East Rutherford, NJ – Cambrex Corporation (NYSE: CBM, “Cambrex”) reports third quarter results for the period ended September 30, 2011.
- Reported sales increased by 17.9%, and excluding the impact of foreign currency, sales increased 10.9% compared to the third quarter of 2010.
- EBITDA was $11.1 million in the quarter, an increase of 30.2% compared to Adjusted EBITDA of $8.5 million in the third quarter of 2010.
- Debt, net of cash was $69.3 million at the end of the quarter, an improvement of $6.2 million during the quarter which includes a negative $2.6 million currency impact on foreign cash balances.
- New $250 million five-year revolving credit facility entered into on November 2, 2011 provides sufficient access to capital to execute growth plans.
Basis of Reporting
The Company has provided a reconciliation from GAAP amounts to adjusted 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.
Third Quarter of 2011 Operating Results – Continuing Operations
Sales in the third quarter of 2011 of $58.2 million were 17.9% higher than the third quarter of 2010. Excluding a 7.0% favorable impact of foreign exchange, reflecting a weaker U.S. dollar, sales increased 10.9%. The increase is primarily due to higher volumes of an active pharmaceutical ingredient (“API”) for a customer who experienced a disruption in its supply chain for most of 2010, higher volumes of controlled substances, products utilizing the Company’s drug delivery technology and a recently approved innovator product. These increases were partially offset by lower pricing across several product categories, lower sales of generic APIs and lower custom development shipments.
Gross margins in the third quarter of 2011 increased to 30.6% from 28.6% in the third quarter of 2010. Excluding a favorable impact from foreign currency, third quarter of 2011 margins decreased to 27.3%. The decline in currency adjusted gross margins was a result of lower pricing partially offset by higher production volumes and favorable product mix.
Selling, General and Administrative Expenses in the third quarter of 2011 were $9.8 million compared to $7.9 million in the same period last year. The increase is primarily due to increased personnel costs and foreign exchange.
Operating Profit increased to $5.4 million in the third quarter of 2011 from $1.3 million in the third quarter of 2010. Operating Profit in the third quarter of 2011 increased $2.2 million compared to 2010 Adjusted Operating Profit of $3.2 million for the same period in 2010, driven primarily by favorable foreign exchange, higher sales volumes and favorable product mix partially offset by lower pricing and higher operating expenses.
Equity in Losses of Partially-Owned Affiliate of $0.5 million in the third quarter of 2011 represents the Company’s share of losses in Zenara Pharma, a pharmaceutical company focused on the formulation of finished dosage form products. Cambrex acquired a 51% stake in Zenara during the fourth quarter of 2010. The Company’s share of Zenara’s losses includes $0.3 million of amortization of intangibles and depreciation.
Net Interest Expense decreased to $0.6 million in the third quarter of 2011 from $1.2 million in the third quarter of 2010. This decrease is primarily due to the maturing of the Company’s fixed interest rate swaps in October 2010.
The Provision for Income Taxes totaled $1.2 million in the third quarter of 2011. 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 third quarter of 2011 was $3.1 million or $0.10 per share compared to a loss from continuing operations of $1.3 million or $0.04 per share in the third quarter of 2010.
Capital expenditures and depreciation for the third quarter of 2011 were $4.7 million and $5.7 million compared to $3.5 million and $5.3 million in the third quarter of 2010, respectively.
On November 2, 2011, the Company entered into a $250 million five-year syndicated senior revolving credit facility, replacing the Company’s existing facility that was set to expire in April 2012. The Company will pay interest on the facility at LIBOR plus 1.75% to 2.50% based upon certain financial measurements. The facility also includes financial covenants regarding interest coverage and leverage ratios.
Steven M. Klosk, President and Chief Executive Officer, said, “I am pleased with our third quarter performance with increased revenues from custom manufacturing, controlled substances and drug delivery products. While generic API revenues were slightly lower during the quarter, incoming orders remain strong for this product category. We continue to focus on generating free cash flow, lowering our production costs and developing new products to support continued growth.”
Guidance – Continuing Operations
The Company currently expects that full year 2011 sales, excluding the impact of foreign currency, will increase between 5% and 7% versus 2010, and that full year 2011 EBITDA will be between $44 and $48 million. EBITDA guidance is for continuing operations and excludes the impact of any M&A or restructuring activities. The above guidance does not reflect Zenara, which is accounted for using the equity method, and as such is not consolidated into the Company’s results. Cambrex’s income statement reflects 51% of Zenara’s net results as Equity in Losses of Partially-Owned Affiliate. For 2011, the Company continues to expect Zenara 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 $16 million and depreciation is expected to be $22 to $24 million in 2011.
The financial information contained in this press release is unaudited, subject to revision and should not be considered final until the Company’s third quarter 2011 Form 10-Q is filed with the SEC.
Conference Call and Webcast
The Conference Call to discuss third quarter of 2011 results will begin at 8:30 a.m. Eastern Time on Friday, November 4, 2011 and last approximately 45 minutes. Those wishing to participate should call 1-800-723-6751 for domestic and +1-785-830-7980 for international. Please use the pass code 6146431 and call approximately 10 minutes prior to start time. A webcast is available from the Investors section on the Cambrex website located at 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, November 11, 2011 by calling 1-888-203-1112 for domestic and +1-719-457-0820 for international. Please use the pass code 6146431 to access the replay.
Forward Looking Statements
This document contains “forward-looking statements,” including statements regarding expected performance, especially expectations with respect to sales, gross margins, operating expenses, earnings per share, cash flows, capital expenditures, acquisitions, divestitures, collaborations, other expansion opportunities and those set forth under the heading “Guidance – Continuing Operations,” including the Company’s expectation that full year 2011 sales, excluding the impact of foreign currency, will increase between 5% and 7% versus 2010, that full year 2011 EBITDA will be between $44 and $48 million, that Zenara will have revenues in the low to mid single digit millions and a small EBITDA loss, that capital expenditures will be approximately $14 to $16 million and that depreciation will be $22 to $24 million in 2011. 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 for the period ended December 31, 2010, 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 for the period ended December 31, 2010, 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 currency 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 2010 Annual Report on Form 10-K, including the Forward-Looking Statement section therein, and other filings with the U.S. Securities and Exchange Commission.