ANI Pharmaceuticals, Inc.

Good morning, everyone, and welcome to ANI's fourth quarter 2018 earnings call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing star and 1 on your touch-tone phone. If you would like to withdraw your question, press the pound key on your touch-tone phone. Please note, this call may be recorded. It is now my pleasure to turn today's program over to Mr. Arthur Priswell. Please go ahead.

Good morning, everyone. Welcome to ANI's earnings conference call for the full year and fourth quarter of 2018. Joining me today is Stephen Carey, our Chief Financial Officer. Before we begin, I want to refer everyone to the forward-looking statements language in this morning's press release. and ask each of you to review it carefully as important context for this conference call. Discussions will also include certain financial measures that were not prepared in accordance with generally accepted accounting principles. Reconciliation of those non-GAAP financial measures can be found in our earnings release dated today. Today, we reported our full year and fourth quarter results. For the fourth quarter, ANI reported record net revenues of $57.1 million and record adjusted non-gap EBITDA of $22.2 million. These numbers represent increases of 21% and 13% respectively over the prior year period. Fourth quarter generic product revenues increased by 13% and our branded product revenues increased by 21% over the prior year period. These increases are the direct result of new product launches and help drive our robust quarterly results. Full year 2018 results generated record net revenues of $201.6 million and record adjusted non-GAAP EBITDA of $84.4 million, increases of 14% as compared to 2017. For the year, adjusted non-GAAP EBITDA was 42% of net revenues. and we generated $67.1 million of cash from operations. In 2018, excuse me, research and development expenses increased by 6.3 million, an increase of 70%, primarily attributed to our cortropin re-commercialization effort. During the year, we launched a total of 11 drug products, seven generic and four branded products, Increasing our commercial drug portfolio to 42 products, an increase of 35%. Annualizing revenues from our 2018 product launches, combined with anticipated 2019 new product launches and 2019 forecasted contract manufacturing revenues, we have estimated 2019 revenues in a range of $231 to $245 million. Estimated revenue increases of 15 to 22%. As a result, we estimated 2019 adjusted non-GAAP EBITDA in the range of 95 to 105 million. Estimated EBITDA increases of 13 to 24%. Our 2019 financial guidance does not include any additional asset acquisitions and their net effect to our business model and guidance. In 2018, we acquired several generic products from our first FTC divestiture process. In the fourth quarter, we realized the full revenue effect from acquiring and launching four branded products in the ANI label, acquired and began integration of our new manufacturing facility in Canada that is intended to grow our contract manufacturing business and provide additional capacity for our own ANI label products. Since 2013, we have closed 26 total transactions for approximately $378 million and continue to seek additional opportunities to augment the growth of our business model through acquisitions. We intend to use our cash on hand and available credit line to fund these anticipated future transactions. We also refinanced our debt, providing us with a credit line of $75 million for future acquisitions and allowing us to retire the current convertible debt without any additional dilution to our existing shareholder base in front of our anticipated quattropine supplemental NDA filing. We remain on track to file our quattropine supplemental NDA by the first quarter of 2020. In conclusion, our 2019 results and 2020 guidance continue to exemplify a growing business model that generates increasing cash flow from its operations in an admittedly tough but improving business environment for our industry. Regardless of the macro business climate, we continue to see opportunities that arise from time to time and that our cash flow allows us to pursue in order to strengthen and grow our business. And finally, We have a compelling transformational product in quatropin, and we are advancing it ever closer to realizing its commercial potential. I will now turn the conference call over to our CFO, Stephen Carey, who will provide you with more details on our financial results.

Thank you, Art. Good morning to everyone on the line, and thank you for joining the call to discuss ANI's fourth quarter and full year 2018 financial results. We are pleased to report this morning that ANI recorded a strong fourth quarter to close out 2018, and by extension, posted our fifth consecutive year of record net revenue, adjusted non-GAAP EBITDA, and adjusted non-GAAP diluted earnings per share. Full year net revenue reached 201.6 million, representing a 14% increase versus 2017. And gross profit pull-through on these sales gains drove full-year adjusted non-GAAP EBITDA to $84.4 million and adjusted non-GAAP diluted earnings per share to $5.07 representing an increase of 14% and 30% as compared to 2017 respectively. Turning our attention to the highlights of the fourth quarter. For the three months ended December 31st, 2018, A&I posted net revenues of $57.1 million and adjusted non-GAAP EBITDA of $22.2 million, representing new quarterly records for the company. Corresponding adjusted non-GAAP EPS was $1.32 per diluted share. At $57.1 million, net revenue for the three months ended December 31, 2018 was up $9.8 million, or 21% versus prior year, on gains in all four of our product categories. Revenues of our generic pharmaceutical products increased 13% from prior year to $33.7 million, driven by azetamide simvastatin Diphenoxylate Atropine, and other products launched in 2018, tempered by declines in lower margin products such as phenofibrate and lower sales of niludimide. Branded pharmaceutical revenues were $18.8 million in the quarter, an increase of 21%, primarily due to sales of Atacand and Atacand HCT, which were launched in the A&I label in October of 2018 and sales of Casodex and Arimidex which were launched in the A&I label in July of 2018. Gains in these products were tempered by lower sales of Inderol LA and Bankison. Revenues for our contract manufacturing services were $3.7 million, up $1.8 million or 94% principally due to a full quarter's worth of revenues for A&I Canada. Royalty and other income was $878,000 for the quarter, driven by royalty income related to sales of Gilead's Yascarda, as well as the impact of a full quarter's worth of product and laboratory development services revenue for A&I Canada. Cost of sales in the current period was $20.1 million or 35% of net revenues. Prior year cost of sales included $2.9 million of costs recorded due to the step-up of basis for finished goods inventory purchased in conjunction with certain acquisitions. Excluding this amount, prior year cost of sales was $17.5 million or 37% of net revenues. The approximate two-point year-over-year improvement in margin is due to favorable product mix driven by decreased sales of products subject to profit-sharing arrangements. Selling, general, and administrative expenses were $13.4 million as compared to $8.9 million in the prior year, driven by approximately $2 million of A&I Canada costs incremental costs to support the growth of our U.S. business and certain transaction-related expenses incurred in the quarter. Research and development costs totaled $3.5 million in the quarter, up $831,000 or 31% from prior year. This increase was driven by investment behind our Cortrophin Recommercialization Program and work related to our underlying generic pipeline including new products and projects acquired in our second quarter 2018 asset purchase from Amniel. Turning our attention to the debt portion of our capital structure, we had a very active quarter. The continued strength of our business, consistency of our results, and the health of our cash flow allowed management to proactively address various components of its debt structure. As previously announced, on December 7th, we utilized cash from our balance sheet to repurchase, in privately negotiated transactions, 25 million of our outstanding 3% convertible senior notes, which are due December of this year, and correspondingly, unwound a portion of certain hedge transactions related to the notes. The net impact of these transactions was to reduce the face value of the remaining convertible notes outstanding to $118,750,000 and to remove a portion of the equity dilution risk for our shareholders. In addition, as we previously announced on December 27th, We entered an amended and restated five-year senior secured credit facility for up to $265.2 million of financing with our existing syndicate of bank lenders, which is led by Citizens Bank with strong support from Huntington, MUFG, Regions, US Bank, and JP Morgan. This transaction amended our previous $125 million facility and was specifically structured to address the December 2019 maturity of the remaining balance of the convertible senior notes. This is achieved through a new $118 million delayed draw term loan that is fully committed by the bank group and can be accessed by A&I at any time and in multiple tranches through December 1st of 2019. In addition, the facility includes the extension of our pre-existing $72 million term loan A and increases our pre-existing $50 million revolving credit facility to $75 million. Interest on the facility is LIBOR-based, with a traditional leverage-based pricing grid that flexes between 1.5% and 2.75% above LIBOR. In February of 2019, we entered an interest rate swap with a forward start date to manage our exposure to LIBOR related to the anticipated drawdown of the $118 million delayed draw term loan and fixed the LIBOR component of our rate at 2.47%. We had previously hedged the $72 million term loan at a rate of 2.6%. The culmination of these transactions provides A&I with fully committed financing to address the upcoming December 2019 maturity of our convertible debt with bank debt that will insulate our shareholders from future potential equity dilution as we look forward to the next five years and anticipate continued growth of the company. Further, the interest rate swap transactions provide certitude of the LIBOR portion of our rate at approximately 2.5% through December of 2023. From a balance sheet perspective, we had unrestricted cash and cash equivalents of $43 million as of December 31st, 2018. This balance is reflective of $27.2 million of cash flow from operations during the quarter, and is net of the $25 million of cash utilized to repurchase convertible notes during the quarter. On a full year basis, we have generated 61, I'm sorry, 67.1 million of cash flow from operations while investing 27.4 million back into the business through our acquisition of Wellspring Pharma Services, purchase of generic commercial and pipeline opportunities and capital expenditures to enhance the capabilities of our manufacturing facilities. Total net debt as of the balance sheet date approximated 148 million, representing just 1.75 times net leverage on a trailing 12-month basis and less than 1.5 turns when utilizing the midpoint of our full year 2019 guidance. The newly upsized $75 million revolver portion of our senior secured credit facility remains undrawn and coupled with our cash flow from operations continues to provide us with flexibility in pursuing further business development transactions. Looking forward to 2019, we currently project net revenues to reach between $231 and 245 million representing a 15 to 22% increase over 2018 driven by the return to full year growth of our generic product portfolio on continued execution in maximizing the potential of our currently commercialized products and the strength of our planned 2019 product launches. Ongoing expansion of our brand revenue base with the full year impact of marketing Arimidex, Casodex, Atacand, and Atacand HVT in the A&I label and successful integration of A&I Pharmaceuticals Canada. Adjusted non-GAAP EBITDA is projected to be between 95 and 105 million, reflecting 13 to 24% growth over our record 2018 year. Inherent in this guidance is continued investment in research and development spending driven by increased activity in our Cortrophin Gel Recommercialization Program. Our guidance ranges include approximately $14.5 to $16.5 million of total ANI R&D expense as compared to $15.4 million incurred in 2018. In addition, we assume investment in SG&A expense to support the continued growth of our business and brands. Adjusted non-GAAP diluted earnings per share is projected to reach between $5.57 and $6.21 per diluted share and reflects an anticipated income tax rate of 24% and approximately 11.9 million shares outstanding. In summary, we exit 2018 in a very strong position to continue the growth trajectory of the company. We have exciting pipeline opportunities to add to our increasingly diverse product base, the ability to leverage new capabilities at A&I Pharmaceuticals Canada a transformational development asset in Cortrophin, and a healthy balance sheet, strong cash flow, and access to fully committed capital. As always, we look forward to continuing to build out our capabilities and drive long-term value to our stakeholders. With this, I will turn the call back to our president and CEO, Art Prisbel. Thank you, Steve.