Welcome to the First Quarter 2021 Financial Results Assertio Holdings, Inc. Earnings Conference Call. My name is Hilda and I will be your operator for today. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Max Nemmers, Head, Investor Relations and Administration. Mr. Nemmers, you may begin..

Thank you. Good afternoon and thank you all for joining us today to discuss Assertio’s first quarter 2021 financial results. The news release covering our earnings for this period is now available on the Investor page of our website at investor.assertiotx.com. I would encourage you to review the release as it’s important to today’s discussion.

With me today are Dan Peisert, President and Chief Executive Officer; and Paul Schwichtenberg, Senior Vice President and Chief Financial Officer. Dan will open the remarks and provide an overview of the business, followed by Paul, who will review our financials. After that, we will open the call for your questions.

During this call, management will make projections and other forward-looking statements regarding our future performance. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, including those noted in this afternoon’s press release as well as Assertio’s filings with the SEC.

These and other risks are more fully described in the Risk Factors section and other sections of our annual report on Form 10-K. Our actual results may differ materially from these projected in the forward-looking statements.

And Assertio specifically disclaims any intent or obligation to update these forward-looking statements except as required by law. With that, I will now turn the call over to Dan.

Dan?.

build a strong and committed team with a culture of teamwork, inclusion and results; delivering on our $45 million of restructuring synergies; ensuring the company generates strong operating cash flow; ensuring our debt never becomes a constraint in running the business; mitigate our legacy legal uncertainties; and develop a sustainable business model that reflects a changing environment.

Since the beginning of this year, we’ve made tremendous progress towards each of these priorities. We’re continuing to strengthen our team and we hired new Head of Commercial, who will start later this month. He will help us continue to build out our new commercial platform.

We’re also starting to make plans to open our offices as soon and return to working in-person. We like others have found a way to be productive with remote work during the pandemic.

It is important that we continue to ensure our employees and their families are safe, but we’re excited to get back to seeing everyone in-person and the benefits that it can bring.

In regard to the second priority of our synergies, as we said last quarter, we ultimately expect to realize $45 million in annual cost savings relative to our run rate from the second half of 2020. As you can see from our results this quarter, we’re well on our way to achieving that goal.

We have and will continue to accelerate some investments towards our priorities as a result of our improved liquidity, but we are still confident that we can achieve this goal. We’ve already paid the majority of the restructuring costs in Q4 2020 and Q1 2021. Excluding the cash paid for restructuring, we were operating cash flow positive this quarter.

Due to the timing of some large legal payments such as our debt and royalty payments, we do not expect to be cash flow positive every quarter, as such, we’re managing our cash flows on an annual basis. As for our fourth priority, we believe that our debt is no longer a constraint to our business.

The capital that we realized in the first quarter has eliminated any concerns about meeting loan maintenance covenant on our debt, which relates to minimum liquidity. And existing from our balance sheet, we’re now in a positive working capital position. This additional liquidity has enhanced outlook and business development.

In a few months, since the equity raise, we’ve been evaluating multiple opportunities that we would not have been able to pursue before. Additional benefits are that we’ve been able to accelerate investments INDOCIN, our novel commercial model and also towards our fifth priority of mitigating legacy legal liabilities.

We continue to slowly chip away at the legacy legal situations and have devoted additional resources towards driving the cases to conclusion. As we noticed early in the quarter, we’ve settled our insurance litigation. We’ve also recently reached settlements in the follow-on CAMBIA Paragraph IV litigation.

Putting these situations behind us allows us to focus our time and attention towards some of the larger opportunities and spend more time executing on our business. One change is to that is no longer excluding the opioid-related legal costs from our adjusted EBITDA and are showing what historical results were if we treated them the same.

We’d started excluding these costs, we’ve completed the commercialization agreement with Collegium in 2018 because the loss due to registration with the company’s historical commercialization of opioids.

While this is the case, our new management focuses towards increased transparency around and management of operating cash flow and mitigating these legal uncertainties. We understand how important it is to our shareholders to reduce these costs and limit the liabilities for many situations.

Because there’s an impact in operating cash flow from these costs, we feel that it’s more appropriate to reflect them in our operating results. We continue to believe that building out and improving upon our commercial platform, it’s critical to the sustainable business model.

So we’ve also accelerated some investments in our commercial infrastructure. I’m excited about one of those investments, which we just announced the other day, we’re expanding into the growing area of telemedicine by partnering with a leading Migraine Telemedicine platform, Cove.

This new alliance will allow us to develop new skills, we targeted patients directly in our digital marketing efforts, and build out a cash payout for this new study for Assertio. In addition beginning of this month, we restarted limited in-person promotion for ZIPSOR in approximately five territories.

We were doing this through a partnership with another company, if we do take product for us within their existing Cove universe primarily acute this to work with orthopedic practices. Our results this quarter were encouraging.

The first quarter is typically the most seasonally effective quarter and this year our entire industry is also facing a difficult year-over-year comparison. Q1 of 2020 actually benefited from the pandemic and really rebuild in a greater mix of 90 day prescriptions pulled forward some demand as patients anticipate staying home to avoid COVID.

Despite that dynamic and a significant shift in our promotional efforts to non-personal visual, all of our products are year-over-year net revenue growth, except for SPRIX and ZIPSOR. That decline in SPRIX was expected following the formula loss, individual PBM in September of last year.

However, the impact is greater than we have seen coming in approximately 70% below the prior year quarter. ZIPSOR performance while declining net revenue still had positive volume growth. Cambia was up 3% year-over-year, which is a very encouraging result.

INDOCIN was up 23% over the priority and I believe it may have been the best quarter ever for this product. INDOCIN strength this quarter and our additional liquidity have allowed us to accelerate investments in the product.

However, those investments will choose to decline net revenues next quarter, as we’ve purposely reduced channel inventories for the product in April, by approximately 10 days. Ultimately, we believe it to increase our profitability as this is part of a multi-step process to increase demand and protect the product.

The Q1 2021 results, specifically SPRIX performance, and it’s actually taken INDOCIN. But in fact, included in the guidance we provided today for full year sales of $85 million to $92 million.

Our 1Q results were very encouraging, but we believe they still do not fully reflect the impacts of our change in promotional model and we have benefited from the limited in-person promotion we did have in the fourth quarter. That said, we have reason for optimism that new leadership coming in and continued investments in making new model.

In addition to product net sales guidance, we’re also providing full year adjusted EBITDA guidance of $34 million to $40 million. As we progressed towards end of the year, our efforts to concentrate on our priorities concerning our cash flows, legal risk mitigation and moving to sustainable model, including investment in a commercial structure.

As a management team, we'll focus on limits and efforts in identifying and evaluating acquisition candidates that we can incorporate into our platform to further diversify our top line, help us grow the company and extend our runway from a revenue lifecycle perspective. Paul and I have some ambitious goals as it relates to BD.

The core amongst them is to acquire product or products that could generate at least $50 million in gross profit by 2024. We will continue to be accretive with our approach to the structure and type of transaction such as acquisition, licensing, commercialization agreements, or strategic investments.

Now I'll turn the call over to Paul, who will walk through the results..

the impact of the lower SPRIX volume due to the 2020 commercial coverage change and COVID due to the remainder of 2021. So I can channel inventory adjustment in Q2 for understanding, related to a change in distribution strategy that will drive increased profitability in the future. There's uncertainty related to COVID and our new promotional strategy.

And forth as part of this guidance, we have now forecasted any future revenue adjustments for divested products. As I mentioned earlier, we're still on track to realize $45 million of annual cost savings and expect to deliver $40 million of cost savings in 2021 versus reported second half 2021 run rate.

Cost savings in 2021 were expected to exceed the estimated revenue decline resulting and significantly improved EBITDA margins and cash flows. We are still seeking to minimize our cap potential legal liabilities. Any potential future settlements are not reflected in this guidance. Overall, we're pleased with the first quarter results.

The portfolio net sales have remained stable despite the challenging environment due to COVID and payor access. After the restructuring in the fourth quarter of 2020, we have quickly seen the impact of lower operating expenses in Q1 2021.

Looking ahead, we will continue to focus on further reducing expenses, cash flow optimization, exploring opportunities to reduce cost of capital and execution of digital promotional strategies. And now I will turn the call back over to Max..

Thank you, Paul.

Can we open up the call for Q&A please?.

Thank you. [Operator Instructions] We have a question from Scott Henry from ROTH Capital..

Hi, and good afternoon.

Just a couple of questions, I guess first on the revenue line, for 2Q just doing the simple math, if you reduce inventory by 10 days, should we think about – I guess about one-ninth of the revenues for the quarter will be pulled out of Q2 and is that INDOCIN only?.

Yes, it would be INDOCIN only. And it's – yes, I would think about that as two weeks. A full two weeks..

Okay. Thank you. That's helpful.

And then, so factoring that in and if I look at, what you did this quarter plus your guidance for the rest of the year, there's still a couple products that are going to come down from first quarter levels, one, I would expect to be that other category, anything else? I mean, do you think SPRIX is kind of nearing a base or does that have some more downside or perhaps INDOCIN maybe, it's not going to be sustained at these levels, absent inventory adjustments, just trying to get a sense of how you think the levers are moving, going forward for 2021?.

Yes, I think, you're absolutely right, Scott. That other category will – we've been winding down, SOLUMATRIX. There's just a little bit of inventory left to bleed out. So that's essentially planned to be zero for the rest of the year. SPRIX, we are expecting that it will be this kind of – this level in the future.

But we expect in this – the change we're making in INDOCIN is a distribution change and that should be just a one quarter phenomenon..

Okay. So perhaps there's a difference after that other is just normal contraction, there's less marketing there. Shifting gears, did the insurance settlement, when was that taken again and where was that line item? I heard it briefly, but I couldn't locate it in the release..

The insurance settlement was received in February and the way it was reflected in the financials was on the SG&A line as a benefit. So the reduction of our SG&A expenses..

And that was approximately $5 million..

$5 million, yes..

Okay. So you’re kind of organic SG&A would have been closer to $12.7 million.

And I guess, would you expect that to be declining still?.

Yes. We’d expect that to continue to decline over the next couple of quarters..

Okay, great. And then I guess, the final question.

Given your relatively low multiple of EBITDA, as far as the valuation of the company, would that motivate you as you’re looking for product acquisitions to be more likely to use debt and/or cash to acquire, as opposed to your stock currency, you probably don’t want to use that at this point in time? But I just want to get your thoughts..

Yes. I think you’re right, Scott. The ideal situation on a BD transaction is also the ability to refinance the existing debt. So that’s something that we’ve been exploring. And if the transaction is large enough it needs additional debt, so just cash up the balance sheet, then it could be ideal for that situation..

Okay, great. And one final question, just to get a sense of.

Going forward, do you expect to really just be giving a reported EPS number and then you’ll do an adjusted EBITDA? Is that how we should think about it? Or will you still be – will you be doing an adjusted EPS? It sounds like it’ll just be reported and then you’ll break things down when you get to the EBITDA level.

Is that correct?.

That’s correct..

Okay. All right. Great. Thank you for taking the questions..

Thank you, Scott..

Okay. Looks, like we don’t have any more questions in the queue, so at this point in time, I will turn the call back over to Dan for closing comments..

We’re pleased with the progress we’ve made in just a few short months, rest assured that we’re just getting started. We worked with the majority of restructuring with a talented team in place, and we’re focused on continuing the momentum we’ve created to fully execute against our six priorities.

Our results could not have been possible without the great work of our team. And I want to thank them for their work and know that they share my enthusiasm for the future of our company. The best is yet to for Assertio.

We remain committed to creating value for all of our stakeholders and look forward to updating you on our progress towards our priorities in future quarters. Thank you for joining us this afternoon and have a great evening..

Thank you. Ladies and gentlemen, this concludes today’s conference. We thank you for participating. You may now disconnect..