Cambrex Reports Fourth Quarter and Full Year 2006 Results and Provides 2007 Guidance
Stephanie LaFiura, Investor Relations Associate
East Rutherford, NJ - Cambrex Corporation (NYSE: CBM, "Cambrex") reports fourth quarter and full year 2006 results for the period ended December 31, 2006.
- Sold Bio Businesses to Lonza for $460 million in first quarter 2007; Bio Businesses results included within Continuing Operations
- Sold Cork and Landen businesses to ICIG in fourth quarter 2006; Cork and Landen results included within Discontinued Operations
- Cambrex now consists of Human Health business (excluding Cork and Landen) and Corporate infrastructure
- Human Health (excluding Cork and Landen) sales increased 7.5% and operating profit increased 3.2% during fourth quarter 2006
- Annualized cost of reduced Corporate infrastructure to reach $17.5 million by the end of the year
Strategic Alternatives and Basis of Reporting Pursuant to its evaluation of strategic alternatives during 2006, Cambrex sold its two businesses in Cork, Ireland and Landen, Belgium during the fourth quarter of 2006, both previously reported within its Human Health segment. Cambrex also divested its Bioproducts and Biopharma business segments (the "Bio Businesses") on February 6, 2007. The results from the Cork and Landen businesses are included within Discontinued Operations for all periods presented in this release and the results of the Bio Businesses are included within Continuing Operations for all periods presented, as required by GAAP. Cambrex will begin to report the Bio Businesses as Discontinued Operations during the first quarter of 2007.
As previously announced, the Company expects to use the proceeds from the sale of the Bio Businesses along with funds borrowed under a new credit facility, assuming such facility can be arranged with favorable terms, to pay a special dividend of $13.50 to $14.50 per share.
Consistent with prior earnings releases, Adjusted (non-GAAP) results are used throughout this press release and the accompanying tables to better reflect the underlying results of operations for the periods presented. A reconciliation of GAAP results to Adjusted (non-GAAP) results can be found in the unaudited financial tables included in this press release.
Human Health and Corporate Segments
The Human Health business, which now excludes Cork and Landen, provides products and services to accelerate the development and commercialization of branded and generic small molecule therapeutics, and is comprised of four world-class manufacturing and research facilities (Charles City, Iowa; Karlskoga, Sweden; Milan, Italy, and the Center of Technical Excellence in North Brunswick, New Jersey).
Fourth Quarter 2006
Sales in the Human Health segment increased 7.5% in the fourth quarter 2006 to $66.0 million versus $61.4 million last year. After a favorable currency impact of 4.8%, the improvement was due primarily to increased demand for branded active pharmaceutical ingredients (APIs) partially offset by decreased sales of certain generic APIs.
Fourth quarter 2006 Human Health Adjusted gross margin decreased to 33.4% from 35.3% in the fourth quarter 2005, primarily due to pricing pressures on certain APIs and increased production costs. Foreign currency unfavorably impacted Adjusted gross margin by 0.7 of a percentage point in the fourth quarter 2006. Fourth quarter 2006 Human Health operating profit increased to $12.9 million versus Adjusted operating profit of $12.6 million in the fourth quarter 2005 due to higher sales offset by a lower gross margin percentage versus the same period last year. Operating expenses were flat versus prior year. Foreign exchange had a negligible impact on Human Health Adjusted operating profit during the fourth quarter 2006.
Corporate operating expenses during the fourth quarter 2006 were $12.8 million, compared to $9.2 million during the fourth quarter 2005. Adjusted operating expenses for Corporate for the fourth quarter 2006 were $8.3 million versus $5.5 million in the fourth quarter of 2005. The increase primarily reflects increased legal, bonus, and audit expenses.
Full Year 2006
Sales in the Human Health segment increased 5.9% to $236.7 million during 2006 from $223.6 million in 2005 due to an increase in the number of custom development projects and greater demand for generic APIs partially offset by decreased sales of certain branded APIs. Foreign currency favorably impacted sales growth by 0.5 of a percentage point during 2006. Human Health Adjusted gross margin during 2006 decreased to 35.4% compared to 38.6% in 2005, reflecting increased production costs and pricing pressures on certain products. Foreign currency unfavorably impacted Adjusted gross margin by 1.1 percentage points during 2006. Human Health operating profit for 2006 was $49.2 million, or 20.8% of sales, versus an Adjusted operating profit of $51.0 million, or 22.8% of sales, in 2005 due to lower gross margins described above offset by reductions in operating expenses. Foreign currency unfavorably impacted Adjusted Human Health operating margin as a percentage of sales by 1.1 percentage points in 2006.
Corporate operating expenses for 2006 were $37.4 million, compared to $25.9 million during the 2005. Adjusted Corporate operating expenses during 2006 were $28.8 million, compared to $22.7 million during the previous year. The increase is primarily due to an increase in legal fees, bonus expense, and audit fees, as well as benefits related to stock appreciation rights in 2005 that did not recur in 2006.
James A. Mack, Chairman, President, and CEO of Cambrex commented: "We achieved growth in our Human Health segment during 2006 despite the demands of the strategic alternatives process. We are confident that prevailing market forces will lead to more outsourcing of custom development and commercial manufacturing for branded APIs as well as greater demand for generic APIs. In 2007 we will focus on continued cost reductions, the implementation of strategic capital investments to increase capacity at each of our manufacturing facilities, strengthening and building upon our proprietary taste masking and other technologies, and restructuring the corporate cost center."
Bioproducts and Biopharma Segments
As previously announced, Cambrex completed the sale of the Bio Businesses to Lonza AG during February 2007. As a result, Cambrex will begin to report the Bio Businesses as Discontinued Operations during the first quarter of 2007.
The Bioproducts segment includes products and services for research and therapeutic applications. Bioproducts sales in the fourth quarter 2006 increased 15.4% to $41.4 million, including a 3.7% favorable impact from foreign currency, reflecting growth in most product categories. Fourth quarter 2006 gross margin was nearly flat at 50.4% versus Adjusted gross margin of 50.6% in the fourth quarter 2005. Foreign currency favorably impacted Bioproducts gross margin by 0.7 of a percentage point in the fourth quarter 2006. Bioproducts Adjusted operating profit margin during the fourth quarter of 2006 was 14.6% of sales versus 15.4% during the fourth quarter of 2005 due to increased operating expenses. Foreign currency favorably impacted Bioproducts operating profit margin by 0.6 of a percentage point in the fourth quarter 2006.
Full year 2006 Bioproducts sales increased 9.1% to $163.1 million, including a 0.4% favorable impact from foreign currency, versus $149.5 million in 2005. Gross margin for 2006 decreased to 51.7% versus an Adjusted gross margin of 52.6% in the full year 2005 due to higher production costs. Foreign currency favorably impacted Bioproducts gross margin by 0.8 of a percentage point in 2006. Bioproducts Adjusted operating profit margin during 2006 was nearly flat at 17.8% versus 17.9% in 2005. Foreign currency favorably impacted Bioproducts operating profit margin by 0.7 of a percentage point in 2006.
The Biopharma segment consists of the Company's contract biopharmaceutical process development and manufacturing business. Sales in the fourth quarter 2006 increased 22.2% to $17.0 million versus $14.0 million in the fourth quarter 2005. Fourth quarter 2006 Biopharma gross margin improved to 23.6% versus an Adjusted gross margin of 8.2% in the fourth quarter 2005. Fourth quarter 2006 Biopharma operating profit was $1.7 million versus an Adjusted operating loss of $2.1 million in the fourth quarter 2005. The improved gross margin and operating profit results were a result of higher suite and process development fees. Foreign currency had no impact on Biopharma sales, gross margin or operating profit margin.
Full year 2006 Biopharma sales were $52.5 million versus $41.7 million in 2005, a 25.9% increase. Biopharma gross margin during 2006 improved to 6.2% compared to an Adjusted gross margin of -7.6% in the previous year. Biopharma operating loss during 2006 was $6.1 million versus an Adjusted operating loss of $14.1 million in 2005.
Fourth Quarter 2006
On a GAAP basis, Cambrex reported income from continuing operations of $0.6 million, or $0.02 per diluted share, compared to a loss of $97.6 million, or $3.66 per diluted share, in the fourth quarter 2005. Excluding certain items included in the attached GAAP to Adjusted (non-GAAP) reconciliation tables, Adjusted fourth quarter 2006 net income was $6.7 million, or $0.25 per diluted share. On a comparable basis, Adjusted fourth quarter 2005 net income was $5.4 million, or $0.20 per diluted share.
Sales increased 11.9% to $124.4 million in the fourth quarter 2006, including a 3.9% favorable impact from foreign currency, from $111.2 million in the fourth quarter 2005, reflecting improved sales performance across all business segments. Gross margins for the fourth quarter 2006 increased to 37.7% from 36.5% in the fourth quarter 2005 primarily due to improved sales in the Biopharma segment partially offset by higher production costs within Bioproducts and declines in Human Health gross margins described earlier in this release. Foreign currency unfavorably impacted consolidated gross margin by 0.1 percentage point in the fourth quarter 2006.
During the fourth quarter 2006, Adjusted operating profit was $12.4 million versus $10.4 million during the same period in 2005. This is due to increased profitability within all operating segments of the business offset by an increase in corporate expenses explained earlier in this release.
Full Year 2006 Consolidated Results
On a GAAP basis, the Company reported a loss from continuing operations of $1.2 million, or $0.05 loss per diluted share, compared to a loss of $83.2 million, or $3.15 per diluted share, in 2005. Excluding certain items included in the attached GAAP to Adjusted (non-GAAP) reconciliation tables, 2006 net income was $17.6 million, or $0.65 per diluted share. Excluding certain items included in the attached GAAP to Adjusted (non-GAAP) reconciliation tables, net income was $17.7 million, or $0.67 per diluted share in 2005.
Sales increased 9.0% to $452.3 million in 2006, including a 0.4% favorable impact from foreign currency, from $414.8 million in 2005, reflecting improved sales performance across all business segments. Gross margins during 2006 decreased to 37.9% from an Adjusted gross margin of 39.0% in the previous year primarily due to improved sales in the Biopharma segment partially offset by higher production costs within Bioproducts and reductions in Human Health gross margins described earlier in this release. Foreign currency unfavorably impacted consolidated gross margin by 0.3 of a percentage point in 2006.
During 2006, Adjusted operating profit was $43.2 million, versus $40.9 million in 2005 reflecting increased profits in Bioproducts and an improvement in Biopharma, offset by a decrease in Human Health operating profit and higher corporate expenses, both described earlier in this release.
Fourth Quarter and Full Year 2006 Consolidated Interest and Tax Expenses
Net interest expense in the fourth quarter 2006 was $2.3 million, which was flat compared to the same period last year. For the full year 2006, Adjusted net interest expense decreased to $8.6 million from $9.8 million during 2005 reflecting lower average debt offset by higher interest rates.
The Adjusted tax rate in the fourth quarter 2006 was 34.6% compared to 33.3% in the fourth quarter of 2005. The Adjusted full year tax rate in 2006 was 49.2% compared to 42.9% in 2005. The difference in the Adjusted tax rate is due to geographic shifts in income between the periods. Since the Company is currently not recording any tax benefit for U.S. and certain European losses, the consolidated effective tax rate has been and is expected to be highly volatile.
Fourth Quarter and Full Year 2006 Capital Expenditures, Depreciation and Amortization
For the combined Human Health and Corporate cost centers, capital expenditures and depreciation were $13.3 million and $4.4 million, respectively, during the fourth quarter 2006 compared to $5.4 million of capital expenditures and $4.6 million of depreciation in the fourth quarter of 2005. Full year 2006 combined Human Health and Corporate cost center capital expenditures and depreciation were $29.0 million and $19.0 million, respectively, compared to $19.3 million of capital expenditures and $19.9 million of depreciation during 2005. The combined Human Health and Corporate cost centers had negligible amortization expenses during the past two years.
For the entire Company, consolidated capital expenditures, depreciation, and amortization for the fourth quarter 2006 were $17.0 million, $7.0 million, and $0.5 million compared to $11.6 million, $7.6 million, and $0.5 million in the fourth quarter 2005, respectively. For the full year 2006, capital expenditures, depreciation, and amortization were $42.6 million, $29.3 million, and $2.2 million, respectively, compared to $37.2 million, $30.8 million, and $2.2 million in 2005.
Sales growth during 2007 within the Human Health segment is expected to be within the range of 5% to 10% and operating profit is expected to be in the range of $50 to $55 million. The Company expects to restructure the corporate office during 2007 and achieve an annualized run rate of $17.5 million in operating expenses by the end of 2007. Significant charges will be incurred during 2007 related to change in control, retention, and severance arrangements pursuant to the strategic alternatives process that resulted in the sale of the Bio Businesses and our Cork, Ireland and Landen, Belgium businesses. The Company expects to provide an update on its corporate restructuring later in the year.
For 2007, capital expenditures and depreciation for continuing operations are currently expected to be approximately $30 to $33 million and $21 to $23 million, respectively.
Full year and quarterly effective tax rates will continue to be highly sensitive to the geographic mix of income or losses.
The financial information contained in this press release is unaudited, subject to revision and should not be considered final until the 2006 Form 10- K is filed with the US Securities and Exchange Commission.
Conference Call and Webcast
The Conference Call to discuss fourth quarter and full year 2006 earnings will begin at 8:30 a.m. Eastern Time on Thursday, March 15, 2007 and last approximately 45 minutes. Those wishing to participate should call 1-888-634- 4003 for Domestic, and 1-706-634-6653 for International. Please use pass code 9914932 and call approximately 10 minutes before the start time. The Conference Call will also be webcast in the Investor Relations section of the Cambrex website located at http://www.cambrex.com. The webcast will be available for approximately thirty (30) days following the call.
A replay of the Conference Call will be available approximately two hours after the completion of the call through the end of business day, Thursday, March 22, 2007 by calling 1-800-642-1687 for Domestic, and 1-706-645-9291 for International. Please use pass code 9914932 to access the replay.
Forward Looking Statements
This news release may contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and Rule 3b-6 under the Securities Exchange Act of 1934, as amended, including, without limitation, statements regarding expected performance, especially expectations with respect to sales, research and development expenditures, earnings per share, capital expenditures, acquisitions, divestitures, collaborations, or other expansion opportunities. These statements may be identified by the fact that words such as "expects", "anticipates", "intends", "estimates", "believes" or similar expressions are used in connection with any discussion of future financial and/or operating performance. Any forward-looking statements are qualified in their entirety by reference to the risk factors discussed in the Company's periodic reports filed with the SEC. 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 including, but not limited to, global economic trends, pharmaceutical outsourcing trends, competitive pricing or product developments, government legislation and/or regulations (particularly environmental issues), tax rate, interest rate, technology, manufacturing and legal issues, changes in foreign exchange rates, performance of minority investments, uncollectible receivables, loss on disposition of assets, cancellation or delays in renewal of contracts, lack of suitable raw materials or packaging materials, the Company's ability to receive regulatory approvals for its products, the outcome of the evaluation of strategic alternatives, the availability of financing on favorable terms in order to fund the portion of the special dividend that is not being funded from proceeds of the sale and whether the Company's estimates set forth in the definitive proxy statement filed January 4, 2007 with respect to its earnings and profits utilized to calculate taxes on the Bio Businesses divestiture in 2007 will be correct. Any forward-looking statement speaks only as of the date on which it is made, and the Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. New factors emerge from time to time and it is not possible for us to predict which new factors will arise. In addition, we cannot assess the impact of each factor on the Company's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
For further details and a discussion of these and other risks and uncertainties, investors and security holders are cautioned to review the definitive proxy statement, the Cambrex 2005 Annual Report on Form 10-K, including the Forward-Looking Statement section therein, and other filings with the SEC, including the Current Reports on Form 8-K.
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.