Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- DRI Healthcare Trust (DHTRF, Financial) reported a 50% increase in normalized total cash receipts, reaching $43 million for Q2 2024.
- The company recorded a 48% increase in total income, amounting to $41.6 million for the quarter.
- Adjusted EBITDA rose by 31% to $432.9 million, translating to an adjusted EBITDA margin of 77%.
- The Trust declared a quarterly dividend of $0.085 per unit, payable on October 18th.
- DRI Healthcare Trust (DHTRF) has a robust pipeline with $3.2 billion in potential opportunities under active evaluation.
Negative Points
- The Trust is currently dealing with internal control and governance issues, including the remediation of material weaknesses identified.
- There were irregularities related to consulting and other expenses, leading to an investigation and a change in leadership.
- The company had to restate its 2023 financial statements and related disclosure documents.
- There is ongoing litigation and arbitration relating to the generic entry of a key product, which could impact future cash flows.
- The Trust's guidance for 2024 royalty income remains conservative, with no upward revision despite strong performance in Q2.
Q & A Highlights
Q: Good morning, Jerry, earlier than everyone else. And first question just has to do with recent conversations that you've been having with your potential counterparties as of as you think about equity or sorry, our royalty monetization, I just wanted to know if the tone of those conversations has changed in any way such that you may need to pay more for assets? Or is it the businesses use?
A: Hey, Doug, it's Ali. how you come up with when we spoke immediately after these events? I think one of the things that I was worried about was certainly counterparty skepticism on our ability to consummate transactions, especially ones that potentially had back-end payments and the like. I really do not feel that I think people have had a look at our balance sheet, understand where we are at, you see the strong cash flows. And, you know, I think that relative to our maybe initial worries the day of the events, things in our discussions have been much more normal than certainly I anticipated at the outset. So what I will say and the income can feel free to chime in here as well is that our discussions are progressing and pretty much exactly in the way that they were prior to these events. We're seeing a very robust stream of late stage transactions that we're working on, and we're not getting any pushback in any form from the counterparties that we're in discussion with. So deal engine is working really well. And I think that's that's really a credit to Novion and his team there.
Q: Perfect. A follow up as a more personal question for Ali and Gary and I expect you're both busy with other items in your lives and taking on these two roles on. Is it too much are you going to be able to allocate the time that's necessary to completely right this year. And given the potential for how much work this is going to be, would the Company be open to in formal approaches, and I'll leave it there.
A: Thank you. Yes, so it's Gary. Very nice to meet you, Doug. I've committed myself to this that two other boards that I participate in, but they are not things that demand a huge amount of my time. I've committed myself to do this for the next two years, and I'll be here whenever I need to be here and I'll be devoting sort of 100% of my time to a third. There are clearly some technical things that need to happen around internal controls, but there's also cultural change that has to happen as well. And that's not something that happens overnight, but it's something we've committed to do and I'll commit whatever time I need to do to make that happen.
Q: Thanks for taking my questions and some of the updates here. So if you can please describe the deals that you have in the pipeline and to what extent are your discussions on potential royalty deals on a positive technology to the management transition? Like when can we start to expect more deal consummation? And then secondly, just the new management team here today. And I'm if you can kind of highlight your initial differences if there are like strategically or financially in any way different versus what just has done historically, I would love to hear your thoughts on where you want to take the business.
A: I guess on the pipeline, we have not slowed at all with regards to our sourcing efforts and our diligence efforts. If anything, this has energized the team two to ensure that we go and get the highest quality assets and research them and execute on that. I would say that and this is just the fact I mean, our pipeline is as big and as robust as it's ever been in the history of DRI, quite frankly, it could be bigger if we if we wanted it to be, we have trimmed it a little bit just in order to focus on and on on deals that we believe has the highest probability of closing from our perspective. And so we're fully confident in our ability to continue to execute on deals. There's good engagement with partners. We are in mid stages with with several parties. And let's just look, we hope to announce something over the coming months.
Q: Good morning. Thank you for my taking my questions guys on just on the on the product portfolio now on what is driving or server to strength there? And then on the duration generic coming on board, any contractual agreements in case there is a potential monetary damages. Okay. And then just pick a kind of a backseat here on the transition. Is there any certain know-how or a Rolodex of partners that now goes away with the departure of the previous CEO. And I believe, Gary, you did mention, you know, the potential cultural change or any sort of internal expectations on that we can expect. I believe you do run a pretty slim team, but maybe just kind of give us and I'll review what you would expect moving forward.
A: So I'll spend a second on OraSure and then I'll let Naveen answer the questions on pipeline and Gary, on on some of the other points you raised I think on on a ratio, look, as we stated, were co defendants in the litigation there. I think when you look at the way that we're addressing the situation right now, there is a mechanical impact from the shortened duration of the asset and the actions that we took this quarter. But sort of the bigger picture question is the revision in our forecast. And I think we don't have enough data right now to do a proper revision of the forecast yet in terms of the impact of the generic entry, I think over the next quarter or two. We'll have sufficient data to do that and we'll give you an update at that point when we have a bit more visibility, I think addressing your question on the institutional knowledge, for lack of a better word. Look, I don't want to underplay that in the sense that obviously the beds are at a pretty an extensive range of knowledge and 25 years of experience in this business. That's very important from, I think, an oversight perspective. But at the same time, I think the the work that was done, as I mentioned before, to build a really robust and independent set of teams and processes in the organization. Over the past couple of years, it has been really significant. So the investment team is has been operating and sourcing those transactions independently of Mesabi for pretty much the entire history of the Company after the IPO. I think they've done a great job in doing that. And certainly I'll have to work a bit harder in some of the areas on that. I have a little bit less depth in, but I've also been involved with oversight of the investment team on the investment committee and working through restructuring and financial aspects of the transaction. So I think there's a lot of continuity there, and we will certainly have to fill in some gaps. But I think we have the right team in place to make sure that's a smooth transition.
Q: Good morning, Gary, Ali and the welcome, Amit and Sandy. Thanks so much. For taking our questions. So now that the accounting effect effectively has been has been cleaned up. And as we look forward
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
