Elite Pharms Inc

gentlemen, and welcome to the Elite Pharmaceuticals conference call. At this time, all lines have been placed on a listen-only mode. Before management begins speaking, the company has the following statement. Elite would like to remind their listeners that remarks made during this call may contain forward-looking statements that involve risks and uncertainties that are subject to change at any time, including, but not limited to, statements about Elite's expectations regarding future operating results. Forward-looking statements are made pursuant to the safe harbor provisions of the federal securities laws and represent management's current expectations. Actual results may differ materially. Elite disclaims any obligation to update or revise its forward-looking statements except as required by law. More complete information regarding forward-looking statements, risks, and uncertainties can be found in the report's Elite files with the SEC, which are available on Elite's website at ElitePharma.com under the Investor Relations section. Elite encourages you to review these documents carefully. With that covered, it is now my pleasure to turn the floor over to your host, Mr. Nasrat Hakim, President and Chief Executive Officer of Elite Pharmaceuticals.

Sir, the floor is yours. Thank you, Matthew, and good morning, ladies and gentlemen. Thank you for joining us today. My name is Nasrat Hakim. I am Elite's Chairman and CEO. This is our earnings calls. Our CFO, Carter Ward, will give us a summary of the company's financials, after which I'll give a brief update and answer some of the questions you've submitted to Diane. Carter, you have the floor.

Thank you, Nasrat, and good morning, everybody. Thank you to everybody calling in today, yesterday. We filed our 10-Q for the third quarter of our 2024 fiscal year. We have a fiscal year ending March 31. So December 31, 2023 is the third quarter of our 2024 fiscal year. It is available on EliteFarmer.com, SEC.gov, and any place else you get your SEC filings. So please, if you haven't seen it yet, we would appreciate you taking a look at that. going to give you a little context and go over some of the more relevant areas of the financial statements. And along the way, we received a lot of questions. Thank you so much for all the questions. We really did get a lot last night. And I'll do my best to answer all of them as I go through. So let's start with the P&L. Total revenues for the quarter were $15.5 million. You can compare that to 9.3 for December 2022 last year. for that quarter, and $14.2 million for the September 2023 quarter, the last quarter. Percentage-wise, that's a 67% year-on-year increase, and it's a 9% increase since the last quarter. I got a lot of questions, and the answer to the question is yes, PRASCO shipment made in December is included in the revenue numbers. For the full nine months on our P&L, the revenues were $38.7 million for this year. You can compare that to $25.5 last year. That is a 52% year-on-year increase. Our operating income for the quarter ended December 31st, 2023 was $3.5 million. Compare that to $2 million for last year and The last quarter, the September quarter, was $1.9 million. So percentage-wise, it's 75% year-on-year increase and 84% increase over September 2023 quarter. For the full nine months, our operating income was $7.1 million, and that's compared to $4.1 million for the full nine months ended last year, December 31st, 2022. Percentage-wise, 73% year-on-year increase. Now whichever way you look at our operating revenues, our operating profits, you're only going to see significant year-on-year increases. The biggest change this year as compared to last year was obviously the successful launch of our elite label in April of 2023. So 2022 numbers didn't have this. 2023 does. It's been very, very successful. And our P&L clearly demonstrates just how successful the elite label has been. The elite label has boosted our growth, but even before that, our revenue streams were expanding. They were solidifying and growing before we even launched the elite labels. Just to give you a little history, in 2019, our revenues were $7.6 million for a full year, full 12 months. In 2020, fiscal year 2020, it was $18 million. And then 2021, it was $25 million. 2022, it was $32 million. And last fiscal year, ended March 31st, 2023, it was $34 million. So that's nice growth. And this year, with only nine months into our fiscal year, only three quarters there, we've already booked almost $39 million in revenues. And last year was a good year. And for the whole 12 months, it was 34. So we're already above last year's full year results. Well, there's no doubting the importance of the elite label launch, but it's just added more steam to the company that had already been moving steadily in a positive direction for more than four years. Moving down to P&L, I want to talk about R&D and research and development and G&A, which is general and administrative expenses, because both of them, they both give some insight into what we're putting together. R&D, as I've said over and over again, R&D is the lifeblood of any pharmaceutical company, and we are no exception. We spent $1.4 million this quarter and $5.2 million for the nine months on R&D, on product development. Nasrat, as he usually does, will speak more on product development. But from a finance perspective, we're continuing to fund development of new products, and more importantly, we're doing it from cash flows generated by current commercial operations. I always like to see that. G&A expenses, general and admin expenses, they were up around $500,000 from last year's December 2022 quarter. This year was $1.7 million for the quarter versus $1.2 million last year, December quarter. Now, the increase is mostly due to hiring more people. The elite label operations, the launch, the operations, And our expansion plans require a larger HR footprint. We need more people and more infrastructure. And it's a good result because there's more opportunities. There's more jobs available here. So that's always nice. As the growth continues, we expect to have better utilization of the infrastructure. So our utilization rates are going to increase. And we're looking for improved efficiency of these cost as compared to top line revenues. So, you look at that in a proportion standpoint. I did get a question on the income tax benefit down below the line of $18.3 million for the nine months ended, December 31st, 2023. This is also going to answer, I had a similar question on the future tax benefits going forward. of our NOL, our net operating loss carry forward. So I'm going to answer both of those together because they're both related. Elite in the past was not profitable for many years, and we had built up large net operating losses, NOLs, carry forwards on our tax returns that we filed with the IRS. These are tax deductions that we can take going forward as we become profitable or as we are profitable. Prior to this year, the tax effect of these tax deductions were fully reserved, meaning it was in our balance sheet, but we didn't meet the criteria to demonstrate that we were going to be reasonably and consistently profitable in order to realize the benefit of these tax deductions, to be able to take these tax deductions. Prior to this year, that was the case, so they weren't there. Now we've been profitable for several years, and we meet the criteria demonstrating a reasonable expectation of profits going forward. So now these NOL carry votes have a value to us, a real value in the form of tax deductions against real profits. So there was a partial release of this reserve in March 31st, a small amount, but the big release was this year. In September of this year, the reserve was fully released. So now we're showing that we have a future tax benefit that we will be able to use going forward. So when that happens, you have to book an asset, which we have. We have a deferred tax asset on a balance sheet of $20.2 million. So there was a question about what is the value going forward of these tax deductions. There it is. It's on our balance sheet. It will be there every reporting period, every quarter. You'll see that. We do an evaluation every quarter on what's the value there. Income tax-wise, as the tax rate changes, so will this, but as of December 31st, the value going forward is $20.2 million, and that's a real deduction we expect to be able to take in the years going forward. The flip side is when we release the reserve, we record essentially it's a tax benefit. It's like a negative income tax, and that was $18.3 million one-time benefit on our P&L statement. So moving to the cash flow, our operating burn for the nine months ended this year, December 31st, 23, was $5.3 million. Strong revenues, strong profits, coupled with cash burn may not make sense at first, but is quite normal for companies with rapid growth. And we are a textbook example of the importance of working capital during the initial phase of rapid growth, which is what we're going through. Sales are strong, profits are increasing, but also, on the flip side, inventory and receivables are also growing. Those two together grew almost $18 million for us. Whenever you have this type of growth, it takes, in our industry, approximately 9 to 12 months for these receivables and inventories to start rotating into positive cash flow. We have to buy the inventory, manufacture, sell it, ship it, collect our accounts receivable. So there's a whole process and roughly it takes nine to 12 months before what I call rotations happening and we start achieving positive cash flows. And we are now nine months into that and we're just entering that phase. So as we continue to grow, I look for the inventory and the receivables from the prior period, things that we already booked, to start generating working capital. And that working capital will support the ongoing revenue expansion. So as long as we keep going up, there's always going to be working capital demands as you go up until you hit a steady state and then things level off. Now onto the balance sheet. Our working capital, that's current assets minus current liabilities, has increased by $4.3 million. approximately 32% over the past nine months since March 31st. Profits drive working capital and our financials, they clearly demonstrate this. So I had some questions on total liabilities increasing at a rate that is faster than the rate that total assets have been increasing. So this is a question on the rates of increase. To answer that question, really, I want to point you to three lines on our financial statements. On the balance sheet, there's the warrant derivative liability and there's the accrued expenses and the liability side. And then also on our P&L statement, there are two lines there, change in fair value of stock-based liabilities and change in fair value of derivatives that are on our P&L. On the accrued expenses, approximately $7 million of $11.9 million in accrued expenses are for stock-based liabilities. You can look at Note 4 in our financial statements, give you a little more details of that. And the warrant derivatives are obviously 100% stock-based. Now, these liabilities are essentially valued as our stock price is valued. So if the stock price goes up, and it has gone up quite a bit over the past few months, So then we have to adjust the liability. We have to make the liability higher. So it's not really any new liabilities. It's just that accounting rules, they require that we have to revalue existing liabilities, which is what we did. And the net effect of all of these revaluations is recorded on our P&L. Whenever we adjust the liability, there's a P&L expense. And for the quarter, The change in fair value, so the increase in these liabilities, is $5.3 million for the quarter. That's on our P&L statement. And for the nine months, it was $10 million. So we booked change in value of liabilities of $5.3 million for the quarter and $10 million for the nine months. I also got a question on our inventory level. And now our inventory levels has increased from the beginning of the fiscal year from 9.6 million to 14.3 million on December 31st. But our inventory as of September 30th was 15.2 million. So that's a 900,000 decrease from September to December. This is all pretty standard supply chain metrics going on here. We're always challenged. We're trying to achieve just-in-time inventory. but we also have to make sure we have enough stock levels to support. There's lead times and regulatory and all the things that we have to do to support our manufacturing operation. So we're always trying to, we're always monitoring our inventory levels. There's really nothing more than just ordinary supply chain metrics going on here. We continue to look at that, but there are no issues. So to sum things up, when you look at 2022, December compared to December 2023, Elite Pharmaceuticals, we are looking at a very different company than from one year ago. Revenues are up 67%. Operating profits are up 77%. Nine months revenue are already more than last year's 12 months revenue. Our working capital is increasing, our debt is low, and our balance sheet is strong and continues to strengthen. So very different company, all of which is for the better when compared to the last year. So I'm very happy to see all of the things that have been going on lately. So that concludes my presentation. Now our CEO, Mr. Nazrat Hakim, will provide his comments.