On February 8, 2018 Cambrex Corporation (NYSE: CBM), a leading manufacturer of small molecule innovator and generic Active Pharmaceutical Ingredients (APIs), reported results for the fourth quarter and full year ended December 31, 2017 (Press release, Cambrex, FEB 8, 2018, View Source [SID1234523822]).
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Highlights
Net revenue increased 2.5% to $182.3 million compared to $177.9 million in the same quarter last year. Excluding the impact of foreign exchange, net revenue increased 1%. Full year net revenue increased 9% to $534.5 million, compared to $490.6 million in the full year 2016.
GAAP Diluted EPS from continuing operations increased 4% to $1.20 per share from $1.15 per share in the same quarter last year. Full year GAAP Diluted EPS from continuing operations increased 17% to $3.10 per share from $2.65 per share in the full year 2016.
EBITDA increased to $64.7 million compared to $63.6 million in the same quarter last year. Full year Adjusted EBITDA increased 13% to $174.6 million from $154.2 million in the full year 2016 (see table at the end of this release).
Net cash was $183.3 million at the end of the year, an increase of $64.9 million during the quarter and $109.1 million during the year.
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, Iowa, High Point, North Carolina, Karlskoga, Sweden and Milan, Italy.
The Company expects full year 2018 Adjusted net revenue, excluding the impact of foreign currency and change in accounting principle, 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).
"We are pleased with our strong financial performance in 2017, our seventh straight year of solid growth. The fourth quarter was a record revenue quarter with Net revenue up 2.5% compared to a record fourth quarter last year. Strong performance at our manufacturing facilities resulted in higher profit margins versus last year," commented Steven M. Klosk, President and Chief Executive Officer of Cambrex.
"With our recently completed large scale manufacturing capacity projects and the on-going investments in R&D and pilot plant capabilities, we are well positioned to ensure our facilities are able to keep up with the strong market demand."
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.
Fourth Quarter 2017 Operating Results – Continuing Operations
Net revenue was $182.3 million, an increase of $4.4 million, or 2.5%, compared to the fourth quarter of 2016. Excluding a 1.5% favorable impact of foreign exchange compared to the fourth quarter of 2016, net revenue increased 1%. The increase primarily reflects higher volumes in the generic and controlled substance product categories, partially offset by lower volumes and pricing of certain branded APIs.
Gross margin decreased to 43% from 45% compared to the same quarter last year. Excluding a 1% unfavorable impact of foreign exchange compared to the fourth quarter of 2016, margins were relatively flat year over year.
Selling, general and administrative expenses were $18.7 million, compared to $18.2 million in the same quarter last year. This increase was primarily due to higher expenses related to consulting for an operational excellence initiative.
Research and development expenses were $4.3 million, compared to $3.5 million in the same quarter last year. This increase was primarily driven by costs to develop new generic drug products and higher personnel related expenses.
Operating profit decreased to $55.9 million from $56.7 million in the same quarter last year. This decrease was primarily the result of higher operating expenses as described above.
Adjusted EBITDA was $64.7 million compared to $64.4 million in the same quarter last year (see table at the end of this press release).
Income tax expense was $15.6 million resulting in an effective tax rate of 28% compared to $18.4 million and an effective tax rate of 33% in the same quarter last year. The favorable impact of immediately recognizing certain effects of share-based compensation as required by a recently adopted accounting standard and the unfavorable impact of U.S. tax reform legislation enacted in December 2017, was negligible.
Income from continuing operations was $40.2 million or $1.20 per share compared to $37.9 million or $1.15 per share in the same quarter last year. Adjusted income from continuing operations was $42.4 million or $1.27 per share, compared to $40.8 million or $1.23 per share in the same quarter last year (see table at the end of this press release).
Capital expenditures and depreciation were $13.2 million and $8.3 million, respectively, compared to $11.9 million and $6.6 million, respectively, in the same quarter last year.
Net cash was $183.3 million at the end of the fourth quarter, an increase of $64.9 million during the quarter.
Financial Expectations – Continuing Operations
The following table shows the Company’s current expectations for its full year 2018 financial performance:
Expectations
Adjusted net revenue -2% – 2%
Adjusted EBITDA $150 – $160 million
Adjusted income from continuing operations per share $2.80 – $3.03
Free cash flow $35 – $45 million
Capital expenditures $70 – $80 million
Depreciation and amortization $33 – $37 million
Adjusted effective tax rate 23% – 25%
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 the new revenue recognition guidance effective January 1, 2018. Adjusted net revenue expectations exclude the impact of foreign exchange and change in accounting principle. 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 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 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 2017 Form 10-K is filed with the SEC.
Conference Call and Webcast
A conference call to discuss the Company’s fourth quarter and full year 2017 results will begin at 8:30 a.m. Eastern Time on February 8, 2018 and can be accessed by calling 1-888-394-8218 for domestic and +1-323-701-0226 for international. Please use the passcode 9709552 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 February 15, 2018 by calling 1-888-203-1112 for domestic and +1-719-457-0820 for international. Please use the passcode 9709552 to access the replay.