Assertio Holdings, Inc. (ASRT) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Assertio Therapeutics and Zyla Life Sciences Merger Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Max Nemmers, Investor Relations. Thank you. Please go ahead, sir.

Thank you, Gigi. First of all, let me apologize for the late starting of this call. We've had an exceptionally large volume of calls, and there's a lot of interest in the news today. So good morning, and thank you for joining us on this conference call to discuss the merger of Assertio Therapeutics and Zyla Life Sciences. The new news release and investor presentation covering the merger agreement are now available on the investor pages at investor.assertiotx.com and zyla.investorroom.com. I would encourage you to review the presentation slides as they're important to today's discussion. With me today from Assertio are Arthur Higgins, President and Chief Executive Officer; and Dan Peisert, Senior Vice President and Chief Financial Officer; and from Zyla, Todd Smith, President and Chief Executive Officer. Before we get started, I remind you that some statements we make today may be considered forward-looking statements for the purposes of the Private Securities Litigation Reform Act of 1995. Assertio and Zyla cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statement statements. Additional information about these risks and uncertainties is included in Assertio's 2019 annual report filed on Form 10-K, Zyla's 2018 annual report filed on Form 10-K and Assertio and Zyla's other SEC filings and the related set of slides posted on our websites. Assertio and Zyla undertakes no obligations to update these forward-looking statements except as required by law. Before making any voting or investment decision with respect to the proposed merger, investors and stockholders of Assertio and Zyla are urged to read the Definitive Registration Statement, including the joint proxy statement regarding the proposed merger and other relevant materials when they become available, carefully and in their entirety, because they will contain important information about the proposed merger. So with that, I'll now turn the call over to Arthur.

Thank you, Max, and good morning to everyone on the call. When I spoke last week at our fourth quarter conference call, I promised to get back to you soon to discuss our plans for the future. I also mentioned that when I joined the company, I had 3 key objectives: addressing our debt, removing our dependence on opioid revenue, and building a lean entrepreneurial company. I explained that we had achieved all of those objectives. I also alluded to the fact that having addressed our debt and the restrictions it imposed, that I was confident we will be able to do a significant transaction that would position the company for future growth and sustainability. Today, I'm excited to announce the merger of Assertio and Zyla, a combination, which is truly compelling industrial logic. This transaction will create a company with a leading portfolio of branded NSAIDs. We believe it's a portfolio that truly is in the sweet spot to address the growing need of physicians for nonopioid pain treatments. The combined company will have the revenue, EBITDA and more leverage that you would expect to see in companies with market caps multiples of where we trade today. So not only do we believe this combination has compelling industrial logic. It offers a tremendous opportunity for us to unlock value for our shareholders. With all of the objectives I set myself when I joined Assertio 3 years ago were achieved, this is an ideal time for me to transition into my new role as nonexecutive Chairman. In a moment, I will introduce you to Todd Smith, the current President and CEO of Zyla, who will become President, CEO and the Director of the new combined company on the closing of this transaction. Todd brings with him over 25 years of pharmaceutical, medical device and biotechnology experience. And most importantly, a proven track record of success. I have worked closely with Todd over the past couple of months on this transaction, and I am confident he has the leadership and business skills necessary to take the combined company to the next level. Before I hand over to Todd, I would like to take this opportunity to thank all of my colleagues at Assertio, whose dedication, hard work and absolute confidence that we could navigate all the challenges we have faced together has made today possible. I would also like to take this opportunity to welcome our new colleagues at Zyla. We are truly excited to join forces with you all. In a moment, Todd will discuss the compelling rationale behind this transaction. Then, Dan Peisert, our CFO, will do a brief summary of the transaction terms and then we'll be happy to open it up to questions. I welcome you, Todd.

Thank you, Arthur, for your remarks and kind introduction. With everything going on, it's still an exciting day for patients and health care providers, investors and our employees. I'm thrilled to lead the new combined company and I'm confident that the Assertio and Zyla teams can realize the full potential of this merger. The rationale behind this transaction makes sense for both companies. First, as Arthur mentioned, together, we'll have a leading branded prescription portfolio of NSAIDs in the United States. This is important, given the continued pressure on physicians across all specialties to utilize nonnarcotic treatment options for pain and inflammation. Second, we have complementary call points, which we expect will lead to revenue synergies and significant cost synergies and savings. Dan will speak more about the financials in a minute. We plan to have 3 strategic business segments across multiple therapeutic areas, including neurology, a segment calling on traditional NSAID targets, including orthopedic surgeons, women's health providers, podiatrists and neurologists in our hospital segment focused on pain and inflammation. Our complementary products are expected to result in pro forma 2019 net product sales of approximately $128 million. Our goal in 2020 is to grow the combined revenues in the high-single digits. We anticipate the 2020 non-GAAP adjusted EBITDA margin of greater than 25%. As part of this merger, Zyla would pay off a promissory note in full and the outstanding balance associated with Zyla's $20 million credit facility. The holding company would assume our outstanding senior secured debt of $95 million under amended terms that provides the combined company flexibility for future business development opportunities. This brings us to another part of the rationale behind this merger. We believe the combined company will have the platform, profitability and low leverage to position us to conduct additional business development transactions. In January of 2019, Zyla acquired Iroko's NSAID assets, the idea there was to increase our revenues while maintaining our expenses. This thesis has proven out with our revenues almost tripling in the third quarter and expenses staying about the same. As a matter of fact, Zyla was EBITDA positive the last 3 quarters with recent months showing dramatic volume growth while managing expenses the same or better year-over-year. This proposed transaction with Assertio follows the same concept, but on a larger scale. This spec pharma market continues to be ripe for consolidation, and we are poised to capitalize as a partner of choice. Commercializing a product is not easy. But both companies have demonstrated the ability to successfully grow volume in this market. As a combined company, we plan to be the go-to partner for products that can be sold to a range of specialists. We are well positioned to become a leading specialty pharmaceutical company focused on commercial excellence. Zyla continues to grow our revenues, increase our efficiencies and we have had cash flow positive consecutive quarters. We look forward to sharing our Zyla year-end results on the March 27 earnings call. Finally, as Arthur mentioned, we anticipate closing this proposed merger in the second quarter. For the next few months, we'll be working on a transition plan to ensure the least amount of disruption to our employees and the providers that we collectively call on. I want to personally thank all the Zyla employees for their work in growing our business and for their continued effort. I look forward to working with the Assertio team, and I'm confident that together, we'll make an even stronger organization focused on execution and growth. Now Assertio's CFO, Dan Peisert, will now walk through the financials associated with this transaction. Dan?

Thank you, Todd, and happy Saint Patrick's Day, everyone. As Todd alluded to, we'll be creating a new corporate and legal structure associated with the closing of this transaction. Both Assertio Therapeutics and Zyla Life Sciences will be independent subsidiaries operating under a new holding company structure by a joint management team. The new company will continue to carry the Assertio name and trade under the ASRT ticker symbol on NASDAQ. This is a stock-for-stock merger, where Zyla shareholders will receive 2.5 shares of Assertio stock for each share of Zyla held. Upon close, there will be just under 120 million shares outstanding, and on a pro forma basis, legacy Assertio shareholders will own approximately 68%, and legacy Zyla shareholders will own 32% of the combined company. As Todd mentioned, upon closing, we will retire in full Zyla's existing intercompany promissory note and the credit facility. We've agreed to amend the terms of Zyla's existing senior secured debt and the new combined company will assume the existing $95 million obligation. The amended terms will provide the new company with the needed flexibility to continue to pursue our growth objectives and importantly, will carry no prepayment penalties. This transaction strengthens and diversifies both companies under the guidance of an extremely experienced and knowledgeable Board of Directors. Given the substantial overlap in our business, we have identified operating synergies upwards of $40 million annually in addition to the $15 million of cost savings initiatives that Assertio enacted at the end of 2019. These synergies will begin to be recognized immediately upon closing of the transaction and allow the business to have adjusted EBITDA margins exceeding 25%. As a result, we are very comfortable operating with a pro forma net debt-to-EBITDA leverage of 2x and a maturity into 2024. Closing of the transaction is subject to the shareholder approval of both companies, which we expect to come in, in the second quarter. That ends our prepared comments. And with that, I'll turn the call over to the operator to open the line for questions.

[Operator Instructions] At this time, I am showing no further questions. I would like to turn the call back over to Max Nemmers for closing remarks.

Max, let me. This is Arthur. I will just thank everybody for joining the call this morning. I hope you sensed in the presentations our excitement for this transaction. Again, I think the industrial logic is compelling and the opportunity it offers to unlock shareholder value is equally compelling. On behalf of Todd and myself, we look forward to updating you in the weeks and months to come in our progress in bringing these 2 companies together and in outlining our plans to ensure it fulfills the tremendous potential it offers. Thank you again for joining us. Please all stay healthy. And thanks again.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.