've been evaluating multiple opportunities that we would not have been able to pursue before additional benefits are that we've been able to accelerate investments in the industry.
Our novel commercial model and also towards our first priority of the mitigating the leap.
Legacy legal liabilities.
We continue solely the ship away, but the legacy with the situations and the devoted additional resources towards driving the cases to conclusion.
As we announced earlier in the quarter, we settled our insurance litigation.
We will also recently reached settlements in the follow on can be of paragraph four litigation.
But in the situations behind us allows us to focus of time and attention towards some of the larger opportunities and spend more time executing on our business.
Once the agency that we're no longer excluding the opioid related legal costs from our adjusted EBITDA and are showing what the historical results were two of them the same.
We are starting to excluding these costs, we have completed the commercialization agreement with Collegium in 2018.
Because of the lawsuits were associated with the Companys historical commercialization of opioids.
One of the case of new management focus is towards increased transparency around around and management of operating cash flow and engages with the uncertainties.
We understand how important of units to our shareholders to reduce these costs and limit the viability of some of these situations.
Because of the impact of operating cash flow from these costs reported more appropriate to reflect the net and operating results.
We continue to believe the building out and improving upon our commercial platform is critical to the sustainable business model.
So the ultimate accelerating some investments in the commercial infrastructure.
I'm excited about one of those investments, which we've just announced the other day, we're expanding into the growing area of telemedicine by partnering with the leading migraine medicine platform coal.
This new alliance will allow us to develop new skills with targeted patients directly and our digital marketing efforts.
About the cash payout for niche of the new segment per surgery.
In addition, beginning this month, we restarted limited income some promotion Princip store.
Ultimately five territories.
We are moving into a partnership with another company, who until the price for us within their existing call universe, primarily consisting of orthopedic practices.
Our results this quarter were encouraging.
The first quarter is typically the most seasonally a second quarter.
And this year on top of industry results of facing a difficult year over year comparison.
Q1 of 2020 actually benefited from the pandemic.
And then the reported in the greater mix of 90 day prescriptions pulled forward some demand of patients anticipated staying home to avoid the COVID-19.
Despite the dynamic and a significant shift in our promotional efforts to non personal digital all of our products are year over year net revenue growth, except for sports music store the.
The decline in sportswear as expected following the formulary Ross the major Pbms in September of last year.
However, the impact is greater than we had initially assumed coming in approximately 70% below the prior year quarter.
The <unk> performance, while declining net revenue still had positive volume growth.
Can be it was up 3% year over year.
It was a very encouraging result.
EBIT was up 23% over the prior year and I believe it may have been the best quarter ever for this product.
Industry strength, this quarter and our additional liquidity of <unk>.
Us to accelerate investments in the product.
One of those investments will continue to decline of net revenues next quarter as well.
We reduced channel inventories for the product in April by approximately 10 days.
Ultimately, we believe this will increase our profitability as the suit.
Part of the multi step process to increase demand and protect the product.
Okay.
The <unk> 21 results, specifically splits performance and this action we've taken a new discipline.
Have been factored into the guidance, we provided today per full year sales of $85 million to $92 million.
The <unk> results were very encouraging.
But we believe they still do not fully reflect the impacts of our change of promotional model and we have benefited from the limited in person promotion, we did have in the fourth quarter.
That said, we have reason for optimism of new leadership coming in and the continued investments we're making in the model.
In addition, the product net sales guidance, we're also providing full year adjusted EBITDA guidance of $34 million to $40 million.
As we progressed through the remainder of the year. Our efforts are concentrated on our priority of conserving our cash flow legal risk mitigation and moving the sustainable model, including investment in our commercial structure.
As the management team.
We will focus our near term efforts in identifying and evaluating acquisition candidates.
What we can incorporate into our platform to further diversify our top line help us grow the company.
Net extend our runway from a revenue lifecycle perspective.
All of the handsome admissions growth relates to BB. The core amongst them is to acquire a product or products that could generate at least 50 moving to gross profit by 2024.
We will continue to be creative with our approach to the structure and type of transaction such as acquisition licensing commercialization agreements or strategic investment.
Now I will turn the call over to Paul to walk through the results.
Thank you Dan This afternoon I will review the financial highlights from our first quarter of 2021.
As of the case in the last few quarters, our year over year comparisons are challenging due to the many changes in our business.
For clarity any references to pro forma results represent product sales as of this island merger had been completed on January one 2020.
Net product sales were $26 4 million for the three months ended March 31, 2021 compared to pro forma net product sales.
The $28 3 million in.
In the prior year quarter.
And $30 1 million last quarter as the.
Dan noted in his comments the first quarter has historically been the multibillion effective quarter through the patient copay and deductible resets on January one.
And with the net sales reflect the highest quarterly result in at least the past two years and 23% growth over the prior year quarter, which did reflect some volume decline due to COVID-19.
Combined <unk> and <unk> of our net sales were slightly ahead of the prior year quarter.
Sprague's volume continues to be impacted by prior year commercial coverage chain and COVID-19, resulting in a 7% decline versus the prior quarter.
Despite the low performance the portfolio net sales were only down 6% versus Q1 2020 net sales excluding the revenue adjustment from the development products due to the positive performance of the other brands.
Please refer to our 10-Q for specific product, while the net sales of information.
Cost of sales in the first quarter of 2021 were 4 million versus $1 4 million in the first quarter of 2020.
The increase of Premier primarily due the zeiler related product cost of sales upon the value of the merger on May 20 of 2020 offset by lower cost of sales through the the release divestiture in the first quarter of 2020.
The three months ended March during the first 2021 cost of sales included 200000 of amortization of inventory step up related to dial up of acquired inventories sold.
Our non-GAAP adjusted operating expenses in the first quarter was $7 3 million.
This amount includes the benefit from the 5 billion dollar of insurance settlement, we received in February and the opioid legal expenses of $1 2 million incurred during the quarter.
Starting in Q1, 2021, opioid legal expenses, which have previously been excluded from non-GAAP operating expenses over the last several quarters will now be included in non-GAAP operating expenses and non-GAAP EBITDA.
As we've mentioned on our prior quarter earnings call. Our primary focus for the company was to manage operating cash flow and proactively worked to mitigate legal uncertainties.
We believe that this reporting change on opioid legal cost of aligns with the current priorities of the business.
Excluding the insurance settlement non-GAAP operating expenses were $12 3 million for the quarter compared to $18 6 million in the first quarter of 2020 and $23 million in the prior quarter.
Both prior year quarter amounts have been recast to include opioid legal expenses for comparability.
The results for the quarter include some pre restructuring carryover expenses and we expect to see further expense reductions for the remainder of 2021.
As we stated last quarter because of the Q4 2020 of restructuring we expect in 2021 to achieve operating expense savings off the annualized second half 2020 operating expense run rate, including the opioid legal cost.
For clarity, our pre restructuring operating expense run rate, including the opioid legal cost for the second half of 2020 was $43 7 million.
Which translates to an annual operating expense run rate of approximately 87 4 million in 2021, we expect to the $2 $40 million of savings off the past run rates and ultimately $45 million in annual savings beginning in 2022.
Non-GAAP adjusted EBITDA for the quarter was $15 7 million compared to $3 9 million in the prior year quarter and $8 2 million in the fourth quarter of 2020 on a comparative basis adjusted for opioid legal expenses.
The improvement is reflective of both of the realization of the cost reductions and the impact of the insurance settlement of $5 million.
Excluding the impact of the insurance settlement.
The EBITDA margin of its 41% of net sales for the quarter.
Net income for the first quarter was $4 5 million compared to the prior year first quarter net income of $41 2 million and of loss of $24 4 million in the prior quarter.
The comparison to the prior quarters of specialty challenging given all of the changes to the business. However, the library of change drivers from Q1 2020. The Q1 2021 of the net gain on asset sales, partially offset by a loss on debt extinguishment and transaction costs that occurred in Q1 2020.
And the substantially lower operating expenses in Q1 2021.
The change drivers versus Q4 of 2020, our lower operating expenses, the $5 million benefit from the insurance settlement and the restructuring costs that were reflected in Q4 <unk> the.
The first quarter 2021 net income also included $1 1 million of restructuring costs.
On March 31, 2021, our senior secured debt balance of $83 million, which will not mature until Q1 of 2024.
On may 3rd the company scheduled interest and principal of Tech.
The company pay the scheduled interest and principal of $10 million, leaving a third party debt balance of $75 5 million as of today.
And as we stated last quarter, we've improved our ability to achieve better terms and cost if we had a refinance of the remaining debt over the next 12 to 18 months.
And the cash on the March 31, 2021 was $61 million the.
The change in cash of $40 2 million from our December 31, 2020 balance of $28 million is primarily attributable to the cash proceeds from the registered direct offerings and the insurance settlement, partially offset by restructuring payments paid in the quarter.
With the additional cash raised in the first quarter, our balance sheet reflects a positive working capital position versus the working capital deficit we've been in previously.
As we stated last quarter with the $45 $3 million of cash raised from the registered direct offerings, we will be seeking to accelerate potential investments in 2021.
Lastly, our annual guidance for 2021 is as follows product net sales of $85 million to $92 million.
Adjusted EBITDA, including the opioid legal expenses of $34 million to $40 million.
Here are a few key highlights related to the guidance.
The product net sales of 85% of $92 million reflects the following factors.
The impact of the lower script volume due to the 2020 commercial coverage change in cohort two of the remainder of 2021.
Second of channel inventory adjustment in Q2 per Anderson relating to a change in the distribution strategy that will drive increased profitability in the future.
Third uncertainty related to COVID-19, and our new promotional strategy.
And fourth as part of this guidance, we have now forecast of any future revenue adjustments the divested products.
As I mentioned earlier, we're still on track the realized $45 million of annual cost savings and expect to deliver $40 million of cost savings in 2021 versus the reported in the second half 2020 run rate.
Cost savings in 2021 are expected to exceed the estimated revenue declined resulting in significantly improved EBITDA margins and cash flows.
We are still seeking to minimize per cap potentially the liabilities.
Any potential future settlements are not reflected in this guidance.
Okay.
Overall, we're pleased with the first quarter results. The portfolio net sales have remained stable despite the challenging environment through the COVID-19 and payer access.
After the restructuring in the fourth quarter of 'twenty 'twenty when the equipment in the impact of lower operating expenses in Q1 2021.
Looking ahead, we will continue to focus on further reducing expenses cash flow optimization exploring opportunities to reduce cost of capital and execution of our digital promotional strategies.
And now I will turn the call back over the months.
Thank you Paul can we open up the call per key races.
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We have a question from Scott Henry from Roth capital.
Hi, Good afternoon, just a couple of questions.
I guess first on.
The revenue line.
For <unk>.
Just doing the simple math, if you reduce the Tory by 10 days should we think about.
I guess about one ninth of the revenues for the quarter will be pulled out of Q2 and is that in dosing the only.
Yes, it would be in this and only and it's yes, I would think about that in two.
Two weeks of full two.
Two weeks.
Okay.
Thank you that's helpful and then.
So of factoring that in.
And if I look at what you did this quarter.
Plus your guidance for the rest of the year.
There's still a couple of products that are going to come down from first quarter levels.
I would expect to be that that other category.
Anything else I mean, do you think bricks is kind of nearing a base of does that have some more downside or.
Or perhaps at the Endo soon maybe its not going to be sustained at these level at these levels absent.
The inventory adjustment just trying to get at.
A sense of how you think of the levers that are moving going forward for 2021.
Yes, I think youre, absolutely right Scott the other category, we have been winding down so you'd matrix.
There's just a little bit of inventory left to bleed out.
So thats essentially plan to the euro for the rest of the year <unk>, we are expecting that it will be this kind of.
At this level in the future.
But we didn't expect interest.
The change, we're making the medicines of distribution change and that should be just the one quarter of phenomenon.
Okay. So perhaps the difference after the other is just normal.
Contraction.
And there's less marketing there.
<unk>.
Shifting gears.
Did.
The insurance settlement when was the taken again and where was that line item.
It briefly but I couldnt located in the release the.
The insurance settlement was received in February and.
And the way it was reflected in the financial growth on the SG&A line and the.
Of the benefit filter of reduction of our SG&A expenses.
And that was approximately $5 million.
5 million, yes, okay, so youre kind of organic SG&A.
Would it then closer to $12 7 million.
I guess, what would you expect that to be declining steel.
Yes, we'd expect that to continue to decline over the next couple of quarters.
Okay, Great and then I guess.
The I guess the final question.
Given your your.
Relatively low multiple of EBITDA as far as.
The valuation of the company would that motivate you as youre looking for product acquisitions to be more likely to use debt and our cash to acquire as opposed to.
Your stock currency.
You probably don't want to use that at this point in time, but I just wanted to get yourself.
Yes, I think youre right.
The ideal situation on the BD transaction is also of the ability to refinance the existing debt. So that's <unk>.
Something that we've been exploring and the.
If the transaction is large enough where it needs additional debt. So just cash flow for the balance sheet and it could be ideal for the situation.
Okay great.
And one final question just to get a sense of you going forward do you expect to really just be giving a reported EPS number and then youll do an adjusted EBITDA is that how we should think about it or will you still be to will you be doing an adjusted EPS. It sounds like it will just be reported and then youll.
Break things down when you get to the EBITDA level.
Thats correct Scott.
Correct.
Alright, great. Thank you for taking the question.
Thank you Scott.
Okay. Thank you because we don't have any floor.
Questions in the queue. So at this point in time, I will turn the call back over to Dan for closing comments.
Okay.
We're pleased with the progress we've made in just a few short months rest assured but we're just getting started we worked through the majority of the restructuring by the talents of team in place and are focused on continuing the momentum we've created to fully execute against our six priorities.
Our results could not of impossible without the great work of our team and I want to thank them for the work and know that the share my enthusiasm for the future of our company. The best is yet to come for <unk>.
We remain committed to creating value for all of our stakeholders and look forward to updating you on our progress.
<unk> of our priorities in future quarters. Thank you for joining US this afternoon have agreed.
Thank you ladies and gentlemen. This concludes today's conference. We thank you for participating you may now disconnect.
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