Hamilton Beach Brands Q2 2023 Earnings Call Transcript

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August 10, 2023

There are 7 speakers on the call.

Operator

Good morning, ladies and gentlemen. My name is Eric, and I will be your operator today. Welcome to Knight Therapeutics Second Quarter 2023 Results Conference Call. Before turning the call over to Samira Sakhia, President and CEO of Knight, listeners are reminded that portions of today's discussion may, by their nature, necessarily involve risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward looking statements. The company considers these assumptions on which these forward looking statements are based to be reasonable at the time they were prepared, but cautions that these assumptions regarding the future events, many of which are beyond the control of the company and its subsidiaries, may ultimately prove to be incorrect.

Operator

The company disclaims any intention or obligation to update or revise any forward looking statements, whether a result of new information, future events, except as required by law. We would also like to remind you, questions Investor Relations department via email to infonighttx.com or via phone at 514-484 4,483. I would like to remind everyone that this call is being recorded today, August 10, 2023. And would now like to turn I'll turn the meeting over to your host for today's call, Samir Sakiya. Please go ahead, Ms.

Operator

Sakiya.

Speaker 1

Thank you, Eric. Good morning, everyone, and welcome to Knight Therapeutics' 2nd Quarter 2023 Conference Call. I'm joined on today's call with Amal Khouri, our Chief Business Officer And Arvind Uchana, our Chief Financial Officer. I'm excited to report that Knight achieved record revenues of over $90,000,000 for this quarter. Furthermore, during the 1st 6 months of the year, Knight has delivered revenues of over $172,000,000 and adjusted EBITDA of over for $32,000,000 a growth of 24% and 4%, respectively, compared to the same period last year.

Speaker 1

This strong performance is a testament to the hard work and dedication of our team and continued success of our portfolio. In addition, our team continues to focus on advancing our pipeline with the approval and submission of innovative and branded generic products across our territories. During the quarter, Knight submitted the marketing authorization for 2 innovative products, MINJUVY in Mexico and Pemazir in both Argentina and Mexico. In addition, we advanced our branded generics portfolio, particularly in Chile, with the submission of marketing authorizations for rembri or dasatinib and CARFID or Carfilzomib and obtaining regulatory approval of ZETRAIN or pomalidomide. Subsequent to the quarter, we submitted fostamatinib for regulatory approval in Mexico and Colombia and obtained regulatory approval in Brazil from INJUVY.

Speaker 1

Upon obtaining ANVISA approval from INJUVIA in Brazil, we submitted an application for pricing approval to C Met. Cmed is the regulatory body that establishes maximum prices allowed for drugs sold in Brazil. In Brazil, Prior to being able to launch, we do need cNED approval of pricing. The timing and outcome of this pricing approval Process is uncertain and could take up to 2 years. The commercial launch of MINJUVY is dependent upon obtaining a favorable c Met price.

Speaker 1

I will turn the call now over to Arvind to provide an update on our financial results.

Speaker 2

Thank you, Samira. When speaking of our financial results, I will refer to EBITDA and adjusted EBITDA, which are non IFRS measures as well as adjusted EBITDA per share, which is a non IFRS ratio. Knight defines EBITDA as operating income or loss, Excluding amortization and impairment of non current assets, depreciation, purchase price accounting adjustment acquisition costs and non recurring expenses. Knight defines adjusted EBITDA per share as adjusted EBITDA over The number of common shares outstanding at the end of the respective period. In the Q2 of 2020 As Samara mentioned, we delivered record revenues of over $90,000,000 Our revenues excluding hyperinflation grew by more than $15,000,000 or 20% on and on a constant currency basis by more than $13,000,000 or 17% versus prior year.

Speaker 2

This growth is mainly driven by our infectious disease portfolio, which delivered $45,600,000 of revenues. Excluding the impact of the planned transition and termination agreement of Wipiliad effective July 1, 2022, The portfolio grew by $19,000,000 or 71% compared to the same period in the prior year. This growth is driven by our key promoted products, including the previously announced AmbiSom contract with the Brazilian Ministry of Health for $18,000,000 As for our oncology and hematology portfolio, our revenues excluding hyperinflation were $7,900,000 and a growth of $1,900,000 or 7% compared to the same period last year. Our key promoted brands, including LENVIMA and 12 Star as well as the addition of AKINZIO contributed $5,900,000 of incremental revenues. This was partially offset by a reduction in sales of approximately $4,000,000 on certain mature and brand degenerate products due to the life cycle and entrance of new competitors.

Speaker 2

Now moving to our other specialty portfolio. During the quarter, revenues excluding hyperinflation was $16,900,000 The portfolio declined by $7,500,000 excluding the change in the accounting treatment for Exelon. The decline is due to advanced purchases of Exelon in the Q1 of 2023 and the Q2 of 2022 related to the commercial transition from Novartis to Knight. As a result of the advanced purchases, we had recorded higher revenues in the Q1 of 2023 due to the transition from Mexico and in the Q2 of 2022 due to the transition of Brazil and Colombia. Now moving to gross margin.

Speaker 2

Excluding the impact of hyperinflation, we reported $40,200,000 or 45 percent of revenue in the Q2 of 2023, compared to $40,800,000 or 54 percent of revenue in the same period last year. The decline in gross margin as a percentage of revenue is partially explained by the change in the accounting treatment related to ataxalone. I would like to remind everyone that in the Q2 of 2022, Exelon was recorded as a net profit transfer from Novartis. If Knight had reported revenues and related cost of sales for Exelon instead of a net profit transfer, the adjusted gross margin would have been 50% for Q2 The decrease in the adjusted gross margin of 50% in Q2 2022 excluding hypertension. For the 2nd quarter, our operating expenses were approximately $48,000,000 an increase of $3,900,000 compared to the same prior year period.

Speaker 2

The increase is mainly due to our expanded sales structure, Moving on to adjusted EBITDA. For the Q2 of 2023, we reported $14,300,000 of adjusted EBITDA, a decrease of $3,600,000 or 20% compared to the same period last year. In addition, Knight's Adjusted EBITDA per share was $0.13 a decrease of $0.02 per share or 15% over the same period last year. Now moving on to gains or losses on our financial assets, which are not reflected in our adjusted EBITDA. In the Q2, we recorded $3,900,000 of net unrealized gain on financial assets measured at fair value to profit or loss.

Speaker 2

This gain is driven by positive mark to market adjustment as a result of the increase in the share price of the publicly traded equities held by our strategic for investments. Moving on to our cash flows. During the Q2 of 2023, Knight had Cash outflows from operation of approximately $1,500,000 compared to cash inflows from operation of $13,200,000 in the same The cash outflows from operations during the Q2 of 2023 is due to the settlement of our accounts payable, mainly related to inventory purchases of our key promoted products and the planned transition and termination of our Gilead agreement. The transfer of inventory under the Gilead transition led to an increase of $6,000,000 in our accounts receivable, which will be collected in Q3. I will now turn the call back to Samara for concluding remarks.

Speaker 1

Thank you, Aravind. Just to provide you an update on our NCIB. During the Q2 of 2023, we purchased approximately 2,900,000 common shares for aggregate cash consideration of $13,700,000 at an average price of $4.78 Subsequent to the quarter, on July 14, 2023, We launched a new normal course issuer bid. Under this NCIB, we can purchase for cancellation up to approximately 6,000,000 common shares. Turning over to our financial outlook for 2023.

Speaker 1

I'd like to remind everyone that this guidance is provided on a non GAAP basis due to the difficulty in predicting Argentinian inflation rates. We have updated our financial guidance on revenues and expect to generate between $0.03 to to $330,000,000 in revenues, an increase of $10,000,000 on the lower and upper end of the range. Our adjusted EBITDA is expected to be between 16% to 17% of revenue. The increase in financial outlook is primarily due to an improvement in LatAm currencies against the Canadian dollar in the first and second quarter of 2023. This guidance is also based on a number of assumptions, which are described in our press release.

Speaker 1

Should any of the assumptions differ, The financial outlook and the actual results may vary materially. Considering the recent volatility in certain of our currencies, We will continue to monitor and revise our foreign exchange assumptions, which may materially impact our results and forecasts. Looking ahead, we remain committed to continuing to build a leading Pan American ex U. S. Specialty pharmaceutical company.

Speaker 1

We have over $140,000,000 in cash, Cash equivalents and marketable securities, and we generate cash from operations, which positions us well to continue to execute on our strategy Thank you for your support and confidence in the Knight team. This concludes our formal remarks. I'd now like to open up the call for questions. Eric?

Operator

Thank you. Before we begin, may I please remind you questions during today's call will be taken from analysts only. Should there be any further questions, please contact Knight's Investor Relations department via email to infonighttx. Call followed by the number 1 on your telephone keypad. Your first question comes from Doug Mime with RBC.

Operator

Please go ahead.

Speaker 3

Good morning, everyone. Congratulations on a strong quarter. First question is maybe mostly for Arvind. When we look at the gross margins and the 45% that was reported this Order and taking into account, under the amazon contract and the Exelon accounting treatment, Would you say that margins are going to stay within this 45% or so range? Or could we see some significant fluctuations in that number moving forward?

Speaker 2

Hi, Lund. So the 45% gross margin, as I mentioned, is really driven by the Excellent. Chris, management as well as the product weight, what I can say about gross margin going forward, we don't provide guidance on gross margin, But we did provide the guidance on EBITDA margin. As Tamara mentioned, that would be in the 16% to 17% range of revenues.

Speaker 3

And then maybe for Amal, just She could walk through, how she sees the pipeline, how it's changed over the last little while, has it increased, are there Different things that you're looking at today relative to say 6 months or a year ago and maybe comment on pricing? And I'll leave it there. Thank you.

Speaker 4

Call. Good morning, Doug. Sure. So the I would say maybe The bottom line answer is that we haven't really seen any significant or fundamental changes in The deal flow, the types of opportunities that we're looking at. So we continue to look as a reminder for Products or transactions that bring us products with existing sales as well as pipeline assets and that's both on the innovative and the branded generic side In addition to developing our internal branded generics and therapeutic areas, we're still looking within our Therapeutic areas, we of course, when we added Exelon, that brought with it an additional focus on Adding CMS products to complement.

Speaker 4

And we're always evaluating to see if there are different therapeutic areas that we are Not in today, that could become interesting. And also depending on the ED pipeline, if there is one Particularly interesting opportunity in the new TA, then we look to see That's an area that we need to accelerate BT behind. In terms of valuations, there are 2, I would say, I

Operator

call. Thank you. Thank you. Your next question comes from Andre Utan with Research Capital. Please go ahead.

Speaker 5

Nice quarter. Sameer and Namal, maybe you could just Elaborate a little bit more on the business development side. Are you still seeing interesting opportunities in Mexico? I know you're sort of looking at that area. Is that still the case?

Speaker 5

And are you looking at any other regions, like emerging market regions, like for example, Eastern Europe or The Middle East or East Sticking right now with Pan America? Thank you.

Speaker 4

Sure. So we're I would say on the second part of your question, we're still focused right now on our current geographic And we are still looking at Mexico again. Our business, as we said before, our business there is subscale as it is in Canada. And in both of these Geographies, we are we continue to look for opportunities to increase the presence. So we're continuing So look, we're still staying, of course, until we find the right opportunity to execute on.

Speaker 4

And that's really the focus outside of Canada, for now, is not something that we're working on.

Speaker 5

Thank you.

Operator

Thank you. Your next question comes from Endri Leno with National Bank. Please go ahead.

Speaker 6

Hi, good morning. Thanks for taking my questions and congrats on a good quarter. I'm just going to tag on To the BD development questions as well. And I'm just going to try to ask it in a little bit of a different way, but the commentary on the earnings was that the focus It's on advancing the pipeline with the submission of innovative and brand and generic products. I mean, is this just kind of a writing or is there more focused on advancing The portfolio rather than adding to it new products.

Speaker 4

It's really both. They're not Exclusive, right? So when we bring in products through business development activities, we have one of our one of the imperatives is to We execute on those transactions and progress those products and launch them get them approved in time, launch them in time. And that's really what our team has been doing. So that's why we're highlighting advancing the portfolio.

Speaker 4

And our BGT continues to be very active to identify additional opportunities. So if you recall, in 2021, 2022, we brought in about 9 products between the acquisition of Exelon and the rest was really all pipeline products. So again, it's really important to continue to progress these products and you're starting to see the impact that those These deals have had not just on the portfolio itself, in terms of products with existing sales, but also on the pipeline and we You see them actually progressing, so that hopefully soon enough you'll start seeing the contribution on the revenue and on the bottom line. But that doesn't mean that we are decelerating the BD effort. The BD effort continues in parallel.

Speaker 1

I just want to add, it's actually a flow. BD brings it in. It goes over to our quality and regulatory teams To regionalize and prepare dosing, and then it goes to our commercial team. So that funnel that pipeline has to continue to move And each of our teams continue to execute on all of that.

Speaker 6

Okay. Thank you. That's great to hear. And one more kind of follow-up under the Same topic. And I know, Amal, you mentioned that you haven't seen any kind of big changes in valuation on changes.

Speaker 6

But I was just wondering if you can Comment a bit at least in the competitors on the potential companies that Roy could buy from that you monitor. I mean, have you seen any Increased financial stress, let's say, in the companies you monitor given where the interest rates where they are right now?

Speaker 4

Again, we're not we're I guess it depends on kind of what you have in mind. When you're looking at Bringing in products like in licensing pipeline products, we're not really seeing that impact. And in fact, if there is a distressed company with Where we have questions, big question marks about their ability to continue developing the product that would be Actually, a question or reason to pause maybe for us. So that's not necessarily something That's helping to increase or that's not necessarily an opportunity, I would say. That type of distressed company would not be an interesting opportunity for us.

Speaker 4

In terms of acquisitions, again, it really depends on a case by case. If we're looking at company acquisitions, We're monitoring. So if again, we really look at it on a case to see what would be the right opportunity with the right risk profile and the right price tag attached to it.

Speaker 6

Great. Thanks. That's good color. And one more for me, I'll jump in the queue. But in the prior quarters or updates with the guidance mentioned, Competition was cited as a reason for the guidance that was given at the time, especially earlier this year.

Speaker 6

So, If you could talk a little bit about whether there's been any changes there for better or for hopefully not worse? Yes, any color there? Thanks.

Speaker 1

Sure. So that's a great question. What we are seeing is we are seeing competition. And this is the reason for the guidance earlier in the year, there was 2 reasons that we were 2 or 3 reasons that we were bringing in down. 1 was currency because we do what we do is when we rely on our currencies, we're relying on People are a lot smarter than ourselves to forecast currency and they were their guidance was a devaluation and that's what we The second thing was the termination of Gilead.

Speaker 1

So we knew that those top line numbers weren't going to be there. And the third was Competition on our branded generics products, primarily in Argentina and Colombia. What we have seen, especially in Colombia, is that Competition has been slower to arrive and that's really a function of the Colombian agency. And the second thing is the ones that are there, while they are Pushing for price decreases and we are seeing price erosion. It hasn't been as aggressive as we had initially thought, We thought there would be more players in the field than there are today.

Speaker 1

We do expect them to come. It's not a question of if, it's a question of when. And as long as we can continue Take the benefit, we will. And we'll continue to do what we set out to do, which is in license, acquire, develop, Get those products approved and commercialized and our teams are executing on all of that and we see it in our numbers.

Operator

Thank you. At this time, there are no further questions. Please proceed with your closing remarks.

Speaker 1

Once again, thank you for your confidence in the Knight team and for joining our Q2 'twenty three conference call. Have a great morning.

Operator

This concludes your conference call for today. You may now disconnect your lines. Thank you.

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