Cambrex Corporation (NYSE: CBM) reports results for the first quarter ended March 31, 2014.
- Full year sales and profit guidance confirmed – second quarter performance expected to result in sales and EBITDA improvement in the first half of 2014 compared to the first half of last year.
- Due to the timing of orders for certain products, first quarter sales decreased 11% to $66.2 million from $74.6 million in the same period last year.
- First quarter adjusted EBITDA decreased to $8.4 million compared to $16.8 million in the same period last year (See table at the end of this release).
- Debt, net of cash, improved by $18.3 million to $38.2 million at the end of the first quarter.
"I am pleased to report that we increased the number of Phase 3 projects we are working on from 13 to 15 during the quarter, adding three new late stage projects with one prior late stage product transitioning to commercial status," commented Steven M. Klosk, President and Chief Executive Officer of Cambrex. "While the timing of orders created a slow start to 2014, we expect strong growth in the second quarter to result in first half growth in both sales and EBITDA compared to the first half of last year. Likewise, we continue to believe we are positioned to deliver growth consistent with our financial expectations for the full year 2014, similar to the increases we have delivered over the last three years. We are making significant growth investments in the business in the form of capital improvements and increased personnel within both the business development and R&D areas. Our increased R&D resources will allow us to add generic APIs to our current development portfolio of 15 products."
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.
First Quarter 2014 Operating Results – Continuing Operations
Sales of $66.2 million were 11.2% lower compared to the same period last year, including the favorable impact of foreign exchange of 0.7%. Due primarily to the timing of orders, sales of certain branded active pharmaceutical ingredients ("APIs"), generic APIs and custom development products were lower during the quarter, partially offset by higher sales of controlled substances and products utilizing the Company's drug delivery technology.
Gross margins decreased to 25.0% from 33.2% compared to the same period last year. This decrease was primarily due to lower production volumes and lower pricing, partially offset by a favorable product mix.
Selling, general and administrative expenses were $11.6 million compared to $11.1 million in the same period last year. The increase was mainly due to higher personnel expenses.
Research and development expenses were $2.5 million compared to $2.2 million in the same period last year.
Operating profit decreased to $2.5 million from $16.1 million in the same period last year and adjusted operating profit was $2.5 million compared to $11.5 million in the same period last year. The decrease in adjusted operating profit was primarily the result of lower gross profit and higher operating expenses. EBITDA was $8.4 million compared to $21.5 million in the same period last year and adjusted EBITDA was $8.4 million compared to $16.8 million in the same period last year. Adjusted operating profit and adjusted EBITDA, for the first quarter of 2013, exclude a gain on sale of an office building of $4.7 million (See table at the end of this release).
Net interest expense was flat at $0.5 million for both the first quarters of 2014 and 2013.
Equity in losses of partially-owned affiliates, primarily representing the Company's portion of Zenara's loss, was $0.3 million compared to $0.5 million in the same period last year. The Company's share of Zenara's losses included $0.2 million of amortization expense in both the first quarters of 2014 and 2013.
The provision for income taxes was $0.5 million and resulted in an effective tax rate of 28.0%. The effective tax rate during the first quarter of 2014 includes a benefit of $0.2 million for a partial reversal of a valuation allowance against certain U.S. tax assets. The effective tax rate in the first quarter of 2013 includes a benefit due to changes in tax laws of approximately $1.3 million and the impact of the sale of an office building.
Income from continuing operations was $1.2 million or $0.04 per share compared to $11.4 million or $0.37 per share in the same period last year.
Capital expenditures and depreciation were $4.1 million and $5.8 million, respectively, compared to $12.7 million and $5.3 million in the same period last year.
Financial Expectations – Continuing Operations
The Company continues to expect that full year 2014 sales, excluding the impact of foreign currency, will increase between 8% and 12% over 2013, and that full year 2014 EBITDA will be between $70 and $76 million. The Company continues to expect that full year 2014 adjusted income from continuing operations will be between $0.99 and $1.10 per share (computed on a basis consistent with first quarter 2014 and 2013 results in the table at the end of this release). Based on current expectations for the second quarter, the Company expects both sales and EBITDA for the first half of 2014 to reflect growth over the first half of 2013. The Company expects to reduce debt, net of cash, by between $25 and $30 million during 2014.
The Company expects to reduce the valuation allowance against certain U.S. tax assets by approximately $5 million throughout 2014, which would reduce tax expense accordingly. The actual amount of the reversal may increase or decrease depending on the amount and type of U.S. income during the rest of the year. Excluding this benefit, the full year effective tax rate is expected to be between 33% and 37%. 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.
Capital expenditures for 2014 are expected to be approximately $35 to $39 million and depreciation is expected to be $25 to $27 million in 2014.
These financial expectations are for continuing operations and exclude the impact of any potential acquisitions, restructuring activities and outcomes of tax disputes, and sales and EBITDA expectations do not reflect the Company's stake in Zenara, which is accounted for using the equity method. Zenara is expected to generate low single digit millions in revenues and a small EBITDA loss in 2014.
The financial information contained in this press release is unaudited, subject to revision and should not be considered final until the Company's first quarter 2014 Form 10-Q is filed with the SEC.