On February 25, 2016 Emergent BioSolutions Inc. (NYSE:EBS) reported financial results for the quarter and twelve months ended December 31, 2015 (Press release, Emergent BioSolutions, FEB 25, 2016, View Source;p=RssLanding&cat=news&id=2143557 [SID:1234509229]).
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2015 FINANCIAL HIGHLIGHTS
Total revenues: Q4 2015 of $168.1 million, +14% Y/Y; twelve months 2015 of $522.8 million, +16% Y/Y;
GAAP net income: Q4 2015 of $33.3 million, or $0.71 per diluted share, +11% Y/Y; twelve months 2015 of $62.9 million, or $1.41 per diluted share, +71% Y/Y;
Adjusted net income: Q4 2015 of $37.5 million, or $0.78 per diluted share, +8% Y/Y; twelve months 2015 of $75.6 million, or $1.60 per diluted share, +40% Y/Y;
EBITDA: Q4 2015 of $58.5 million, or $1.22 per diluted share, +10% Y/Y; twelve months 2015 of $130.1 million, or $2.75 per diluted share, +41% Y/Y; and
Adjusted EBITDA: Q4 2015 of $61.7 million, or $1.28 per diluted share, +7% Y/Y; twelve months 2015 of $137.4 million, or $2.91 per diluted share, +30% Y/Y.
2016 FORECAST:
Full Year: revenue of $600 to $630 million; GAAP net income of $75 to $85 million, non-GAAP adjusted net income of $90 to $100 million, and EBITDA of $150 to $160 million
1Q 2016: revenue of $105 to $120 million
"Our strong fourth quarter in 2015 continued our history of growth over the last three years both financially and operationally. Since 2012, we nearly doubled our revenues to over $520 million, achieved a net income CAGR of 38% and expanded our portfolio to nine products," said Daniel J. Abdun-Nabi, president and chief executive officer of Emergent BioSolutions. "2016 will bring a renewed focus on addressing public health threats as we spin off Aptevo Therapeutics, our biosciences business, and enter our next phase of growth. We will continue to establish ourselves as a market leader with a global impact and work to achieve our vision of protecting and enhancing 50 million lives by 2025."
2015 BUSINESS ACCOMPLISHMENTS
Announced plan to implement tax-free spin-off of Aptevo Therapeutics (the Company’s Biosciences business) into a separate, publicly traded company, targeted for mid-2016;
Launched a new platform technology, Emergard, the Company’s military-grade auto-injector device for chemical threats being sold in international markets;
Received three approvals from the U.S. Food and Drug Administration (FDA):
Expansion of the BioThrax (Anthrax Vaccine Adsorbed) label to include post-exposure prophylaxis (PEP) against anthrax disease; the first vaccine to be licensed using the FDA Animal Rule,
IXINITY, a recombinant factor IX treatment for Hemophilia B, and
Anthrasil, an immune globulin for the treatment for inhalational anthrax.
Secured over $95 million in new multi-year contract and grant funding, including the following:
$20 million in multiple contracts with BARDA to manufacture Ebola monoclonal antibodies, including the Company’s first awarded task order under the Center for Innovation in Advanced Development and Manufacturing program,
A $44 million CDC contract to further supply the strategic national stockpile with the Company’s Vaccinia Immune Globulin product, and
A $31 million BARDA contract for the advanced development of NuThrax (anthrax vaccine adsorbed with CPG 7909 adjuvant), the Company’s next generation anthrax vaccine candidate.
Initiated a Phase 1 clinical trial for MOR209/ES414, an immunotherapeutic protein built on our ADAPTIR platform technology and targeting prostate cancer, which is being developed in collaboration with MorphoSys AG; and
Continued progress towards achieving licensure of Building 55.
2015 FINANCIAL PERFORMANCE
(I) Quarter Ended December 31, 2015 (unaudited)
Revenues
Product Sales
For Q4 2015, product sales were $132.6 million, an increase of 17% as compared to 2014. The increase primarily reflects increased sales of BioThrax during the quarter.
(in millions) Three Months Ended
December 31,
2015 2014 % Change
Product Sales
BioThrax $ 111.9 $ 87.9 27 %
Other biodefense 12.5 14.5 (13 )%
Total Biodefense $ 124.4 $ 102.3 22 %
Total Biosciences $ 8.2 11.0 (25 )%
Total Product Sales $ 132.6 $ 113.4 17 %
Contract Manufacturing
For Q4 2015, revenue from the Company’s contract manufacturing operations was $10.5 million, an increase of 10% as compared to 2014. The increase was primarily due to the timing of fill/finish services to third parties.
Contracts, Grants and Collaborations
For Q4 2015, contracts, grants and collaborations revenue was $24.9 million, unchanged as compared to 2014.
Operating Expenses
Cost of Product Sales and Contract Manufacturing
For Q4 2015, cost of product sales and contract manufacturing was $39.8 million, an increase of 22% as compared to 2014. The increase was primarily attributable to increased sales of BioThrax to the CDC.
Research and Development
For Q4 2015, gross research and development (R&D) expenses were $32.5 million, a decrease of 17% as compared to 2014. The decrease primarily reflects lower contract service costs associated with product candidates and technology platform development activities associated with the Biosciences division.
For Q4 2015, net R&D expenses were $7.6 million, a decrease of 46% as compared to 2014, reflecting a decrease in unfunded development spending in our Biosciences division, including spending on IXINITY, a product that we launched in Q2 2015. Net R&D expenses, which are more representative of the Company’s actual out-of-pocket investment in product development, are calculated as gross research and development expenses less contracts, grants and collaboration revenues.
(in millions) Three Months Ended
December 31,
2015 2014 % Change
Research and Development Expenses (Gross) $ 32.5 $ 39.0 (17 )%
Adjustments:
Contracts, grants and collaborations revenues 24.9 25.0 N/A
Net Research and Development Expenses $ 7.6 $ 14.0 (46 )%
Selling, General and Administrative
For Q4 2015, selling, general and administrative expenses were $46.0 million, an increase of 44% as compared to 2014. The increase was primarily attributable to a one-time $3.5 million reserve for potential write-off of accounts receivable within the Biosciences segment, a charge to write-off certain obsolete fixed assets, and increased information technology costs associated with the implementation of a new ERP system, as well as costs associated with the spin-off of Aptevo Therapeutics and professional services to support the Company’s strategic growth initiatives.
Net Income
For Q4 2015, GAAP net income was $33.3 million, an increase of 11% as compared to 2014. For Q4 2015 and 2014, GAAP net income per diluted share is computed using the if-converted method. This method requires GAAP net income to be adjusted to reflect the impact of interest expense and amortization of debt issuance cost, both net of tax, associated with the Company’s 2.875% Convertible Senior Notes due 2021. As a result, GAAP net income per diluted share for Q4 2015 is adjusted in the amount of $0.9 million, from $33.3 million to $34.2 million, and diluted shares outstanding were 48.1 million. GAAP net income per diluted share for Q4 2014 is adjusted in the amount of $0.6 million, from $30.1 million to $30.7 million, and diluted shares outstanding were 46.4 million.
(II) Twelve Months Ended December 31, 2015 (unaudited)
Revenues
Product Sales
For the twelve months of 2015, product sales were $356.9 million, an increase of 14% as compared to 2014. The increase primarily reflects increased sales of BioThrax in 2015.
(in millions) Twelve Months Ended
December 31,
2015 2014 % Change
Product Sales
BioThrax $ 293.9 $ 245.9 20 %
Other biodefense 35.0 35.9 (3 )%
Total Biodefense $ 328.9 $ 281.8 17 %
Total Biosciences $ 28.0 $ 30.1 (7 )%
Total Product Sales $ 356.9 $ 311.9 14 %
Contract Manufacturing
For the twelve months of 2015, revenue from the Company’s contract manufacturing operations was $43.0 million, an increase of 39% as compared to 2014. The increase was primarily due to a full year of revenues from the Company’s fill/finish facility in Baltimore, plasma based manufacturing from the Company’s Winnipeg facility and contract manufacturing services related to the production of an MVA Ebola vaccine candidate.
Contracts, Grants and Collaborations
For the twelve months of 2015, contracts, grants and collaborations revenue was $122.9 million, an increase of 15% as compared to 2014. The increase was primarily due to development funding for Anthrasil and for our CIADM program.
Operating Expenses
Cost of Product Sales and Contract Manufacturing
For the twelve months of 2015, cost of product sales and contract manufacturing was $124.3 million, an increase of 5% as compared 2014. The increase was primarily attributable to the increase in the number of BioThrax doses delivered to the CDC.
Research and Development
For the twelve months of 2015, gross R&D expenses were $154.0 million, an increase of 2% as compared to 2014. The increase was primarily attributable to higher contract service costs for product candidates and manufacturing development in the Biodefense segment.
Net R&D expenses for the twelve months of 2015 were $31.1 million, a decrease of 29% as compared to 2014, reflecting a decrease in unfunded development spending in our Biosciences division, including spending on IXINITY.
(in millions) Twelve Months Ended
December 31,
2015 2014 % Change
Research and Development Expenses (Gross) $ 154.0 $ 150.8 2 %
Adjustments:
Contracts, grants and collaboration revenues 122.9 107.3 15 %
Net Research and Development Expenses $ 31.1 $ 43.5 (29 )%
Selling, General and Administrative
For the twelve months of 2015, selling, general and administrative expenses were $148.5 million, an increase of 21% as compared to 2014. The increase was primarily attributable to additional post-acquisition selling, general and administrative costs largely associated with the operations acquired in Q1 2014, including IXINITY launch costs, as well as costs associated with the spin-off of Aptevo Therapeutics and costs associated with professional services to support the Company’s strategic growth initiatives.
Net Income
For the twelve months of 2015, GAAP net income was $62.9 million, an increase of 71% as compared to 2014. For the twelve months of 2015 and 2014, GAAP net income per diluted share is computed using the if-converted method. This method requires GAAP net income to be adjusted to reflect the impact of interest expense and amortization of debt issuance cost, both net of tax, associated with the Company’s 2.875% Convertible Senior Notes due 2021. As a result, GAAP net income per diluted share for the twelve months of 2015 is adjusted in the amount of $3.9 million, from $62.9 million to $66.8 million, and diluted shares outstanding were 47.3 million. GAAP net income per diluted share for the twelve months of 2014 is adjusted in the amount of $3.6 million, from $36.7 million to $40.3 million, and diluted shares outstanding were 45.8 million.
2016 FINANCIAL OUTLOOK
(I) Full Year 2016
For the full year of 2016, the Company reaffirms its forecast for total revenues of $600 to $630 million, driven by growth in BioThrax sales of $305 to $320 million, continued domestic and international sales of the other Biodefense division products, and continued robust development funding through contracts and grants revenues. The Company also forecasts full year 2016 GAAP net income of $75 to $85 million, non-GAAP adjusted net income of $90 to $100 million, and EBITDA of $150 to $160 million (see "Reconciliation of GAAP Net Income to Adjusted Net Income and EBITDA" for a definition of terms and a reconciliation table). The Company’s outlook for 2016 includes the impact of a successful spin-off of Aptevo Therapeutics in mid-2016 and continuous delivery of BioThrax to the CDC under an anticipated follow-on, multiyear procurement contract, but does not include any estimates for BioThrax deliveries from Building 55, the Company’s large scale BioThrax manufacturing facility, or any estimates for potential new corporate development or other M&A transactions.
(II) Q1 2016
For the first quarter of 2016, the Company reaffirms its forecast for total revenues of $105 to $120 million.
RECONCILIATION OF GAAP NET INCOME TO ADJUSTED NET INCOME, EBITDA AND ADJUSTED EBITDA
This press release contains three financial measures (Adjusted Net Income, EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), and adjusted EBITDA) that are considered "non-GAAP" financial measures under applicable Securities & Exchange Commission rules and regulations. These non-GAAP financial measures should be considered supplemental to and not a substitute for financial information prepared in accordance with generally accepted accounting principles. The Company’s definition of these non-GAAP measures may differ from similarly titled measures used by others. Adjusted Net Income adjusts for specified items that can be highly variable or difficult to predict, or reflect the non-cash impact of charges resulting from purchase accounting. EBITDA reflects net income excluding the impact of depreciation, amortization, interest expense and provision for income taxes. Adjusted EBITDA also excludes specified items that can be highly variable and the non-cash impact of certain purchase accounting adjustments. The Company views these non-GAAP financial measures as a means to facilitate management’s financial and operational decision-making, including evaluation of the Company’s historical operating results and comparison to competitors’ operating results. These non-GAAP financial measures reflect an additional way of viewing aspects of the Company’s operations that, when viewed with GAAP results and the reconciliations to the corresponding GAAP financial measure, may provide a more complete understanding of factors and trends affecting the Company’s business.
The determination of the amounts that are excluded from these non-GAAP financial measures are a matter of management judgment and depend upon, among other factors, the nature of the underlying expense or income amounts. Because non-GAAP financial measures exclude the effect of items that will increase or decrease the Company’s reported results of operations, management strongly encourages investors to review the Company’s consolidated financial statements and publicly filed reports in their entirety.
Reconciliation of GAAP Net Income to Adjusted Net Income
(in millions, except per share value) Three Months Ended
December 31,
2015 2014 Source
GAAP Net Income $ 33.3 $ 30.1 NA
Adjustments:
Spin-off and acquisition-related costs
(transaction & integration) 2.0 0.6 SG&A
Non-cash amortization charges 2.7 2.3 COGS, SG&A,
Other Income
Impact of purchase accounting on inventory step-up – 1.0 COGS
Restructuring activities 1.2 2.6 SG&A
Tax effect (1.8 ) (2.0 ) NA
Total Adjustments 4.2 4.5 NA
Adjusted Net Income
$
37.5
$
34.6
NA
Adjusted Net Income per Diluted Share $ 0.78 $ 0.75
(in millions, except per share value) Twelve Months Ended
December 31,
2015 2014 Source
GAAP Net Income $ 62.9 $ 36.7 NA
Adjustments:
Spin-off and acquisition-related costs
(transaction & integration) 5.5 8.1 SG&A
Non-cash amortization charges 10.8 9.5 COGS, SG&A,
Other Income
Write-off of syndicated loans – 1.8 Other Income
Impact of purchase accounting on inventory step-up 0.6 3.0 COGS
Restructuring activities 1.2 2.6 SG&A
Tax effect (5.4 ) (7.5 ) NA
Total Adjustments 12.7 17.5 NA
Adjusted Net Income
$
75.6
$
54.2
NA
Adjusted Net Income per Diluted Share $ 1.60 $ 1.18
Reconciliation of GAAP Net Income to EBITDA and Adjusted EBITDA
(in millions, except per share value) Three Months Ended
December 31,
2015 2014
GAAP Net Income $ 33.3 $ 30.1
Adjustments:
+ Depreciation & Amortization 9.1 7.8
+ Provision For Income Taxes 14.5 14.2
+ Total Interest Expense 1.6 1.2
Total Adjustments 25.2 23.2
EBITDA
$
58.5
$
53.3
EBITDA per Diluted Share $ 1.22 $ 1.15
Additional Adjustments:
+ Spin-off and acquisition-related costs
(transaction & integration) 2.0 0.6
+ Impact of purchase accounting on inventory step-up – 1.0
+ Restructuring activities 1.2 2.6
Total Additional Adjustments 3.2 4.2
Adjusted EBITDA
$
61.7
$
57.5
Adjusted EBITDA per Diluted Share $ 1.28 $ 1.24
(in millions, except per share value) Twelve Months Ended
December 31,
2015 2014
GAAP Net Income $ 62.9 $ 36.7
Adjustments:
+ Depreciation & Amortization 33.8 31.0
+ Provision Income Taxes 26.9 16.3
+ Total Interest Expense 6.5 8.2
Total Adjustments 67.2 55.5
EBITDA
$
130.1
$
92.2
EBITDA per Diluted Share $ 2.75 $ 2.01
Additional Adjustments:
+ Spin-off and acquisition-related costs
(transaction & integration) 5.5 8.1
+ Impact of purchase accounting on inventory step-up 0.6 3.0
+ Restructuring activities 1.2 2.6
Total Additional Adjustments 7.3 13.7
Adjusted EBITDA
$
137.4
$
105.9
Adjusted EBITDA per Diluted Share $ 2.91 $ 2.31