AMRI’s total revenue increases $89.5 million to 31% in second quarter 2015

AMRI (NASDAQ: AMRI) today reported financial and operating results for the second quarter ended June 30, 2015.

Highlights:

• Second quarter contract revenue of $85.2 million, a 39% increase from 2014
• Adjusted contract margins of 26%
• Second quarter adjusted diluted EPS of $0.22, including a $0.05 decrease in EPS from royalties in the current quarter
• Operating cash flow of $16 million

"We are very pleased to present another strong financial quarter, with all our divisions achieving excellent results," said William S. Marth, AMRI's president and chief executive officer. "Notably, recent acquisitions, combined with the cost reduction initiatives and efficiency efforts we've made to date, are contributing to continued strong contract margin performance.

The recent addition of Gadea Pharmaceutical Group will significantly expand our capabilities in technically complex active pharmaceutical ingredients and will extend our reach into many new markets. Based on our strong pipeline of business and the addition of Gadea, we remain confident that the positive trends we are seeing will continue in the second half of the year and look forward to providing investors with our outlook for the remainder of the year in mid-September."

Second Quarter 2015 Results

Total revenue for the second quarter of 2015 was $89.5 million, an increase of 31% compared to total revenue of $68.2 million reported in the second quarter of 2014.

Total contract revenue for the second quarter of 2015 was $85.2 million, an increase of 39% compared to total contract revenue of $61.5 million reported in the second quarter of 2014. Adjusted contract margins were 26% for the second quarter of 2015, compared with 27% for the second quarter of 2014. Margins benefited from recent acquisitions and the impact of the cost reduction initiatives and facility optimization activities, offset by product mix within the Active Pharmaceutical Ingredients (API) segment. Adjusted contract margins exclude purchase accounting depreciation and amortization, as well as share-based compensation expense that are included under U.S. GAAP. For a reconciliation of U.S. GAAP contract margins as reported to adjusted contract margins for the 2015 and 2014 reporting periods, please see Table 1 at the end of press release.

Royalty revenue in the second quarter of 2015 was $4.3 million, a decrease of 36% from $6.7 million in the second quarter of 2014 due primarily to lower royalties on Allegra (fexofenadine) products. Royalty revenue for the second quarter of 2015 includes $1.8 million of royalties from the fexofenadine products and $2.5 million from the net sales of certain amphetamine salts sold by Allergan (formerly Actavis).

Net income under U.S. GAAP was $2.3 million, or $0.07 per diluted share, in the second quarter of 2015, compared to U.S. GAAP net income of $3.7 million, or $0.11 per diluted share for the second quarter of 2014. Net income on an adjusted non-GAAP basis in the second quarter of 2015 was $7.4 million or $0.22 per diluted share, compared to adjusted net income of $7.2 million or $0.22 per diluted share for 2014. For a reconciliation of U.S. GAAP net income and earnings per diluted share as reported to adjusted net income and earnings per diluted share for the 2015 and 2014 reporting periods, please see Tables 2 and 3 at the end of this press release.

Beginning in the second quarter 2015, AMRI implemented an updated non-GAAP definition, which includes the impact of cash interest expense and excludes the impact of non-cash stock-based compensation, both of which had previously been excluded and included, respectively in the Company's calculations of these non-GAAP financial measures. These changes have redefined non-GAAP cost of contract revenue, SG&A, interest expense, net income, and EBITDA financial measures from the prior non-GAAP definition. We believe these financial measures provide investors with appropriate non-GAAP measurements that emphasize the cash earnings potential of the business and better reflect the underlying financial performance of the business. Historic non-GAAP reported operating results have been adjusted to match this new definition.

Year-to-Date Results

Total revenue for the six-month period ended June 30, 2015 was $171.4 million, an increase of 34% compared to total revenue of $127.5 million reported in the second quarter of 2014.

Total contract revenue for the first six months of 2015 was $160.4 million, an increase of 43% compared to total contract revenue of $112.5 million in 2014. Adjusted contract margins were 25% for the first six months of 2015, compared with 23% for 2014.

Royalty revenue in the first six months of 2015 was $11.0 million, a decrease of 27% from $15.0 million in 2014 due primarily to lower royalties on Allegra (fexofenadine) products. Royalty revenue for the first six months of 2015 includes $5.6 million of royalties from the fexofenadine products and $5.4 million from the net sales of certain amphetamine salts sold by Allergan.

Net income under U.S. GAAP was $0.1 million, or $0.00 per diluted share, in the first six months of 2015, compared to U.S. GAAP net income of $7.2 million, or $0.22 per diluted share in 2014. Net income on an adjusted non-GAAP basis in the first six months of 2015 was $13.8 million or $0.42 per diluted share, compared to adjusted net income of $12.3 million or $0.38 per diluted share for 2014.

Segment Results
 

Discovery and Development Services (DDS) contract revenue for the second quarter of 2015 increased 22% to $23.4 million, compared to $19.1 million the second quarter of 2014, primarily due to $4.1 million of incremental revenues from the acquisition of SSCI in February 2015. DDS adjusted contract margins increased to 28% from 20% in the second quarter of 2014, driven by the margins realized on SSCI revenues, as well as the benefits of cost reduction initiatives and facility optimization.

For the first half of 2015, DDS contract revenue increased 12% to $42.6 million from $38.1 million in 2014. Incremental SSCI revenues and increased Singapore and insourcing revenues were partially offset by decreased U.S. discovery and development revenues. DDS adjusted gross margins increased to 26% in 2015 from 19% in 2014, driven by the margins realized on SSCI revenues, as well as the benefits of cost reduction initiatives and facility optimization.

API contract revenue for the second quarter of 2015 was consistent with 2014. API adjusted contract margins for the second quarter of 2015 decreased to 29% from 34% in the second quarter of 2014, due to the mix of business within the segment.

For the first half of 2015, API contract revenue increased 12% to $77.8 million from $69.4 million in 2014, due primarily to an increase in commercial product sales and a full year of revenue from Cedarburg Pharmaceuticals, which was acquired in April 2014. Excluding the acquisition of Cedarburg, API contract revenue increased 8% compared to the first half of 2014. API adjusted gross margins decreased to 27% in 2015 from 29% in 2014, due to the mix of business within the segment.

Drug Product Manufacturing contract revenue for the second quarter of 2015 increased $19.1 million over the same period of 2014 and includes $13.2 million of revenue from OsoBio which was acquired in July 2014, $3.5 million of revenue from the Glasgow facility that was acquired in January 2015, and an 87% increase in organic revenue. In addition, Drug Product adjusted contract margins for the second quarter of 2015 increased to 17% compared to -14% for the same period of 2014, driven by the additions of the OsoBio and Glasgow businesses and by increased capacity utilization.

For the first half of 2015, Drug Product contract revenue increased $34.9 million to $39.9 million from $5.0 million in 2014, due primarily to the addition of $24.5 million in revenue from OsoBio, $7.4 million in revenue from Glasgow, and a 58% increase in organic revenue. Drug Product adjusted gross margins improved to 18% in 2015 from -17% in 2014, due to the additions of OsoBio and Glasgow and increased capacity utilization.

Liquidity and Capital Resources

At June 30, 2015, AMRI had cash, cash equivalents and restricted cash of $45.6 million, compared to $32.2 million at March 31, 2015. The increase in cash and cash equivalents for the quarter ended June 30, 2015 was primarily due to cash generated by operating activities of $15.6 million, which was partially offset by $3.4 million in capital expenditures. Total common shares outstanding, net of treasury shares, were 33,240,429 at June 30, 2015.

Financial Outlook

On July 16, 2015, AMRI acquired all the outstanding shares of Gadea Pharmaceutical Group, a privately-held company located in Valladolid, Spain, specializing in technically complex API and finished drug product. The purchase price was $174 million, including the issuance of 2.2 million shares of common stock, valued at $43.8 million, with the balance paid in $97.0 million in cash and through the assumption of $33.2 million of debt.

On a stand-alone basis, Gadea's forecasted full year 2015 revenue is estimated to be between $80 million and $90 million, with forecasted adjusted EBITDA of between $18 million and $20 million. The transaction is expected to be accretive to AMRI's non-GAAP diluted earnings per share, with nominal synergies. AMRI intends to provide an update to its 2015 financial guidance including the addition of Gadea in mid-September 2015.

Second Quarter Results Conference Call

AMRI will host a conference call and webcast today at 8:30 a.m. ET to discuss second quarter 2015 results.