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Edited Transcript of TLGT earnings conference call or presentation 5-Aug-19 8:30pm GMT

Q2 2019 Teligent Inc Earnings Call

Buena Aug 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Teligent Inc earnings conference call or presentation Monday, August 5, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Damian Finio

Teligent, Inc. - Corporate Secretary & CFO

* Jason Grenfell-Gardner

Teligent, Inc. - President, CEO & Director

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Conference Call Participants

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* Elliot Henry Wilbur

Raymond James & Associates, Inc., Research Division - Senior Research Analyst

* Matthew Gregory Hewitt

Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst

* Scott Robert Henry

Roth Capital Partners, LLC, Research Division - MD, Senior Research Analyst & Head of Pharmaceuticals Research

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Teligent, Inc. Second Quarter 2019 Earnings Conference Call. (Operator Instructions) As a reminder, this call may be recorded.

Except for historical facts and the statements in this presentation as well as oral statements or other written statements made or to be made by Teligent, Inc. are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and involve risks and uncertainties. For example without limitation, statements about the company's anticipated growth and future operations, the current or expected market size for its products, the success of current or future product offerings and the research and development efforts and the company's ability to file for and obtain U.S. Food and Drug Administration approvals for future products are forward-looking statements. Forward-looking statements are merely the company's current predictions of future events. The statements are inherently uncertain, and actual results could differ materially from the statements made herein. There is no assurance that the company will achieve the sales levels that will make its operations profitable or the FDA filings and approvals will be completed and obtained as anticipated.

For a description of additional risks and uncertainties, please refer to the company's filings of the Securities and Exchange Commission, including its latest annual report on Form 10-K and its latest quarterly report on Form 10-Q. The company assumes no obligation to update its forward-looking statements to reflect new information and developments.

I would now like to introduce your host for today's conference, Jason Grenfell-Gardner, President and CEO. Please go ahead.

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Jason Grenfell-Gardner, Teligent, Inc. - President, CEO & Director [2]

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Thank you, Chris, and good afternoon, ladies and gentlemen. Welcome to the Teligent business update covering the second quarter of 2019. I am Jason Grenfell-Gardner, the President and CEO of Teligent, and I'm joined today by Damian Finio, our Chief Financial Officer. Thank you for joining us this afternoon.

I'll be providing you an update on the core elements of our business and the latest on our injectable plans. Damian will then provide a more detailed breakout of our financial performance for the second quarter of 2019.

Today, we released results for the second quarter that underscored the continued strong performance of our base business. Revenue for the quarter was $18.3 million with an associated gross margin of 47%. We have now expanded gross margin by 1,800 basis points since its low point of 29.4% in the second quarter of 2018. This growth in revenue and margin was attributable to our continued execution of the plan that we set out earlier this year to focus our portfolio, invest in inventories to drive service levels of stronger margin product, reduce failure to supply and out of stock positions, expand our private label offerings and ensure recovery of our Canadian supply chain. Our inventory plan for the quarter, which saw us invest a further $1.2 million in inventories during this period completed the work that we discussed in prior quarters of rationalizing unprofitable products or lines and expanding the range of customers to which we offer our products beyond the traditional 3 large customers in our industry.

In addition, we have continued our efforts to expand elements of our private label offerings where we believe we can tap into new markets or distribution channels. We expect this to continue in the third quarter with 2 new private label customers anticipated to come online for specific products. These partnerships, we believe, can allow us to enter into longer-term relationships with customers that help us with more predictable overall levels of demand and profitability, even though quarter-to-quarter orders can sometimes be lumpy due to batch sizing.

Finally, we've seen an improvement in the inventory positions in our Canadian business in the second quarter as our European suppliers completed the upgrades required to implement serialization. Damian will speak to some of the specific numbers behind this recovery, but we will continue to try to build some safety stocks into our Canadian inventories in line with our suppliers' capabilities to minimize any turbulence over the coming quarters.

During the course of the second quarter, Teligent received 1 ANDA approval in the U.S. and launched 3 products. These launches included Lidocaine 4% cream, Fluocinonide Topical Solution and the Desonide Ointment. Our continued productivity in R&D and our ability to successfully launch products provide us a broader fundamental platform in our portfolio that allows us to respond to market changes that help drive revenue and profitability.

Now as you all know, much of our attention has been focused on our internal work to bring our sterile injectable manufacturing site online. I know that many of you are impatient for progress here and that it's not always obvious from the outside the magnitude of the work that has been completed so far. As I mentioned at a conference in June, we've recently made 2 significant changes to our team that impact us as we brought on a new Vice President of Operations, Mr. Antonio Di Nicola and a new Vice President of Quality, Mr. Ken Bonnell. These are critical roles for the success of this venture.

During their reviews of our readiness to launch, they have identified a few issues that they recommended to be remediated prior to submitting our first injectable prior approval supplement. We have undertaken that work and it is largely completed. We now anticipate that we will file our triggering submission at the end of this quarter. For this submission, we have agreed an accelerated review timeline with the FDA that may still allow us to launch this product before the end of 2019 depending on the timing of FDA's inspection and to their review.

Following this first submission, the R&D team have already developed 5 injectable drugs strong on both the ANDAs and NDAs that we already own as well as our own internal development programs. I expect that we will continue to manufacture exhibit batches to support both prior approval supplements and new ANDA submissions for up to a further 8 to 10 products over the coming months as we build out our injectable pipeline.

Finally, I know that many people are curious about the status of the generic orphan drug and its review process. This file continues to be under review by FDA and our development partners continue to respond to ongoing FDA inquiries about the product. We will, of course, provide any update as that opportunity continues to develop as it is received.

Let me now turn the call over to Damian to review the financial performance of the quarter. Damian?

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Damian Finio, Teligent, Inc. - Corporate Secretary & CFO [3]

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Thank you, Jason, and good afternoon, everyone. On this afternoon's call, I would like to cover 4 topics. First, our second quarter financial performance. Second, our confidence in the company's ability to deliver full year financial performance in line with previously communicated market guidance. Third, our current and projected cash position. And lastly, projected financial covenant compliance.

I'll start with the highlights of our 2019 second quarter financial performance. On last quarter's earnings call, we said that we expected gross margins to continue in line with guidance, which would drive positive adjusted EBITDA as product supply normalized and that top line revenue improvement would follow. In line with those stated expectations in the second quarter, we posted $18.3 million in revenue, a 47% gross margin and generated $2.7 million of positive adjusted EBITDA.

Revenues for the second quarter were $18.3 million. Now that's a 40% or $5.2 million increase over the first quarter of 2019 and a 13% increase over the second quarter of 2018. The improvement in top line revenues in comparison to the first quarter of 2019 was driven primarily by favorable customer mix within our sales of Teligent-labeled topical products. Topical revenues, in fact, for the quarter increased by 43% or $3.9 million over the first quarter.

In addition, our European contract manufacturing partners, who supply product to our Canadian business, came back online in the second quarter after successfully implementing required serialization changes. Consequently, our Canadian business rebounded well posting $5 million of revenue in the second quarter. This represents a 47% or $1.6 million increase over the first quarter. The favorable customer mix in the U.S. translated into further improvements in gross margin. Gross margins for the second quarter were 47%. This is a 300 basis point improvement over the prior quarter and a 1,800 basis point improvement over the second quarter of 2018.

For the second consecutive quarter, our financial performance reflects the positive impact of our prior year and ongoing actions to expand our customer base, price our products competitively and address manufacturing bottlenecks. We are very pleased with the second quarter revenues and gross margin, although both were somewhat dampened by charges incurred relating to higher-than-anticipated returns and failure-to-supply fees associated with our past supply challenges. We will continue to focus on execution in order to avoid costly product returns and failure-to-supply fees in the future.

Turning to operating expenses, we invested $2.7 million and $5.7 million in product development in the second quarter and year-to-date, respectively. This is slightly behind plan and is driven by both natural project deferrals and attrition typical with development projects. As well as intentional decisions to reduce spending in order to improve both profitability and cash flow.

For the full year, we plan to invest less than the $13 million to $15 million quoted previously in our full year market guidance. We incurred $5.2 million of selling, general and administrative expenses or SG&A in the first quarter of 2019, which is a decrease of about $300,000 from the first quarter. However, we continue to spend more than anticipated in legal fees associated primarily with 2 disputes, both of which are disclosed and explained in previous filings with the SEC. These nondiscretionary legal fees are somewhat masking the positive impact of the efforts we have made to reduce discretionary spending. Now just to illustrate this point, when comparing first half 2019 SG&A expenses to the same period a year ago, our results reflect a reduction of 3.5%. However, when excluding legal expenses from that calculation, we have reduced SG&A by over 14%, and that's despite the incremental investments made this year to expand both our sales and our quality departments.

The significant improvements in gross margin and reduction in operating expenses forged the path to an improved and positive adjusted EBITDA of $2.7 million in the second quarter, a healthy 14.5% EBITDA margin. From a year-to-date perspective, EBITDA margin is 6.1%, but we believe by focusing on execution, we can deliver EBITDA margins exceeding 10% for the full year in line with previous guidance.

For the second consecutive quarter, thanks to the perseverance of this management team and the hard work of our employees worldwide, we can point with confidence towards several encouraging trends and metrics underlying our second quarter and year-to-date financial performance. Our market guidance continues to be achieving double-digit top line percentage growth with revenues in excess of $72.5 million, a consolidated gross margin above 40% and an adjusted EBITDA margin greater than 10% after adding back any foreign currency gains or losses and noncash stock expenses. Implied in these figures is a reduced investment in product development from our previous guidance of $13 million to $15 million, down to $11 million to $13 million.

Now stepping away from the P&L, I would like to address 2 important items, our current and projected cash position as well as the company's projected financial covenant compliance. The majority of our second quarter revenues were recorded in June. As such, our net accounts receivable increased from $15.4 million at March 31 to $20.4 million as of June 30. That's a $5 million or 32% increase. So despite strong quarter revenues because of the timing of those shipments in June, we ended the second quarter with $4.1 million of available cash, now that's down $2.3 million from the $6.4 million reported at the end of the first quarter. The decline of $2.3 million of cash consists of a $5 million draw on our revolving credit facility, which was more than offset by a $1.2 million inventory build, $1.4 million of additional prior approval readiness costs, which are capitalized, $2.4 million of cash interest paid. And lastly, $2.3 million of other movements in working capital.

Looking ahead to the third quarter, we expect strong cash collections because the majority of second quarter revenues related to products shipped in June, less of a build in inventory because we have returned to normal levels, and less cash interest given the payments to bondholders is next due in the fourth quarter. With these factors in mind, we are confident we can sustain the cash levels needed to run the business and continue executing our plan.

Lastly, I would like to share our perspective on the company's ability to meet financial covenant obligations for the remainder of the year. As disclosed and further detailed on the Ares loan agreement filed with the SEC via Form 8-K in mid-December 2018, we are required to meet certain financial covenants on the revolving credit facility and the term loan. The financial covenants on the revolver are more restrictive than the term loan, so for purposes of discussion today, I will refer to the revolver covenant requirements.

In the first and second quarter of 2019, we were required to meet trailing 12-month revenue covenant of greater than $55 million. We passed. In the third and fourth quarters of 2019, we are required to meet a trailing 12-month consolidated EBITDA covenant of greater than $3 million and $5 million, respectively. Note, the consolidated EBITDA I'm referring to here is defined in the Ares loan agreement filed on Form 8-K that I just mentioned. However, as is typically the case, some of the language in the agreement, particularly relating to allowable add-backs, leaves room for interpretation. This provides both parties the ability to use discretion when determining if certain business expenses incurred during a given quarter qualify as an add-back in the calculation of consolidated adjusted EBITDA.

Now respective to Teligent as agreed with Ares, certain loan agreement transaction fees and the noncash loss on debt extinguishment recorded in the fourth quarter of 2018 as well as a portion of one-off failure-to-supply fees incurred during the period beginning October 1, 2018, and ending June 30, 2019, will be considered allowable add-back in the calculation of consolidated adjusted EBITDA. Therefore, as of the trailing 9 months ended June 30, 2019, our consolidated adjusted EBITDA for purposes of covenant compliance is a positive $2.7 million. Given we reaffirmed our full year financial guidance on today's call, we also project that the company will pass both the 2019 third and fourth quarter covenants.

In closing, we are pleased with our second quarter financial performance and most encouraged by the 47% gross margin achieved in the second quarter and the 46% gross margin achieved year-to-date. We reaffirm our ability to deliver our 2019 market guidance. We are confident that we will maintain the cash levels needed to continue running the business and executing our plan. And lastly, we project the company will pass financial covenants for the remainder of the year.

More details on our second quarter 2019 financial performance will be provided in the 10-Q scheduled to be filed no later than Friday, August 9.

Now I'd like to ask Jason to share his closing comments before we begin the question-and-answer portion of the call. Jason?

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Jason Grenfell-Gardner, Teligent, Inc. - President, CEO & Director [4]

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Thank you, Damian. Before opening up for questions, I'd like to summarize how we view our business today.

First, we endeavor to have a profitable base business before the incremental value of our U.S. injectable manufacturing capabilities. We have achieved this during the past quarter and as reflected in our financial guidance, anticipate continuing to do so.

Second, our injectable expansion is the profitability accelerator of our business. Getting it right is important and getting it wrong could delay this important milestone significantly. Getting it right means more than getting this right financially, however. Because it means ensuring that we're able to produce drugs for patients' critical needs that are safe, sterile and serve their medical need. Teligent has a core value that we would give our drugs to our own families. I'm confident that we've got the right team in place, focused on the right work to make sure that we live up to this value.

And finally, third, we have a number of other incrementally positive opportunities, whether our generic orphan drug project, our ophthalmic development products or other development and manufacturing partnership opportunities. Each of these represents upside to our core business as they progress.

These 3 elements make us feel good about the future of Teligent, even in the face of challenging markets and working in tough financial conditions. Teligent is made up of a team of exceptional people who get things done. I'm grateful to all of these folks in the U.S., Canada and Estonia, who have delivered this great quarter and who keep pushing our business forward.

With that, Chris, let's open this up to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from the line of Matt Hewitt with Craig-Hallum Capital.

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Matthew Gregory Hewitt, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [2]

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First one, Jason, could you give us an update on your current pipeline? Maybe the number of ANDAs that are currently pending at the FDA as well as an approximate market size for that pipeline?

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Jason Grenfell-Gardner, Teligent, Inc. - President, CEO & Director [3]

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Yes. Sure, Matt. So I believe I'm right in saying that today, there are 16 Teligent ANDAs at FDA as well as 2 partnered ANDAs at FDA. The total addressable market is about $1.6 billion in IMS data and then there are various supplements and other things that are also pending. As we get working down the path of these injectable projects, it's going to be important to us to make sure that you see not only new applications that are pending, but also supplements that are pending as well because those can also be triggers for new products, but that's where we stand today.

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Matthew Gregory Hewitt, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [4]

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That's great. And if I heard you correctly, so you're going to have -- you've got the PAS that you'll file, then there will be 5 behind that and another 8 to 10, so 13 to 15 injectable filings over the next few quarters. Is that -- did I hear that correctly?

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Jason Grenfell-Gardner, Teligent, Inc. - President, CEO & Director [5]

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That's correct.

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Matthew Gregory Hewitt, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [6]

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Okay, fantastic. And then as far as the mix on that 13 to 15, how should we be thinking about the number of supplemental relaunches versus new ANDA filings that were a result of Teligent's internal R&D?

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Jason Grenfell-Gardner, Teligent, Inc. - President, CEO & Director [7]

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I would say they're probably 50-50 in the first projects that we're developing. And then over time, of course, they'll become more of the internal projects rather than supplements.

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Matthew Gregory Hewitt, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [8]

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Okay. All right. And then 2 more here. Could you give us maybe your opinion, your high-level overview of what you're seeing from a market dynamic right now, first, maybe on the topical side? And then maybe into the injectable side? Given that's where you're going to be going, and that's going to be your driver for the next few years.

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Jason Grenfell-Gardner, Teligent, Inc. - President, CEO & Director [9]

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Sure. So look, I think that the topical market went through what many of us would have expected. There was a period of time when we saw fairly significant price inflation in the market and it wasn't uniform across the market. It was in specific molecules and specific forms. That's attracted incremental competition into those markets. Those markets have declined and reached a fairly normal equilibrium again. Again, because those weren't uniform, they were really opportunistic as people thought to address the arbitrage opportunity. And for us what that means is, if you're following a portfolio strategy, and you're looking at everything across the market that you can address in derm that, that make sense, it hasn't changed fundamentally the dynamics in many of our markets. Just in the ones that have gone through that sort of bubble and collapse. We've started to see people exiting markets in the topical space. And I think we'll continue to see that as people realign their expectations around profitability and supply chains. We've also seen people get drugs approved and choose not to launch them as markets aren't necessarily as exuberant as they were or couldn't support perhaps supply chains that were more complicated than folks like us, who are manufacturers as well as developers. So I think the topical market is kind of approaching a little bit more stability today than it had in the past.

On the injectable front, look, you continue to see these injectable market disruptions pop up all over the place. And our logic on that market hasn't changed. In fact, given the amount of regulatory impact that's affected a lot of the manufacturing supply in these markets, we think that the fundamental premise that we started with in this business that it's important to be able to control costs to manufacture and control quality using the best technology possible puts us in a pretty good position to execute on our strategy as we go forward. So we continue to be excited by that market. We think that there are still great opportunities there and strategy still holds.

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Matthew Gregory Hewitt, Craig-Hallum Capital Group LLC, Research Division - Senior Research Analyst [10]

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That's great. And maybe one last one for Damian. Could you quantify what the failure-to-supply penalties were in the quarter? And is it your expectation, I think, I heard you say so in the prepared remarks, but those should essentially go away here in the back half of the year, hopefully, here in Q3.

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Damian Finio, Teligent, Inc. - Corporate Secretary & CFO [11]

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Yes. So the failure-to-supply fees, Matt, in the second quarter of 2019 were about $0.5 million. You recall from last quarter's earnings call, they were less than $100,000. The reason for the $500,000 is there is a -- there's just an inherent time lag and the timing of those invoices, our accounting policies. We accrue for failure-to-supply when we receive the invoices. And therefore, we booked more in the second quarter than the first given just the timing of invoices. But as I'd mentioned in the opening remarks, those failure-to-supply fees do relate to our past challenges, not current challenges. There are no current challenges.

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Operator [12]

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And our next question comes from the line of Elliot Wilbur with Raymond James.

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Elliot Henry Wilbur, Raymond James & Associates, Inc., Research Division - Senior Research Analyst [13]

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Damian, can I just ask you to repeat the revenue split between topical and injectable products for the quarter?

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Damian Finio, Teligent, Inc. - Corporate Secretary & CFO [14]

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Yes. So let me pull that. So for topical products for the quarter, Elliot, we were at about $12.9 million in the second quarter, and Canada was about $5 million. So the difference between that and the $18,341,000 we reported is made up between our injectable portfolio in the U.S. contract manufacturing and product development.

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Elliot Henry Wilbur, Raymond James & Associates, Inc., Research Division - Senior Research Analyst [15]

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Okay. And maybe just to drill down a little bit further on the strong gross margin performance. My assumption is the majority of that is customer mix and better pricing, but maybe if you want to add some additional color to that in terms of talking about the relative impact of volume, price on the base and then relative to customer mix?

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Jason Grenfell-Gardner, Teligent, Inc. - President, CEO & Director [16]

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Yes. So I think I'll jump in there. I think the biggest issue there is customer mix. And then a little bit in terms of channel strategy, right? So you'll recall that in the third and fourth quarters last year, we did a lot of work on the portfolio and looked at things that we thought were not economic and were not giving us the return for the effort that we were investing in them. So one of the things that was significantly driving down gross margin. And then when you add the complexity of the failure-to-supply penalties that you're at risk of related to those products, you're really in a position of double jeopardy. So getting rid of that, cleaning that up was the important work that we did in the back half of this year. And we saw that in the first quarter, and that's continued in the second quarter.

The second part of this is really the strategy around channels. So obviously, the big 3 customers, the consortia continue to be the key customers in our business, but we've been able through the addition of incremental sales resources to add more coverage to what I would call the longer tail of customers in this business. Now congratulations to our sales team for the work they've done there. It takes a lot more effort. It's a lot -- much higher judged business and it's a lot less predictable. But it generally provides us good margins and better cash collectability. And the last thing I would say is we've worked with private label partners over the course of the past couple of years, but really over the course of the past 6 months, that's been an important part of the story as well. And as I mentioned, we were looking forward to 2 incremental private label customers being part of that. As we think about how do we use the portfolio to get to end markets that we might not get to just by ourselves.

So those are really the things that are driving that improvement in margin.

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Elliot Henry Wilbur, Raymond James & Associates, Inc., Research Division - Senior Research Analyst [17]

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Okay. And with respect to some of the additional steps or processes or modifications to the initial PAS filing with the FDA that was recommended by some of your team members. You mentioned those are largely completed. Are there any additional future cash costs associated with some of those recommended actions then how might those steps impact your thinking longer term with respect to the addition of a high-speed filling line?

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Jason Grenfell-Gardner, Teligent, Inc. - President, CEO & Director [18]

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So earlier in this year, we had brought in various consulting resources to help us identify the work that was remaining to be done to add sterile capacity to what was just a nonsterile topical manufacturing site. There are -- obviously, as you know, pretty significant differences by degree in terms of the complexity of what we have to do there and we're running this on a harmonized system. Most of that work was completed earlier on in this year. And our goal as we got through the second quarter was to draw down those outside consulting resources to an absolute minimum. And I think Damian made reference to the investment we made there as he talked about the second quarter cash changes.

So as I look forward to the third quarter and beyond, that is largely complete. There may be 2 or 3 folks who are helping in parts of this process that are specific, but that is largely complete. In addition, our HR team together with the quality group has done a remarkable job over the course of the past 6 months, really building up the capabilities and the team continuing to bring on talented individuals, not only a new VP of quality, but a new person in charge of compliance, a new head of quality assurance, continuing to build out the skills that we have in microbiology. It's a really remarkably different organization than it was even 12 months ago. And I think what encourages us as a management team is that we have in place a really robust team for being able to manage not only the beginning of the start-up of the sterile injectable capabilities, but also the future trajectory of what we need to do for commercial production, and eventually, the addition of the high-speed filling line.

I think all of us are in a position right now that we want to see the first sterile capacity online approved and running before we make the investment, go, no-go decision on the high-speed filling line. I think that that's prudent and appropriate. But we feel really good about our chance of success with the team that we have.

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Operator [19]

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And our last question comes from the line of Scott Henry with Roth Capital.

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Scott Robert Henry, Roth Capital Partners, LLC, Research Division - MD, Senior Research Analyst & Head of Pharmaceuticals Research [20]

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I just have a couple of questions. First, with regard to the covenants, because it's very relevant. It looks like when I do the math, you need to generate $2.4 million in adjusted EBITDA in Q3, which is obviously less than you generated in 2Q. The question is, how comfortable are you that 3Q is going to look better than 2Q? You do have a month now into 3Q. But the only other -- the other question is, should I be concerned about the orders in June that they may take away from Q3? Just any color around that.

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Damian Finio, Teligent, Inc. - Corporate Secretary & CFO [21]

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Scott, this is Damian. I'll start. So we're at $2.7 million trailing 9 months of adjusted EBITDA per the Ares loan agreement. The covenant at the end of the third quarter is $3 million. So we're $300,000 or so short of meeting the trailing 12-month covenant for next quarter. I think your number was a bit higher, a lot higher than that.

For the fourth quarter, the covenant is $5 million by the end of the year. So that's a trailing, again, 12 months. So those are the numbers where we're at.

Now we reaffirm guidance. I think if you do the math and look at our gross margins and what we said about those, again, you'll see that we would pass covenants consistent with our opening remarks.

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Scott Robert Henry, Roth Capital Partners, LLC, Research Division - MD, Senior Research Analyst & Head of Pharmaceuticals Research [22]

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Okay, great. Thanks for that clarity perhaps there is some adjustment I'm not adding back in. So the covenant seem to be well taken care of, which is great. The business seems to be gaining momentum. Certainly, strong results in Q2. I guess this leads into the question. I mean you're still kind of running uphill with regards to cash. The question is when do you expect this business to kind of flip the switch to turn in cash flow positive? And how much financing do you think you need from now to get there? And what are the ways you can do that, if any, Damian?

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Jason Grenfell-Gardner, Teligent, Inc. - President, CEO & Director [23]

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So maybe I'll start and then Damian can jump in at the end.

So look, I think that we have a mentality here at Teligent that we try to be as efficient as we can. Obviously, we are very sensitive to our cash position. We're sensitive to our balance sheet, but we're also sensitive to our shareholders and the investments that they've made in this business over time. I've been here 7 years as of last week and during all that time in equity capital, I think the total that we've raised is $25 million of equity capital. And we did that because it's important to us that we have a sense of financial discipline and rigor in this business that holds us accountable for the investment decisions that we've made, the capital allocation choices that we make and our ability to drive a profitable business. We don't believe that shareholders should continue or should buy fund continuing operating losses of the business without that business being able to stand on its own 2 feet.

Damian, the finance team and the operations team have done a really great job over the course of the past year of making sure that as we move from a build mode and the capital investment mode of the facility that we were very focused on operating efficiencies, making sure that we're operating lean and making sure that we're reducing discretionary spend where we can and I think that they've done a really great job at that. We have to continue to have that discipline.

Now we have, we believe, the cash necessary to run this business and Damian set out what that looks like based on the receivables that we have in hand and the leverage that we have to pull. I think maintaining that degree of pressure is probably a good thing as we work through starting up and getting to the finish line of the sterile injectable piece. That's really the piece where I think you start to see this cash flow scenario start to change. As I mentioned at the end of my remarks, that's where we see the real operating leverage begin to kick into this business. But we're still looking to continue to grow our EBITDA, continue to grow our margin and to continue to grow the revenue as we drive the business forward.

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Damian Finio, Teligent, Inc. - Corporate Secretary & CFO [24]

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Yes, I'll just add a couple of thoughts. So our largest cash disbursements is behind us, really which is this facility. As Jason said, we're winding down with consultants. So that was the last bit of spend on the facility related to various consulting firms. As Jason said, we're down to a handful of people now. The second is legal expenses, I mentioned that. Something we still need to keep an eye on. Keep in mind, these are somewhat nondiscretionary, given we're defendants in 2 lawsuits. The other thing is we need to avoid failure-to-supply and execute guidance. So I think, as a combination of these things as we look forward, we'll start to build cash and get to a cash position where we're more comfortable. Where we ended the quarter with $4.1 million, but again accounts receivable were up given more than 50% of our sales for the second quarter came in June, given the timing of our European contract manufacturer partners coming back online.

So I think there's a couple of puts and takes there, I'd say, Scott, but we're comfortable that going forward, if we execute and achieve guidance, we'll start to build cash.

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Scott Robert Henry, Roth Capital Partners, LLC, Research Division - MD, Senior Research Analyst & Head of Pharmaceuticals Research [25]

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Okay. So I guess, what I heard, and I'm just asking to kind of confirm that is that you don't anticipate having to raise any more equity. And then the reason -- and you seem to feel that the cash you have now is adequate to take you to profitability. That's what I heard. But we did have $5 million drawdown in the quarter. Do you expect to have additional drawdowns? Or do you think you're done?

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Jason Grenfell-Gardner, Teligent, Inc. - President, CEO & Director [26]

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Well, I think we're done at this point. In fact, I would point out that actually today, we're at a better cash position than we were at the end of the quarter. So as Damian's logic says, I mean, we are starting to see a little bit of that expansion in the receipt of those receivables that we had at the end of the quarter. So I think -- look, it requires us to maintain continued discipline and rigor. It is definitely something that is -- requires a lot of work on the part of the management team. But we can continue to execute and deliver our plan with the balance sheet that we have today.

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Scott Robert Henry, Roth Capital Partners, LLC, Research Division - MD, Senior Research Analyst & Head of Pharmaceuticals Research [27]

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Okay, great. And just final kind of specific questions on the model. Contract sales down a lot lower in 2Q. I guess, one, was that expected? And two, should we think about a new lower base for that number? I realize it's probably not your most profitable business anyways, but just trying to get a sense of how to model that.

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Jason Grenfell-Gardner, Teligent, Inc. - President, CEO & Director [28]

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Yes. Look, I think contract manufacturing is changing. We appointed a new person into contract manufacturing this year to drive contract manufacturing, private label and CDMO business. It's early days in that. So we're going to see how it grows. But for right now, I think it's a pretty flat business.

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Scott Robert Henry, Roth Capital Partners, LLC, Research Division - MD, Senior Research Analyst & Head of Pharmaceuticals Research [29]

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Okay. And then the final, final question. Just with regards to your guidance. Do you have any injectable revenue in that number? And if you don't, did you prior? And should we assume some of the other businesses is performing better to allow you to maintain that given there's somewhat kind of a quarter delay there?

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Damian Finio, Teligent, Inc. - Corporate Secretary & CFO [30]

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Yes, Scott. In our original -- in the assumptions that underpin the guidance of $72.5 million. We at that time assumed launching by the end of the year. We had a launch towards the very end of the year. So there's a very small portion of the guidance relating to the launch of the injectables.

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Operator [31]

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And that does conclude today's question-and-answer session. I would now like to turn the call back to President and CEO, Jason Grenfell-Gardner for any further remarks.

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Jason Grenfell-Gardner, Teligent, Inc. - President, CEO & Director [32]

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Okay. Thank you, Chris, and thank you, everyone, for joining us on this call this evening. Thanks again to the Teligent team for the continued performance of this business and to all of our investors for your continued support. We look forward to seeing you at various conferences upcoming this fall. Thank you for joining us. Have a great evening.

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Operator [33]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day