Century Communities Q3 2024 Earnings Call Transcript

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Provided by Quartr
November 12, 2024

There are 5 speakers on the call.

Operator

Please note this event is being recorded. I would now like to hand the call over to David D'Aluccio, Vice President of Investor Relations. Please go ahead.

Speaker 1

Good afternoon, everyone. Thank you for joining today to discuss our Q3 2024 financial and business results. I'm David Della Chia, Vice President of Corporate FP and A and Investor Relations at FibroGen. Joining me on today's call are Fane Wettig, our Chief Executive Officer Juan Graham, our Chief Financial Officer and Chris Chung, our Senior Vice President of China Operations. Following our prepared remarks, we will open the call to your questions.

Speaker 1

I would like to remind you that remarks made on today's call include forward looking statements about FibroGen. Such statements may include, but are not limited to, our collaborations with AstraZeneca and Astellas financial guidance the initiation, enrollment, design, conduct and results of clinical trials our regulatory strategies and potential regulatory results our research and development activities commercial results and results of operations risks related to our business and certain other business matters. Each forward looking statement is subject to risks and uncertainties that could cause actual results and events to differ materially from those projected in that statement. A more complete description of these and other material risks can be found in FibroGen's filings with the SEC, including our most recent Form 10 ks and Form 10 Q. FibroGen does not undertake any obligation to update publicly any forward looking statements, whether as a result of new information, future events or otherwise.

Speaker 1

The press release reporting our financial results and business update and the webcast of today's conference call can be found on the Investors section of FibroGen's website at www.fibrogen.com. With that, I would like to turn the call over to our CEO, Dane Weddick. Thank you, Dave. Good afternoon, everyone, and welcome to our Q3 2024 earnings call. On today's call, I will highlight our current strategy for the company and the exciting opportunity for FG-three thousand two hundred and forty six and FG-three thousand one hundred and eighty, our 1st in class antibody drug conjugate targeting CD46 and our PET imaging agent in metastatic castration resistant prostate cancer.

Speaker 1

I will also highlight the continued strong performance of roxadustat in China and the potential for roxadustat development for the treatment of anemia due to lower risk myrosplastic syndrome. Then Juan Graham, our CFO will review the financials after which we will open the call for your questions. On Slide 3, I would like to highlight the strategic pillars for our company. 1st, advancing FG-three thousand two hundred and forty six and FG-three thousand one hundred and eighty and mCRPC remains a key priority. In the Q2 of this year, we shared important data from 2 Phase 1 studies highlighting the potential of FG-three thousand two hundred and forty six as both monotherapy and in combination with enzalutamide.

Speaker 1

I'll provide a more detailed overview of where we are with the program and the upcoming 2025 catalysts in a moment. 2nd, roxadustat continues to demonstrate very strong performance in China, generating significant net revenue and positive cash flow with robust year over year revenue and volume growth. Thanks to this impressive performance, we are reiterating our guidance of FibroGen's full year net product revenue under U. S. GAAP to be between $135,000,000 $150,000,000 and raising the bottom end of our full year guidance for roxadustat net sales in China to $330,000,000 to $350,000,000 In addition, we anticipate an approval decision from the China authorities in early 2025 for chemotherapy induced anemia, which if approved would represent a meaningful growth opportunity on top of the substantial revenue generated by roxadustat in anemia associated with chronic kidney disease.

Speaker 1

If approved, FibroGen will receive a $10,000,000 milestone payment from our China partner AstraZeneca. 3rd, we have a number of partnering opportunities for our remaining pipeline. Regaining the rights to roxadustat from AstraZeneca in the U. S. And ROW, excluding China and South Korea, enables us to pursue internal or external development of certain indications with high unmet need such as anemia in patients with lower risk myeloplastic syndromes.

Speaker 1

Moreover, we continue to seek partnership opportunities for our early oncology pipeline of the Phase 1 ready FG3,165 and anti GALLECTIN-nine antibody and FG3,175 and anti CCR8 antibody. Lastly, due to our significant U. S. Cost reduction efforts and the wind down of the pamrevlumab development program, FibroGen exited the 3rd quarter in a solid cash position with $160,000,000 in cash, cash equivalents and accounts receivable. Assuming additional repatriation of cash from our China operations, we expect our cash, cash equivalents and accounts receivable to fund operating plans into 2026.

Speaker 1

Altogether, we are confident that our refined focus along with our strong foundation position us well to create value for shareholders now and in the future. I will now provide a brief overview of our FG-three thousand two hundred and forty six and FG-three thousand one hundred and eighty programs in mCRPC. Slide 5 highlights the high unmet need in late stage prostate cancer. There are approximately 290,000 men diagnosed with prostate cancer each year in the U. S.

Speaker 1

Of these there are 65,000 drug treatable patients where the cancer has metastasized and become castrate resistant, resulting in a grim 5 year survival rate of approximately 30%. There remains a significant opportunity for new treatments that can extend survival for these men. FG-three thousand two hundred and forty six could be this new treatment option. Turning to Slide 6. FG-three thousand two hundred and forty six is a potential 1st in class ADC and development for mCRPC with a novel antibody, YS5, which binds to a tumor selected epitope of CD46.

Speaker 1

CD46 and the specific CD46 epitope have several distinguishing features. CD46 is up regulated during tumor genesis and helps tumors abate complement dependent cytotoxicity. The CD46 epitope is highly expressed in mCRPC tissues with lower intra patient variability and higher median expression compared with PSMA as depicted in the graph in the lower right hand portion of the slide. This expression is up regulated and the progression from localized castration sensitive prostate cancer to metastatic castration resistant prostate cancer and further over expressed following treatment with androgen signaling inhibitors. And the CD46 epitope is also over expressed in colorectal cancer and other solid tumors.

Speaker 1

Our companion PET imaging agent, FG3,180 utilizes the same targeting antibody as FG3,246 and is also under clinical development. In preclinical studies, the PET imaging agent has demonstrated specific targeting of and uptake by CD46 positive tumor cells. Slide 7 highlights the importance of the companion PET imaging agent, FG3180 to the development pathway for FG3246. We believe that having a patient selection biomarker would not only allow us to better enrich the patient population in the Phase 3 portion of the clinical development program, would also enable differentiation of FG-three thousand two hundred and forty six in the prostate cancer treatment landscape. In addition, FG-three thousand one hundred and eighty could represent an important commercial opportunity as a companion diagnostic to FG-three thousand two hundred and forty six.

Speaker 1

Slide 8 recaps the top line results from the Phase 1 monotherapy study and the Phase 1b portion of the investigator sponsored study of FG-three thousand two hundred and forty six in combination with enzalutamide, both of which were reported in the Q2 of 2024. The completed monotherapy study included a total of 56 mCRPC patients who were biomarker unselected and were heavily pretreated, receiving a median of 5 lines of therapy prior to FG-three thousand two hundred and forty six. In the efficacy evaluable population of 40 patients, we observed a median radiographic progression free survival of 8.7 months, overall response rate of 20% confirmed by RECIST 1.1 and PSA reductions of greater than 50% in 36% of patients. Adverse events were consistent with those observed with other MMAE based ADC therapies. The manuscript describing the Phase 1 monotherapy trial has been submitted and we anticipate acceptance and publication in the coming months.

Speaker 1

Following our recent discussion with the FDA regarding the FT-three thousand two hundred and forty six development program, we are preparing to initiate the Phase 2 monotherapy trial of FG-three thousand two hundred and forty six in the Q1 of 2025. Interim results of the Phase 1b portion of the investigator sponsored combination study with enzalutamide that is currently being conducted at UCSF were reported at ASCO in June of this year. These interim results included data on 17 biomarker unselected patients, 70% of which were pretreated with at least 2 prior ARSIs. In addition to establishing the Phase 2 dose of FG-three thousand two hundred and forty six, the IST also demonstrated an encouraging preliminary estimate of RPFS of 10.2 months with PSA declines observed in 71% of evaluable patients. The trial remains on track for top line results in the first half of twenty twenty five and will also include CD46 expression data on patients screened with FG-three thousand one hundred and eighty, our PET biomarker during the Phase 2 portion of the IST.

Speaker 1

On Slide 9, we depict the comparison of the initial results from the monotherapy trial in heavily pretreated patients and the combination trial that show an impressive RPFS versus the existing FDA approved standard of care in the mCRPC setting. While we cannot make direct comparisons to these trials due to differences in things such as study design and previous treatments, we are encouraged by these RPFS results. Moving to Slide 10, we would like to share the Phase 2 dose optimization trial design based on our discussion with the FDA. We plan to enroll 75 patients across three dose levels to determine the optimal dose for Phase 3 based on efficacy, safety and PK parameters. It is important to note that FG-three thousand one hundred and eighty will also be a part of the study as we seek to demonstrate the correlation between CD46 expression and response to the ADC in this all comers population.

Speaker 1

One other important design element is the primary prophylaxis with G CSF to mitigate adverse events associated with neutropenia commonly seen with ADCs containing an MMAE payload. The addition of G CSF may enable a better tolerated and more consistent treatment, thereby extending duration of therapy with FG-three thousand two hundred and forty six and potentially enhancing efficacy measures such as RPFS. On Slide 11, we highlight the recent and ongoing studies for FG-three thousand two hundred and forty six and FG-three thousand one hundred and eighty. As I mentioned earlier, we are expecting additional data for FG-three thousand one hundred and eighty, our pet imaging agent for multiple studies being run at UCSF, including the Phase 1 imaging development study, which was recently upsized as well as the combination trial with enzalutamide. Slide 12 shows the recent and upcoming catalyst for the FG-three thousand two hundred and forty six program.

Speaker 1

As mentioned earlier, we had a productive meeting with the FDA regarding the FG-three thousand two hundred and forty six development pathway and received guidance for the Phase 2 trial design highlighted a few slides earlier. In addition, IND submissions for FG-three thousand two hundred and forty six and FG-three thousand one hundred and eighty are planned this quarter and next quarter respectively. We have potential value inflection points in the near term with the anticipated initiation of the Phase 2 dose optimization study in mCRPC in the Q1 of 2025 and the top line results from the Phase 2 portion of the combination study with enzalutamide, which are expected in the first half of twenty twenty five. To summarize on Slide 13, FG-three thousand two hundred and forty six targets a novel epitope on prostate cancer cells with 1st in class potential. It has already demonstrated promising efficacy signals with an acceptable safety profile, both in monotherapy and combination settings.

Speaker 1

We are excited for the upcoming milestones and look forward to updating you on the program as the studies progress. Moving now to Slide 15, roxadustat for anemia of chronic kidney disease continues its robust performance in China. 3rd quarter total roxadustat net sales in China by FibroGen and the distribution entity jointly owned by FibroGen and AstraZeneca totaled $96,600,000 compared to $77,100,000 in the Q3 of 2023, an increase of 25% driven by an increase in volume of 34%. FibroGen's portion of roxadustat net product revenue in China was $46,200,000 for the Q3 on a U. S.

Speaker 1

GAAP basis compared to $29,400,000 in the Q3 of 2023, an increase of 57%. Moving to Slide 16, roxadustat continued its category leadership and brand value share in China, maintaining a 45% share in the most recent 3 month period ending in August of 2024. The potential approval of the chemotherapy induced anemia indication early next year would provide an important new treatment alternative for patients with CIA, be a meaningful addition to the roxadustat business in China and will trigger a $10,000,000 milestone payment from AstraZeneca. Given that there have been several generic applications filed and 2 applications approved in China, I would like to reiterate that the impact of a generic approval and launch in China is meaningfully different than in the U. S.

Speaker 1

Generic players face lead time and execution risk of market adoption after approval as they need to be admitted into individual hospital formularies one listing at a time. Therefore, originator products do not experience a meaningful deterioration in revenue until they are subjected to volume based purchasing, which only occurs after at least 4 generic products are approved and the government includes the originator in the VBP process. Even then, originator products in China have historically maintained a stream of net product revenues and profits after generics enter the market. Despite the expiration of our composition of matter patents in June of this year, we do not expect meaningful deterioration of the roxadustat business in the near term. In addition to the exceptional performance of roxadustat in China this quarter, roxadustat penetration in Europe continues to increase showing quarter over quarter growth.

Speaker 1

We expect this growth to continue given the fact that roxadustat is reimbursed in all EU-five countries, is the only hip PHI indicated in the EU for the treatment of anemia of CKD in both non dialysis and dialysis patients and has exclusivity until 2,036, positioning it for continued growth and hip market leadership over the next decade plus. Now to Slide 17, we announced earlier this year that we regained all U. S. And ROW roxadustat rights from AstraZeneca with the exception of South Korea, while the China collaboration agreement remains in place. Regaining the rights to roxadustat in the U.

Speaker 1

S. Allows us to pursue roxadustat development opportunities with potential partners or on our own in indications such as anemia associated with lower risk myelodysplastic syndromes. Slide 18 highlights the unmet need and the potential for roxadustat in patients with anemia associated with lower risk MDS. There is a lack of effective second line and beyond treatments given the currently available therapies are effective in approximately 50% of patients. In addition, there are no oral options available or in late stage development, which could be a meaningful differentiator for roxadustat and potentially translate into significant commercial opportunity.

Speaker 1

Moving on to Slide 19. In late 2023, subgroup analysis from the Phase 3 MATTERHORN study of roxadustat in patients with anemia of lower risk MDS were presented at the American Society of Hematology Annual Meeting. In patients with anemia associated with lower risk MDS who entered the trial with a higher transfusion burden, roxadustat demonstrated a meaningful difference in transfusion independence versus placebo. Results that are highly similar to the pivotal trials for 2 recently approved therapies for anemia associated with lower risk MDS. Based on these results, we believe that roxadustat represents an important potential therapy for patients with anemia associated with lower risk MDS.

Speaker 1

Therefore, we are currently evaluating options for roxadustat to determine the best path for continued development with the aim of realizing additional value for roxadustat in this high value indication. I will now turn the call over to Juan to discuss the company's financials. Juan? Thank you, Zane.

Speaker 2

I will focus my remarks with a revenue summary for the Q3 of 2024, subsequently providing financial performance details of our China business for the quarter. And finally, I will wrap up with operating expense results and our cash outlook. I also want to remind everyone that more information on our financial results is available in our press release and our recently filed 10 Q. For the Q3 of 2024, total revenue was $46,300,000 compared to $40,100,000 for the same period in 2023, an increase of 15% year over year. We recorded $46,200,000 of net product revenue for roxadustat sales in China compared to $29,400,000 in the Q3 of 2023, representing an increase of 57% year over year.

Speaker 2

In Q3, 2024, we recorded $400,000 in development revenue compared to $6,800,000 during the Q3 of 2023. As mentioned in prior quarters, after of the AstraZeneca U. S. Rest of the World agreement, we expect quarterly development revenue to be below $500,000 for the remainder of 2024. In Q3 2024, we recorded negative $300,000 of drug product revenue compared to $1,300,000 during the Q3 of 2023.

Speaker 2

We recognized $1,100,000 from our Astellas royalties in the EU and at the same time we recorded a $1,400,000 true up from our Astellas royalties in Japan due to product mix. Now moving on to our financial performance in China. Total roxadustat net sales from the joint distribution entity or JDE owned by AstraZeneca and FibroGen and direct to distributor sales for FibroGen was $96,600,000 in the Q3 compared to $77,100,000 in the Q3 of 2023, an increase of 25% year over year. This growth has enabled us to achieve and maintain a brand value share of 45% of the category in China. From total roxadustat net sales in China, FibroGen's net transfer price from sales to the JDE was $29,700,000 this quarter compared to $24,200,000 in the Q3 of 2023, an increase of 23% year over year.

Speaker 2

Net transfer price is the best reflection of FibroGen's portion of the cash received from ruxadustat in China. During this quarter, we also released $12,500,000 from deferred revenue due primarily to changes in forward looking expectations for roxadustat in China. As a result, FibroGen recorded $42,200,000 in net revenue for the quarter from roxadustat sales for the JDE and $4,000,000 of direct to distributor sales for FibroGen China totaling $46,200,000 in the U. S. GAAP.

Speaker 2

For full year 2024 full year models, we reiterate our forecast for FibroGen China net product revenue to be between $135,000,000 to $150,000,000 on a U. S. GAAP basis. FibroGen China revenue assumes a forecast of roxadustat net sales in China to range from $330,000,000 to $360,000,000 narrowing our prior guidance of $320,000,000 to $350,000,000 Now moving down the income statement. Total operating costs and expenses for the Q3 of 2024 were $63,100,000 compared to $103,600,000 for the Q3 of 2023, a decrease of $40,500,000 or 39% year over year.

Speaker 2

Excluding restructuring charges of 18 $600,000 in the 3rd quarter, our total operating costs and expenses were $44,500,000 Total operating costs and expenses for the quarter came in below our guidance range of 45 dollars to $55,000,000 which reflects a strong execution and cost reduction and disciplined spend. R and D expenses for the Q3 of 2024 were $21,700,000 compared to $61,200,000 in the Q3 of 2023, a decrease of 65% or $39,500,000 year over year. Of our $21,700,000 of R and D expenses, approximately 42% was related to pamrevlumab, 37% directed to FG-three thousand two hundred and forty six, with the remainder directed towards roxadustat and our immune oncology asset development activities. We expect our pamrevlumab and immuno oncology R and D expenses to decline significantly in the Q4 of the year as we have either shut down or reprioritized our R and D spend. SG and A expenses for Q3 of 2024 were $17,600,000 compared to $25,600,000 in the Q3 of 2023, a decrease of 31% or $8,000,000 year over year, primarily driven by the company's cost reduction efforts.

Speaker 2

Finally, cost of goods sold for the Q3 of 2024 was $5,300,000 compared to $4,200,000 for the Q3 of 2023. During the Q3 of 2024, we recorded a net loss of $17,100,000 or $0.17 net loss per both basic and diluted share as compared to a net loss of $63,600,000 or $0.65 per basic and diluted share for the Q3 of 2023. As we have previously stated, we initiated a significant cost reduction plan to enable our focus on FG-three thousand two hundred and forty six, FG-three thousand one hundred and eighty and roxadustat assets. We have reduced our headcount by approximately 75% in the U. S.

Speaker 2

We have moved to a virtual work environment after terminating our lease and substantially reduced our operating costs to maximize our cash. With this backdrop, we expect our total operating costs and expenses including cost of goods sold in the Q4 to be between $35,000,000 $40,000,000 which includes $1,000,000 to $2,000,000 in restructuring charges in the 4th quarter. Now shifting towards cash, as of September 30, we reported $160,000,000 in cash, cash equivalents and accounts receivable. This reflects an increase of $12,900,000 quarter over quarter. To provide further clarity on our cash balance, in the Q3, we have invoiced and collected from AstraZeneca $27,700,000 for certain historical R and D expenses and milestones owed to FibroGen.

Speaker 2

Going forward, we expect to have additional cash collections in the Q4 of 2024 and the Q1 of 2025. These collections will be offset through payments for historical co promotion sales and marketing expenses due to AstraZeneca China. The timing of these payments will be in the Q4 of 2024 and the Q1 of 2025. After considering the payments to and from AstraZeneca over the coming quarters, the result will be in a net cash collection of roughly $500,000 to FibroGen. For the Q3, if we exclude the above mentioned cash inflows, our net operating cash burn was $14,800,000 during the quarter.

Speaker 2

We have consistently stated our cash balance will enable us to fund our operating plans into 2026. Assuming additional repatriation of cash from our China operations, which we continuously assess through multiple avenues, we expect our cash, cash equivalents and accounts receivable to fund operating plans into 2026. Thank you. And now I will turn the call back over to Thane.

Speaker 1

Thank you, Juan. To conclude, we remain excited about the company's positive outlook and the potential value we can create for stakeholders. Roxadustat continues to perform extremely well in China, where we expect an approval decision of our sNDA for the chemotherapy induced anemia indication early next year. And our partner Astellas continues with the commercialization of roxadustat in Europe, Japan and other markets. Aiming to enhance roxadustat's value to FibroGen, we are actively exploring development in anemia in patients with lower risk MDS either by ourselves or through partnership discussions.

Speaker 1

Our oncology pipeline of FG-three thousand two hundred and forty six and FG-three thousand one hundred and eighty and mCRPC continues to advance after showing compelling top line data in the Phase 1 monotherapy study and in the interim data from the Phase 1b dose escalation portion of the investigator sponsored study of FG-three thousand two hundred and forty six in combination with enzalutamide. We look forward to the publication of the Phase 1 monotherapy data in the coming months, the anticipated initiation of the Phase 2 monotherapy dose optimization study the Q1 of 2025 and the top line results from the Phase 2 portion of the combination IST in the first half of twenty twenty five. In summary, we will continue to execute on our current strategic priorities as a leaner and more focused organization as we continue to strive towards evaluation that we believe is more reflective of our current and future roxadustat revenue stream, 1st in class Phase 2 ready ADC and companion pet imaging agent and our strong balance sheet. I will now turn the call over to the operator for Q and A.

Operator

We will now begin the question and answer session. And our first question will come from Andy Hsieh of William Blair. Please go ahead.

Speaker 3

Thanks for taking our question. Juan, hope we're feeling okay there. So in terms of the investigator sponsored study, the Phase 2 portion, would it be the stage 1, nine patients followed by the 15 patients stage 2 in terms of kind of the top line that can be expected first half of next year? Just trying to get a sense of how you manage your expectations and frame the extent of the release of data?

Speaker 1

Yes. Thanks Andy for your question. This is Thane. Yes. So I think that we should expect in the top line results for the IST for the in combination with enzalutamide to include not only obviously the patients from the escalation cohort, but also RPFS data from the expansion cohort, which is dosed to 2.1 mgs per kg along with 165 or 160 milligrams per day of enzalutamide.

Speaker 1

And so we have to wait for Rahul Agarwal, who is the sponsor of the IST to confirm exactly what data will be available. When in other words, as patients are enrolled, we'll see 6 months RPFS data on some, but maybe not 6 months on others. And then as the trial continues to dose patients, then that the patients who had a 6 month RPFS then we'll have further RPFS readings and then those that didn't quite have a 6 month RPFS will then progress to a 6 month data point. So it will mature over time. But our best guidance at this point in time is that by in the first half of next year that we should expect top line results on both the escalation cohort and the expansion cohort, roughly 36 patients in total.

Speaker 3

That's helpful. Thank you. And maybe just a bit on the pet imaging agent. So obviously the standard of care now is basically you get either gallium based or fullerene based agent infused, 30 minutes later you get an image. I'm just curious if that is similar to the zirconium-eighty nine, how long do patients typically have to wait to get a PET imaging aid?

Speaker 3

So just basic kind of on the logistical side of things.

Speaker 1

Yes. So that's what's being explored right now. Andy, as part of the ongoing work at UCSF with the pet imaging agents. The expectation isn't that it will be minutes, it will be days post exposure to the pet imaging agent. The work in the coming months ahead of the Phase 2 start will determine exactly the number of days, but it won't be 30 minutes ahead and then you administer the first dose of the ADC.

Speaker 1

It will likely be, let's say, 6 days or so.

Speaker 3

Got it. That's helpful. Thank you so much.

Operator

The next question comes from Paul Choi of Goldman Sachs. Please go ahead.

Speaker 4

Hi, Same and team. This is Kahlil calling in for Paul. Thank you so much for taking our questions. I guess a couple of quick ones from us. Quickly, I guess on FGI, sorry, on the Phase 2 that you're planning to initiate next quarter or I suppose Q1 of 25, I think you mentioned 75 patients earlier in this call.

Speaker 4

I just want to clarify, will all of those be image as well with FG-three thousand one hundred and eighty? And then I had a quick follow-up on roxadustat after that.

Speaker 1

Yes. Thanks Khalil. The majority of them will be treated with the imaging agents at the outset of therapy followed by then treatment with the ADC, not all 75 of them and that's because we'll be filing the IND for, FG-three thousand two hundred and forty six, this quarter and we'll file the IND for the pet imaging agent next quarter. So we won't have the pet imaging agent ready exactly when the first patient is expected to be dosed in the monotherapy trial, but it won't be too long after that when we will start treating patients with the pet imaging agent. So the expectation is the majority of them of the 75 will receive the pet imaging agent.

Speaker 4

Got it. Okay. That makes sense. And then my quick follow-up on roxadustat was just on guidance. I think the midpoint of your China sales sort of imply continued growth into the Q4 of roxadustat.

Speaker 4

But then your the net sales that you gave of $135,000,000 to $150,000,000 the high end of that guidance implies a very modest like year over year decline in the Q4. I may have missed this earlier, but Juan, if you're still on the line, I think you mentioned the $12,500,000 release from the JDE. If you could just touch on that again and just explain what's driving the decrease sequentially that this guidance is implying in the Q4, that'd be really helpful for us.

Speaker 2

Yes, Khalil, good question. And thank you for bearing with me there with for my remarks with a little bit of the end of the call here that I'm having. What I basically alluding to your question, the $135,000,000 to $150,000,000 still somewhat contemplate that a potential approval of the CIA indication. If that were to happen the way that our single performance obligation model basically elucidates that we would need to accrue further into deferred revenue given the future expected performance of the asset from an accounting perspective. So in that sense, our sales would basically our sales guidance would have that into consideration as we are providing you this perspective at this point in time.

Speaker 2

So we will see over the course of the remainder of the year if we have that approval or not. And if the CIA indication flows into 2025, then we may be on the higher end of the spectrum here.

Speaker 4

Okay, cool. I'm so sorry, but just to clarify, the 12 you mentioned I may have misheard, but did you mention a $12,500,000 change in the deferred revenue? Was that an increase or decrease? I think I missed that earlier in the call.

Speaker 2

That's an increase to this quarter's revenue and it's basically a release of our deferred revenue. However, the way that the single performance obligation model operates is that if for instance, we get a CIA approval and an enhancement of our future revenue, we would need to defer more revenue and therefore reduce our revenue for that specific quarter. So that's kind of like the dynamic of how our single performance obligation model works, that if we have future expected revenue that is above and beyond to what we're currently expecting, then this quarter or the quarter under which that happens, we will need to accrue further into our deferred revenue on the expectation of that future revenue curve.

Speaker 4

Understood. Okay, that makes sense. Thank you so much and I hope you feel better. I appreciate the time.

Speaker 3

Thank you. Thanks, Khalil.

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