Second Quarter 2021 Net Revenues Increased 35% to $97 Million Year-Over-Year with Adjusted EBITDA Up 28% Year-Over-Year
Company Reaffirms Revenue and Adjusted EBITDA Growth Trajectory for Full Year 2021
BARRANQUILLA, Colombia–(BUSINESS WIRE)–Procaps Group, a leading integrated international healthcare and pharmaceutical company, today announced its financial results for the second quarter ended June 30, 2021.
Key Second Quarter 2021 Financial Highlights
- Net revenues increased by $25.1 million or 35% to $97.0 million compared to $71.9 million in the second quarter of 2020, driven by strong demand across our CDMO, branded Rx and OTC businesses in both our existing products as well as from our continued rollout of new product launches.
-
Adjusted EBITDA increased by 28% to $23.9 million compared to $18.6 million in the second quarter of 2020.
- Adjusted EBITDA margin decreased by approximately 100 basis points to approximately 25% in the second quarter of 2021, compared to 26% in the second quarter of 2020.
- LTM Adjusted EBITDA for the period ended June 30, 2021 was approximately $97.4 million representing an LTM Adjusted EBITDA margin of approximately 26%.
- Net Debt-to-LTM Adjusted EBITDA ratio of approximately 2.2x for the first half of 2021.
Key Financial Highlights for the Six Months Ended June 30, 2021
- Net revenues increased by $46.5 million or 35% to $177.5 million for the six months ended June 30, 2021 compared to $131.0 million for the six months ended June 30, 2020.
-
Adjusted EBITDA increased by 60% to $34.0 million for the six months ended June 30, 2021 compared to $21.2 million for the six months ended June 30, 2020.
- Adjusted EBITDA margin increased by approximately 300 basis points to approximately 19% in the six-month period ended June 30, 2021 compared to approximately 16% in the six-month period ended June 30, 2020.
Management Commentary
“Our strong financial and operational performance continued in the second quarter of 2021, with net revenue growth of 35% year-over-year,” said Ruben Minski, Procaps Founder, Chairman and Chief Executive Officer. “Rapid ramp-up of new product launches, continued roll-out of products into new geographic areas and measured improvements to our inventory rotations contributed to double-digit revenue growth in four out of five of our business units leading to an increase of over 28% in Adjusted EBITDA for the second quarter of 2021 when compared to the first quarter of 2020.
“Of note, our Procaps Colombia and CASAND business units had the highest growth among our business units as a result of increased demand across the board for a variety of products, including both Rx and OTC products, and new product launches.
“Likewise, our Diabetrics business unit experienced similar growth in the second quarter of 2021 compared to the previous quarter, benefiting from increased sales from the launch of a new insulin product. In addition, our Clinical Specialties business unit demonstrated growth in sales due to higher demand for anesthetic products from intensive care units in hospitals.
“As we look to further our growth initiatives, in our B2B segment, we expect to see growth from both our existing portfolio and product pipeline, with an estimate of over 600 product launches in the next three years. In our B2C segment, we are looking at growth initiatives from our existing portfolio and from new products focused on current therapeutic areas, such as chronic diseases, pain relief, immunology, cardiology, respiratory and dermatology, and the internationalization of our existing portfolio, with on-going efforts to expand our footprint of successful products outside of Colombia.
“Our internationalization strategy and growth in new markets continues to be one of our primary focuses, highlighted by the recent meeting I participated in as part of the delegation led by the Colombian Vice President and Foreign Minister Marta Lucía Ramírez, comprised of a group of government and private-sector officials, with American business and public policy leaders to strengthen commercial ties, investor confidence and relations between Colombia and the United States, which we believe will be a strong driver for sustainable development and long-term growth,” continued Minski.
2021 Financial Guidance
“In summary, we experienced significant momentum in the first half of 2021, and we intend to continue to invest in working capital to help support future growth across our business units. Furthermore, since product launches typically occur within the first half of the year and as we work diligently to promote these product launches (particularly in our Rx segments), we expect that the results from such product launches will be reflected in the second half of the year. For these reasons, among others, including the improved buying patterns from many of our distributors, we believe we will continue to maintain our strong momentum into the second half of the year. As a result, we reaffirm our full year 2021 guidance of net revenues of approximately $400 million and Adjusted EBITDA of approximately $105 million.
“Finally, on March 31, 2021, we announced the execution of a definitive business combination agreement with Union Acquisition Corp. II (NASDAQ: LATN), a special purpose acquisition company and Procaps Group along with a fully committed $100 million PIPE financing investment. I am happy to report that everything remains on track, and we expect the business combination to close and listing on the Nasdaq Capital Market to begin at the end of September 2021.
“Today, we encompass a proprietary, innovative portfolio of branded Rx and OTC products and services sold, distributed and provided to over 50 markets. As we look out over the next 12 months and beyond, we will continue to strategically position Procaps to achieve our near-term and mid-term goals, as well as our growth objectives. We look forward to sharing more next week at our first investor and analyst day introducing select senior leadership team members, along with key strategic growth initiatives,” concluded Minski.
Key Second Quarter 2021 Operational Highlights
- Second quarter net revenues increased 35% compared to the same period in 2020.
-
There was a continued increase in demand for Procaps products and services across all five of our strategic business units (Procaps Colombia, Nextgel, CAN, CASAND & Diabetrics).
- Procaps Colombia and CASAND had the highest growth among our business units as a result of increased demand across the board for a variety of products, including both Rx and OTC products, as well as from new product launches.
- There was also stronger demand for products related to therapeutic areas, such as gastrointestinal and wellness, among others, that experienced slight decreases in their sales during 2020 due to the effects of the COVID-19 pandemic. This, in conjunction with the sale of products from health areas that benefited from the resurgence in non-essential surgeries that were previously postponed due to the COVID-19 pandemic, and the growing demand for other product categories, such as respiratory, have all contributed significantly to the increase in demand for our portfolio of products.
- Diabetrics experienced similar growth in the second quarter 2021 year-over-year as it did in the first quarter 2021, benefiting from increased sales from the launch of a new insulin product.
- The Clinical Specialties business unit demonstrated growth in sales due to higher demand for anesthetic products from intensive care units in hospitals.
- CEO Ruben Minski joined the Colombian Vice President-led government and private sector delegation to conduct meetings with American business and public policy leaders with the objective of strengthening commercial ties, investor confidence and relations between Colombia and the United States.
- Reddit Investor Interview with Union Acquisition Corp. II CEO Kyle Bransfield
- Filing of the registration statement on Form F-4 in June 2021 in connection with Procaps Group’s proposed business combination with Union Acquisition Corp. II (the “Registration Statement”).
Expected Milestones to Completion of Business Combination Include:
- Our virtual investor and analyst day is planned for Thursday, August 19, 2021. We expect to showcase select senior leadership team members and key strategic growth initiatives.
- The LATN shareholder vote is expected to occur in September 2021.
- The close of the business combination and the listing on the Nasdaq Capital Market under the new ticker symbol “PROC” is expected to occur at the end of September 2021.
Product Development and Intellectual Property
-
Product development efforts focused on:
- Enhancing advanced oral delivery systems with specialty technologies enabling new product offers in novelty platforms;
- Growth in our own product portfolio from new formulations of nutritional gummies (Funtrition line) and new softgel products sold in Brazil;
- Alliances with niche sources for monoclonal antibodies, and other biosimilars;
- Therapeutical areas of our branded Rx portfolio related to chronic diseases, pain relief, monoclonal antibody, and dermatology; and
- Roll out of new products throughout the markets in which Procaps Groups operates in, and expansion of products into new geographic areas.
-
New product launches for 2021:
- Biosimilars such as Insulin and Rituximab;
- Novelty products such as Blefadex (eyecare product) and Epapure (icosapent-ethyl);
- New pharma combo product using proprietary technology Unigel combining Levocetirizine and Montelukast; and
- Anesthetics for intra-clinical use.
- We expect to launch at least 59 product candidates through internal development capabilities, from now through 2023, which are then planned for roll-out throughout regional markets.
Commercialization
-
Leading pharmaceutical CDMO in Latin America and top 3 globally in terms of volume of softgel production capacity
- Increased demand of products manufactured for third parties, primarily from the U.S. and Latin American customers.
- Important growth in the production of our gummies products focused on the immune system.
- New softgels and gummies (Funtrition) product launches.
- Improved capacity utilization of our softgel plant in Brazil.
Growth Strategy
- B2B: Growth from both our existing portfolio and pipeline (with an estimate over 600 product launches in the next three years).
- B2C: Growth from our existing portfolio and from new products focused on current therapeutic areas and the internationalization of our existing portfolio, with on-going efforts to expand our footprint of successful products outside of Colombia.
- M&A: Focused on our roll-up consolidation strategy of pharma targets in Mexico, Central America and the Andean region, and CDMO targets in Mexico, Brazil and the United States.
- E-Health Platform: Exponential growth coming from our fully-operational diabetes platform with upcoming expansion plans into other countries.
- Key development areas include telehealth and digital health, ophthalmic products, and novel and orphan drug portfolios.
Team
-
Further strengthened management team to support commercial growth opportunities with the appointments of:
- Dr. Camilo Camacho as President of Procaps Group.
- Senior executive from Abbott Laboratories Latin American EPD Division to accelerate Procaps Group’s rollout of global growth initiatives and strengthen its management team.
Environmental, Social & Governance (ESG)
- We established ESG guiding principles and, going forward, expect to develop and report on our ESG accomplishments as much of our innovation is focused in this area.
- Procaps Group currently employs over 5,000 individuals across 13 countries with a strong history and focus on ESG principles including resource-saving policies, HR and social programs and corporate policies.
Second Quarter 2021 Financial Results
Net revenues for the second quarter of 2021 totaled $97.0 million, compared to net revenues of $71.9 million for the second quarter of 2020, representing a growth of 35% year-over-year. Net revenue by strategic business unit (“SBU”) is shown below.
|
Net Revenue by SBU for |
|||||||
|
US$mm |
2020 |
2021 |
% |
||||
|
a. |
Procaps Colombia |
$24.3 |
$41.0 |
69% |
|||
|
b. |
Nextgel |
24.6 |
26.8 |
9% |
|||
|
c. |
CAN |
11.2 |
10.8 |
-4% |
|||
|
d. |
CASAND |
6.6 |
11.7 |
78% |
|||
|
e. |
Diabetrics |
5.3 |
6.7 |
27% |
|||
|
Total |
$71.9 |
$97.0 |
35% |
||||
|
Net Revenue by SBU for |
|||||||
|
US$mm |
2020 |
2021 |
% |
||||
|
a. |
Procaps Colombia |
$43.0 |
$67.9 |
58% |
|||
|
b. |
Nextgel |
44.5 |
53.9 |
21% |
|||
|
c. |
CAN |
18.7 |
19.2 |
3% |
|||
|
d. |
CASAND |
14.8 |
23.6 |
60% |
|||
|
e. |
Diabetrics |
10.1 |
12.9 |
28% |
|||
|
Total |
$131.0 |
$177.5 |
35% |
||||
The increase in net revenue was attributed to growth across all SBUs.
-
Procaps Colombia
- Continued demand for our pharma business and for our differentiated brands helped support a 69% growth in net revenue for the second quarter of 2021 when compared to the second quarter of 2020. Increased demand for therapeutic products related to chronic diseases resulted in an incremental increase in revenues for the period. In addition, the launch of new products in select therapeutic areas such as monoclonal antibody, pain relief and dermatology also contributed an incremental increase in revenues during the quarter. Additionally, our Clinical Specialties business performed well due to the launch and ramp-up in sales of anesthetic products for COVID-19 related issues.
-
Nextgel
- The 9% growth in net revenue for the second quarter of 2021 when compared to the second quarter of 2020 in this business unit was driven by strong demand from our CDMO business from third parties, and the launch of new products in Brazil as well as new products in our Funtrition (gummies) line.
-
Central America North (CAN)
- Our strategic decision to lower inventory levels from distributors and increase our point of sales penetration and cost to serve, as well as effective marketing strategies, have resulted in a 4% decline in net revenues for the second quarter of 2021 when compared to the second quarter of 2020. This decrease in demand was partially offset by an increase in sales of both Rx and OTC products in the region. On a year-to-date basis through the first half of 2021, CAN experienced a net growth of approximately 3% compared to the first half of 2020.
-
Central America South and Andean Region (CASAND)
- Net revenue growth of 78% for the second quarter of 2021 when compared to the second quarter of 2020 was the result of an increase in revenue from distributor channels due to higher demand in the market, the rollout of new products in the region, further development of new products and the continued strengthening of our existing brands in key growth markets.
-
Diabetrics
- Increased demand for our core Diabetrics products resulted in a net revenue growth of 27% for the second quarter of 2021 when compared to the second quarter of 2020. Sales from the launch of a new insulin product, continued demand for our Blood Glucose Meters, new product launches in Colombia, and higher use of our digital health platform, Zutrics, accompanied by the rollout of our diabetics solutions portfolio in El Salvador have all contributed to the 27% growth in net revenues for the period.
Gross profit increased by 33% to $56.1 million for the second quarter of 2021, compared to $42.3 million for the second quarter of 2020. The increase in gross profit for the second quarter of 2021 was primarily attributable to strong topline growth.
Total operating expenses increased by 51% to $44.4 million for the second quarter of 2021, compared to $29.4 million for the second quarter of 2020. The increase in operating expenses was partly related to transaction-related expenses of approximately $5.5 million incurred in the quarter.
Adjusted EBITDA increased by 28% to $23.9 million for the second quarter of 2021, compared to $18.6 million for the second quarter of 2020. This increase was driven by strong demand across our CDMO, branded Rx and OTC businesses from both our existing products as well as from our continued rollout of new product launches.
See below under the heading “Use of Non-IFRS Financial Information” for a discussion of Adjusted EBITDA and a reconciliation of net income, which the Company believes is the most comparable IFRS measure, to Adjusted EBITDA.
Total net debt as of June 30, 2021 totaled $214 million, of which approximately 59% consisted of long-term obligations. Net Debt-to-LTM Adjusted EBITDA ratio as of June 30, 2021 was 2.2x.
Use of Non-IFRS Financial Measures
Our management uses and discloses EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, LTM Adjusted EBITDA, LTM Adjusted EBITDA margin and Net Debt-to-LTM Adjusted EBITDA ratio, which are non-IFRS financial information to assess our operating performance across periods and for business planning purposes. We believe the presentation of these non-IFRS financial measures is useful to investors as it provides additional information to facilitate comparisons of historical operating results, identify trends in our underlying operating results and provide additional insight and transparency on how we evaluate our business. These non-IFRS measures are not meant to be considered in isolation or as a substitute for financial information presented in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board and should be viewed as supplemental and in addition to our financial information presented in accordance with IFRS.
We define EBITDA as profit (loss) for the period before interest expense, net, income tax expense and depreciation and amortization. We define Adjusted EBITDA as EBITDA further adjusted to exclude certain isolated costs incurred as a result of the COVID-19 pandemic, transaction expenses related to the business combination with Union Acquisition Corp. II, certain costs related to business transformation initiatives, certain foreign currency translation adjustments and certain other finance costs adjustments. We also report Adjusted EBITDA as a percentage of net revenue as an additional measure so investors may evaluate our Adjusted EBITDA margins. None of EBITDA, Adjusted EBITDA or Adjusted EBITDA margin are presented in accordance with generally accepted accounting principles (“GAAP”) or IFRS and are non-IFRS financial measures.
We use EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, LTM Adjusted EBITDA and Net Debt-to-LTM Adjusted EBITDA ratio for operational and financial decision-making and believe these measures are useful in evaluating our performance because they eliminate certain items that we do not consider indicators of our operating performance. EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, LTM Adjusted EBITDA and Net Debt-to-Adjusted EBITDA ratio are also used by many of our investors and other interested parties in evaluating our operational and financial performance across reporting periods. We believe that the presentation of EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, LTM Adjusted EBITDA and Net Debt-to-LTM Adjusted EBITDA ratio provides useful information to investors by allowing an understanding of key measures that we use internally for operational decision-making, budgeting, evaluating acquisition targets, and assessing our operating performance.
EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, LTM Adjusted EBITDA and Net Debt-to-LTM Adjusted EBITDA ratio are not recognized terms under IFRS and should not be considered as a substitute for net income (loss), cash flows from operating activities, or other income or cash flow statement data. These measures have limitations as analytical tools, and should not be considered in isolation or as substitutes for analysis of our results as reported under IFRS. We strongly encourage investors to review our financial statements in their entirety and not to rely on any single financial measure.
Because non-IFRS financial measures are not standardized, EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, LTM Adjusted EBITDA and Net Debt-to-LTM Adjusted EBITDA ratio, as defined by us, may not be comparable to similarly titled measures reported by other companies. It therefore may not be possible to compare our use these non-IFRS financial measures with those used by other companies.
The following table contains a reconciliation of profit for the period to EBITDA, Adjusted EBITDA and Adjusted EBITDA margin for the periods presented. The Company is unable to present a reconciliation of its second quarter 2021 net revenue and Adjusted EBITDA guidance because management cannot reliably predict all of the necessary components of such measures. Accordingly, investors are cautioned not to place undue reliance on this information.
|
Reconciliation of Adjusted EBITDA and Adjusted EBITDA Margin |
|||||||||
|
for the Three Months Ended June 30, 2020 and 2021 |
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|
|
|
|
|
||||||
|
|
|
Three Months Ended June 30 |
% Change |
||||||
|
Unaudited Financial Information |
|
2020 |
2021 |
||||||
|
|
|
(in millions of U.S. dollars except percentages) |
|||||||
|
Profit (loss) for the period |
(1.5 |
) |
(3.6 |
) |
(132 |
%) |
|||
|
Interest expense, net |
13.5 |
|
13.8 |
|
3 |
% |
|||
|
Income tax expense |
0.6 |
|
0.4 |
|
(37 |
%) |
|||
|
Depreciation and amortization |
3.6 |
|
5.6 |
|
56 |
% |
|||
|
EBITDA |
16.1 |
|
16.2 |
|
— |
|
|||
|
COVID-19 impact adjustments(1) |
1.6 |
|
0.7 |
|
(60 |
%) |
|||
|
Transaction-related expenses(2) |
— |
|
5.5 |
|
NA |
||||
|
Business transformation initiatives(3) |
0.8 |
|
— |
(100 |
%) |
||||
|
Foreign currency translation adjustments(4) |
(0.9 |
) |
1.4 |
NA |
|||||
|
Other finance costs adjustments(5) |
1.0 |
0.1 |
(85 |
%) |
|||||
|
Adjusted EBITDA |
18.6 |
|
23.9 |
|
28 |
% |
|||
|
Adjusted EBITDA margin |
25.9 |
% |
24.6 |
% |
|
||||
|
(1) |
COVID-19 impact adjustments primarily include: (i) expenses incurred for safety pre-cautions during the pandemic, such as office and production infrastructure adaptation to practice social distancing, as well as vaccinations for employees, in order to maintain a safe work and production environment for the employees, (ii) operating and production expenses incurred in connection with hiring of additional employees and costs paid to third party agencies for such hiring, contractors and production sub-contractors in order to mitigate any decrease in production and operating capabilities of Procaps as a result of employees absenteeism or attrition as a result of the COVID-19 pandemic, (iii) expense incurred for certain logistic arrangements to minimize Procaps employees’ exposure to COVID-19 through arranging transportation from home to work, lodgings, face masks and PPE, (iv) additional costs incurred to acquire certain raw materials that are essential to production due to the lockdowns of suppliers’ factories and ports of entry worldwide, and additional logistic costs due to delays, (v) expenses of certain one-time financial discounts that Procaps provided to its customers, such as medicine distributors, during the COVID-19 pandemic due to financial and liquidity difficulties and customers’ inability to settle invoices as a result of the effects of the COVID-19 pandemic and governmental restrictions such as lockdowns, and (vi) other miscellaneous expenses resulted from COVID-19 pandemic. |
|
|
(2) |
Transaction-related adjustments include expenses related to the business combination with Union Acquisition Corp. II (NASDAQ: LATN). |
|
|
(3) |
Business transformation initiatives consists of costs and expenses in connection with severance payments made to separate employees from Procaps for certain business transformation initiatives implemented during the three months ended June 30, 2020. |
|
|
(4) |
Foreign currency translation adjustments represent the reversal of exchange losses recorded by Procaps due to foreign currency translation of monetary balances of certain of its subsidiaries’ from U.S. dollars into the functional currency of those subsidiaries as of June 30, 2021 and 2020. |
|
|
(5) |
Other finance costs adjustments represent non-operating expenses incurred by Procaps, primarily including additional interests incurred by Procaps due to the withholding tax obligations of certain financial institutions outside of Colombia. |
Contacts
Procaps Group Investor Contact:
Chris Tyson/Doug Hobbs
SPAC Alpha IR+
(949) 491-8235
LATN@mzgroup.us
LATN Contact:
Kyle P. Bransfield
Chief Executive Officer
Union Acquisition Corp. II
(305) 306-2522