EAST RUTHERFORD, NJ – Cambrex Corporation (NYSE: CBM) reports fourth quarter and full year results for the period ended December 31, 2010.
- Reported sales increased by 8.2%, and excluding the impact of foreign currency, sales increased 9.2% compared to fourth quarter 2009.
- Adjusted EBITDA was $14.5 million in the fourth quarter 2010, an increase of 54% compared to $9.4 million of EBITDA in the fourth quarter of 2009.
- Debt, net of cash was $86.3 million at the end of the fourth quarter 2010, an improvement of $4.2 million excluding $19.9 million of M&A related costs and a positive $0.9 million currency impact on foreign cash balances during the fourth quarter.
- Cambrex Zenara began supplying product for the launch of smoking cessation gum in India and received a Certificate of Good Manufacturing Practice (GMP) for its Hyderabad, India facility, following a successful audit, allowing shipment to all EU countries.
- Appointed Shawn Cavanagh as Chief Operating Officer in January 2011.
- 2011 sales are expected to increase 3% to 7%, excluding the impact of currency, and EBITDA is expected to be $43 to $49 million (see Guidance section of this release).
Basis of Reporting
The Company has provided a reconciliation from adjusted amounts to GAAP amounts at the end of this press release. Management believes that the adjusted amounts provide a more meaningful representation of the Company’s operating results for the periods presented due to the magnitude and nature of certain expenses recorded.
Fourth Quarter 2010 Operating Results – Continuing Operations
Fourth quarter 2010 sales of $63.5 million were 8.2% higher than the fourth quarter 2009. Excluding a 1.0% unfavorable impact of foreign exchange, reflecting a stronger U.S. dollar, sales increased 9.2%. The increase is primarily due to the timing of orders for certain products, increases in sales of an active pharmaceutical ingredient (“API”) to a customer who resolved their supply chain disruption which had reduced Cambrex’s sales volumes for the first three quarters of the year, higher sales of a recently approved product, higher volumes of APIs for nicotine replacement therapy (“NRT”) products, and higher volumes of generic APIs. These increases were partially offset by lower controlled substances shipments during the fourth quarter of 2010.
Fourth quarter 2010 Gross Margin increased to 32.0% from 24.7% during the fourth quarter 2009, with foreign currency favorably impacting gross margin by 1.1% in the fourth quarter 2010. Gross margins were positively impacted by favorable product mix, lower production costs, insurance proceeds related to a business interruption claim and fees related to the cancellation of a supply contract, partially offset by lower pricing and an increase in inventory reserves.
Selling, General and Administrative Expenses in the fourth quarter 2010 were $9.2 million compared to $8.8 million in the same period last year. The increase is a result of a benefit due to the termination of certain postretirement benefits recorded in the fourth quarter 2009 and higher bad debt expense related to one customer in the fourth quarter 2010 partially offset by lower legal fees and insurance expense in the fourth quarter 2010.
Research and Development (“R&D”) Expenses increased to $2.4 million in the fourth quarter 2010 from $2.0 million in the fourth quarter 2009 primarily due to the March 2010 acquisition of IEP, reduced utilization of certain R&D personnel on revenue-generating custom development projects resulting in these costs being expensed rather than absorbed into cost of sales or inventory, and the development of new products and technology platforms.
Operating Profit increased to $8.4 million in the fourth quarter 2010 from $3.7 million in the fourth quarter 2009. Adjusted Operating Profit was $8.7 million compared to $3.7 million for the fourth quarter last year. The increase in Adjusted Operating Profit was driven primarily by higher gross profits described above.
Net Interest Expense decreased to $0.8 million in the fourth quarter 2010 from $1.2 million in fourth quarter 2009. This decrease is primarily due to the Company’s interest rate swaps maturing in October 2010.
The Provision for Income Taxes totaled $1.5 million in the fourth quarter 2010. The Company’s effective tax rate has been and is expected to remain highly sensitive to the geographic mix of income due to the Company’s inability to recognize tax benefits where there has been a recent history of losses, primarily in the U.S.
Income from Continuing Operations for the fourth quarter 2010 was $5.2 million or $0.18 per share compared to a loss of $2.8 million or $0.09 per share in the fourth quarter 2009.
Capital expenditures and depreciation for the fourth quarter 2010 were $4.1 million and $5.8 million compared to $2.9 million and $5.7 million in the fourth quarter 2009, respectively.
Steven M. Klosk, President and Chief Executive Officer, said, “We are pleased with our fourth quarter performance which resulted in the business exceeding the high end of our recent profit guidance. These results reflect the positive impact of the timing of orders for certain larger products, as well as continued increases in generic revenues and order patterns, and slightly higher custom development revenues. Product mix, production costs, and cash generation were all positive for the quarter.
“During the fourth quarter and early in 2011, we had several key events. We announced that Cambrex Zenara began to supply finished dosage form NRT product for the launch of smoking cessation gum in India and received regulatory approval to sell product into the EU. We signed an agreement with a Chinese partner to develop several new generic products in 2011, and Shawn Cavanagh joined the company as COO to help us accelerate our new product and strategic growth plans.
“Our guidance for 2011 reflects a mid single digit percentage increase in sales. We expect to see volume gains in nicotine replacement therapy APIs, albeit at lower prices, higher sales of a product that was approved in 2009, an increase in sales of a couple of our larger APIs, and continued moderate sales growth of generic APIs. I am pleased with the direction our top line should take in 2011 and convinced that we are focused on the right strategic opportunities to position the Company for profitable growth.”
Guidance – Continuing Operations
The Company currently expects that sales for 2011, excluding the impact of foreign currency, will increase between 3% and 7% versus 2010, and that full year 2011 EBITDA will be between $43 and $49 million. EBITDA guidance is for continuing operations and excludes the impact of any M&A or restructuring activities. The above guidance does not reflect Cambrex Zenara, which will be accounted for using the equity method, and as such will not be consolidated into the Company’s results. Cambrex’s income statement will reflect 51% of Cambrex Zenara’s net results. For 2011, Cambrex Zenara is expected to have revenues in the low to mid single digit millions and a small EBITDA loss.
Capital expenditures are expected to be approximately $14 to $17 million and depreciation is expected to be $21 to $23 million in 2011.
The financial information contained in this press release is unaudited, subject to revision and should not be considered final until the 2010 Form 10-K is filed with the SEC.
Conference Call and Webcast
The Conference Call to discuss fourth quarter 2010 results will begin at 8:30 a.m. Eastern Time on Friday, February 11, 2011 and last approximately 45 minutes. Those wishing to participate should call 1-888-587-0613 for domestic and +1-719-325-2370 for international. Please use the pass code 7901037 and call approximately 10 minutes prior to start time. A webcast is available from the Investors section on the Cambrex website located at https://www.cambrex.com/ and can be accessed for 30 days following the conference call. A telephone replay of the conference call will be available through Friday, February 18, 2011 by calling 1-888-203-1112 for domestic and +1-719-457-0820 for international. Please use the pass code 7901037 to access the replay.
Forward Looking Statements
This document may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including 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 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 captioned “Risk Factors,” or otherwise described in the Company’s filings with the Securities and Exchange Commission, as well as any cautionary language in the Company’s Annual Report on Form 10-K, 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 (particularly environmental issues), tax rate, interest rate, technology, manufacturing and legal issues, including the outcome of outstanding litigation disclosed in the Company’s public filings, changes in foreign exchange rates, uncollectable receivables, loss on disposition of assets, cancellation or delays in renewal of contracts, lack of suitable raw materials or packaging materials, and the Company’s ability to receive regulatory approvals for its products.
For further details and a discussion of these and other risks and uncertainties, investors are cautioned to review the Cambrex 2009 Annual Report on Form 10-K, including the Forward-Looking Statement section therein, and other filings with the U.S. Securities and Exchange Commission.