On July 29, 2019 Mylan N.V. (NASDAQ: MYL) reported its financial results for the three and six months ended June 30, 2019 (Press release, Mylan, JUL 29, 2019, View Source [SID1234537869]).
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Second Quarter 2019 Financial Highlights
U.S. GAAP diluted loss per ordinary share ("U.S. GAAP EPS") of $(0.33) as compared to earnings of $0.07 per ordinary share in the prior year period and adjusted diluted earnings per ordinary share ("adjusted EPS") of $1.03, as compared to $1.07 in the prior year period.
Total revenues of $2.85 billion, up 2% compared to the prior year period.
Revenue Highlights:
Rest of World segment net sales of $805.2 million, up 5%, up 10% on a constant currency basis.
North America segment net sales of $1.02 billion, up 2% on an actual and constant currency basis.
Europe segment net sales of $989.6 million, flat, up 6% on a constant currency basis.
U.S. GAAP net cash provided by operating activities for the three months ended June 30, 2019 of $668.9 million, compared to $430.2 million in the prior year period and adjusted free cash flow for the three months ended June 30, 2019 of $723.7 million, compared to $661.4 million in the prior year period.
U.S. GAAP net cash provided by operating activities for the six months ended June 30, 2019 of $629.2 million, compared to $1.05 billion in the prior year period and adjusted free cash flow for the six months ended June 30, 2019 of $750.8 million, compared to $1.33 billion in the prior year period, both driven primarily by an increased investment in working capital.
Mylan is not providing forward looking guidance for U.S. GAAP reported financial measures or a quantitative reconciliation of forward-looking non-GAAP financial measures. Please see "Non-GAAP Financial Measures" for additional information.
Mylan CEO Heather Bresch said: "Mylan’s second quarter performance was strong as we delivered or exceeded on expectations across all financial metrics. In addition, based upon our strong execution against our plan, we remain on track to deliver on our 2019 guidance."
Mylan CFO Ken Parks added, "Mylan continues to generate strong cash flow with approximately $724 million of adjusted free cash flow in the second quarter of 2019, up 9% from the prior year and ahead of our expectations. Our performance highlights our stable and durable cash flow profile and allows us to remain committed to our deleveraging strategy to repay $1.1 billion of debt by the end of 2019. We also remain fully committed to maintaining our investment grade credit rating. For the full year 2019, we are reaffirming our guidance ranges for total revenue of $11.5 billion to $12.5 billion, adjusted EPS guidance range of $3.80 to $4.80 and adjusted free cash flow range of $1.9 billion to $2.3 billion."
Financial Summary
Three Months Ended
Six Months Ended
June 30,
June 30,
(Unaudited; in millions, except per share amounts and %s)
2019
2018
Percent
Change
2019
2018
Percent
Change
Total Revenues (1)
$
2,851.5
$
2,808.3
2%
$
5,347.0
$
5,492.8
(3)%
North America Net Sales
1,023.4
1,000.8
2%
1,946.3
1,986.1
(2)%
Europe Net Sales
989.6
990.6
—%
1,884.9
2,029.0
(7)%
Rest of World Net Sales
805.2
764.1
5%
1,447.6
1,390.8
4%
Other Revenues
33.3
52.8
(37)%
68.2
86.9
(22)%
U.S. GAAP Gross Profit
$
932.6
$
962.5
(3)%
$
1,737.8
$
1,946.8
(11)%
U.S. GAAP Gross Margin
32.7
%
34.3
%
32.5
%
35.4
%
Adjusted Gross Profit (2)
$
1,533.1
$
1,495.7
3%
$
2,873.8
$
2,915.5
(1)%
Adjusted Gross Margin (2)
53.8
%
53.3
%
53.7
%
53.1
%
U.S. GAAP Net (Loss) Earnings
$
(168.5)
$
37.5
(549)%
$
(193.5)
$
124.6
(255)%
U.S. GAAP EPS
$
(0.33)
$
0.07
(571)%
$
(0.38)
$
0.24
(258)%
Adjusted Net Earnings (2)
$
532.8
$
551.5
(3)%
$
954.7
$
1,047.1
(9)%
Adjusted EPS (2)
$
1.03
$
1.07
(4)%
$
1.85
$
2.03
(9)%
EBITDA (2)
$
596.7
$
682.7
(13)%
$
1,130.9
$
1,346.5
(16)%
Adjusted EBITDA (2)
$
847.4
$
866.6
(2)%
$
1,557.6
$
1,680.5
(7)%
___________
(1)
Amounts exclude intersegment revenue that eliminates on a consolidated basis.
(2)
Non-GAAP financial measures. Please see "Non-GAAP Financial Measures" for additional information.
Second Quarter 2019 Financial Results
Total revenues for the three months ended June 30, 2019 were $2.85 billion, compared to $2.81 billion for the comparable prior year period, representing an increase of $43.2 million, or 2%. Total revenues include both net sales and other revenues from third parties. Net sales for the current quarter were $2.82 billion, compared to $2.76 billion for the comparable prior year period, representing an increase of $62.7 million, or 2%. Other revenues for the current quarter were $33.3 million, compared to $52.8 million for the comparable prior year period, a decrease of $19.5 million.
The increase in net sales included an increase in the North America segment of 2% and in the Rest of World segment of 5%. Net sales in the Europe segment were essentially flat when compared to the prior year period. Mylan’s net sales were unfavorably impacted by the effect of foreign currency translation, primarily reflecting changes in the U.S. Dollar as compared to the currencies of Mylan’s subsidiaries in India, the European Union and Australia. The unfavorable impact of foreign currency translation on current period net sales was approximately $93.6 million, or 3%. On a constant currency basis, net sales increased by approximately $156.3 million, or 6%. This increase was primarily driven by new product sales, partially offset by a decrease in net sales from existing products as a result of lower volumes and, to a lesser extent, pricing. Below is a summary of net sales in each of our segments for the three months ended June 30, 2019:
Net sales from North America segment totaled $1.02 billion in the current quarter, an increase of $22.6 million or 2% when compared to the prior year period. This increase was primarily driven by new product sales partially offset by lower volumes of existing products and, to a lesser extent, pricing. New product sales were primarily driven by sales of Fulphila (biosimilar to Neulasta) and the Wixela Inhub. The volume decline from existing products was due to changes in the competitive environment. The impact of foreign currency translation on current period net sales was insignificant within North America.
Net sales from Europe segment totaled $989.6 million in the current quarter, a decrease of $1.0 million, when compared to the prior year period. This decrease was primarily the result of the unfavorable impact of foreign currency translation of approximately $59.5 million or 6%, and to a lesser extent, pricing on existing products. The unfavorable impact of foreign currency translation was offset by new product sales, including Hulio and the TOBI Podhaler, and higher volumes of existing products. Constant currency net sales increased by approximately $58.5 million, or 6%, when compared to the prior year period.
Net sales from Rest of World segment totaled $805.2 million in the current quarter, an increase of $41.1 million or 5% when compared to the prior year period. This increase was primarily the result of higher volumes of existing products primarily driven by products sold in China and new product sales in Australia and emerging markets. These increases were partially offset primarily by the unfavorable impact of foreign currency translation and, to a lesser extent, by lower pricing on existing products. Overall, net sales from Rest of World were unfavorably impacted by the effect of foreign currency translation by approximately $31.9 million, or 4%. Constant currency net sales increased by approximately $73.0 million, or 10% when compared to the prior year period.
U.S. GAAP gross profit was $932.6 million and $962.5 million for the second quarter of 2019 and 2018, respectively. U.S. GAAP gross margins were 33% and 34% in the second quarter of 2019 and 2018, respectively. U.S. GAAP gross margins were negatively impacted by the incremental amortization from product acquisitions and by expenses related to the recall of Valsartan products, each of which decreased gross margins by approximately 50 basis points. Gross margins were also negatively impacted as a result of lower gross profit for sales of existing products partially offset by the impact from new product sales. In addition, gross margins were negatively affected by approximately 25 basis points as a result of incremental manufacturing expenses, site remediation expenses and incremental restructuring charges incurred during the current period principally as a result of the activities at the Company’s Morgantown plant. Adjusted gross profit was $1.53 billion and adjusted gross margins were 54% for the second quarter of 2019 compared to adjusted gross profit of $1.50 billion and adjusted gross margins of 53% in the prior year period.
R&D expense for the three months ended June 30, 2019 was $147.6 million, compared to $206.7 million for the comparable prior year period, a decrease of $59.1 million. This decrease was primarily due to lower expenditures related to the reprioritization of global programs, and higher payments in the prior year period related to licensing arrangements for products in development.
SG&A expense for the three months ended June 30, 2019 was $668.6 million, compared to $623.3 million for the comparable prior year period, an increase of $45.3 million. The increase was primarily due to continued investments in selling and marketing activities. Also impacting the quarter was higher share-based compensation expense due to a reduction of approximately $23.5 million in the second quarter of 2018 related to certain performance-based awards and a decrease in bad debt expense of approximately $28.5 million related to a special business interruption event for one customer in the prior year period.
During the second quarter of 2019, the Company recorded a net charge of $20.9 million in Litigation settlements and other contingencies, net compared to a net gain of $46.4 million in the comparable prior year period. During the three months ended June 30, 2019, the Company recognized expense of approximately $18.0 million for a settlement in principle related to the modafinil antitrust matter, approximately $30.0 million for a settlement in principle with the SEC in connection with the SEC staff’s investigation of the Company’s public disclosures regarding its 2016 settlement with the Department of Justice concerning the EpiPen Medicaid Drug Rebate Program, which remains subject to SEC approval, and a gain of $24.8 million for fair value adjustments related to the contingent consideration for the acquisition of the exclusive worldwide rights to develop, manufacture and commercialize a generic equivalent to GlaxoSmithKline’s Advair Diskus and Seretide Diskus incorporating Pfizer Inc.’s proprietary dry powder inhaler delivery platform (the "respiratory delivery platform"). During the three months ended June 30, 2018, the Company recorded a gain of approximately $32.7 million for a fair value adjustment related to the respiratory delivery platform contingent consideration. The fair value adjustment was the result of changes to assumptions relating to the timing of product launch along with other competitive and market factors. In addition, the Company recognized a net gain for litigation settlements primarily related to the favorable resolution of certain patent infringement matters.
U.S. GAAP (loss) net earnings decreased by $206.0 million to a loss of $168.5 million for the three months ended June 30, 2019, compared to earnings of $37.5 million for the prior year period and U.S. GAAP EPS decreased from $0.07 in the prior year period to $(0.33) in the current quarter. The Company recognized a U.S. GAAP income tax provision of $116.4 million in the current year period, compared to a U.S. GAAP income tax benefit of $18.8 million for the comparable prior year period. The increase primarily relates to tax expense of approximately $129.9 million for a settlement in principle with the Internal Revenue Service ("IRS") to resolve federal tax matters related to the 2015 EPD Business Acquisition (as defined below), including adjusting the interest rates used for intercompany loans and confirming our status as a non-U.S. corporation for U.S. federal income tax purposes. We are currently in the process of memorializing our closing agreement with the IRS, which we expect to enter into in the third quarter. Adjusted net earnings decreased to $532.8 million compared to $551.5 million for the prior year period. Adjusted EPS decreased to $1.03 from $1.07 in the prior year period.
EBITDA was $596.7 million for the current quarter and $682.7 million for the comparable prior year period. After adjusting for certain items as further detailed in the reconciliation below, adjusted EBITDA was $847.4 million for the current quarter and $866.6 million for the comparable prior year period.
Six Months Ended June 30, 2019 Financial Results
Total revenues for the six months ended June 30, 2019 were $5.35 billion, compared to $5.49 billion for the comparable prior year period, representing a decrease of $145.8 million, or 3%. Total revenues include both net sales and other revenues from third parties. Net sales for the six months ended June 30, 2019 were $5.28 billion, compared to $5.41 billion for the comparable prior year period, representing a decrease of $127.1 million, or 2%. Other revenues for the six months ended June 30, 2019 were $68.2 million, compared to $86.9 million for the comparable prior year period.
The decrease in net sales included a decrease in the Europe segment of 7% and in the North America segment of 2%. These decreases were partially offset by an increase in the Rest of World segment of 4%. Mylan’s net sales were unfavorably impacted by the effect of foreign currency translation, primarily reflecting changes in the U.S. Dollar as compared to the currencies of Mylan’s subsidiaries in India, Australia, and the European Union. The unfavorable impact of foreign currency translation on current year net sales was approximately $225.6 million, or 4%. On a constant currency basis, the increase in net sales was approximately $98.5 million, or 2% for the six months ended June 30, 2019. This increase was primarily driven by new product sales, partially offset by a decrease in net sales from existing products as a result of lower volumes and, to a lesser extent, pricing. Below is a summary of net sales in each of our segments for the six months ended June 30, 2019:
Net sales from North America segment totaled $1.95 billion during the six months ended June 30, 2019, a decrease of $39.8 million or 2% when compared to the prior year period. This decrease was due primarily to lower volumes of existing products, driven by changes in the competitive environment and the impact of the Morgantown plant remediation activities, and to a lesser extent pricing. These decreases were partially offset by new product sales, including Wixela Inhub and Fulphila (biosimilar to Neulasta). The impact of foreign currency translation on current period net sales was insignificant within North America.
Net sales from Europe segment totaled $1.88 billion during the six months ended June 30, 2019, a decrease of $144.1 million or 7% when compared to the prior year period. This decrease was primarily the result of the unfavorable impact of foreign currency translation of approximately $137.0 million or 7%. Sales of existing products were negatively impacted by lower pricing and, to a lesser extent, volumes, partially offset by new product sales. Constant currency net sales decreased by approximately $7.1 million when compared to the prior year period.
Net sales from Rest of World segment totaled $1.45 billion during the six months ended June 30, 2019, an increase of $56.8 million or 4% when compared to the prior year period. This increase was primarily the result of new product sales, primarily in Australia and emerging markets, and higher volumes of existing products. Increased volumes of existing products was primarily driven by the Company’s anti-retroviral therapy franchise. This increase was partially offset primarily by the unfavorable impact of foreign currency translation and, to a lesser extent, by lower pricing on existing products. Overall, net sales from Rest of World were unfavorably impacted by the effect of foreign currency translation of approximately $83.7 million, or 6%. Constant currency net sales increased by approximately $140.5 million or 10% when compared to the prior year period.
U.S. GAAP gross profit was $1.74 billion and $1.95 billion for the six months ended June 30, 2019 and 2018, respectively. U.S. GAAP gross margins were 33% and 35% for the six months ended June 30, 2019 and 2018, respectively. U.S. GAAP gross margins were negatively affected by approximately 140 basis points as a result of incremental manufacturing expenses, site remediation expenses and incremental restructuring charges incurred during the current period principally as a result of the activities at the Company’s Morgantown plant. In addition, gross margins were negatively impacted as a result of lower gross profit for sales of existing products partially offset by the impact from new product sales. Gross margins were also negatively impacted by approximately 50 basis points related to the incremental amortization from product acquisitions and by approximately 30 basis points for expenses related to the recall of Valsartan products. Adjusted gross profit was $2.87 billion and adjusted gross margins were 54% for the six months ended June 30, 2019 compared to adjusted gross profit of $2.92 billion and adjusted gross margins of 53% in the prior year period.
R&D expense for the six months ended June 30, 2019 was $320.2 million, compared to $411.6 million for the comparable prior year period, a decrease of $91.4 million. This decrease was primarily due to lower expenditures related to the reprioritization of global programs, and higher payments in the prior year period related to licensing arrangements for products in development.
SG&A expense for the six months ended June 30, 2019 was $1.28 billion, compared to $1.23 billion for the comparable prior year period, an increase of $45.7 million. This increase was primarily due to continued investment in selling and marketing activities. Also impacting the six-month period was higher share-based compensation expense due to a reduction of approximately $23.5 million in the second quarter of 2018 related to certain performance-based awards and a decrease in bad debt expense of approximately $23.3 million related to a special business interruption event for one customer in the prior year period.
During the six months ended June 30, 2019 the Company recorded a net charge of $21.6 million in Litigation settlements and other contingencies, net compared to a net gain of $30.2 million in the comparable prior year period. During the six months ended June 30, 2019, the Company recognized litigation related charges of approximately $50.5 million primarily related to the matters settled during the second quarter of 2019, which was partially offset by a gain of $28.9 million for fair value adjustments related to the respiratory delivery platform contingent consideration. During the six months ended June 30, 2018, the Company recognized a gain of approximately $14.7 million related to a favorable litigation settlement, which was partially offset by litigation related charges of approximately $13.3 million related to an anti-trust and a patent infringement matter. In addition, the Company recognized a net gain of $30.0 million for a fair value adjustment of the respiratory delivery platform contingent consideration. The fair value adjustment was the net result of changes to assumptions relating to the timing of product launch along with other competitive and market factors.
U.S. GAAP net (loss) earnings decreased by $318.1 million to a loss of $193.5 million for the six months ended June 30, 2019, compared to earnings of $124.6 million for the prior year period and U.S. GAAP EPS decreased from $0.24 in the prior year period to $(0.38) for the six months ended June 30, 2019. The Company recognized a U.S. GAAP income tax provision of $26.9 million compared to a U.S. GAAP income tax benefit of $95.4 million for the comparable prior year period. The change includes the impact of the previously described settlement in principle with the IRS. Adjusted net earnings decreased to $954.7 million compared to $1.05 billion for the prior year period. Adjusted EPS decreased to $1.85 from $2.03 in the prior year period.
EBITDA was $1.13 billion for the six months ended June 30, 2019, and $1.35 billion for the comparable prior year period. After adjusting for certain items as further detailed in the reconciliation below, adjusted EBITDA was $1.56 billion for the six months ended June 30, 2019 and $1.68 billion for the comparable prior year period.
Cash Flow
U.S. GAAP net cash provided by operating activities for the three and six months ended June 30, 2019 was $668.9 million and $629.2 million, compared to $430.2 million and $1.05 billion in the comparable prior year periods. Capital expenditures were approximately $44.1 million and $97.2 million for the three and six months ended June 30, 2019 compared to approximately $45.2 million and $75.9 million for the comparable prior year periods.
Adjusted net cash provided by operating activities for the three and six months ended June 30, 2019 was $767.8 million and $848.0 million compared to adjusted net cash provided by operating activities of $706.6 million and $1.40 billion for the comparable prior year periods. Adjusted free cash flow, defined as adjusted net cash provided by operating activities less capital expenditures, was $723.7 million and $750.8 million for the three and six months ended June 30, 2019, compared to $661.4 million and $1.33 billion in comparable the prior year periods.
Conference Call and Earnings Materials
Mylan N.V. will host a conference call and live webcast, today at 8:30 a.m. ET, to discuss its financial results for the second quarter ended June 30, 2019. The earnings call can be accessed live by dialing either 855.895.8759 in the United States and Canada or 503.343.6044 for international callers. The password is "Analyst Call." Please join the call five minutes prior to the start time to avoid operator hold times. The webcast can also be viewed at the following address on the Company’s website: investor.mylan.com. The Q2 2019 "Earnings Call Presentation", which will be referenced during the call can be found at investor.mylan.com. A replay of the webcast will also be available on our website for a limited time beginning later this week.