Q3 2021 Assertio Holdings Inc Earnings Call

Is that true Holdings, Inc. Third quarter 2021 financial results conference call. What is due to begin shortly thank you for your patience.

As a reminder, if you would like to ask a question. During the presentation. You may do so by pressing star fleet by one no today. Thank you.

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Okay.

Good afternoon, and welcome to the statue Holdings, Inc. Third quarter 2021 financial results conference call. All participants will be in Houston only made should you need assistance pay signals, especially my question was stocky fully adviser right. After today's presentation, there will be an opportunity to ask questions. Please.

Note. This event is being recorded.

I would now like to turn the conference over to Max Nemmers Investor Relations and administration. Please go ahead Max.

Thank you good afternoon, and thank you all for joining us today to discuss the studios third quarter of 2021 financial results. The news release covering our earnings for this period is now available on the Investor page of our website at Investor day, the sturdy O T X dot com I would encourage you to review the release.

And the accompanying.

Presentation as it is important to today's discussion.

With me today are Dan.

And chief Executive.

Officer, and pulse Schwichtenberg, senior Vice President and Chief financial.

Officer, Dan will open our 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 those forward looking statements, except as required by law with that I will turn the call over to Dan.

Dan.

Max welcome to everyone joining us this afternoon.

This September marks my fourth anniversary with Sergio <unk>.

As I reflected back in that time, one thing struck me change tremendous change.

Everywhere you look the people the name of the company and its ticker symbol the location of our headquarters our portfolio of products, our investor base and our balance sheet.

In September of 2017, we had $720 million of debt and leverage measured by net debt to EBITDA five five times.

This September of 2021, we had $75 5 million of debt.

And leverage of just 0.4 times.

In that four year period, we have repaid over $900 million to debt holders for both principal and interest and we funded that largely from asset sales and legal settlements as we've restructured the company and number times to get us where we are today.

Today, our restructuring is complete.

We reported two consecutive quarters of positive operating cash flow and this quarters cash flow and adjusted EBITDA is the highest it's been since we divested NUCYNTA.

We're incredibly proud of what we've accomplished and especially in a condensed timeframe, we've been able to do with it.

Going forward.

Our debt service doesn't need to come from these external sources of funding.

We're generating that cash from the operations of the business.

We have enough runway until the maturity of that debt to look towards business development investment and growth.

Our revenue so far this year have also been consistent on a quarterly basis, demonstrating the resilience of the portfolio.

As our non personal promotional model continues to improve and mature the investments, we're making in Indocin bear fruit. We're now seeing it show in our quarterly results and its being reflected in our forward looking guidance as well.

Yeah.

We now see our full year revenues exceeding $103 million and our adjusted EBITDA exceeding $43 million.

We've come a long way in just a short time. This is considerably above our initial guidance for the year that we gave just six short months ago and now expect to come in above the high end of our original adjusted EBITDA range. Despite the $11 3 million litigation charge, we incurred last quarter.

Our operating cash flow results are even more impressive when you factor in that this quarter reflects the cash payments of $7 million to resolve our federal claims nickel Mercer antitrust matter.

Okay.

The class portion of the plaintiffs is still pending final court approval, but our belief is that it will become final early in the new year.

The opt out claims being brought by Humana and state court remain ongoing.

At a much slower track we.

We will continue to pursue all legal remedies available to us, including dismissal and once those are exhausted our desire with these claims will be the same as the others to resolve them on favorable terms when the opportunity arises.

Okay.

In addition, we're also disclosing that we've entered into a settlement agreement to resolve our securities class action litigation and its related derivative suits. The total is $1 2 million, but it will be net against 750000 to be covered by our insurer.

Having both of these cases behind US is a significant achievement for us and it also frees up management time to focus on operating the business and positioning for the future as well as reducing the ongoing legal costs in the business.

These matters these worthy matters for which we took the charge last quarter.

So they were fully reserved for the.

The only additional item being recorded this quarter as the benefit of the insurance proceeds.

On the commercial side I'm excited that our expanded alliance with Covid has gone live this quarter for both candy and bricks.

<unk> has been a customer of ours for about 18 months and it offered can be on their platform during that time.

What is new now is that we've worked with them to build a broader set of DTC resources and engagement drivers for patients tailored to both Cambria and bricks.

We think that telemedicine is going to be a very meaningful part of our patients interact with physicians and receive their prescriptions in the future versus just a niche yesterday.

As evidence the most recent data from my caveat shows the rapid increase in prescription claims through telemedicine as a result of the pandemic has held in the share of total claims has remained steady steady recently.

The improvements being made by these platforms everyday are only making them more convenient and user friendly.

So it was just the first of what we hope as many such relationships.

And then just the early days, we're seeing great results this quarter alone for Cambria, so 77% year over year growth in prescription volume at Kohl's and.

And despite getting Spritzed launched late in the quarter, we've already seen our first prescriptions through code for <unk> as well.

In dollar terms, our sales to cover up 207%, it's off a small base and it's still a small proportion of our overall revenue today, but reflective of the growth we can achieve with this platform.

Coal has tens of thousands of active patients today and is growing rapidly which doors some of the largest physician practices, but we had historically focused our detailed resources.

Another unique aspect is at 47% of Covid patients don't have a single headache specialists in the country and the county, they live in and might otherwise consult a primary care physician, who is not overly familiar with innovative migraineur pain treatments, whether it can be in <unk>.

They are also likely physicians, we wouldn't have details on the past and patients. We wouldn't have had access to your other promotional means so this truly expands our market reach.

Today, our offering in our cold platform for the cash pay market co is currently contracting with health plans to offer insurance coverage for migraine care in 2022 for patients with commercial health insurance.

We were able to add these capabilities will be able to add additional offerings for patients seeking insurance coverage.

Another exciting development, we have just recently finalized the terms of a contract with a large regional IGN for bricks.

There is still a lot of work to do to integrate spring into this network, but this is a great first step in the right direction and affords us the opportunity to return the sports franchise to growth.

Okay.

Business development has always been a priority it is more so now.

In addition to having the financial resources to do BD, we're making sure that we're also bringing the right external leases resources to bear as well.

Combination with our own internal efforts, we've engaged back Bay life Science advisors to aid us in the buy side and identifying and completing acquisitions.

We've completed a comprehensive asset screening and evaluation process, which yielded many attractive opportunities.

Our goals have not changed with respect to business development, we still intend to acquire a product or products that fit within our platform and can generate at least $50 million gross profit by 2024.

Together with back Bay, we have now turned our attention towards execution of the transaction.

Now I'll turn the call over to Paul who will walk through the quarterly results.

Thank you Dan This afternoon I will review the financial highlights from our third quarter of 2021.

There are slides available on our website that I will reference as I discuss the results.

Starting with slide four net product sales were 26 million for the three months ended September 32021.

Compared to net product sales of $33 7 million in the prior year quarter, and $25 2 million last quarter.

The decline in sales versus the prior year quarter is driven by lower volume on spreads and our discontinued brands, notably saia matrix.

As mentioned in previous quarters, Spritzed volume has been impacted by the prior year commercial coverage change.

And it's a net sales in the third quarter increased by $1 5 million over the prior quarter as a reminder, the prior quarter reflected a onetime channel inventory adjustment related to a change in distribution strategy that will drive increased profitability in the future.

Net sales for the remainder of the portfolio are down five 8% versus the prior quarter, primarily due to unfavorable price mix during the quarter.

Overall portfolio net sales were up 3% versus the second quarter.

Please refer to our 10-Q for specific product level net sales information.

Also on slide four.

Adjusted EBITDA for the third quarter was $15 8 million compared to a loss of 505000 in the second quarter.

As a reminder, the second quarter was impacted by an $11 3 million legal reserve.

Excluding the impact of legal matters.

EBITDA in the third quarter represents the second sequential quarter of growth and a 201% increase over the prior year quarter.

Adjusted EBITDA for the nine months ended September 32021 was $31 million, which is $8 6 million higher than the full year EBITDA reported for 2020.

As we have executed our restructuring plan and shifted our business model, we have focused on profitability across all of our products.

As a result, our portfolio gross profit margin, excluding the impact of inventory step up amortization related to the xylem acquisition.

For the three months ended September 32021 was 88, 3%.

Reflecting an increase of 600 basis points versus the same period in 2020.

A large driver of this improvement is due to an 84% year over year decline in saia matrix sales, which carried significantly lower margins in Q3 2020 versus the margins reflected in the Q3 2021 results.

It was our intent to discontinue selling matrix because it was unprofitable. However, we were able to identify alternate channels to sell the remaining inventory at a higher margin.

Summarized on slide five our adjusted operating expenses, which reflect selling general and administrative expenses in the third quarter were $7 9 million, which includes a 750000 legal insurance benefit versus $22 8 million in the second quarter, which <unk>.

<unk>, a legal reserve of $11 3 million.

This reflects a decrease of $2 8 million or 25% versus the second quarter adjusted operating expenses of 11 5 million, excluding the legal adjustments.

In 2021, we expected to achieve $40 million of cost savings and ultimately a $45 million in annual savings beginning in 2022.

This represents a greater than 50% reduction in operating expenses based on an annualized run rate from the second half of 2020.

Now that our restructuring is complete we're once again confirming that we expect to exceed the targeted cost savings.

As a result of the higher cost savings and revenue we are increasing our EBITDA guidance for 2021.

Net income for the third quarter was $3 7 million compared to the second quarter net loss of $14 2 million.

As we stated on our prior call quarter call. The second quarter was impacted by the legal reserve of $11 3 million and a loss of $2 2 million for the change in fair value of contingent consideration.

On September 32021, our senior secured debt balance shown on slide six was $75 5 million of which will not mature until Q1 of 2024.

On November one the company paid scheduled <unk>.

Interest and principal of $9 7 million.

The remaining debt balance as of today is $70 8 million.

Also on slide six ending cash on September 32021 was $58 7 million.

The net increase in cash of $4 3 million from the June 32021 balance of $54 4 million is primarily attributable to the operating cash generated by the business, partially offset by $7 million of legal settlements paid during the quarter.

Absent the legal settlements payments payments made during the quarter cash would have increased by $11 3 million.

Net cash provided by operating activities as reported in the Companys statement of cash flows for the quarter ended September 32021 was $4 7 million.

Reflecting the second consecutive quarter of positive operating cash flow and the highest amount since Q4 of 2019.

Looking to Q4 2021, we have been anticipating an income tax refund of $8 3 million.

Which has been delayed due to the IRS processing.

If this tax refund continues to be delayed into 2022, it will impact our operating cash flow in Q4, because there are other large outflows in Q4, such as the interest payment on our senior secured debt and timing of inventory purchases.

On an annual basis, we expect cash flows to be positive.

But due to the timing of working capital and interest payments quarterly operating cash flows will fluctuate.

Lastly, our updated annual guidance for 2021 summarized on slide seven is as follows.

Product net sales greater than $103 million, reflecting a favorable response to our refined commercial platform and the actual results through the third quarter of 2021.

Adjusted EBITDA greater than $43 million, reflecting a higher revenue and cost savings versus previous expectations.

Overall were once again very pleased with the quarter results. We continue to see the positive impact of our product portfolio revenue and lower expenses on EBITDA and cash flow.

Now that our restructuring is behind us.

And we expect to achieve our targeted expense savings in 2021 and beyond our focus now is to build on the platform, we've created and position <unk> for long term sustainable growth.

And now I'll turn the call back over to Max.

Thanks, Paul Maxine could we start the Q&A process. Please.

We will now begin the question and answer session to ask a question you May Press Star followed by one on your touch Tang Fine if youre using a speakerphone. Please pick up your handset before pressing the keys to ensure your question. Please press star followed by team.

At this time, we will pause momentarily to assemble our roster.

Our first question comes from Scott Henry from Roth Capital Partners. Your line is now open.

Thank you good afternoon, and congratulations Dan some really strong results here.

I did have a couple of questions I guess first.

When should I expect defined the 10-Q.

And in the absence of that could you maybe talk about what what products drove the upside it sounds like cambium.

Pretty strong but.

Any comments on on the product profile and perhaps how the trends in <unk>.

As well.

Yeah.

So.

The 10-Q should be filed already if it hasn't been but it will be filed this afternoon.

We saw it.

I'll start with commentary and Paul if you have anything specific that youll see in the Q, what the individual products did.

I don't.

Have them lined up relative to your expectations, but relative to ours.

All performed in line roughly with how we expected them to perform this quarter, we do continue to see strength in <unk>.

Through throughout this year, it's been continuing to be stronger than we had originally anticipated and it's been a big driver of the move upwards in guidance as well as <unk> and <unk> has in the last couple of quarters has been a little bit better than expected, but Paul do you have anything else, yes, I mean, I would say that first off as I mentioned in my comments.

Yes.

B into some numbers were higher obviously as we bounce back after that distribution model change in Q2.

We also saw some.

Higher volume in some of our non promoted products.

And I would say that Cambria and <unk> were in line with expectations, but quarter over quarter down just a little bit just due to some price mix.

<unk>.

Okay and.

Dan.

Those of us that look at prescription oddity prescription services do you think they really provide any value given your different distribution channels or is that mostly noise.

It would be hard for you Scott there's been changes in that distribution channel in terms of who is included.

In it and whether or not they report to services like <unk> and Symphony.

And.

<unk> historically never had anything then it started to show some things. So one is just it's just noise. So it's hard to judge the underlying volume trends by looking at those audited services.

Okay, that's what I would expect but I wanted to confirm that.

And then on the legal front.

The glue matter settlement is there any chance of insurance for that or does that have to be paid out of pocket.

And as well could you kind of speak to the magnitude of what litigation is left out there.

Cross product lines.

Thanks for the question Scott there isn't any insurance coverage for Glu meta.

That cash has been.

In one case paid and in the case of the class plaintiffs. It's put has been put in escrow already.

Pending the finalization of that decision.

The other remaining litigation in general at this point is just the broad opioid litigation that we've been swept up in.

That's the last remaining.

Large piece of litigation that we thought we have outstanding.

Okay.

Great and then.

I guess the final question you've got this great momentum.

You seem to be on the front edge of a lot of this non face to face marketing, which tends to be or it seems like it's an increasing trend out there. So.

So you have this first mover advantage.

It would probably be great to leverage it across some more products.

How confident are you that you can.

Acquire some assets in the near term, obviously youre looking for them, but I'm just trying to get a sense of of how your progress has been in.

What the the urgency is to try to leverage a business model that seems to be working.

Thank you.

Yeah. Thanks, Scott I appreciate the comments.

We do think that we are on the leading.

The leading edge of this we're certainly one of the companies that has gone all in on this we do see a lot of other of our peers that are using this as a supplement to their in person, especially now that access has been limited, but you are right. We see access to physician offices being something that's permanently limited.

And why that this non promotional model is going to be.

Something that more and more companies will pivot more and more to as time goes on and we do see it as a sustainable competitive advantage and you're right. It's also something that we would like to leverage and put more products behind and we're getting more aggressive.

We've done I would say gone beyond my prepared comments of just identifying opportunities and doing screening.

We've already begun the outreach we've already started shaking net those trees and having those conversations.

And I'm encouraged by them.

I would I'm not at a very good oddsmaker and I would probably not have a very good career in gambling on when deals will close.

So I won't make any predictions on when they'll close, but we have a very favorable outlook on being able to get some transactions done in the near term.

Okay, great. Thank you for taking the questions.

Thank you Scott.

As another reminder, if you'd like to ask a question. Please press star followed by one or no today. Thank you Pat now.

This concludes our question and answer session I would like to turn the conference back over to Dan <unk> from it.

President and Chief Executive Officer for any closing remarks.

Thank you Mickey.

Hope you all share in the excitement we here into <unk> do you have for our financial results, we made tremendous progress against our priorities. This year and have executed flawlessly against our restructuring plans and now it can be seen in the results of the business.

We remain committed to creating value for all of our stakeholders and have a positive outlook for the future given the trends we see in our current and our current business pipeline and business development opportunities, we've been creating and as some of our historical BD investments mature such as any us therapeutics. Thank you for joining us this afternoon and have a good evening.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.

Uh huh.