On May 3, 2018 Cambrex Corporation (NYSE: CBM), a leading manufacturer of small molecule innovator and generic Active Pharmaceutical Ingredients (APIs), reported its results for the first quarter ended March 31, 2018 (Press release, Cambrex, MAY 3, 2018, View Source [SID1234526020]).
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Highlights
Net revenue increased 34% to $141.1 million compared to $105.0 million in the same quarter last year. Excluding the impact of adopting the new revenue standard, ASC 606 – Revenue from Contracts with Customers, net revenue decreased 1%.
GAAP Diluted EPS from continuing operations increased 14% to $0.72 per share from $0.63 per share in the same quarter last year. Excluding the impact of adopting ASC 606, Diluted EPS from continuing operations was $0.32 per share.
EBITDA increased 9% to $37.9 million compared to $34.8 million in the same quarter last year. Adjusted EBITDA, which excludes the impact of adopting ASC 606, decreased to $21.3 million from $34.8 million in the same quarter last year (see table at the end of this release).
Net cash was $187.6 million at the end of the quarter, an increase of $4.3 million during the quarter.
The Company continues to expect full year 2018 Adjusted net revenue growth, which excludes the impact of foreign currency and adoption of ASC 606, to be between -2% and 2% compared to 2017 and Adjusted EBITDA to be between $150 and $160 million. (see Financial Expectations – Continuing Operations section below for related explanations and additional financial guidance).
"In the first quarter, we expanded our innovator portfolio with the addition of two new late-stage projects, both with the potential to generate more than $10 million in peak API sales. We also saw an increase in orders for generic APIs. We are committed to investing in additional manufacturing and laboratory capacity to meet growing demand, and our ongoing expansion
projects are progressing according to plan," commented Steven M. Klosk, President and Chief Executive Officer.
"Our first quarter financial performance was in line with our expectations and the outsourcing market continues to benefit from favorable market dynamics and strong fundamentals. We are confident that we will meet our financial guidance for the year."
Basis of Reporting
The Company has provided a reconciliation of GAAP amounts to adjusted (i.e. Non-GAAP) amounts at the end of this press release. Cambrex management believes that the adjusted amounts provide useful information to investors due to the magnitude and nature of certain amounts recorded in the GAAP amounts.
First Quarter 2018 Operating Results – Continuing Operations
Net revenue was $141.1 million, an increase of $36.1 million, or 34%, compared to the first quarter of 2017. Excluding a 3% favorable impact of foreign exchange compared to the first quarter of 2017, net revenue increased 31%. The increase primarily reflects higher volumes and the adoption of ASC 606, which accelerated revenue recognition for a portion of Cambrex’s portfolio, enabling revenues for certain products to be recognized over time, rather than upon delivery to the customer. Cambrex elected the modified retrospective method which did not require prior periods to be restated. Excluding the impact of adopting ASC 606, net revenue decreased 1%.
Gross margin decreased to 36% from 45% compared to the same quarter last year. The decrease was primarily driven by certain inventory charges due to batch failures, unfavorable manufacturing variances and product mix. Excluding the impact of adopting ASC 606, gross margin was 33%.
Selling, general and administrative expenses were $16.9 million, compared to $15.4 million in the same quarter last year. This increase was primarily due to certain consulting costs, foreign currency and due diligence costs related to mergers and acquisition activities.
Research and development expenses were $3.6 million, compared to $3.9 million in the same quarter last year. This decrease was primarily driven by higher absorption of expenses into inventory and cost of goods sold as a result of increased revenue generating activity, partially offset by higher personnel costs.
Operating profit was $30.4 million compared to $27.6 million in the same quarter last year. Excluding the impact of adopting ASC 606, operating profit was $13.8 million. The decrease was primarily the result of lower gross profit and higher operating expenses as described above. Adjusted EBITDA was $21.3 million compared to $34.8 million in the same quarter last year (see table at the end of this press release).
Income tax expense was $5.8 million resulting in an effective tax rate of 19% compared to $5.8 million and an effective tax rate of 22% in the same quarter last year. The favorable impact of immediately recognizing certain effects of share-based compensation was negligible in the current quarter, but significant in the prior year. The adoption of ASC 606 had a negligible impact on the effective tax rate.
Income from continuing operations was $24.2 million or $0.72 per share compared to $21.1 million or $0.63 per share in the same quarter last year. Excluding the impact of adopting ASC 606, Diluted EPS from continuing operations was $0.32 per share.
Adjusted income from continuing operations was $12.5 million or $0.37 per share, compared to $20.0 million or $0.60 per share in the same quarter last year (see table at the end of this press release).
Capital expenditures were $23.8 million and depreciation and amortization was $7.5 million compared to $12.2 million and $7.2 million, respectively, in the same quarter last year.
Net cash was $187.6 million at the end of the first quarter, an increase of $4.3 million during the quarter.
Consistent with the Company’s usual guidance practices, these financial expectations are for continuing operations and exclude the impact of any potential acquisitions, divestitures, restructuring activities, outcomes of tax disputes and the adoption of ASC 606 which became effective January 1, 2018. Adjusted net revenue growth expectations exclude the impact of foreign exchange and adoption of ASC 606. EBITDA, Adjusted EBITDA and Adjusted income from continuing operations per share for 2018 will be computed on a basis consistent with the reconciliation of the first quarter financial results in the tables at the end of this press release. Free cash flow is defined as the change in debt, net of cash during the year. Adjusted effective tax rate excludes certain effects of share-based payments that were possibly deferred under the previous guidance. The tax rate will be sensitive to the Company’s geographic mix of income, changes in the tax laws or rates within the countries in which the Company operates and the effects of certain share-based payments.
The financial information contained in this press release is unaudited, subject to revision and should not be considered final until the Company’s Form 10-Q for first quarter 2018 is filed with the SEC.
Conference Call and Webcast
A conference call to discuss the Company’s first quarter 2018 results will begin at 8:30 a.m. Eastern Time on May 3, 2018 and can be accessed by calling 1-877-260-1479 for domestic and +1-334-323-0522 for international. Please use the passcode 5093025 and call approximately 10 minutes prior to the start time. A webcast will be available in the Investors section on the Cambrex website located at www.cambrex.com. A telephone replay of the conference call will be available through May 10, 2018 by calling 1-888-203-1112 for domestic and +1-719-457-0820 for international. Please use the passcode 5093025 to access the replay.