On November 7, 2017 Cambrex Corporation (NYSE: CBM), a leading manufacturer of small molecule innovator and generic Active Pharmaceutical Ingredients (APIs), reported results for the third quarter 2017 (Press release, Cambrex, NOV 7, 2017, View Source [SID1234521628]).

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Highlights

Net Revenue increased 13% to $112.6 million compared to $99.4 million in the same quarter last year. Excluding the impact of foreign exchange, net revenue increased 12%.
GAAP Diluted EPS from continuing operations increased 24% to $0.52 from $0.42 in the same quarter last year. Adjusted Diluted EPS increased 20% to $0.55 compared to $0.46 in the same quarter last year.
EBITDA increased 29% to $33.3 million compared to the same quarter last year (see table at the end of this press release).
Net cash was $118.4 million at the end of the quarter, an increase of $24.2 million during the quarter.
The Company continued to execute on its strategic growth plan, investing in new manufacturing capacity and analytical laboratory space at its facilities in Charles City, High Point, Karlskoga, and Milan.
The Company continues to expect full year 2017 Net Revenue, excluding the impact of foreign currency, to increase between 7% and 11% compared to 2016, Adjusted EBITDA to be between $171 and $177 million, an 11% to 15% increase compared to 2016 and Adjusted income from continuing operations to be between $3.00 – $3.12 per share.
The Company now expects 2017 free cash flow to be between $60 and $70 million, an increase of $5 million from the mid-point and capital expenditures to be between $65 and $70 million, a reduction of $5 million from the mid-point (see Financial Expectations – Continuing Operations section below for related explanations and additional financial guidance).
"We are pleased with our financial performance in the third quarter, and when combined with an expected strong fourth quarter, we are positioned to finish 2017 within our financial expectations. Continued strong performance at our manufacturing facilities resulted in higher profit margins in the quarter and year-to-date," commented Steven M. Klosk, President and Chief Executive Officer of Cambrex.

"We recently completed the installation of new, large scale manufacturing capacity at our Karlskoga and Charles City facilities. Construction of the new High Potency facility at our Charles City plant has begun, and the recently announced investment in R&D and manufacturing capabilities to support the development of generic APIs at our Milan facility should be completed by the end of this year. In addition, we are adding pilot plant capacity and new analytical laboratories at our High Point location. These investments will enable Cambrex to increase its capabilities and ensure our facilities continue to address favorable industry trends and the evolving demands of our customers."

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 expenses recorded in the GAAP amounts.

Third Quarter 2017 Operating Results – Continuing Operations

Net revenue was $112.6 million, an increase of $13.2 million, or 13%, compared to the third quarter of 2016. Excluding a 1% favorable impact of foreign exchange compared to the third quarter of 2016, net revenue increased 12%. The increase primarily reflects higher volumes partially offset by lower pricing. The increase in volumes was driven primarily by growth in all product categories, as well as the addition of Cambrex High Point.

Gross margin increased to 42% from 38% compared to the same quarter last year. The increase was primarily driven by high capacity utilization, manufacturing efficiency improvements and favorable product mix, partially offset by lower pricing.

Selling, general and administrative expenses were $17.6 million, compared to $15.0 million in the same quarter last year. The increase was mainly due to the addition of Cambrex High Point, higher personnel related expenses, and higher expenses related to the evaluation of acquisition opportunities.

Research and development expenses were $4.2 million, compared to $3.2 million in the same quarter last year. The increase was mainly driven by costs to develop new generic drug products.

Operating profit increased to $25.1 million from $19.5 million in the same quarter last year. The increase was primarily the result of higher gross profits in 2017 partially offset by higher operating expenses as described above. Adjusted EBITDA was $33.3 million compared to $25.9 million in the same quarter last year (see table at the end of this press release).

Income tax expense was $7.5 million resulting in an effective tax rate of 30% compared to $5.4 million and an effective tax rate of 28% in the same quarter last year. Excluding the favorable impact of immediately recognizing certain effects of share-based compensation as required by a recently adopted accounting standard, the effective tax rate in the current period would have been 33%.

Income from continuing operations was $17.3 million or $0.52 per share compared to $13.7 million or $0.42 per share in the same quarter last year. Adjusted income from continuing operations was $18.5 million or $0.55 per share, compared to $15.1 million or $0.46 per share in the same quarter last year (see table at the end of this press release).

Capital expenditures and depreciation were $14.9 million and $7.7 million, respectively, compared to $11.7 million and $6.2 million, respectively, in the same quarter last year.

Net cash was $118.4 million at the end of the third quarter, an increase of $24.2 million during the quarter.

Financial Expectations – Continuing Operations

The following table shows the Company’s current expectations for its full year 2017 financial performance versus its previous expectations:

Current Expectations Previous Expectations
Net revenue increase 7% – 11% 7% – 11%
Adjusted EBITDA $171 – $177 million $171 – $177 million
Adjusted income from continuing operations per share $3.00 – $3.12 $3.00 – $3.12
Free cash flow $60 – $70 million $55 – $65 million
Capital expenditures $65 – $70 million $70 – $75 million
Depreciation and amortization $32 – $34 million $32 – $34 million
Adjusted effective tax rate 31% – 33% 31% – 33%

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 and outcomes of tax disputes. Net revenue expectations exclude the impact of foreign exchange. EBITDA, Adjusted EBITDA and Adjusted income from continuing operations per share for 2017 will be computed on a basis consistent with the reconciliation of the third quarter 2017 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 codes 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 third quarter 2017 is filed with the SEC.Conference Call and Webcast

A conference call to discuss the Company’s third quarter 2017 results will begin at 8:30 a.m. Eastern Time on November 7, 2017 and can be accessed by calling 1-866-548-4713 for domestic and +1-323-794-2093 for international. Please use the passcode 1511082 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 November 14, 2017 by calling 1-888-203-1112 for domestic and +1-719-457-0820 for international. Please use the passcode 1511082 to access the replay.