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Post by boomboom on Jan 12, 2019 21:31:55 GMT -5
Hey Everyone,
Was hoping someone either remembers what was said on a conf call regarding this or maybe its already been discussed on this thread but I would like to better understand how to interpret Net Revenue and Costs of Goods Sold. For Q3 2018 the following was reported...
Net Revenue = $4387
Costs of Goods Sold = $5303
Is it correct to believe this implies that as of today it costs ~20% more to make Afrezza than what we can sell it for? If thats the case, what would make these two numbers eventually swap so we have profitability when only looking at these two numbers and not including the rest of the operating expenses? Is it as simple as being inverse to the volume of afrezza sold?
Thanks in advance
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Post by mnholdem on Jan 12, 2019 23:57:08 GMT -5
That could be possible largely because of fixed costs related to manufacturing. Fixed costs are expenses that remain constant regardless of sales volume. Plant costs for example, as well as equipment costs, which must be accounted for even if idle. As sales volume grows fixed costs begin to account for a lower percentage of COGS. That's why sales of Afrezza in Brazil and India will result in greater gross profit for Afrezza sold in the USA.  |
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Post by matt on Jan 13, 2019 11:37:46 GMT -5
What mnholdem said is essentially the case; fixed manufacturing costs have to be absorbed somewhere and underutilization of the plant drives negative absorption variances (i.e. there are more fixed costs per unit than originally budgeted due to unit shortfalls). As unit volume grows, the same fixed costs get spread over more units so the cost burden per unit of manufacturing goes down; that is the basis for economies of scale.
However there is one important caveat with respect to MNKD that should be kept in mind. At the end of 2015 there was a write-off of $140 million for "property and equipment impairment" which had the result of reducing the book value of the Danbury plant by that amount. Depreciation going through the books in 2019 is lower than it should be because of the impairment charge (you can only depreciate the asset one time). In other words, the true economic decline in the value of the manufacturing assets that happened in 2018, which is normally captured as depreciation charged to cost of goods, is understated due to the write-off in 2015. Sooner or later the equipment used on the manufacturing line will wear out or become technologically obsolete, and the cost to replace it will be more than suggested by the current depreciation charges hitting the income statement. Similarly, the company booked a $66 million charge in 2015 to write down the value of future insulin purchases from Amphastar so less than the true cost of insulin purchases is recorded as cost of sales (i.e. Amphastar charges more for the insulin that MNKD buys than what is reflected in the cost of goods). The combination of the two write-offs gives a more rosy picture of the cost of goods than the true economics; exactly how much better is hard to estimate.
So yes, as volume grows the two numbers will flip and Afrezzaa will start making a gross profit contribution to cover the operating expenses of the company. Just be aware that the accounting is not as simple as it may seem at first blush.
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Post by mytakeonit on Jan 13, 2019 14:35:27 GMT -5
Yes ... but ... as volume grows we will have to run extended shifts or double shifts to keep up.  Maybe triple shifts even. Then we will have over time hours and night differentials to contend with. Oh the problems with making $$$. |
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Post by mnholdem on Jan 13, 2019 16:57:04 GMT -5
That's not a problem and increasing production can, in fact, also reduce the variable costs. I'll give you an example. One of the companies in my group manufactures syringes. If only one molding machine were running for an 8-hour shift with 1 operator the ProdCost/Unit would be ProdQty divided by (8h Burden + 8h Labor + Materials). However, with this same syringe company, the equipment is automated and one operator can run 4 automated molding machines. In that situation the Cost/Unit for each molding machine would be ProdQty divided by (8h Burden + 2h Labor + Material). Why only 2 hrs labor? Because the operator spreads his shift running 4 machines. Each machine runs 8 hours (burden) but the operator's time is split (8 hrs / 4 molding machines) to 2 hrs per machine. I cannot say what MannKind's staffing needs are on their finish-fill lines at Danbury, but it would not be surprising if increasing the plant's output were to lower labor costs per unit. As explained earlier, increased output would definitely reduce fixed cost per unit, but it can also reduce the labor cost per unit which factors into determining COGS. |
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Post by mytakeonit on Jan 14, 2019 1:14:49 GMT -5
Okay mn ... from now on if I am posting a joke ... I will state ... THIS IS A JOKE !!!
I really do think that ... you think too much. Ha!
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Post by jred on Jan 14, 2019 11:02:18 GMT -5
"As long as we have a low volume of inventory write offs and minimal adverse foreign exchange fluctuation to our FX hedge on our insulin purchase commitments in Q4 2018, I would expect to report a positive gross profit next quarter."
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Post by sportsrancho on Jan 14, 2019 14:37:22 GMT -5
Okay mn ... from now on if I am posting a joke ... I will state ... THIS IS A JOKE !!! I really do think that ... you think too much. Ha! 😂 maybe you should just tell us when you aren’t joking:-) |
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Post by mytakeonit on Jan 14, 2019 14:55:05 GMT -5
Ahhh ... finally ... a woman that understands me !!!
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Post by mytakeonit on Jan 14, 2019 15:16:38 GMT -5
"As long as we have a low volume of inventory write offs and minimal adverse foreign exchange fluctuation to our FX hedge on our insulin purchase commitments in Q4 2018, I would expect to report a positive gross profit next quarter."
Being an accountant ... if you haven't heard that already ... this statement was made to quell the uprising from investors. Like feeding bread crumbs to fish. I'll just wait till he reports that "We are having a major problem keeping up with production to keep these sugar sucking people happy !!!" |
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Post by mnholdem on Jan 14, 2019 18:42:33 GMT -5
Okay mn ... from now on if I am posting a joke ... I will state ... THIS IS A JOKE !!! I really do think that ... you think too much. Ha! 😂 maybe you should just tell us when you aren’t joking:-) Like adding a  or a  emoticon to your messages. That's what most do here when they want others to know it was a joke/quip. |
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Post by mytakeonit on Jan 14, 2019 18:50:34 GMT -5
I AM NOT JOKING !!! I don't have emojis on my shoe string hook up to my tent. Sometimes when I put 3 periods in then a sad emoji pops up when I click reply. I wouldn't use them anyway ... it's like mooning people. Okay, now I know why I didn't see the emojis ... it's because I've only done quick replies. Looking at create a post or edit post ... then I see the emoji button.  |
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Post by mnholdem on Jan 14, 2019 18:58:38 GMT -5
Good job, buddy! |
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Post by liane on Jan 14, 2019 18:59:58 GMT -5
I AM NOT JOKING !!! I don't have emojis on my shoe string hook up to my tent. Sometimes when I put 3 periods in then a sad emoji pops up when I click reply. I wouldn't use them anyway ... it's like mooning people. Okay, now I know why I didn't see the emojis ... it's because I've only done quick replies. Looking at create a post or edit post ... then I see the emoji button. Ah, but with this high-end Pro Boards chat, emojis are provided. Just click on the smiley face in the bar at the top of the reply box (not available in the quick reply mode).   |
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Post by mnkdfann on Jan 14, 2019 19:24:17 GMT -5
But you can still hard-code them in quick replies, using the punctuation keys. Like this one was:  |
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Maybe triple shifts even. Then we will have over time hours and night differentials to contend with. Oh the problems with making $$$.
or a 
emoticon to your messages. That's what most do here when they want others to know it was a joke/quip.
