Elite Pharmaceuticals, Inc. (PNK:ELTP) Q2 2024 Earnings Call Transcript

Elite Pharmaceuticals, Inc. (PNK:ELTP) Q2 2024 Earnings Call Transcript November 17, 2023

Operator: Good morning, ladies and gentlemen, and welcome to Elite Pharmaceuticals Conference Call. At this time all lines have been placed on a listen-only moder. Before management begins speaking, the conference has the following statement. Elite would like to remind the 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.

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More complete information regarding forward-looking statements, risks and uncertainties can be found in the reports Elite files with the SEC, which is available on Elite’s website at elitepharma.com under the Investor Relations section. Elite encourage 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.

Nasrat Hakim: Thank you, Matthew. And good morning, ladies and gentlemen. 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, the Boomerang Ward will give you a summary of the company financials, after which, I’ll give you an update and answer some of the questions that you’ve submitted to Diane. Carter, welcome back, and you have the floor.

Carter Ward: Thank you, Nasrat. Good morning, everybody. Let me just start by, I guess, reintroducing myself. My name is Carter Ward, and this is my second sort of duty here at Elite. Some of you, longer-term investors may remember me. But I was the CFO here from 2009 to 2021. For 12-years, and I rejoined Elite about two months ago and very, very happy to be back home with [Miante] (ph) here at Elite and hoping that I can do my best to contribute to future success at Elite. So yesterday, we filed our 10-Q. It’s the second quarter of our 2020 fiscal year. Our fiscal year, as always, they end March 31. So March 31, 2024, is our 2024 fiscal year and September 30, this quarter is the second quarter of that year. As I’ve done — before I’m going to provide some context, some color to the financial statements.

And as I go through my comments here, I’ll be — I received a bunch of questions overnight and I’ll do my best to answer those as well. Let’s start with the P&L. And total revenues for the quarter were $14.2 million, and you can compare that to $8.6 million for September ‘22 quarter — 2022 quarter and also $9 million for the June 2023 quarter. So that’s a year-on-year increase of 65% and a 58% increase since our last quarter, the June 2023 quarter. Our operating income was $1.9 million profit. We compare that to a profit of $1.1 million last year and $1.6 million for the last quarter. That’s a 73% year-on-year increase and a 19% increase since the last quarter. It’s pretty clear that the increases are the result of one very big event that happened actually in April of this year, the beginning of our fiscal year, and that’s the launch of the Elite label.

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Q&A Session

Nasrat is going to talk a lot about the products, the pipeline and all of those things. I’m not going to go into that type of detail here. But from the finance side, it’s pretty clear that this launch, the Elite label being in the market has made a significant positive contribution to our financial condition. There’s no doubt about that. Going back, pulled up the history books and I looked at the last five years of revenue, 2019 — fiscal 2019, for the entire year, we didn’t even have $8 million in revenue, $7.6 million for that year. And then it went $18 million, $25 million, $32 million and last year, March 2023, we were at $34 million, and that’s for the entire year, for the full 12 months. We are already halfway — only halfway through the year, six months, we’re already at $23 million.

So that run rate should continue, but we will far exceed last year’s revenues by the time this year ends. Let me see. So going down the P&L, there’s a large number. And I did get a question on that, so I might as well answer that question. And I got a question says, what is the income tax benefit income? And why was it recorded in this quarter? So if you look down the P&L, there is a $17.7 million income tax benefit. So that means there’s an income item. It’s a noncash revenue item and this relates to net operating losses, NOLs that we’ve been accumulating for the past 20 or so years. There are tax deductions on future tax returns. When we file it, we can deduct prior year losses and offset against any income taxes that we would owe currently.

This is what’s known as the deferred tax asset on the balance sheet. It’s always been there, except up until now, we had to make a reserve against it. So we had to bring that asset down to zero. The definition on asset is a right to a future benefit, but accounting rules required that since we were in a loss position since the metrics were not showing enough profits to be able to use this benefit going forward, we had to make a reserve against that bringing it down to zero. Things are different now, however, we’re now profitable. We have metrics that are showing profits going forward. And now those same accounting rules require that we remove that reserve, we released the reserve is what it’s called. And we record this differed tax asset, meaning, we’re going to get a future benefit from these prior year losses.

Within the terms of the internal revenue co. So, now this is a technical onetime entry and results in a large noncash below the line income item on our P&L. So that’s exactly what it is. It’s not going to repeat. It’s a onetime thing, technical accounting stuff. But the take away hear really is that, our metrics have changed. They changed from in the past, ongoing losses to now profits. And now, that tax deduction does have value to Elite going forward. So it’s showing up as a balance sheet item. And I did get one more question before I more away from the P&L statement, and it was, increased revenues were fantastic. However, I see gross profit margins experience a small dip compared to previous quarters. And then mentioning the fiscal 2023, we had a 49% gross profit margin.

And this quarter, we had 46% — actually for the six months, we have 48%. So we really didn’t have much of a drop in profit margin. And — but the only thing is, we have much higher volumes. We’re selling our label now to a lot of wholesalers who are getting these volumes to a significant margins, and there’s discounts and chargebacks and things like that, which have a negative effect on our margins. But really, we’re holding on to the margin pretty well and increasing our volumes significantly. So, it’s a good thing. It’s a good thing. So now moving away from the P&L, we go to cash flow. We had an operating burn for the six months ended September 30 of this year of $2.9 million. And I did get a question on that and they were talking about, we have strong revenues, we have profits, why the cash burn?

And – strong revenues, profits, a growing company and cash burn is quite normal when you’re in rapid growth phases. If you look at the cash flow statement, the answer jumps right off the page and you look at our increase in accounts receivable and our increase in inventory. Together, that was around $13.1 million increases. And this is causing a cash burn. This is a classic example of growth requiring increased working capital, all successful launches require upfront working capital, we’re no exception. We have to buy inventory in advance, a lot of time months in advance to be able to manufacture on time. We’re giving terms — payment terms, so we’re collecting over 60 days or so. So it takes a while for the money to start coming back in, very standard stuff here.