Arthur Przybyl - Chief Executive Officer, President and Director Charlotte Arnold - Chief Financial Officer, Vice President and Secretary.

Louise Chen - Guggenheim Rohit Vanjani - Oppenheimer.

Good morning and welcome to today's ANI Fourth Quarter Earnings Call. Presenters, you may begin..

Good morning, everyone and welcome to ANI's earnings conference call for the fourth quarter and year-end 2014. My name is Art Przybyl, I am the President and CEO, and with me today is Charlotte Arnold, 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 to the most directly comparable GAAP financial measures can be found in our earnings release dated today. By all metrics, ANI had a record fourth quarter. Fourth quarter revenues were $21 million, an increase of 100% over the prior year period.

As compared to the mid-point of our revenue guidance of $17.5 million, we exceeded guidance by 20%. The increase in revenues was primarily the direct result of our newly acquired products, Vancocin and Lithobid. We launched Vancocin under the ANI label during the quarter.

Fourth quarter adjusted non-GAAP EBITDA was $12.8 million, an increase of 225% over the prior year period. As compared to the midpoint of our non-GAAP EBITDA guidance of $10 million, we exceeded guidance by 28%. Operating income was $10.8 million, an increase of 211% as compared to $3.5 million in the same period in 2014.

Fourth quarter pro forma adjusted non-GAAP earnings per share was $0.67. As compared to the midpoint of our non-GAAP earnings per share guidance of $0.625, we exceeded guidance by 7%.

However, it is important to remember that our guidance was based on an effective tax rate of 18% and our fourth quarter pro forma adjusted non-GAAP earnings per share is calculated using an effective tax rate of 36%. Please refer to table 4 in our press release for our earnings per share reconciliation.

For the year ended 2014, we generated revenues of $56 million, adjusted non-GAAP EBITDA of $27.3 million, which represent increases of 86% and 264% respectively. Additional highlights for the year include closing three acquisitions for a total of 33 generic drug products and two mature brand NDAs for total cash consideration of $35.5 million.

We also raised over $193 million through common stock and convertible debt financings. Combined with generating annual cash flow from operations of $22 million, we ended the year with $169 million of cash on hand.

These monies will help us to continue to advance our two-pronged strategy of growing our generic and mature brand businesses, a strategy that we feel continue to provide us with significant operating leverage. For 2015, we hope to grow our business in generic drugs and mature brands three ways.

Through organic market share growth from our existing products. By launching several new products throughout the course of the year. We currently have 46 generic products that address a total current market size of $3 billion as reported for IMS Health. And lastly, by selectively pursuing accretive acquisitions.

For 2015, we are providing full year guidance for net revenues in the range of $80 million to $88 million. An increase of 43% to 57% as compared to 2014. And we are providing full year guidance for non-GAAP adjusted EBITDA in the range of $48.8 million to $53.1 million, an increase of 79% to 94% as compared to 2014.

And we are providing full year guidance for non-GAAP adjusted earnings per share in the range of $2.48 to $2.72, an increase of 68% to 84% when compared to pro forma adjusted non-GAAP earnings per share for 2014.

Our guidance assumes a stable market share for EEMT and does not include any new product launches or acquisitions that could potentially occur throughout 2015. Our EPS guidance reflects an expected tax rate of 36%. I will now turn the conference call over to our Chief Financial Officer, Charlotte Arnold..

Good morning, everyone and thank you for joining our conference call to discuss ANI's fourth quarter and year-end financial results for 2014. We are very pleased to report strong financial performance during the fourth quarter of 2014 which caps an outstanding year for ANI.

We reported record net revenues and record diluted earnings per share and exceeded the net revenue adjusted non-GAAP EBITDA and adjusted non-GAAP diluted earnings per share guidance we provided in our last earnings call.

This achievement is a direct result of our continuing efforts to grow and diversify our revenue base through the acquisition of mature brands. The launch of additional products from our pipeline and organic growth from our existing products.

In our press release earlier this morning, we provided financial guidance for 2015, which reflects the ongoing impact of those efforts.

We plan to update this guidance on a quarterly basis as the year progresses and as we utilize the proceeds from our 2014 common stock and convertible debt offerings to fund future acquisitions and further diversify our revenue and earnings. Turning now to our financial performance during the fourth quarter of 2014.

For the three-months ended December 31, 2014, we generated net revenues of $21 million, an increase of 100% from $10.5 million in the prior year period.

The increase in revenues was due to 100% increase in net prescription sales from $8.8 million to $17.6 million primarily from sales of our newly acquired products, Lithobid and Vancocin, as well as price increases for our existing generic products.

Net revenues in the fourth quarter from our generic products were $12.7 million and $4.9 million from our mature brands.

Our contract sales, development services and royalty revenues increased from $1.7 million in the prior period to $3.4 million in the fourth quarter of 2014, primarily due to royalties received on sales of the authorized generic, Vancocin.

Adjusted non-GAAP EBITDA was $12.8 million for the three-months ended December 31, 2014 compared to $3.9 million in the prior year period. An increase of 225%.

Cost of sales decreased as a percentage of net revenues to 17% from 25%, primarily due to higher margin sales of the newly acquired Lithobid and Vancocin branded products, as well as price increases for our existing generic products.

Research and development costs were $0.6 million and $0.5 million for the three months ended December 31, 2014 and 2013 respectively. The slight increase year-over-year was due to work on new development projects including the Teva products and the development projects with Sterling.

Selling, general and administrative expenses increased to $4.7 million for the three-months ended December 31, 2014 from $3.4 million in the prior year period. The increase was primarily due to $704,000 in non-cash stock comp expense recognized during the quarter, as well as increases in personnel and compensation expense.

Operating income was $10.8 million for the three months ended December 31, 2014 as compared to $3.5 million in the prior year period. As a result of our convertible debt offering in December, we recognized $811,000 in interest expense during the fourth quarter of 2014. $252,000 of which is payable in cash.

Of the remainder, $70,000 was due to the non-cash amortization of the financing cost associated with the offering and $489,000 represented the non-cash amortization of the debt discount. In our guidance, we have provided the amounts of cash and non-cash interest expense we expect to incur for 2015.

Net income was $21 million for the three months ended December 31, 2014 as compared to $3.4 million in the prior year period. Our fourth quarter 2014 net income includes a $16.7 million tax benefit from the reversal of the valuation allowance previously recorded against our deferred tax asset.

Our diluted earnings per share for the three months ended December 31, 2014 was $1.82 based on 11,476,281 diluted shares outstanding, as compared with earnings per share of $0.36 in the prior year period. Adjusted non-GAAP diluted earnings per share excluding non-cash stock compensation and non-cash interest expense, was $1.94.

To facilitate comparisons of our financial performance across periods, we are also providing a measure of our pro forma adjusted non-GAAP diluted earnings per share for the fourth quarter and 2014.

This pro forma measure calculates our adjusted non-GAAP diluted earnings per share, assuming an effective tax rate of 36% and removes the onetime impact of the $16.7 million reversal of our deferred tax asset valuation allowances during the quarter.

On a pro forma basis, our adjusted non-GAAP diluted earnings per share for the fourth quarter was $0.67 exceeding our fourth quarter guidance despite a higher effective tax rate.

In the press release this morning, we have provided a reconciliation of pro forma adjusted non-GAAP diluted earnings per share to diluted earnings per share calculated under U.S. GAAP.

We are also pleased to provide the following financial guidance for 2015 based on our current estimates of market shares and pricing for each of our products, our cost of sales and our operating cost. We estimate our net revenues to be between $80 million and $88 million.

We anticipate the cost of sales exclusive of depreciation and amortization to be between 15% and 17.5%. We project that our operating expenses will be between $16.2 million and $16.5 million excluding non-cash stock compensation expense of approximately $2.8 million for the year.

We anticipate our research and development cost to be approximately $3 million. Based on the foregoing, we project our adjusted non-GAAP EBITDA excluding non-cash stock compensation expense to be between $48.8 million and $53.1 million for 2015. We expect our depreciation and amortization expense to be approximately $5.5 million.

We anticipate that our total interest expense will be approximately $11.2 million. This includes cash interest expense of approximately $4.3 million and non-cash interest expense of approximately $3.9 million in 2015.

In 2015 and 2016, assuming there are no material temporary differences between our book and taxable income, we expect that our cash tax payments will be less than 36% of our pretax income, reflecting the benefit of our remaining NOL carry forwards. However, beginning in 2015, our U.S.

GAAP financial statements will reflect total tax expense at an estimated effective rate of approximately 36%. We estimate our adjusted non-GAAP earnings per share excluding non-cash stock compensation and non-cash interest expense to be between $2.48 and $2.72, assuming 11,476,281 weighted average shares outstanding.

Our 2015 adjusted non-GAAP earnings per share guidance represents an increase of between 68% and 84% when compared to pro forma adjusted non-GAAP earnings per share for 2014.

Our 2015 guidance assumes a stable market share for EEMT and does not take into account the effect of any additional new product launches or acquisitions that could potentially occur throughout the year.

In conclusion, we are very pleased with our financial performance during the fourth quarter and for all of 2014 and look forward to continuing to execute on our business strategies. At this point, I will turn the call back over to our President and CEO, Art Przybyl..

Thank you, Charlotte. At this time, we will now open the conference call to any questions.

Moderator?.

(Operator Instructions) And our first question comes from the line of Louise Chen..

So I had a few here. First question I had is for Art. Just curious, what are the things that you need to do in order to reach your goal of $200 million in sales and $1 billion market cap company over the next several years. And then second question is, where are you seeing the best opportunities in business development.

Is it something transformational more bolt-on type deals and timing around that? Would you be disappointed if you didn’t do at least one deal this year? And then lastly, just on the new launches. Could you give us a framework or could you give us a number of potential new product launches coming in '15 which aren't including your guidance. Thank you..

Thanks, Louise. Good morning. Let's take the last question first, the number of new product launches. We hope to launch two more Teva products this year. We have partnered products with Dexcel and Sofgen that we also hope to launch. So we are looking at, if I remember correctly, approximately 5 to 6 additional product launches.

But outside of the two additional Teva products that we hope to launch this year, the rest are dependent upon formal FDA approvals.

And so part of the reason why we don’t put our new product launches up into our guidance is the uncertainty of timing associated with FDA approvals these days even after receiving, in the case of some of these products, comprehensive reviews wherein the efficiencies have already been responded to.

So in the range of 5 to 6 new product launches from our product pipeline, hopefully will occur in 2015. The middle part of your question in regards to transactions and how we hope to put our monies to work.

So I have been quoted as saying that our transactions could be anywhere from several million dollars to up to what I felt was potentially a $300 million size transaction. Which will be more in line with a transformational type transaction. And I think in stating that, that to be represents the breadth of transactions that we would be interested in.

We are certainly interested in accretive transactions in both the generic space as well as our mature brand space that represents our two pronged strategy.

We like that strategy because we -- I know we continually say over and over again that this provides us operating leverage and by that I mean it requires us not to have a boots on the ground sales team but rather a smaller national account team that is able to leverage our existing agreements with customers and add products in both mature brands and generics to those contracts.

So we like that strategy. We are certainly active in both public as well as private processes for acquiring accretive assets. And to answer your question, I would be disappointed if we did not at least have on transaction take place in 2015. Our objective is to deploy our monies in the smart fashion.

We are not looking to overpay obviously for our assets. And to deploy our monies as quickly as possible. That cash on hand on our balance sheet, Louise, is not creating value for the company, just sitting there.

And reiterate to me, please, the first part of your question?.

Yes. Just curious, what you think it will take for you to reach your goal that you have stated of $200 million in sales and $1 billion market cap over the next few years..

Well, I think it's the three opportunities that we have first of all to grow our revenue base. We still see that there is potential for organic growth with our existing products that are currently in pipeline. Primarily that relates to the potential upside in market share and revenue for EEMT in the back half of 2015.

We did not guide to that potential because we like to actually see it on unfold before we upload it into our guidance. We think that’s a prudent and conservative approach for the company to take. Secondly, there is the new product introductions. We do have a pipeline that is fairly expansive now.

Many of them approved products from the acquisition of the Teva products that only require prior approval supplements as compared to formal, more expense ANDA approvals. And so from that product pipeline of $3 million after you discount it, we feel that that is a potential significant driver of future revenues and cash flow for the company.

And lastly, it's really putting our -- for sake of argument, $169 million of cash on hand to work to buy EBITDA, to be quite frank.

And to take some of those acquisition opportunities like we have with some of our mature brands and take the opportunity to generate additional upside on top of what those products were doing historically from a revenue standpoint.

And I think if we can execute on those three items, I think our goal of moving the company to $200 million in revenues and certainly north of -- I hope before the $200 million in revenues that we are certainly north of $1 billion of market cap.

Because although gross margins for the company will eventually decrease from let's' say where they are today. Our cost of sales today as Charlotte mentioned, between 15% and 17.5%. Nevertheless, and we will come more in line with what a generic company tends to generate in terms of gross margins.

We believe much of that will be offset by continuing to pursue our mature brand strategies which inherently have margins that are north of 90%, gross margins north of 90%. Hope that answers your question..

And our next question comes from the line of Rohit Vanjani..

So you kind of alluded to this before, but in that 2015 guidance, the press release and the prepared remarks, you indicated that a stable market share for EEMT. But from everything you know, do you still believe that [competitors] [ph] to run out of raw material at some point in 2015 and if so, when do you think that will occur..

So our thoughts have not changed in regards to that. And we still believe that that will occur in the second half of 2015. Our objective though, I hope was clearly stated by Charlotte in her narrative, our objective is to continue to diversify our revenues and earnings base.

We have successfully I believe moved the relevance of EEMT to the company's numbers from 90% of its profits in revenues to now approximately 50%. And as the company grows out, that’s our intent. It's to continue to diversify so that we are not beholden to one particular product for any large percentage of our revenues and profits..

Sure. That was clear from Charlotte's remarks. I just wanted to make sure. And then last quarter you provided EEMT annualized revenue guidance of $30 million to $35 million.

So when you say stable share, I know EEMT has declined [for us] [ph], but is that sort of a ballpark of what's assumed in your guidance?.

Yes. I mean we have guided to 36,000 units sold per quarter, or 30,000 units sold per quarter. And that is consistently what we are generating in terms of unit sales for the product at the know market prices. And the share that you see in current, either Symphony or Wolters Kluwer data, is approximately 40%.

It might be a little bit north of that today, but that’s what we mean by stable EEMT market share. That our unit sales on a quarterly basis remain around that 30,000 unit mark and that the market share data that you see remains around that 40% mark..

Right. And then previously I think you indicated that combined Lithobid and Vancocin will generate $22 million in annual revenue.

Are you still expecting that?.

Yes. That thinking has not changed on our part..

Okay. And the Teva product, you were thinking a third product in 1Q '15.

Have you filed the CBE-30 for that product or heard anything back from the FDA?.

That product is very close to ready to being launched..

Okay.

And then so out of the five to six products that you mentioned...?.

That product is not affected by a CBE-30 filing, let me just put it to you that way. Okay. If that clears it up. In other words, we are past the timeline. So we are -- that product is more associated with getting it out the door through our operations and quality department at our facility..

Okay. So out of the five to six additional product launches, you think you are going to get it to two Teva products. One, which you are close on. One the Sofgen, one the Dexcel partnership, one the expedited review cancer product.

And what was the sixth product?.

This is just an internally filed product that has gone through a comprehensive review that we are hopeful. It's a narcotic product and we are hopeful that it will be approved this year. But, again, hard to predict timelines..

Okay. And then the last question from me. On that expedited review product, the cancer product. I think you filed that in mid-June 2014.

Have you heard anything back from the FDA or was there any news on that front?.

None that I want to speak to, Rohit. We certainly are in communication with the agency associated with that product. It was accepted by the agency as an expedited review in August of last year and it is moving forward but again, it's just difficult to predict FDA approval timelines these days..

Our next question comes from the line of [John Daly] [ph]..

I was just wondering, what's the status of the LibiGel product that you acquired from the BioSante buyout?.

Yes, sure. It's a good question. As you probably know when we acquired LibiGel as part of the BioSante assets, we valued all of the BioSante assets on our balance sheet at that time at zero value. There were several assets from BioSante, potential equity or revenue sharing relationships as well as LibiGel.

And the only value that we applied to one of BioSante's assets was a T-gel product that was partnered with Teva. And we valued that I believe at approximately $11 million on our balance sheet. And so we did not apply a value to LibiGel simply because it had failed its Phase 3 clinical efficacy trial. The safety trial was never completed in totality.

And for us, LibiGel represents perhaps an opportunity to take that product and partner it with another company who is interested in that space in the indication for female sexual dysfunction. But it is not of interest to ANI. It is not why we did the BioSante merger.

We did the BioSante merger for a net cash of $18 million at the time for a public listing and for the T-gel asset. And that’s because we don’t believe that the indication for FSD is very very difficult. We have seen other companies fail in their attempts to eventually commercialize and receive approval for that type of indication.

It would also probably, and I am guessing, be in the neighborhood of $30 million to $50 million to redo an efficacy trial for that product. And frankly we feel that our moneys are better spent on what I would call, surer things.

The acquisition of products and assets in the space that we know well, mature brands and generics that allow us to grow value for the company and our shareholders. And so to answer your question, today there is no activity associated with the LibiGel product..

[Operator Instructions] Our next question comes from the line of [Fred Bren]..

Congratulations on a great quarter. I wanted to follow up regarding new product launches for 2015.

Of the pipeline that you have, how many of those products are CBE-30 candidates?.

Approximately -- of the ones left in the Teva product pipeline, I am going to say three off the top of my head. We have already launched two and I believe that there are three remaining..

Okay.

And then, so you said they are already included in the potential six additional drug launches that you, five to six, that you talked about earlier ?.

Correct..

Okay. It was my understanding that there was more like a dozen.

But is that an incorrect assumption?.

That’s an incorrect assumption..

Okay. That’s all. Thank you..

The other products, Fred, require us to change API or raw material supplier for the product as well as the manufacturing site change. And that further regulation necessitates a prior approval [supplement] [ph]..

And there are no further questions at this time..

If there are no additional questions, I would like to thank everybody for attending ANI's fourth quarter earnings conference call. Wish you all a good day. Bye, bye..

This concludes today's conference call. You may now disconnect..