Teligent, Inc. (TLGT) Q1 2021 Earnings Conference Call May 25, 2021 8:30 AM ET
Philip Yachmetz - Chief Legal Officer and Corporate Secretary
Tim Sawyer - President and Chief Executive Officer
Ernie De Paolantonio - Chief Financial Officer
Conference Call Participants
Matt Hewitt - Craig-Hallum Capital
Good day, and thank you for standing by. Welcome to the Teligent, Inc. First Quarter 2021 Results Conference Call. At this time, all participants’ are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions]
I would now like to hand the conference over to your speaker today, Philip Yachmetz, Executive Vice President and Chief Legal Officer. Please go ahead.
Thank you, operator. And welcome to all of you, and thanks for joining Teligent’s first quarter 2021 earnings conference call. Before we begin, we want to draw your attention to our legal disclosure regarding forward-looking statements. During the course of this conference, the company will make forward-looking statements regarding future events, including statements about financial, business, clinical milestones and commercialization and plans and strategies anticipated in fiscal year 2021 and beyond.
We encourage you to review the company’s past and future filings with the SEC, in particular, our recent Annual Report on Form 10-K for the period ending December 31, 2020, which identify specific risk factors that may cause the actual results or events to differ materially from those described in the forward-looking statements made. You can find the SEC filings [indiscernible] database at www.sec.gov or in the Investor Relations section of the company’s website at www.teligent.com. Please note that any comments or statements made on today’s call speak only as of today, May 25, 2021, and may not be accurate at the time of any replay or transcript rereading.
I would like to now hand the conference call over to Tim Sawyer, President and Chief Executive Officer of Teligent. Tim?
Thank you, Philip. Good morning. And I’d like to thank all of you for joining us today on Teligent’s first quarter 2021 earnings call. Joining me on this call is Teligent’s Chief Legal Officer and Corporate Secretary, Philip Yachmetz; and our Chief Financial Officer, Ernie De Paolantonio. The first quarter proved to be a highly productive period for the company. Our remediation efforts remain on track and as noted in this morning’s earnings release, we are reiterating our prior guidance that we expect to inform the FDA on the state of our readiness sometime during the third quarter of 2021.
We also remain optimistic as the effects of the pandemic begin to recede the FDA can resume a more normalized pre-pandemic facility inspection schedule. For those of you who could not join us for our recent 2020 year end conference call, I’ll first provide a brief overview of Teligent’s recent accomplishments with respect to our improved financial condition, remediation efforts and our ongoing response to the pandemic.
Over the last several months, we’ve completed a series of financial arrangements that have dramatically improved the liquidity and balance sheet of our company. The net effect of these transactions has resulted in aggregate debt reduction of $118 million since June 30, 2020. We also amended our second lien credit agreement to provide an additional $4.6 million in financing to help support the company’s ongoing liquidity, and then completed an at the market equity offering during the first quarter of 2021, raising gross proceeds of approximately $38.5 million.
With the support of our senior lenders and strategic investor partners Teligent has significantly improved its capital structure, enabling us to execute on multiple business and operational initiatives throughout the remainder of 2021 and into the first quarter of 2022. With respect to remediation as previously disclosed based on our current assessment, we believe Teligent will be ready to informing the FDA of its inspection readiness during the third quarter of 2021.
However, since we do not control the timing of the FDA re-inspection of the facility, we cannot predict a precise time range for the date when FDA will perform the site re-inspection.
With respect to the COVID-19 pandemic, during the Public Health Emergency and State of Emergency in order to continue to supply our products to the patients that need them, we maintained our manufacturing operations and monitored conditions in order to maintain a safe workplace for our employees.
While our non-production employees have been working from home during this time, now that the Public Health Emergency and State of Emergency restrictions have abated, we are in the process of implementing a safe return to office protocol under which we will maintain social distance workspace and continue to sanitize our facilities. In fact, so Ernie and I together today – are together today conducting this earnings call from our corporate offices in a socially distanced manner. Consistent with actions taken in the second half of 2020 and the first quarter of 2021, we continued to strengthen our senior management ranks and bring in additional advisory talent onto our Board of Directors. I’d like to take some time on today’s call to note the strategic importance of these senior level appointments and why it should help us build positive and sustainable momentum going forward.
When investors think about the current Teligent story, a common perception is the company is undergoing a re-building phase and that we as its new managers are largely tasked with fixing a set of older inherited quality control issues. While that perception maybe warranted over the short run I’d like to reassure our investors that we’re executing on a strategic plan to restore solid operational and financial performance over the next several years. Central to this strategy is appointing key individuals who not only posses the requisite expertise to help lead this turnaround, but who also understand the importance of building a culture of accountability that leads to long-term success. Under this new leadership paradigm, Teligent is rebuilding its risk management and quality control systems taking a holistic approach so that the best practices we adopt in quality control can be sustained and [augmented] (ph) as we regrow our core business and potentially enter new ventures.
To be absolutely clear, we do not view the scope of our remediation efforts as confined to addressing only short-term quality control issues rather, our senior management is developing both tactical and strategic level plans to ensure that all of our operations and processes are being proactively managed by a team of highly trained and motivated employees. By laying this foundation of sustainable best practices throughout the entire continuum of quality control, we expect to fully leverage the production capability of our asset base in the future and in doing so deliver significant value to our shareholders.
Now, let me hand it over to Ernie for review of the first quarter financials. Ernie?
Ernie De Paolantonio
Thank you, Tim, and good morning. Consolidated net revenues for the first quarter of 2021 were $11.6 million versus $7.4 million in the first quarter of 2020. Cost of revenues increased to $12.8 million in the first quarter of 2021 in comparison to the $8.6 million in the first quarter of 2020. However, gross profit percentage improved 5 percentage points to minus 10.5% in Q1 2021 from minus 15.6% in Q1 of the prior year.
The increase in gross profit in the first quarter of 2021 was mainly attributable to higher sales offset by an increase in inventory reserve, increased absorption allocations due to lower contract volume and price erosion in light of COVID-19. Selling, general and administrative expenses in the first quarter of 2021 decreased by $0.4 million to $6.3 million compared to $6.7 million in the first quarter of 2020. The decrease was primarily due to lower professional fees versus the first quarter of the prior year.
There was a negligible impairment charge of $24,000 in the first quarter and impairment charge was also recorded in the first quarter of 2020 of $8.4 million related to trademark and technology of $4.9 million and product acquisition costs of $3.5 million. Product development and research expenses were $1.5 million in the first quarter of 2021 versus $1.8 million in the first quarter of 2020. The change was primarily due to a decrease in personnel costs, outside testing and pilot batch expenses partially offset by an increase of $0.1 million in API expenses and an increase in clinical studies.
Net income for the first quarter of 2021 was $2.2 million as compared to a net loss of $26.8 million for the first quarter of 2020. The increase was primarily due to a one-time non-cash net gain in debt restructuring of $20.6 million offset by an increase in derivative liabilities of $1.9 million and $0.5 million increase on foreign exchange loss.
I will now turn the session back to Tim. Tim?
Thanks very much, Ernie. As noted on our fourth quarter conference call, we continue to make steady progress across multiple fronts of our business. Our improved financial condition provides us added flexibility to pursue longer term strategic objectives, focused on both quality control and business development initiatives.
In addition, we are continuing to diligently pursue our work with our financial and strategic advisors to critically assess the strengths and assets of the company and how we can best leverage them moving forward. As we complete our work and assessments, we will look forward to a time in the future throughout this year, when we can provide more detailed updates on these activities that are being examined.
Thank you for taking the time to join us today. And I’d now like to turn the call back over to the operator for the Q&A session.
[Operator Instructions] Our first question will come from line of Matt Hewitt from Craig-Hallum Capital. You may begin.
Good morning. Thank you for taking the questions. Just a couple – to start – regarding revenues, should we anticipate sequential growth as the pandemic eases, the vaccinations coming out, those types of events. I mean, it appears that revenues should grow sequentially, but is that how you’re thinking about things as well?
Thanks, Matt. So just to sort of be clear and we talked about this and I’m sorry I should have reiterated it. But we haven’t – we’re not going to provide financial guidance in 2021, just because of the rebuilding that we’ll go through. So I think that you’re thinking about things in a good way, but I wouldn’t – we’re not going to be providing guidance in terms of revenue or path forward for this year.
Okay. How about I ask it a different way? What would prevent you from growing sequentially this year aside from another spike in COVID or something along those lines?
I think that the impediments – the headwinds that we have talked a little bit about the headwinds that could creep up – could be something – that something that’s identified through the remediation efforts, obviously could provide us with some headwinds. But in terms of what we’re doing, we’re looking – we’re obviously looking to continue to remediate and bring products back to market. So we’re thinking positively about that.
That’s helpful. Thank you. And then you mentioned price erosion as being one of the headwinds. How should we be thinking about that from a magnitude perspective? I mean, is it a 5%, 10% headwind? And do you envision that as we get back to normal that those headwinds will abate?
Ernie De Paolantonio
Yes. Hi Matt, it’s Ernie. Thanks for the question. The price erosion generally occurs in the market with respect to pricing of competitive products. I think a lot of that erosion occurred possibly because of fewer tests being done or fewer sales in the field of the dermatological products, of topical.
Okay. And then kind of moving down, it comes even gross margins obviously nice improvement versus a year ago period. What – at what level I’m trying to think how I can answer this or get to answer this, at what level does that flip back to profitability on the gross margin line? Is there – is it a revenue number? Is it just getting through some more of this remediation work that where those costs are kind of weighing at gross margin?
Yes. It’s the remediation effort, Matt.
Okay. All right. Last one, regarding some of the products that were pulled late last year, have those all been re-launched at this point or what’s the anticipated cadence for getting those back into the market? Thank you.
Thanks, Matt. For the product – at a product level, we haven’t – we have not – we’re not back in the market with all of our products at this point in time. We are continuing to remediate, continuing to evaluate the products in terms of prioritization, and then obviously bringing them back in a way that’s most advantageous to the company, so the most important products versus on down the line. So it’s a [Indiscernible] approach. Yes.
Okay. Thank you.
Thanks, Matt, very much. Yes.
[Operator Instructions] And I’m not showing any further questions in the queue.
All right. Thank you then operator. Thank you all for participating. Thanks for attending and listening. We really appreciate it. As I said, I feel positive and looking forward to updating you all in the future as we continue to make progress on the hard work that we have in front of us. Have a great day and look forward to talking to you again soon. Thanks. Bye-bye.
This concludes today’s conference call. Thank you for participating. You may now disconnect.