Elite Pharms Inc

Good morning, ladies and gentlemen, and welcome to the Elite Pharmaceutical's second quarter of fiscal year 2025 conference call. At this time, all lines have been placed on a listen-only mode. Before management begins speaking, the conference has the following statement. Elite would like to remind 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 forward 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 Elites files with the SEC, which is 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, and thank you for joining us today. My name is Nasrat Hakim. I am Elite's Chairman and CEO. This is our earnings call. Our CFO, Carter Ward, will give you a summary of the company's financials, after which I'll give you an update and answer some of the questions you've submitted to Diane. Mr. Ward, the floor is yours.

Thank you, Nasrat. Good morning, everybody, and thanks to everyone for calling in today. We filed our 10-Q yesterday. It was for The second quarter of our fiscal year ending March 31st, 2025. It's for the three and the six months ended September 30th, 2025. The 10Q is available at EliteFarmer.com. It's under our investor relations section. So please take a look if you haven't already. Before moving on, I did get a question on if we were going to change our fiscal year the March fiscal year to a calendar year. And I just wanted to let you know that that is not a priority right now. So fiscal 2025 remains in effect. And so this is the second quarter of our fiscal year ending March 31, 2025. I'm going to discuss the financials, as always, provide some context, a little color to the financial statements, and answer any finance questions that I received overnight. Did get some good questions this time. Thank you very much. I appreciate everybody's interest and appreciate taking the time to ask those questions. So I'm going to start with the P&L. Total revenues for the quarter were $18.9 million, and that compares to 14.2 for the September 2023 quarter. That is a $4.7 million or 33% increase. On the year-to-date, for the six months ended September 30th, the revenues are $37.7 million, and that compares to $23.1 million. For last year, $14.5 million increase of 63%. Operating income was $3.5 million for the quarter and $7.3 million for the six months. This year, September 2024, you can compare that to $1.9 million and 3.5 million for the last year's quarter and six months. So 3.5 this quarter, 1.9 last quarter operating profits, 7.3 million six months this year versus 3.5 million last year. So we have increase of around 81% on quarter-to-quarter basis, almost double, and the six months we were up 108%. So on a year-to-date basis, we more than doubled our profits from last year. I mentioned this the last few quarters, but our revenue trend continues to trend upward. Let me just recap. June of 2023, the first quarter that we launched the elite label, we had $9.8 million in revenue. September 2023, $14.1 million. December 2023, $15.5 million. March 2024, 17.9. June of 2024, 18.8. And this quarter, September 2024, 18.9. So still up. The products, I call it the phase one of the elite label. Those products have been launched. They've been in the market for around 18 months now. They're reaching a steady state. And we have quite a defined market share, secure market share. So now we're into the next phase of the elite products, and they're starting to be launched, or they're close to commercialization. We launched methotrexate in August. We launched codeine APAP in October, just after the close of this quarter. Both of those, it's too short to have, of a commercial window, too short to have an effect on these financials, but they will start contributing in future periods. We also have the recently approved ANDAs. They are nearing commercial launch. Those we purchased in June of this year, and that's the hydrocodone and APAP, which is generic for Norco, the oxycodone and APAP, which is generic for Percocet, and methadone, which is generic for Dolophine. So those are all... nearing commercial launch. And there's more in the pipeline, even more, that it's nearing commercialization. And Nasrat's going to discuss that in more detail with his comments. But the takeaway here is that, as everyone in our business says, pipeline is the lifeblood of generic pharma. And that is so true. Our pipeline is very robust. We have current levels of sales that is steady. There's a critical mass there of sales. and our pipeline showing factors indicating that we have the ability to continue the upward revenue trends even above our current levels. Now, before moving on from the P&L, I got a good question. Do you expect gross profit margin to go up after the new drugs are launched due to sharing the cost of the new facilities and equipment across more drugs? And that is quite a big question. So there's a lot of factors at play when you're talking about gross profit and margins. First, gross profit consists of sales, which is units sold times the price, and minus the cost of sales. And the cost of sales is materials, labor, overhead. And labor and overhead, they have fixed and variable costs. So there's a lot of moving parts here. So with regards to the sales part of the margins, we're in a competitive market. Generic pharmaceuticals in the United States are very competitive, so units and price can always be variable. But the variability in our phase one products, it's been flattening. The products have reached an establishment in the market. But regardless, there's always going to be variability there. And then when we bring the new products on, there will be increased variability as they get launched, accepted, and hopefully established in the market. Then looking at the cost side, the labor and overhead costs, they also can be very variable, and they're especially driven by volumes and factory utilization rates. So we're expanding to increase our manufacturing footprint. We're expecting more volumes, and we need to have more facility available, but we're still quite lean, especially compared to the much larger players in the generic market. So we're a lean company, and we very closely manage our labor and overhead utilization rates. They're always an area of focus. They're always a priority. And we need to, we're always looking to keep those within a range that makes, gives us the most efficient use of resources that we can. while still assuring that we're able to manufacture to meet demand. And we've done that. We've done it well, meeting demand, supplying our customers. Our customers, they give us service-level scorecards, and we've done very, very well with those. So we get a good report card from our customers. As far as with the new facility, we're scaling up for increased production to meet the increased demand that we anticipate. And the endeavor is to achieve increasing costs that increase in a lower rate than the increased production. So we want to get more for less money. That brings the unit cost down. That's more efficient operations. And this will drive our gross profit margin rates up. So there's a lot of moving parts to this question. Gross profit margin is quite a quite a large subject. It's always an area of priority. We look at all the factors as we manage this company through the growth in our operations going forward. So now moving down to the cash flow statement, this is also interesting. Operating cash flow for the six months ended September 2024. This year was a positive $4.6 million. Now you can compare that to last year. When it was a negative, it was a cash burn of $2.9 million. That is a $7.5 million turnaround and a turnaround in the right direction, positive direction. When you launch a new label like we did last year with the Elite Label, there's an upfront working capital requirement, and it's generally in the form of investments in inventory and receivables. We have to buy inventory well in advance to make it, to sell it, and then we have to wait to collect on the receivable. So inventory goes up, receivable goes up. This is a strain on cash flow. And that's why last year we had that cash burn, $2.9 million cash burn. But now we're 18 months into the elite label. We're beyond the launch phase. And all of those associated upfront factors, inventory and receivables, they're rotating as they should. Every time they rotate, every time we make and sell and collect, we're generating positive cash flows. And that's why we've swung into the positive cash flow territory in such a major way. But what's really interesting here is that while our cash flow is positive, our receivables and inventories continue to grow. So we're buying more, we're selling more, we're collecting more. Our receivables are growing, meaning we'll be collecting more in the future. Those inventory receivables combined increased by $3.2 million this year. So the increase in inventories, that points to increased sales. We're buying more to make more to sell more. And that results in increased receivables, which points to increased cash receipts. So we like to see both of these. They are pointers to continued growth, very positive metrics that we're happy to see. Now, let's stay on the cash flow statement. Looking down, we'll go to the cash flow from investing section. There's a couple items there. We purchased ANDAs for $900,000. Those are the ones that I just spoke about. That was in June of this year. Plus, we added almost $900,000 more in property and equipment purchases that we paid cash for, and that would be related to the facility expansion. Both of these are investments for the future growth. ANDAs, they're part of the pipeline. The pipeline is the lifeblood of this company. And the property and equipment are part of the new facility which is being constructed in order to manufacture these products as they come online, as they're launched. So when you put it all together, you take into consideration we had almost $5 million investment in increased inventory and receivables in the pipeline products in the new facility. With all of that, we still had an overall positive cash flow of $2.5 million. Our cash increased by $2.5 million so far this year. So the takeaway here is that the current operations by themselves are generating cash and profits that more than cover the investments needed to support even more continued growth in our business. So now onto the balance sheet. Cash as of September 30th was $9.6 million, and that's up. As I just said, it's $2.5 million more than it was on March 31st. Working capital on September 30th was $32.4 million. Working capital is current assets minus current liabilities. We had a surplus of $32.4 million, and that's an increase of $5.5 million since March 31st. I think I've said this before. I think I probably say this every call, but profits drive working capital. And yet again, our financials are demonstrating this. Our balance sheet continues to strengthen by this equation. So I got a question on the balance sheet to might as well answer now. Explain the variance in liability since the June quarter. So total liabilities in June were 29.6 and the total liabilities in September were 40.9. So that's $11 million increase. But you look at what is in the total liabilities and there's one thing that jumps out at you and it's the derivative liability for the warrants. That increase, that went from 9 to 22 million. So that increased by almost $13 million. So while my total liabilities increased by $11 million, the derivative component of that increased by $13 million. So if you take that out, the overall liabilities actually went down. And let me just say one thing on the derivatives. I've mentioned this before, but the derivative liabilities are related to the warrants, and they're valued using the Black-Scholes method, and they essentially, the level of liability varies directly with our stock price. If the price goes up, the price per share goes up, the liability goes up. If the price per share goes down, the liability goes down. In June, our stock price was 19.9. In September, our stock price was 38.8. It almost doubled over this quarter. Now we're I don't know where we are right now, but around 50 cents. So thank you, everybody, for bringing our stock price up. One of the effects is because of the calculation, the liability goes up. But always keep in mind when you see this liability, it is a non-cash item. There will never, ever, ever be cash involved with this liability. Just something that we record to comply with GAAP. So instead of looking at the total liabilities, I really focus more on the ratio between liabilities and assets, especially the working capital, the current liability. Current liabilities as compared to current assets. That's all working capital. That's my main area of focus. We have large investments, as you'll see, in inventory and receivables. Generally, as those increase, you're also going to see an increase in accounts payable and accrued liabilities. They kind of track with each other. The important thing is you always want to have more on the asset side than the liability side. That's a surplus. That's your working capital. The larger the surplus, the better it is, the more liquid we are, the stronger our balance sheet is. And we have a $32 million surplus as of September 30th, and that surplus grew by more than $5 million this quarter alone. That's the metric I'm most focused on with regards to liabilities, and it does show our balance sheet is strengthening. I did get one other question on the warrant liability or the warrants in general, and that was related to asking are we going to shift to an adjusted EBITDA disclosure reporting with that excluding the warrant impact on EBITDA? So first of all, It's not possible to remove the warrants from the financials as GAAP requires that we account for them and we present them as we are presenting them. So the balance sheet, the cash flow, the P&L statement, they all have to take into consideration the warrants and it can't be excluded. But what you're referring to with an adjusted EBITDA is really what's known as a non-GAAP financial measure and that would have to be presented in footnote manner and not part of the core four financial statements, something separate in a footnote. And that's not something we're considering at this time. Everyone I speak to regarding elite financials, they evaluate the warrants and their impacts separately depending upon the nature of analysis that they're conducting. So we disclose as per GAAP the warrants are easily identified and who's ever evaluating our company can either include them or exclude them depending upon the nature of their evaluation. That's really what happens. So to sum things up, our financials continue on the growth trajectory. Revenues are up, profits are up, working capital is increasing, debt is low, the balance sheet is strengthening, cash flow that we're generating internally is funding future growth. The pipeline is progressing and positioned to maintain an upward trajectory. So all in all, it was quite a good quarter. Now our CEO, Mr. Nasrat Hakim, will provide his comments.