ANI Pharmaceuticals, Inc.

Good morning, everyone, and welcome to ANI's first quarter 2019 earnings call. At this time, all participants are in 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 that time by pressing star and the number one on your touch-tone phone. If you would like to withdraw your question, press the pound key. 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, sir.

Good morning, everyone. Welcome to ANI's earnings conference call for the first quarter of 2019. My name is Art Prisbell. I'm the president and CEO. And 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 data today. Today we reported our first quarter 2019 results. For the first quarter, ANI reported net revenues of $52.9 million, an increase of 14%, and record adjusted non-GAAP EBITDA, of $22.3 million, an increase of 3% over the prior year period. Adjusted non-GAAP EBITDA was 42% of net revenues. First quarter generic product revenues increased by 36% to $31.6 million as compared to the prior year period, a direct result of several generic product launches over the last several months. In the first quarter, research and development expenses increased by $2.3 million, an increase of 180% over the prior year period, primarily attributed to our quatropan gel re-commercialization effort, which remains on track for our targeted first quarter 2020 FDA filing. We've assembled a library of ANDAs that can be re-commercialized through tech transfer efforts. and we anticipate several new product launches throughout the remainder of the year. And as such, today we reaffirmed our 2019 financial guidance. We have substantial firepower to pursue strategic opportunities and we intend to continue to use our cash and cash availability to partner and to acquire assets that represent future and immediate revenue and cash flow opportunities for ANI. From our perspective, there continues to exist a target-rich environment for these types of opportunities. I will now turn the conference call over to our Chief Financial Officer, 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 first quarter 2019 financial results. We are pleased to report this morning that ANI started 2019 off on a strong note, posting 14% year-over-year net revenue growth and record quarterly adjusted non-GAAP EBITDA of $22.3 million, while significantly increasing our research and development spend. Corresponding adjusted non-GAAP EPS was $1.30 per diluted share. At $52.9 million, net revenue for the three months ended March 31, 2019 was up $6.4 million, or 14% versus prior year, driven by gains in our generic pharmaceutical products and contract manufacturing categories. Revenues of our generic pharmaceutical products increased 36% from prior year to $31.6 million, Driven by ezetimibe simvastatin, Candisartan, and other 2018 launch products, as well as incremental sales of vancomycin. These gains were tempered by lower phenylfibrate sales, which as a third-party authorized generic is a relatively low-margin product for us. Branded pharmaceutical revenues were $17.5 million in the quarter, an increase of 6%. 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 unit sales of Inderol LA and Inopran XL. Revenues for our contract manufacturing services more than doubled to $2.4 million, principally due to the impact of ANI Pharmaceuticals Canada, which was acquired in August of 2018. Royalty and other income was $1.3 million for the quarter, reflective of product and laboratory development services revenue from ANI Canada, Royalty income related to sales of Gilead's Yaskarta, as well as royalties related to a true-out from our former marketing partner on the authorized generic version of Bankiston. Cost of sales in the current period was $14.7 million, or 28% of net revenues. Prior year cost of sales included $5.6 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 $15 million or 32% of net revenues. The approximate four-point year-over-year improvement in margin is principally due to lower royalty expense resulting from a royalty buyout completed in the quarter. Selling, general, and administrative expenses were $13.3 million as compared to $9 million in the prior year. Driven by costs related to our new ANI Canada subsidiary, increased U.S.-based headcount and pharmacovigilance costs in continued support of the expansion of our commercial portfolio, higher GDUFA and PDUFA user fees paid to the U.S. FDA, higher legal costs, and increased sales and marketing-related costs. Research and development costs totaled $4.4 million in the quarter, up $2.3 million or more than double prior year levels. This increase was driven by investment behind our Cortrophin Recommercialization Program and work related to our underlying generic pipeline. including projects acquired in our second quarter 2018 asset purchase from Amniel. Our GAAP consolidated effective tax rate for the quarter was 51% of pre-tax income as compared to 21% in the prior year period due to a valuation allowance recognized against the tax benefit generated by our Canadian subsidiary's pre-tax net loss. Our US statutory rate continues to approximate 22% and we anticipate that our GAAP effective tax rate will moderate significantly as the year progresses. On a GAAP basis, fully diluted earnings per share was $0.04 per share as compared to $0.19 per share in the year-ago period. The year-over-year decrease was largely driven by incremental amortization on business development activity, notably a one-off charge of $6.8 million of amortization related to the aforementioned royalty buyout. Our adjusted non-GAAP diluted earnings per share was $1.30 per share, down slightly from $1.32 per share in the year-ago period, driven by the higher effective income tax rate in the current year period. From a balance sheet perspective, we had unrestricted cash and cash equivalents of $38.2 million as of March 31, 2019. This balance is reflective of $14.3 million of cash flow from operations and is net of $18.5 million of cash utilized and the related intangible assets during the quarter. Total net debt as of the balance sheet date approximated $152 million, representing just under 1.8 times net leverage on a trailing 12-month basis, and approximately 1.5 turns when utilizing the midpoint of our full-year 2019 guidance. Please recall that as previously announced and discussed, in December of 2018, we entered into an amended and restated five-year senior secured credit facility for $265 million of financing with our existing syndicate of bank lenders. This transaction amended our previous $125 million facility and was specifically structured to address the December 2019 Thank you for joining us today. This revolver portion of our facility remains undrawn and coupled with our existing cash and cash flow from operations continues to provide us with flexibility in pursuing further business development transactions. This morning, we also reiterate our full year 2019 guidance. While first quarter results were ahead of our internal expectations, Our current view of full-year projections remains unchanged at net revenues of $231 and $245 million, representing a 15% to 22% increase over 2018. Adjusted non-GAAP EBITDA between $95 and $105 million, reflecting a 13% to 24% growth, and adjusted non-GAAP diluted earnings per share of $5.57 and $6.21 per diluted share. This guidance continues to reflect an anticipated full-year income tax rate of 24% and approximately 11.9 million shares outstanding. In summary, The first quarter of 2019 provides A&I a very solid base on which we plan to continue to build upon. We have exciting pipeline opportunities to add to our increasingly diverse product base, and we are working diligently to leverage new capabilities at A&I Pharmaceuticals Canada. We continue to advance Cortrophin, our transformational development asset, and importantly, we have a healthy balance sheet, strong cash flow and access to fully committed capital, which allows us flexibility as we continue to grow out the company. As always, we look forward to continuing to drive long term value for our stakeholders. With this, I will turn the call back to our president and CEO, Art Priswell.