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Post by tarheelblue004 on Aug 19, 2023 12:01:15 GMT -5
With the second quarter in the books, it is that time again! I came in slightly aggressive in my Q2 forecasts: a low-end forecast of $51M in revenue was ~5% higher than the actual Q2 revenue of $48.6M. Here is to hoping I am again off by just 5%  My initial Q3 forecast: $63M - $68M in revenue, shattering analyst estimates ($51.5M) again. 30 - 40% QoQ revenue growth. Profitability!! Here is the logic behind the numbers: I will start with two key assumptions: 1) UT receives revenue (and we receive royalties) when product is received by pharmacies. So the manufacturing capacity expansion completed in June translates directly into new product shipped, sold, and revenue booked. This is in-line with the $7M increase in Tyvaso royalties from Q1 to Q2. 2) The large increase in 'long-term deferred revenue' (expected realization in >1 year) is due to UT paying for further expansion of manufacturing capacity coming online in FY24, and not deferred sales of manufactured product. I expect deferral of manufactured product to fall in 'current deferred revenue' (expected realization in <1 year), which has gone up relatively little. Important context from UT President & COO Michael Benkowitz on their Q2 call regarding pharmacy demand vs. MannKind supply: "Specialty pharmacy inventory levels on the last day of the quarter actually reached their contractual range based on historical demand. However, this could fluctuate through the remainder of the year as Tyvaso DPI demand grows and until MannKind has a few more months of production with the additional capacity. We anticipate that specialty pharmacies may be able to get into the regular ordering patterns for Tyvaso DPI, sometime either later this year or in the first half of '24."The last sentence is the key - UT does not expect pharmacies to be caught up on their inventory levels until later this year or next year. The "so what" for my forecasts: everything MannKind manufactures in Q3 will be immediately purchased by the pharmacies.
This leads to the math behind my (initial) Q3 forecasts: - Low-end: The $7M increase in QoQ Tyvaso revenue was due to expanded manufacturing for one month shipped to pharmacies. Expanded manufacturing for three months will result in an additional $14M in royalties to MannKind. No revenue increase from any other line of business. The result: Q3 revenues of $63M, 29% growth from Q2, blow out analyst estimates ($51M) again, profitability!! - High-end: The $7M increase in QoQ Tyvaso revenue was not for the full month of June. A full month would be $8M+; three months would be an additional $17M in royalties. Afrezza increases $1M, V-Go increases $500K, collaboration and services increases $500K. The result: Q3 revenues of $68M, 40% growth from Q2, blow out analyst estimates even further, profitability!! I would love your thoughts and feedback on how we will do next quarter! |
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Post by ronw77077 on Aug 20, 2023 11:44:07 GMT -5
Impressive analysis.
Your analysis only has one key assumption (as you describe them). The Deferred Revenue commentary, while interesting, is irrelevant to your forecast for this year (and will have a minor affect next year when royalties are so much higher).
Deferred Revenue is not a function of payment next year – more likely, payment has already been made, creating the deferral. In any event, I agree that it likely relates to work on manufacturing expansion not manufactured product. And I agree we will see a shift of the deferred amounts from long-term to current at some point; it will then begin to affect current year revenue – but that won’t affect this fiscal year.
The essence of your forecast is the (a) 250% increase in manufacturing capacity MC spoke about, and (b) your assessment that UT will issue purchase orders for the full amount that MNKD can manufacture and will immediately sell the received DPI. I too would like to know just how much of June production was at the increased production level. Absent that information I believe you have correctly set the range of possible royalties. As to the other revenues, I expect “Afrezza increases $1M, V-Go increases $500K, collaboration and services increases $500K” irrespective of royalties – so the only change I would make to your projection is to increase the lower projection to $64 M (i.e., a range of $64 M to $68M in Q3 revenue.
Once again, superb analysis! Thanks
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Post by tarheelblue004 on Aug 20, 2023 14:25:52 GMT -5
Thank you ronw! I have enjoyed your similar posts in the past and so that means a lot to me, coming from you. A few replies and other thoughts: 1) You are correct that the deferred revenue point is not really an assumption. Rather, the point I wanted to make is that the large increase in deferred revenue fell into the "long-term" bucket and not the "current" bucket, so we should not expect it to significantly increase revenue next quarter. More of a statement than an assumption. 2) You're also right that I misused the word "payment" in speaking of deferred revenues. We have been paid for any deferred revenue, it has not yet been realized as revenue. So I've changed "expected payment" to "expected realization" in the original post. 3) I agree with you we will see at least $1M revenue increase from other streams, likely more. We will realize a portion of the $3M 'current deferred revenue', Afrezza is growing, and V-Go seems poised for growth. So I am just fine with a higher low-end of the range 4) We may also be thinking the same thing: depending on how much June production was at the increased level, these numbers could be...hard to say this out loud...too low? If we are truly supply-constrained with pharmacies buying everything they can get their hands on, our royalties will be tied to how much we can manufacture and distribute by EOQ. Based on the number of days of increased production that got distributed - removing the days at the beginning of the month where we did not have increased production and the days at the end of the month where our trucks had left for EOQ deliveries so manufactured product did not get shipped - even $8M / month could end up being conservative. Let's see...! Lastly, when writing the original post I noticed something that is amusing if not optimistic. In Benkowitz's quote, he specifically said that the specialty pharmacy contractual range hit was based on "historical demand". Meaning as future DPI demand grows, not only does the product need to be replenished from the pharmacies, but the contractual range itself will go up!! Then you account for the fact that we only hit the low end of the range and there is more room to go to get to the high end of the range. It really feels like we are purely supply-constrained, we have seen evidence of great progress on supply in June, and we could be in for another special quarter. Even if it's "just" the range forecasted above. GLTA! |
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Post by LongMNKD on Aug 21, 2023 7:56:42 GMT -5
I really like your last point! Would love if the pharmacies "contractual range" increased based on demand during the quarter. Hopefully MNKD is immediately selling/shipping as much DPI as they can handle all quarter.
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Post by Clement on Sept 3, 2023 7:44:38 GMT -5
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Post by bthomas55ep on Sept 28, 2023 9:36:14 GMT -5
With the second quarter in the books, it is that time again! I came in slightly aggressive in my Q2 forecasts: a low-end forecast of $51M in revenue was ~5% higher than the actual Q2 revenue of $48.6M. Here is to hoping I am again off by just 5% My initial Q3 forecast: $63M - $68M in revenue, shattering analyst estimates ($51.5M) again. 30 - 40% QoQ revenue growth. Profitability!! Here is the logic behind the numbers: I will start with two key assumptions: 1) UT receives revenue (and we receive royalties) when product is received by pharmacies. So the manufacturing capacity expansion completed in June translates directly into new product shipped, sold, and revenue booked. This is in-line with the $7M increase in Tyvaso royalties from Q1 to Q2. 2) The large increase in 'long-term deferred revenue' (expected realization in >1 year) is due to UT paying for further expansion of manufacturing capacity coming online in FY24, and not deferred sales of manufactured product. I expect deferral of manufactured product to fall in 'current deferred revenue' (expected realization in <1 year), which has gone up relatively little. Important context from UT President & COO Michael Benkowitz on their Q2 call regarding pharmacy demand vs. MannKind supply: "Specialty pharmacy inventory levels on the last day of the quarter actually reached their contractual range based on historical demand. However, this could fluctuate through the remainder of the year as Tyvaso DPI demand grows and until MannKind has a few more months of production with the additional capacity. We anticipate that specialty pharmacies may be able to get into the regular ordering patterns for Tyvaso DPI, sometime either later this year or in the first half of '24."The last sentence is the key - UT does not expect pharmacies to be caught up on their inventory levels until later this year or next year. The "so what" for my forecasts: everything MannKind manufactures in Q3 will be immediately purchased by the pharmacies.
This leads to the math behind my (initial) Q3 forecasts: - Low-end: The $7M increase in QoQ Tyvaso revenue was due to expanded manufacturing for one month shipped to pharmacies. Expanded manufacturing for three months will result in an additional $14M in royalties to MannKind. No revenue increase from any other line of business. The result: Q3 revenues of $63M, 29% growth from Q2, blow out analyst estimates ($51M) again, profitability!! - High-end: The $7M increase in QoQ Tyvaso revenue was not for the full month of June. A full month would be $8M+; three months would be an additional $17M in royalties. Afrezza increases $1M, V-Go increases $500K, collaboration and services increases $500K. The result: Q3 revenues of $68M, 40% growth from Q2, blow out analyst estimates even further, profitability!! I would love your thoughts and feedback on how we will do next quarter! Tomorrow, Sept 29th, will close the books on the 3rd quarter. Tarheel and others, $63M to $68M still seem like an achievable number (effectively a $250M+ annual run rate)? GLTA |
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Post by Clement on Sept 28, 2023 10:17:28 GMT -5
In 2022, the Q3 earnings call was on Nov 8.
I speculate that TDPI royalties will increase by 8M, like they did last quarter, resulting in about 57M total net revs for the quarter. This would be >10% more than average analyst estimate for the quarter, and would put us on track to exceed 200M for the year. That would be double the year before!
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Post by tarheelblue004 on Sept 28, 2023 20:57:27 GMT -5
@clement, I forgot to respond to your great point earlier. Yes, I think $57M low end would be fair if our royalty payments are based on sales to patients vs. to pharmacies. I will keep $67M as the high end in case there is more to the math than we know. Or if UT Q3 sales blow out even further.
So $57M - $67M from me.
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Post by Clement on Sept 29, 2023 10:07:58 GMT -5
@clement, I forgot to respond to your great point earlier. Yes, I think $57M low end would be fair if our royalty payments are based on sales to patients vs. to pharmacies. I will keep $67M as the high end in case there is more to the math than we know. Or if UT Q3 sales blow out even further. So $57M - $67M from me. I like it. UTHR has said that their PH business has seasonality with Q2 and Q3 better than previous Q4 and Q1. Also, they said they continue to make progress on width and breadth of prescribers for PH-ILD. They have claimed good retention for TDPI. And the PH-ILD market has a lot of heretofore unmet need. Momentum and a place to go! |
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Post by prcgorman2 on Sept 30, 2023 7:49:10 GMT -5
@clement, I forgot to respond to your great point earlier. Yes, I think $57M low end would be fair if our royalty payments are based on sales to patients vs. to pharmacies. I will keep $67M as the high end in case there is more to the math than we know. Or if UT Q3 sales blow out even further. So $57M - $67M from me. I think you and Clement have made this my new most favorite thread. Thank you! You mentioned profitability a few times and I wanted to ask a question about that. When you say profitability, I assume you mean simply that revenue exceeds expenses or maybe more precisely Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) exceeds expenses. Anyway, just trying to zero in on what you meant by profitable. And then the last question/comment is whether Wall Street’s generally accepted view of “profitable” is based on an annualized model which is how I think Earnings Per Share (EPS) is generally viewed for investment purposes even though EPS is often reported as a quarterly view. I’ve been accused of over-thinking things (and I’m probably guilty), and I can do my own research and answer my own questions, but if you want to give me your view I will be grateful. I genuinely appreciate the analysis you and Clement put forth. There’s not been a lot of “fun” on this board but these discussions these days are I think actual fun. |
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Post by tarheelblue004 on Sept 30, 2023 10:23:27 GMT -5
Hi PC, by profitability I am referring to GAAP net income (loss) per share for the quarter. The net loss per share has come down significantly from ($0.11) / share in Q2 2022 to ($0.02) / share in Q2 2023.
With 250m shares outstanding, 2 cents / share equates to $5m in net income (profit). So MannKind needs to make $5m more in net profit in Q3 to reach break even and $7.5m to reach positive $0.01 / share net income.
Clement and I are forecasting ~$8m revenue increase, which would likely be additional $6-7m in net income. That would take us past break even and into profitability, if it comes true.
Hope this helps!
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Post by ronw77077 on Oct 20, 2023 10:44:52 GMT -5
The following resolves the questions and opinions that have been put forth concerning DPI royalty recognition.
I posed the following question to Rose Alinaya:
My particular question pertains to UT royalties. Specifically, are royalties recognized upon shipment of DPI to UT and/or its pharmacies or upon purchase of DPI by the final customer/user.
Her reply:
Hi Ron,
As always, we appreciate your continued support!
As Steve has explained, we recognize manufacturing revenue upon transfer of title to UTHR (when it leaves our shipping dock). Royalties are recognized upon UTHR’s quarterly reporting of TDPI sales.
We will be announcing our 3Q earning call shortly. Please let me know if you have any further questions.
Rose Alinaya
VP Investor Relations and Corporate Administration
UTHR’s 10-K answers the question of when it recognizes revenue:
We generate revenues from the sale of our commercial products (Tyvaso, Tyvaso DPI, Remodulin, Orenitram, Unituxin, and Adcirca). We have entered into separate, non-exclusive distribution agreements with Accredo Health Group, Inc. and its affiliates and Caremark, L.L.C. to distribute Tyvaso, Tyvaso DPI, Remodulin, the Remunity Pump, and Orenitram in the United States. We also sell Tyvaso, Remodulin, and Unituxin to distributors internationally.
We require our specialty pharmaceutical distributors to maintain reasonable levels of inventory reserves for our treprostinil-based therapies because the interruption of these therapies can be life threatening. Our specialty pharmaceutical distributors typically place monthly or semi-monthly orders based on current utilization trends and contractual minimum and maximum inventory requirements. As a result, sales of our treprostinil-based therapies can vary depending on the timing and magnitude of these orders and do not precisely reflect changes in patient demand.
Revenue is recognized when we transfer control of our products to our distributors, which is generally when the product is shipped or delivered to the distributor as our contracts have a single performance obligation (delivery of our product). Future revenue from delivery of our products will be based on purchase orders provided to us by our distributors.
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Post by runner on Oct 20, 2023 10:55:09 GMT -5
Ron: Thanks for taking the time and effort to get a thorough answer to this question.
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Post by prcgorman2 on Oct 20, 2023 12:13:55 GMT -5
"Royalties are recognized upon UTHR’s quarterly reporting of TDPI sales."
I like this sentence. It has such a nice accounting feel to it. UTHR recognizes revenue when Tyvaso DPI is "shipped or delivered" and MNKD recognizes revenue from royalty payments based on what UTHR reports on their quarterly recognized revenue.
I am curious if the "shipped or delivered" is drop-shipped from MNKD, or whether UTHR warehouses Tyvaso DPI somewhere and then UTHR re-ships it?
I also think the "shipped or delivered" is interesting because it embodies accounting for two common ways manufactured materials are billed and paid. Sometimes billing is when the material leaves the origination dock (aka "Freight On Board") and sometimes its when the material arrives at the termination dock and a "receiving report" has been completed. I think UTHR is saying they may have either of those accounting mechanisms (and associated business agreements) in place depending upon who/where material is shipped.
The last curiosity for the moment. I think "recognizing revenue" means cash (is king) already changed hands and recognition is a bookkeeping record for accounting and reporting purposes. If that is true, then Tyvaso DPI is paid for before it is shipped or delivered. That seems odd. My experience is FOB versus delivered-and-received has to do with establishing dates and credits for aging accounts receivable, not for recognizing revenue. I'm no accountant (but had 2 semesters of accounting in college) so I'll just put a pin in it, but glad I could share idle thoughts!
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Post by robbmo on Oct 20, 2023 13:08:16 GMT -5
This is a great thread! You all are the best, and thank you for sharing!!
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