AMRI Announces Third Quarter 2016 Results

ALBANY, N.Y., Nov. 8, 2016 /PRNewswire/ -- AMRI (NASDAQ: AMRI) today reported financial and operating results for the third quarter ended September 30, 2016 and reiterated its outlook for 2016.

Highlights:

• Contract revenue of $151.7 million, up 50% from the third quarter 2015
• Reported contract margins of 19%; non-GAAP contract margins of 30%
• Reported basic and diluted EPS $(0.57); non-GAAP diluted EPS of $0.17
• Recurring royalty revenue of $1.1 million
• Reported net loss of $(23.4) million; non-GAAP net income of $7.2 million
• Adjusted EBITDA of $25.5 million, up 55% from the third quarter 2015
• Reaffirms 2016 outlook

"We delivered another solid quarter, highlighted by strong organic growth in Discovery and Development Services, strong operational effectiveness in our Drug Product business, and with the closing of the Euticals acquisition, a significantly expanded API business," said William S. Marth, AMRI's president and chief executive officer. Strategically, our acquisitions have helped us establish a vast and responsive global development and manufacturing network, an extensive portfolio of unique APIs that have high barriers to entry, and expanded technical capabilities in areas such as sterile API, fermentation and monobactams that complement our organic business.

Additionally, through organic growth initiatives such as the Compound Library Consortium, our expansion into extractable and leachables testing and building additional sterile capacity through innovative alliances, we have continued to enhance our ability to fulfill the complex needs of pharmaceutical and biotechnology companies across all areas of the drug discovery, development and commercialization spectrum.

We are confident in our outlook for the remainder of 2016 and believe our strategy to acquire and organically grow in technologically challenging businesses is strengthening and positioning AMRI to be a premier provider of services to the pharmaceutical industry and positions us well for long-term growth."

Third Quarter 2016 Results

Total revenue for the third quarter of 2016 was $152.7 million, an increase of 46%, compared to total revenue of $104.6 million reported in the third quarter of 2015.

Total contract revenue for the third quarter of 2016 was $151.7 million, an increase of 50%, compared to $101.4 million reported in the third quarter of 2015, due primarily to the acquisition of Euticals, which closed on July 11, 2016. Contract margins reported under GAAP were 19% in the third quarter of 2016, compared with 21% for the third quarter of 2015. Non-GAAP contract margins were 30 % for the third quarter of 2016, compared with 25% for the third quarter of 2015. The improvement in non-GAAP contract margins was driven largely by growth within our Discovery and Development Services (DDS) business, and higher operational effectiveness and a favorable product mix in our Drug Product (DP) business.

Recurring royalty revenue in the third quarter of 2016 was $1.1 million, down from $3.2 million in the third quarter of 2015, reflecting a change in estimate of the second quarter royalties receivable related to Allergan's sales of mixed amphetamine salts.

Research and development expense in the third quarter of 2016 was $4.6 million, up from $1.9 million in the third quarter 2015, reflecting increased investment in collaboration agreements and our Active Pharmaceutical Ingredients (API) portfolio.

Reported net loss was $(23.4) million, or $(0.57) per basic and diluted share, in the third quarter of 2016, compared to a reported net loss of $(4.2) million, or $(0.12) per basic and diluted share in the third quarter of 2015. Non-GAAP net income in the third quarter of 2016 was $7.2 million or non-GAAP earnings per diluted share of $0.17, compared to non-GAAP net income of $5.1 million or non-GAAP earnings per diluted share of $0.14 for the third quarter of 2015.

Adjusted EBITDA in the third quarter of 2016 was $25.5 million, an increase of $9.0 million or 55% compared to the third quarter 2015.

For a reconciliation of non-GAAP financial measures to U.S. GAAP financial measures for the 2016 and 2015 reporting periods, please see Tables 1, 2 and 3 at the end of this press release.

Year-to-Date Results

Total revenue for the nine-month period ended September 30, 2016 was $379.1 million, an increase of 37% compared to total revenue of $275.9 million reported for the nine-month period ended September 30, 2015.

Contract revenue for the nine-month period ended September 30, 2016 was $371.0 million, an increase of 42% compared to $261.7 million reported for the nine-month period ended September 30, 2015, due primarily to the acquisition of Euticals and Gadea. Contract margins reported under GAAP were 23% for the nine-month period ended September 30, 2016, compared with 22% for the nine-month period ended September 30, 2015. Non-GAAP contract margins were 30% for the nine-month period ended September 30, 2016, compared with 25% for the nine-month period ended September 30, 2015.

Recurring royalty revenue for the nine-month period ended September 30, 2016 was $8.2 million, a decrease of 43% from $14.2 million for the nine-month period ended September 30, 2016 due to the expiration of Allegra (fexofenadine) royalties in the second quarter of 2015. Recurring royalty revenue for the nine-month period ended September 30, 2016 includes $5.8 million from the net sales of mixed amphetamine salts sold by Allergan and royalties from an API sourced from our business in Spain.

Research and development expense for the nine month period ended September 30, 2016 was $11.3 million, up from $2.8 million for the nine-month period ended September 30, 2015, due to increased investment in collaboration agreements and our API portfolio.

Reported net loss was $(54.8) million, or $(1.48) per basic and diluted share for the nine-month period ended September 30, 2016, compared to a reported net loss of $(4.1) million, or $(0.12) per basic and diluted share for the nine-month period ended September 30, 2015. Non-GAAP net income for the nine-month period ended September 30, 2016 was $22.3 million or non-GAAP earnings per diluted share of $0.59, compared to non-GAAP net income of $18.9 million or non-GAAP earnings per diluted share of $0.56 for the nine-month period ended September 30, 2015.

Adjusted EBITDA for the nine-month period ended September 30, 2016 was $65.4 million, an increase of $16.8 million or 35% compared to the nine-month period ended September 30, 2015.

Segment Results

API contract revenue for the third quarter of 2016 increased 59% compared to the third quarter of 2015, primarily due to $40.2 million of incremental revenue from the acquisition of Euticals, partially offset by lower organic revenue, associated with the timing of product transfers from the Holywell, UK site closure.

API contract margin excluding royalties, determined under GAAP for the third quarter of 2016 decreased 10 percentage points compared to the third quarter of 2015, inclusive of the impact of acquisition accounting associated with Euticals. API non-GAAP contract margin excluding royalties for the third quarter of 2016 decreased slightly from 29% in the third quarter of 2015 to 28% in the third quarter of 2016, reflecting the margins realized on Euticals' revenue.

API royalty revenue in the third quarter of 2016 declined $2.2 million, reflecting a change in estimate of the second quarter royalties related to Allergan's sales of mixed amphetamine salts.

For the nine-month period ended September 30, 2016, API contract revenue increased $75.7 million or 57%, due primarily to $51.4 million and $40.2 million of incremental revenue from the acquisitions of Gadea Pharmaceuticals and Euticals respectively, partially offset by lower organic revenue associated with the timing of product transfers from the Holywell, UK site closure.

API contract margin excluding royalties determined under GAAP for the nine-month period ended September 30, 2016 decreased 4 percentage points compared to the nine-month period ended September 30, 2015, inclusive of the impact of acquisition accounting adjustments associated with the acquisitions of Gadea Pharmaceuticals and Euticals. API non-GAAP contract margin excluding royalties for the nine-month period ended September 30, 2016 increased 3 percentage points compared to the nine-month period ended September 30, 2015, driven by the margins realized on Gadea Pharmaceuticals' revenues.

DDS contract revenue for the third quarter of 2016 increased 32% compared to the third quarter of 2015, due primarily to incremental revenue of $4.3 million from the acquisitions of Whitehouse Labs and Euticals, and organic growth in the underlying business.  

DDS contract margin determined under GAAP increased 8 percentage points in the third quarter of 2016 as compared to the third quarter of 2015. DDS non-GAAP contract margin increased 8 percentage points for the third quarter of 2016 as compared to the third quarter of 2015, driven by the margins realized on Whitehouse Laboratories' revenue and greater efficiencies in discovery services. 

For the first nine months of 2016, DDS contract revenue increased 28%, due primarily to an increase in analytical services revenue, including $9.4 million of incremental revenue from the acquisition of Whitehouse Laboratories, and organic growth in discovery services.

DDS contract margin determined under GAAP for the nine-month period ended September 30, 2016 increased 5 percentage points compared with the nine-month period ended September 30, 2015. DDS non-GAAP contract margin for the nine-month period ended September 30, 2016 increased 5 percentage points from the nine-month period ended September 30, 2015, driven by the margins realized on Whitehouse Laboratories' revenues and operational efficiencies.

DP contract revenue for the third quarter of 2016 increased 4% compared to the third quarter 2015, primarily due to organic growth.

DP GAAP contract margin for the third quarter 2016 increased 17 percentage points compared to the third quarter of 2015. DP non-GAAP contract margin for the third quarter of 2016 increased 18 percentage points compared to the third quarter of 2015, primarily due to strong operational effectiveness at our Albuquerque, N.M. commercial manufacturing facility.

DP contract revenue for the nine-month period ended September 30, 2016 increased 11% compared to the nine-month period ended September 30, 2015, primarily due to the addition of Gadea Pharmaceuticals' and organic revenue growth.

DP contract margin determined under GAAP for the nine-month period ended September 30, 2016 increased 10 percentage points compared to the nine-month period ended September 30, 2015. DP non-GAAP contract margin for the nine-month period ended September 30, 2016 increased 10 percentage points compared to the nine-month period ended September 30, 2015, driven by enhanced operating efficiencies at our Albuquerque, N.M. commercial manufacturing facility. 

Fine Chemicals (FC) is a new reporting segment for AMRI resulting from the acquisition of Euticals. Consequently, there are no comparative prior period amounts. Non-GAAP contract gross profit and margin reflect the impact of acquisition accounting inventory adjustments associated with the acquisition of Euticals.

Liquidity and Capital Resources

At September 30, 2016, AMRI had cash, cash equivalents and restricted cash of $45.0 million, compared to $31.4 million at June 30, 2016. The increase in cash and cash equivalents for the quarter ended September 30, 2016 was primarily due to net proceeds from long-term debt financing of $185.5 million, partially offset by the use of $143.3 million for the purchase of Euticals (net of cash and debt assumed), $13.0 million for capital expenditures, $10.0 million for operations, and $6.6 million of repayments net of receipts on short-term borrowings.

At December 31, 2015, AMRI had cash, cash equivalents and restricted cash of $52.3 million. The decrease in cash and cash equivalents for the nine months ended September 30, 2016 was primarily due to the use of $143.3 million for the purchase of Euticals (net of cash and debt assumed), $38.0 million for capital expenditures, $44.9 million of debt payments, and $6.6 million of repayments net of receipts on short-term borrowings, partially offset by net proceeds from long-term debt financing of $219.8 million and cash generated by operating activities of $5.2 million.

Financial Outlook

AMRI's guidance takes into account a number of factors, including expected financial results for 2016, anticipated tax rates and shares outstanding.

AMRI's estimates for full year 2016, are as follows:

• Full Year 2016 revenue of $590 to $615 million, reflecting approximately $123 million of incremental revenue from Euticals, an increase of 50% at the midpoint, including:
  • DDS revenue of approximately $110 million
  • API revenue of approximately $356 million
  • DP revenue of approximately $107 million
  • FC revenue of approximately $18 million
  • Royalty revenue of $10 to $11 million
• GAAP contract margin of approximately 22%; Non-GAAP contract margin of approximately 29%
• GAAP selling, general and administrative expenses of approximately 21% of revenue; Non-GAAP selling, general and administrative expenses of approximately 15% of revenue
• R&D expense of approximately $15 million
• GAAP diluted EPS between $(1.49) and $(1.39); Non-GAAP diluted EPS between $1.03 and $1.11, based on an average fully diluted share count of approximately 39 million shares
• Capital expenditures of approximately $48 million

For a reconciliation of non-GAAP financial measures to U.S. GAAP financial measures for the full year 2016 reporting period, please see Table 4 at the end of this press release.

Third Quarter Results Conference Call

AMRI will host a conference call and webcast today at 8:30 a.m. ET to discuss third quarter 2016 results. The conference call can be accessed by dialing (866) 208-5728 (domestic calls) or (224) 633-1279 (international calls) at 8:20 a.m. ET and entering passcode 3694774. The webcast and supplementing slides can be accessed on the Company's website at www.amriglobal.com.

A replay of the conference call can be accessed for 24 hours at (855) 859-2056 (domestic calls) or (404) 537-3406 (international calls) and entering passcode 49003667. Replays of the webcast can also be accessed for up to 90 days after the call via the investor area of the company's website at http://ir.amriglobal.com.

About AMRI Albany Molecular Research Inc. (AMRI) is a global contract research and manufacturing organization that has been working with the Life Sciences industry to improve patient outcomes and the quality of life for more than two decades. With locations in North America, Europe and Asia, our key business segments include Discovery and Development Services (DDS), Active Pharmaceutical Ingredients (API), Drug Product (DP), and Fine Chemicals (FC). For more information about AMRI, please visit our website at www.amriglobal.com or follow us on Twitter (@amriglobal).

Forward-looking Statements This press release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include all of the estimates under "Financial Outlook" and statements regarding, among other things, the  integration of the Euticals business and its financial impact, the performance of the Company's previously acquired higher margin businesses, the strength of the Company's commercial operations and prospects, projections regarding future revenues and financial performance, and the Company's momentum and long-term growth. The words "outlook", "guidance", "anticipates", "believes", "expects", "may", "plans", "predicts", "will", "potential", "goal" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Readers should not place undue reliance on these forward-looking statements. The Company's actual results may differ materially from such forward-looking statements as a result of numerous factors, some of which the Company may not be able to predict and may not be within the Company's control. Factors that could cause such differences include, but are not limited to, the ability of the Company to successfully integrate the Euticals business and achieve the expected financial results; ongoing headwinds in the U.S. and other world economies which could lead to overall softness in the markets the Company serves; difficulty in raising new capital to support the Company's business, including financing our debt obligations, capital expenditures and acquisitions; trends in pharmaceutical and biotechnology companies' outsourcing of manufacturing services and chemical research and development, including softness in these markets; the success of the sales of the products for which the Company receives royalties; the risk that the Company will not be able to replicate either in the short or long term the revenue stream that has historically been derived from the royalties payable under the Allegra® license agreements; the risk that clients may terminate or reduce demand under any strategic or multi-year deal; the Company's ability to enforce its intellectual property and technology rights; the Company's ability to successfully comply with heightened FDA scrutiny on aseptic fill/finish operations; the results of further FDA inspections; the Company's ability to effectively maintain compliance with applicable FDA and DEA regulations; the Company's ability to integrate past or future acquisitions, and make such acquisitions accretive to the Company's business model; the Company's ability to take advantage of proprietary technology and expand the scientific tools available to it, the ability of the Company's strategic investments and acquisitions to perform as expected, as well as those risks discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2015 as filed with the Securities and Exchange Commission (SEC) on March 30, 2016, the Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 as filed with the SEC on August 5, 2016 and the Company's other SEC filings. The financial guidance offered by senior management with respect to 2016 represents a point-in-time estimate and is based on information as of the date of this press release. Senior management has made numerous assumptions in providing this guidance which, while believed to be reasonable, may not prove to be accurate. Numerous factors, including those noted above, may cause actual results to differ materially from the guidance provided. The Company expressly disclaims any current intention or obligation to update the guidance provided or any other forward-looking statement in this press release to reflect future events or changes in facts assumed for purposes of providing this guidance or otherwise affecting the forward-looking statements contained in this press release.

Non-GAAP Financial MeasuresTo supplement our financial results prepared in accordance with U.S. GAAP, we have presented non-GAAP measures of contract gross profit, contract gross margin, net income, and earnings per diluted share, adjusted to exclude certain charges (and gains when applicable) that relate to specific events or transactions, such as impairment charges, restructuring charges, executive transition costs, business acquisition costs, realized and unrealized gains and losses on foreign currency transactions related to business acquisitions, non-recurring professional fees, ERP implementation costs, insurance recoveries on business interruption events, and gains on sales of facilities in the 2016 and 2015 periods presented. Management typically excludes these amounts when evaluating our operating performance and believes that the resulting non-GAAP measures provide investors with a consistent basis for comparison across periods and, therefore, are useful to investors in assessing our operating performance.

Our U.S. GAAP measures are also adjusted to exclude certain non-cash charges (and gains when applicable) such as non-cash debt interest and amortization charges, share-based compensation expense, acquisition accounting inventory adjustments, and acquisition accounting depreciation and amortization for the periods presented for 2016 and 2015. Management typically excludes the amounts described above when evaluating our operating performance and believes that the resulting non-GAAP measures are useful to investors in assessing our operating performance.

We have also presented the non-GAAP measure of adjusted EBITDA, which in addition to the items excluded above, further excludes the impact of interest income and expense, depreciation and amortization expense, and income tax expense or benefit.

We believe presentation of our non-GAAP measures enhances an overall understanding of our historical financial performance because we believe these measures are an indication of the performance of our base business. Management uses these non-GAAP measures as a basis for evaluating our financial performance as well as for budgeting and forecasting of future periods. For these reasons, we believe they can be useful to investors. The presentation of this additional information should not be considered in isolation or as a substitute for the related GAAP measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP financial measures are set forth in Tables 1-3.

A reconciliation of forward-looking non-GAAP financial measures to the most directly comparable GAAP reported financial measures has been included in Table 4.

 

 

 

 

 

 

 

 

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SOURCE AMRI