Anika Therapeutics, Inc. (ANIK) on Q1 2021 Results - Earnings Call Transcript
Operator: Good evening, ladies and gentlemen, and welcome to Anika's First Quarter 2021 Earnings Conference Call. I will now turn the call over to Mark Namaroff, Executive Director of Investor Relations and Corporate Communications. Please proceed.
Mark Namaroff: Thank you. Good evening or good afternoon, everyone, and thank you for joining us for Anika's first quarter conference call and webcast. Our first quarter earnings press release was issued after the close of the market today and is available on our Investor Relations website located at www.anika.com, as of the supplementary PowerPoint slides that we'll be using for the discussion today.
Cheryl Blanchard: Thanks Mark. Good evening, everyone, it feels good to start off 2021 with the promise that vaccines and continued safety measures will start to enable clinicians to perform elective procedures more freely, albeit with COVID restrictions. We continue to recognize there is some ongoing uncertainty as recent history has shown us that people's behavior, vaccine rates and variance will likely continue to cause COVID spikes globally. That said, now that 2020 is in the rearview mirror, I'm excited that we're positioned for high single digit to low double digit revenue growth in 2021.
Michael Levitz: Thank you, Cheryl. I will now walk you through our results for the first quarter of 2021. If you would please turn to Slide 6, revenue for the first quarter of 2021 was $34.3 million, a decrease of 3% from the first quarter last year. The year-over-year decrease was due primarily to the impact of COVID on sales volumes, offset by the increase in revenue due to the acquisitions of Arthrosurface and Parcus, which both occurred around the end of January last year.
Cheryl Blanchard: Thanks Mike. Please turn to Slide 8. In closing, we continue to execute on our strategy and invest in infrastructure that will allow us to efficiently scale business. We believe that we have unique growth opportunities in the early intervention orthopedic space and the ability to leverage our proprietary HA technology into new and innovative products for Joint Preservation and Regenerative solutions. As Mike described, we view the progress we're making and we'll continue to make in 2021 as the first step in the process to grow the company beyond the legacy HA viscosupplement franchise. Anika now has the product, the sales channel, the people and the new product pipeline to continue to generate substantial shareholder value in the years to come. Before I take questions, I'd like to take the opportunity to thank the team at Anika. We have a very dedicated group of folks that have worked diligently to bring our great products to customers during COVID through hard work and by carefully following safety protocols, a big thank you to the Anika team. Thank you all very much for your attention and support of Anika. We look forward to seeing you at our Investor Day on June 3. We're happy to take your questions now.
Operator: Our first question comes from Jim Sidoti with Sidoti & Company.
Jim Sidoti: Hi, good evening. Glad to hear, you guys are doing well. First question I had was on J&J, you mentioned in your script that inventory with high going into Q1, because of COVID. Any update on where that is at the start of Q2?
Michael Levitz: Hi, Jim, it's Mike. Yes, we did see inventories continuing into the first quarter, but we - that wasn't that big of a surprise we alluded to that a bit as we are coming out of last year given the storms and the COVID spike at the end of the year. It does not as you noticed, we didn't change our expectations for the year and so we continue to expect low single digit growth. I - we don't expect the inventories are going to be as big of an impact as we go forward here. So we're not giving guidance, as I said for the quarters, because just given COVID and the uncertainty related to it. But from a full year perspective, absolutely nothing has changed from year end and the guidance has remained the same.
Jim Sidoti: All right and I know you don't want to get too specific and I'm not going to push your full year, but historically, Q2 is generally up from Q1. I know you said you had some other product sales that might not be coming in - as high in the rest of the year. So do you think that's enough to change that trend? And you think for 2021, Q2 should be at least as high as Q1?
Michael Levitz: Yeah, Jim, this is Mike again. So one of the things that we've tried to do here is recognize the COVID dynamics and signal that we do expect the second half to be bigger than the first half just as COVID is expected to lift further in the second half. That being said, there are normal dynamics, where the second quarter is generally bigger than the first quarter and that's been the historic pattern, we don't expect that to be different this year.
Jim Sidoti: Okay. And then on the operating expenses, R&D looks well about - well, I would expect it to be - as it's a little bit higher. Is that the new base level that 18 million? Is that what we should assume going forward?
Michael Levitz: I'm sorry, Jim. Could you repeat the question?
Jim Sidoti: Was there any onetime expense in the SG&A expense? Is 18 million a good baseline for SG&A expense going forward?
Michael Levitz: I'm sorry, I didn't hear it. Thank you. In terms of the SG&A spending, one of the things we saw from Q3 to Q4 is Q4 was little bit lighter than Q3. And there was just in timing at year-end based upon incentive compensation accruals. And so if you look at the trend from going forward to Q1, there was generally normal growth. There was one item in the first quarter that you'll see also in our 10-Q related to a write-off of a legacy system impairment of about $800,000 that impacted G&A in the first quarter. So apart from that when you start to look at the trend through last year. I think it's fairly straightforward. The things that are in there driving SG&A growth are the things we talked about, the investment in the team last year with COVID incentive compensation was not at a 100% and so there was a lot of adjustments is clearly was evolving last year. And so - but I think if you put those things aside, there's really nothing different than what we've been saying in terms of these trends. I did just want to clarify something I want to make sure I answered your last question effectively, because I think you were referring to specifically J&J between the first quarter and second quarter. And we do expect that to be up. On an overall basis, one of the things we called out in our prepared remarks is that other revenue was unusually high in the first quarter we do expect that to go back down. We sold a good amount of legacy products in the quarter and so we expect that to go down in line with our full-year guidance. So Q1 was unusually high as it relates to other, but for the rest of the business the normal seasonality applies, subject of course to COVID.
Jim Sidoti: Okay, and then the last one for me is on inventory, it's down about $3 million in the quarter, sales were up. Is that a function of the - your quality inventory being sold off? Or is there some other dynamic there?
Michael Levitz: There's really nothing unusual going on in inventory. There is really nothing unusual there from a trend perspective. One of the things that we've been trying to do is just make sure that we have adequate inventory to meet demand, but there is a different mix and different things that are happening from quarter-to-quarter, so nothing unusual on the inventory side.
Jim Sidoti: Alright. Thank you.
Operator: We'll take our next question from Mike Petusky with Barrington Research.
Mike Petusky: Hi guys.
Cheryl Blanchard: Hi, Mike, how are you today?
Mike Petusky: Doing great, thanks. Few questions, I guess, Cheryl, I may have missed this at the outset, but did you speak at all to your estimates in terms of patient volumes for sort of the key parts of your business. What you're hearing out there? What you're estimating in terms of relative to pre-COVID levels?
Cheryl Blanchard: You're just talking about surge in activity, purchasing product -
Mike Petusky: Well, I guess both on the Pain Management and sort of on the surgeon side?
Cheryl Blanchard: Yeah. Yeah, let me speak to that. So what we're seeing a definite recovery globally, but kind of moderated by COVID and especially in different countries and different regions where we are seeing COVID spikes happen over time. I think, if I could speak to the US for a second, I think that there is a pretty strong trend of both surgeries and injections that we see coming back and that's why we say we feel better about seeing increases in the second half of the year, pending any different COVID dynamics. We do see that the surgical side of the business is recovering a bit more quickly than the injection side, I think the surgeons are focused on their more urgent patients and getting their surgical activities back, and so they tend to be more focused on that then be injections. But there is definitely a solid return on both fronts. So I think we are very optimistic about seeing results continuing to improve into the second half of the year, again sort of with that COVID moderation not knowing what could happen going forward.
Michael Levitz: And one of the dynamics that we saw in the numbers, it was very encouraging to see the organic growth in Joint Preservation and Restoration and so that was nice to see those numbers at or above pre-COVID levels. And on the Pain Management side, as I mentioned in my prepared remarks that the royalties were in line with where they were in Q1 of last year. So it's hard to say whether what the trend is will some of that pent-up from the last quarter or not or how is that going to go, but it's definitely an encouraging sign to see these things moving in this direction and it's consistent with what we've laid out for the year.
Mike Petusky: When you guys talk about the longer-term goal toward '24 and you talk about sort of mid teen top line growth to get there. How much of that mid-teens top line growth assumes, sort of, new product introductions and revenue coming from, sort of, that channel. Because I mean you guys, I think you long something like seven new products in Joint Preservation area in '20. Obviously, you're going to continue to launch new products between now and '24. I mean, how - I guess what's the assumption or a general range of assumption around how much is sort of from what you've already got? And then how much is stuff that's still in development?
Cheryl Blanchard: Yeah, it's a great question. I would tell you, if you look first of all, at the first couple of years here we've got ahead of us that, that's going to be primarily around commercial execution and commercial excellence of products that we already have, some of which we've only just recently launched. So, they haven't really hit the sweet spot of their growth curve yet. And then we will continue to launch products on the Joint Preservation side with regenerative solutions, with sports medicine, with bone preserving implants. And so that - I would say new products that we haven't launched yet, we'll probably start to show up more in the numbers in the out years toward 2024. But you'll recall we just launched Tactoset in late 2019 and then COVID hit. And we launched a number of products. Last year, we talked about launching the risk product this year, because we received, I think K-clearance last year. So we do have some recent product launches and a great portfolio of existing products that are really going to drive the next couple of years of growth and then as we continue to launch products, those are going to definitely have a significant impact in, sort of 2023, 2024 timeframe.
Michael Levitz: And the only thing I would add to that is just - I think it's fair for folks to recognize - we noticed a change now that we're in sports medicine, where there is just a different cadence of an increased cadence of smaller product launches. I think in the past, we've talked about these big new products and how big the contribution we're going to have, but the 16 products we launched in the latter half of last year, I think it's more indicative of - they may not have individually as large of an impact, but they really demonstrate the innovation that we're focused on.
Cheryl Blanchard: Yeah, that tend to have shorter innovation cycle times and so you tend to have quicker turns on new product development with those. The Regenerative solutions, when those get launched, they tend to have a different product lifecycle curve and take a little bit more time for adoption with potentially greater upside. So it's a mix that will see through 2024.
Mike Petusky: Okay, I guess a question for Mike. The cash flow from ops basically round numbers you guys, sort of, had about $2.5 million of positive free cash - positive cash flow from ops and overall for $2 million of free cash flow in the first quarter. And then second quarter you sort of gave all that back and then some? I guess my question is what's your feeling about generating positive free cash flow in the second half? Thanks.
Michael Levitz: Yeah, I mean, I think we demonstrated last year that we even during the challenges COVID last year, we generated positive free cash flow and we expect to do the same this year. You saw it in the first quarter, we had positive adjusted EBITDA of $4.8 million and I think that's a pretty good indicator. There was some timing in the first quarter we had some tax payments and some other payments in timing of collections. But we definitely expect to continue to be generating positive cash flow - positive free cash flow. What we have said is that we are reinvesting some of that this year, I think, rental amount to fund the growth for the future. And so as we make that transformation 2021 is really a key year for us and continuing what the company started last year in this pivot more toward the joint preservation space. So we are making incremental investments. We are taking some of that free cash flow, reinvesting it, but we still are in a position where we expect positive free cash flow for the year.
Mike Petusky: All right, very good, thanks.
Cheryl Blanchard: Thanks Mike.
Operator: We have no further questions at this time. I would like to turn the conference back to Cheryl Blanchard for any additional or closing remarks.
Cheryl Blanchard: Great, I'd like to thank everybody for your interest in Anika and for joining today and have a great evening.
Operator: That does conclude today's conference call. We thank you for your participation. You may now disconnect.
