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Cambrex Reports Second Quarter 2014 Financial Results

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SOURCE Cambrex Corporation

- Strong second quarter and first half results reported -

- Full year 2014 sales and profit guidance increased -

- Conference call at 8:30 a.m. ET on August 1, 2014 -

EAST RUTHERFORD, N.J., Aug. 1, 2014 /PRNewswire/ -- Cambrex Corporation (NYSE: CBM) reports results for the second quarter ended June 30, 2014.

Highlights

  • Second quarter sales increased 59% to $98.0 million from $61.6 million in the same period last year.
  • Second quarter EBITDA increased 86% to $21.2 million compared to $11.4 million in the same period last year (see table at the end of this release).   
  • Full year 2014 sales guidance increased, excluding the impact of foreign currency, to between 13% and 16% over 2013, and full year EBITDA guidance increased to between $74 and $78 million (see Financial Expectations below).
  • Remaining 49% of Zenara Pharma ("Zenara") purchased by the Company for $2.7 million.

"I am extremely pleased with our strong second quarter and first half financial results and look forward to an even stronger second half of the year," commented Steven M. Klosk, President and Chief Executive Officer of Cambrex.  "Our recent and ongoing investments in both capital improvements and personnel have allowed us to significantly increase our volumes.  We are focused on maintaining a high level of customer service and plant efficiency while we continue to expand capacity and improve our capabilities.  During the first half of the year, we also made significant progress in strengthening relationships with certain key customers, winning strategic supplier status with a large pharmaceutical customer and putting Cambrex in a position to win future projects with another.

"We are also pleased to have purchased the remaining shares in Zenara Pharma during the second quarter.  While it will take some time, we believe Zenara's capabilities will complement our strong position in the API market."

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.  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.

Second Quarter 2014 Operating Results – Continuing Operations

Sales were $98.0 million for the quarter, compared to $61.6 million in the same period last year, representing a 59.0% increase, including the favorable impact of foreign exchange of 1.0%.  The Company recorded sales increases in all of its product categories, with strong growth in certain branded APIs, controlled substances and generic APIs.  Pricing was lower by approximately 1.8% compared to the second quarter last year.

Gross margins increased to 34.1% from 31.2% compared to the same period last year.  This increase was primarily due to favorable product mix partially offset by lower pricing and higher production costs.

Selling, general and administrative expenses were $14.6 million compared to $10.6 million in the same period last year.  The increase was mainly due to higher personnel expenses as well as higher spending on costs related to the transaction to purchase the remaining shares in Zenara and expenses related to due diligence on various acquisition opportunities.

Research and development expenses were $3.6 million compared to $2.8 million in the same period last year.

Operating profit increased to $15.2 million from $5.9 million in the same period last year.  The increase in operating profit was primarily the result of higher gross profit partially offset by higher operating expenses.  EBITDA was $21.2 million compared to $11.4 million in the same period last year. 

Net interest expense was flat at $0.5 million for both the second quarters of 2014 and 2013.

Equity in losses of partially-owned affiliates, primarily representing Zenara's results, was $4.3 million compared to $0.7 million in the same period last year.  The second quarter of 2014 included a loss of $4.1 million related to the purchase of the remaining 49% of Zenara. The loss was primarily due to the write-off of $4.4 million of cumulative translation adjustments previously recorded within the Stockholder's Equity section of the Company's balance sheet.  Zenara's revenues, operating profit and EBITDA after the purchase of the shares in May are included in the Company's consolidated results, and were not material.  Zenara's results prior to the purchase of the remaining shares are included in equity in losses of partially-owned affiliates.

The provision for income taxes in the quarter was a benefit of $9.4 million and included a benefit of $14.2 million for a partial reversal of a valuation allowance against certain U.S. tax assets.  Excluding the impact of this benefit and the impact on pre-tax income related to the purchase of the remaining Zenara shares, the effective tax rate would have been 32.7% during the quarter compared to an effective tax rate of 32.8% in the same period last year.

Income from continuing operations was $19.8 million or $0.63 per share compared to $3.1 million or $0.10 per share in the same period last year.  Adjusted income from continuing operations was $11.0 million or $0.35 per share, compared to $4.1 million or $0.13, respectively in 2013 (see table at the end of this release).

Capital expenditures and depreciation were $6.0 million and $5.9 million, respectively, compared to $13.1 million and $5.5 million in the same period last year. 

Financial Expectations – Continuing Operations

The following table shows the Company's current expectations for its full year 2014 financial performance versus its expectations from the previous quarter:



Current
Expectations


Previous
Expectations






Gross sales increase


13% - 16%


8% - 12%






Adjusted EBITDA


$74 - $78 million


$70 - $76 Million






Adjusted income from continuing
operations per share


$1.07 - $1.15


$0.99 - $1.10






Reduction of debt, net of cash


$25 - $30 million


$25 - $30 million






Capital expenditures


$35 - $39 million


$35 - $39 million






Depreciation


$25 - $27 million


$25 - $27 million






Effective tax rate


33% - 36%


33% - 37%

Consistent with prior guidance for the full year 2014, these financial expectations are for continuing operations and exclude the impact of any potential acquisitions, restructuring activities and outcomes of tax disputes and do not reflect Zenara's results.  Sales expectations exclude the impact of foreign currency.  Adjusted EBITDA and Adjusted income from continuing operations per share are computed on a basis consistent with results in the tables at the end of this release.

We continue to expect Zenara to generate low single digit millions in revenues and a small EBITDA loss in 2014.  As described earlier in this release, the Company purchased all previously unowned shares in Zenara Pharma and as such, has consolidated Zenara's results from the purchase date of May 23, 2014 in its second quarter 2014 results and will do so for all future periods.

The Company expects to reduce the valuation allowance against certain U.S. tax assets by approximately $17.5 million for the full year 2014, which would reduce tax expense accordingly. The valuation allowance released for the second quarter and year to date periods was $14.2 million and $14.4 million, respectively.  The actual amount of the reduction in the valuation allowance may be higher or lower depending on the amount and type of U.S. income during the rest of the year. The full year effective tax rate included in the table above excludes this benefit and the impact of the purchase of the remaining Zenara shares.  The Company expects to pay only a small amount of cash taxes in the U.S. during the year. The tax rate and amount of cash taxes paid will be sensitive to the geographic mix of income, and quarterly effective tax rates may be volatile. 

The financial information contained in this press release is unaudited, subject to revision and should not be considered final until the Company's second quarter 2014 Form 10-Q is filed with the SEC.

Conference Call and Webcast

A conference call to discuss the Company's second quarter 2014 results will begin at 8:30 a.m. Eastern Time on Friday, August 1, 2014.  Those wishing to participate should call 1-888-417-8465 for domestic and +719-457-1512 for international.  Please use the passcode 1762072 and call approximately 10 minutes prior to start time.  A webcast will be available on the Investors section on the Cambrex website located at www.cambrex.com.  A telephone replay of the conference call will be available through Friday, August 8, 2014 by calling 1-888-203-1112 for domestic and +1-719-457-0820 for international.  Please use the passcode 1762072 to access the replay. 

About Cambrex

Cambrex Corporation is an innovative life sciences company that provides products, services and technologies to accelerate the development and commercialization of small molecule therapeutics.  The Company offers Active Pharmaceutical Ingredients ("APIs"), advanced intermediates and enhanced drug delivery products for branded and generic pharmaceuticals. Development and manufacturing capabilities include enzymatic biotransformations, high potency APIs, high energy chemical synthesis, controlled substances and formulation of finished dosage form products.  For more information, please visit www.cambrex.com.   

Forward Looking Statements

This document contains "forward-looking statements," including statements or tables regarding expected performance, especially those set forth under the heading "Financial Expectations – Continuing Operations," and those attributed to our President and Chief Executive Officer in this document.  These and other forward looking statements may be identified by the fact that they use words such as "expects," "anticipates," "intends," "estimates," "believes" or similar expressions.  Any forward-looking statements contained herein are based on current plans and expectations and involve risks and uncertainties that could cause actual outcomes and results to differ materially from current expectations.  The factors described in Item 1A of Part I of the Company's Annual Report on Form 10-K for the period ended December 31, 2013, captioned "Risk Factors," or otherwise described in the Company's filings with the SEC provide examples of such risks and uncertainties that may cause the Company's actual results to differ materially from the expectations the Company describes in its forward-looking statements, including, but not limited to, pharmaceutical outsourcing trends, competitive pricing or product developments, government legislation and regulations (including those pertaining to environmental issues), tax rate, interest rate, technology, manufacturing and legal issues, including the outcome of outstanding litigation, changes in foreign exchange rates, uncollectible receivables, the timing of orders, loss on disposition of assets, cancellations or delays in renewal of contracts, lack of suitable raw materials, the Company's ability to receive regulatory approvals for its products and continued demand in the U.S. for late stage clinical products or the successful outcome of the Company's investment in new products.

For further details and a discussion of these and other risks and uncertainties, investors are encouraged to review the Cambrex Annual Report on Form 10-K for the fiscal year ended December 31, 2013, including the Forward-Looking Statement sections therein, and other filings with the SEC.  The Company cautions investors and potential investors not to place significant reliance on the forward-looking statements contained in this press release and to give careful consideration to the risks and uncertainties listed above and contained in our SEC filings. The forward-looking statements in this press release speak only as of the date of this document, and the Company undertakes no obligation to update or revise any of these statements.

Use of Non-GAAP Financial Measures

EBITDA is a non-GAAP financial measure, which the Company defines as operating profit plus depreciation and amortization expense.  Other companies may have a different definition of EBITDA and, therefore, EBITDA may not be comparable with non-GAAP financial measures provided by other companies.  EBITDA should not be considered an alternative to measurements required by U.S. GAAP, such as net income or operating profit, and should not be considered a measure of Cambrex's liquidity.  Cambrex uses EBITDA as one of several metrics to assess and analyze its operational results and trends.  Cambrex also believes EBITDA as well as adjusted income from continuing operations are useful to investors because they are common operating performance metrics as well as metrics routinely used to assess potential enterprise value.  Cambrex has provided a reconciliation of U.S. GAAP amounts to non-GAAP amounts at the end of this press release.

CAMBREX CORPORATION

Statements of Profit and Loss

For the Quarters Ended June 30, 2014 and 2013

(in thousands, except per-share data)













2014



2013





% of





% of



Amount


Sales



Amount


Sales











Gross Sales

$

97,972




$

61,628



     Commissions, Allowances and Rebates


625





65



Net Sales


97,347





61,563













     Other Revenue


546





1,240













Net Revenues


97,893





62,803













     Cost of Goods Sold


64,478


65.8%



43,552


70.7%











Gross Profit


33,415


34.1%



19,251


31.2%











Operating Expenses










     Selling, General and Administrative Expenses


14,560


14.9%



10,622


17.2%

     Research and Development Expenses


3,631


3.7%



2,765


4.5%

Total Operating Expenses


18,191


18.6%



13,387


21.7%











Operating Profit


15,224


15.5%



5,864


9.5%











Other Expenses/(Income):










     Interest Expense, Net


543





488



     Other (Income)/Expenses, Net


(3)





38



     Equity in Losses of Partially-Owned Affiliates


4,272





668













Income Before Income Taxes


10,412


10.6%



4,670


7.6%











     (Benefit)/Provision for Income Taxes


(9,415)





1,534













Income from Continuing Operations

$

19,827


20.2%


$

3,136


5.1%











Loss from Discontinued Operations, Net of Tax


(160)





(862)













Net Income

$

19,667


20.1%


$

2,274


3.7%











Basic Earnings/(Loss) per Share of Common Stock:










   Income from Continuing Operations


$   0.65





$   0.10



   Loss from Discontinued Operations, Net of Tax


$ (0.01)





$ (0.03)



   Net Income


$   0.64





$   0.07













Diluted Earnings/(Loss) per Share of Common Stock:










   Income from Continuing Operations


$   0.63





$   0.10



   Loss from Discontinued Operations, Net of Tax


$   0.00





$ (0.03)



   Net Income


$   0.63





$   0.07













Weighted Average Shares Outstanding










     Basic


30,647





30,089



     Diluted


31,428





30,956



 

CAMBREX CORPORATION

Statements of Profit and Loss

For the Six Months Ended June 30, 2014 and 2013

(in thousands, except per-share data)













2014



2013





% of





% of



Amount


Sales



Amount


Sales











Gross Sales

$

164,164




$

136,209



     Commissions, Allowances and Rebates


1,174





228



Net Sales


162,990





135,981













     Other


1,008





1,707













Net Revenues


163,998





137,688













     Cost of Goods Sold


114,005


69.4%



93,688


68.8%











Gross Profit


49,993


30.5%



44,000


32.3%











Operating Expenses










     Selling, General and Administrative Expenses


26,193


16.0%



21,726


16.0%

     Research and Development Expenses


6,106


3.7%



4,959


3.6%

Total Operating Expenses


32,299


19.7%



26,685


19.6%











     Gain on Sale of Asset


-


0.0%



4,680


3.4%











Operating Profit


17,694


10.8%



21,995


16.1%











Other Expenses:










     Interest Expense, net


1,065





983



     Other (Income)/Expense, net


(21)





6



     Equity in Losses of Partially-Owned Affiliates


4,618





1,149













Income Before Income Taxes


12,032


7.3%



19,857


14.6%











     (Benefit)/Provision for Income Taxes


(8,961)





5,296













Income from Continuing Operations

$

20,993


12.8%


$

14,561


10.7%











Loss from Discontinued Operations, Net of Tax


(344)





(1,119)













Net Income

$

20,649


12.6%


$

13,442


9.9%











Basic Earnings/(Loss) per Share of Common Stock:










   Income from Continuing Operations


$     0.69





$     0.48



   Loss from Discontinued Operations, Net of Tax


$   (0.02)





$   (0.03)



   Net Income


$     0.67





$     0.45













Diluted Earnings/(Loss) per Share of Common Stock:









   Income from Continuing Operations


$     0.67





$     0.47



   Loss from Discontinued Operations, Net of Tax


$   (0.01)





$   (0.03)



   Net Income


$     0.66





$     0.44













Weighted Average Shares Outstanding










     Basic


30,596





30,029



     Diluted


31,398





30,870



 

CAMBREX CORPORATION

Consolidated Balance Sheets

As of June 30, 2014 and December 31, 2013

(in thousands)















June 30,



December 31,

Assets


2014



2013







Cash and Cash Equivalents

$

19,450


$

22,745

Trade Receivables, net


69,751



71,276

Other Receivables


11,551



12,943

Inventories, net


103,006



89,965

Prepaid Expenses and Other Current Assets


9,224



5,631

  Total Current Assets


212,982



202,560







Property, Plant and Equipment, net


170,164



171,966

Goodwill


47,811



38,670

Intangible Assets, net


8,566



4,011

Investments in and Advances to Partially-Owned Affiliates


787



13,364

Deferred Income Taxes


30,102



19,799

Other Non-Current Assets


5,658



7,667







  Total Assets

$

476,070


$

458,037







Liabilities and Stockholders' Equity












Accounts Payable

$

28,490


$

29,052

Deferred Revenue


22,131



20,121

Accrued Expenses and Other Current Liabilities


47,501



48,098

  Total Current Liabilities


98,122



97,271







Long-Term Debt


74,000



79,250

Deferred Income Taxes


13,353



12,835

Accrued Pension Benefits


37,614



40,123

Other Non-Current Liabilities


17,444



18,338







  Total Liabilities

$

240,533


$

247,817







  Stockholders' Equity

$

235,537


$

210,220







  Total Liabilities and Stockholders' Equity

$

476,070


$

458,037

 

CAMBREX CORPORATION

Reconciliation of GAAP to non-GAAP Results

For the Quarters Ended June 30, 2014 and 2013

(in thousands)









Second Quarter 2014



Second Quarter 2013








Operating Profit

$

15,224



$

5,864








Depreciation and Amortization


5,966




5,553








EBITDA

$

21,190



$

11,417


























































Six Months 2014



Six Months 2013








Operating Profit

$

17,694



$

21,995








Gain on Sale of Asset


-




(4,680)








Adjusted Operating Profit


17,694




17,315








Depreciation and Amortization


11,849




10,886








Adjusted EBITDA

$

29,543



$

28,201

 

CAMBREX CORPORATION

Reconciliation of GAAP to non-GAAP Results

For the Quarters Ended June 30, 2014 and 2013

(in thousands)


















Second Quarter 2014


Second Quarter 2013








Diluted
EPS





Diluted
EPS

Income from Continuing Operations

$

19,827

$

0.63


$

3,136

$

0.10














Stock-Based Compensation, Net of Tax1


944


0.03



695


0.02

Loss on Acquisition of Zenara Shares


4,122


0.13



-


-

Amortization of Purchased Intangibles


231


0.01



301


0.01

Release of Valuation Allowance



(14,161)


(0.45)



-


-














Adjusted Income from Continuing Operations

$

10,963

$

0.35


$

4,132

$

0.13












































Six Months 2014


Six Months 2013








Diluted
EPS





Diluted
EPS

Income from Continuing Operations

$

20,993

$

0.67


$

14,561

$

0.47














Stock-Based Compensation, Net of Tax1


1,664


0.05



1,367


0.04

Loss on Acquisition of Zenara Shares


4,122


0.13



-


-

Gain on Sale of Asset




-


-



(3,173)


(0.10)

Amortization of Purchased Intangibles


505


0.02



603


0.02

Release of Valuation Allowance



(14,359)


(0.46)



-


-

Changes in Tax Laws




-


-



(1,271)


(0.04)














Adjusted Income from Continuing Operations

$

12,925

$

0.41


$

12,087

$

0.39



























1   Tax rate estimated at 35% for stock-based compensation.

 

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