Procaps Group Reports Record First Quarter 2021 Financial Results

Rhea-AI Summary

Procaps Group reported strong Q1 2021 results with net revenues rising by 36% to $80.5 million compared to Q1 2020's $59.1 million. Adjusted EBITDA more than doubled, increasing 103% to $10.1 million, with a margin boost of over 400 basis points.

The company attributed growth to robust demand across its CDMO, Rx, and OTC sectors, alongside new product launches. Procaps anticipates meeting or exceeding its 2021 full-year guidance of $436 million in revenues and $105 million in Adjusted EBITDA.

Positive

• Net revenues grew 36% to $80.5 million in Q1 2021.
• Adjusted EBITDA increased 103% to $10.1 million, with an improved margin.
• All five business units recorded double-digit growth, affirming strong operational performance.
• Anticipated over 600 product launches in the next three years, indicating robust pipeline growth.
• Partnership with Union Acquisition Corp. II expected to enhance strategic market position.

Negative

• Total operating expenses rose by 12% to $38 million, primarily due to transaction-related costs.
• Net debt stood at $199.2 million, with a Debt-to-Adjusted EBITDA ratio of 2.1x, indicating potential leverage concerns.

Procaps Group, a leading integrated international healthcare and pharmaceutical company, today announced its financial results for the first quarter ended March 31, 2021.

Key First Quarter Financial Highlights

• Net revenues increased by $21.4 million or 36% to $80.5 million versus $59.1 million in the first 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 103% to $10.1 million versus $5.0 million in the first quarter of 2020.
  • Adjusted EBITDA margin increased by over 400 basis points compared to the first quarter of 2020.
• LTM Adjusted EBITDA for the period ended March 31, 2021 was approximately $95.6 million representing an Adjusted EBITDA margin of approximately 27%.
• Net Debt-to-Adjusted EBITDA ratio was 2.1X for the first quarter of 2021.

Management Commentary

“Our strong financial and operational performance in the first quarter of 2021 is a testament to our innovative product pipeline and robust demand for our products and services,” said Ruben Minski, Procaps Founder, Chairman and Chief Executive Officer. “All five of our business units experienced double-digit revenue growth leading to an increase of over 100% in quarterly Adjusted EBITDA.

“Of note, our Procaps Colombia business unit saw increased demand in therapeutic areas related to chronic diseases and the launch of new products in select therapeutic areas such as monoclonal antibody, pain relief and dermatology.

“Likewise, our Nextgel business unit also experienced increased 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. This performance validates our market position as the largest pharmaceutical integral CDMO in Latin America and top three preferred supplier globally in terms of volume of softgel production capacity.

“As we look to further growth initiatives, in our B2B segment, we expect to see growth from both our existing portfolio and 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, dermatology, and internationalization of our existing portfolio, with on-going efforts to expand our footprint of successful products outside of Colombia,” continued Minski.

2021 Financial Guidance

“The momentum experienced in the first quarter of 2021 is holding into the second quarter, and we believe we are on track to meet or exceed our previously estimated second quarter fiscal year 2021 guidance. In conjunction with our second quarter financial results to be reported in August, Procaps Group will also update its 2021 full year guidance for net revenues of $436 million and Adjusted EBITDA of $105 million. As of March 31, 2021, Procaps Group had an LTM Adjusted EBITDA of approximately $95.6 million, representing an LTM Adjusted EBITDA margin of approximately 27%.

“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 to file the form F-4 proxy / prospectus with our fully-audited 2019 and 2020 financial statements in the coming weeks. We believe the business combination will fuel our expansion, drive continued Adjusted EBITDA and margin expansion while leveraging our strategic roll-up strategy that we believe will drive an accelerated competitive position and value creation for shareholders. 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, we expect to double those metrics that will strategically position Procaps to achieve our near-term goal of $1 billion in net revenues. We look forward to sharing more on our developing story during investor conferences in May and June,” concluded Minski.

Key First Quarter 2021 Operational Highlights

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 Kimod (Ivermectin in Softgels), 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 and Brazil.
• 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.

Business Combination with Union Acquisition Corp. II

• On March 31, 2021, Union Acquisition Corp. II (NASDAQ: LATN) (“LATN”), a special purpose acquisition company founded by Kyle P. Bransfield, and Procaps Group announced the execution of a definitive business combination agreement along with a fully committed $100 million PIPE financing investment (the “Procaps Group Transaction”).
• The Procaps Group Transaction is expected to be completed in the third quarter of 2021, subject to, among other things, the approval by LATN shareholders and the satisfaction or waiver of other customary closing conditions set forth in the definitive business combination agreement for the Procaps Group Transaction.

First Quarter 2021 Financial Results

Net revenues for the first quarter of 2021 totaled $80.5 million, compared to net revenues of $59 million for the first quarter of 2020. Net revenues by strategic business unit (“SBU”) is shown below.

				Net Revenue by SBU
		US$mm		1Q20		1Q21		% Growth
a.		Procaps Colombia		$18.7		$26.9		44%
b.		Nextgel		19.9		27.1		36%
c.		CAN		7.6		8.5		12%
d.		CASAND		8.2		11.9		45%
e.		Diabetrics		4.8		6.2		29%
		Total		$59.1		$80.5		36%

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 44% growth in net revenue for the first quarter of 2021 when compared to the first 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.
• Nextgel
  • The 36% growth in net revenue for the first quarter of 2021 when compared to the first 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)
  • Increased demand for our branded Rx and OTC brands demonstrates the favorable market dynamics during the first quarter of 2021. Our strategic decisions to lower inventory levels from distributors and increase our point of sales penetration, as well as effective marketing strategies have continued to contribute to strong results this quarter, improving cost to serve and resulting in a 12% growth in net revenues for the first quarter of 2021 when compared to the first quarter of 2020.
• Central America South and Andean Region (CASAND)
  • Net revenue growth of 45% for the first quarter of 2021 when compared to the first quarter of 2020 was the result of an increase in revenue from the 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 29% for the first quarter of 2021 when compared to the first quarter of 2020. 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 29% growth in net revenues for the period.

Gross profit increased by 24% to $42.1 million for the first quarter of 2021, compared to $33.9 million for the first quarter of 2020. The increase in gross profit for the first quarter of 2021 was primarily attributable to strong topline growth.

Total operating expenses increased by 12% to $38.0 million for the first quarter of 2021, compared to $34.0 million for the first quarter of 2020. The increase in operating expenses was primarily related to transaction-related expenses of approximately $2.6 million incurred in the quarter.

Adjusted EBITDA increased by 103% to $10.1 million for the first quarter of 2021, compared to $5.0 million for the first 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. Adjusted EBITDA margin increased by over 400 basis points for the first quarter of 2021 when compared to the first quarter of 2020.

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 March 31, 2021 totaled $199.2 million, of which approximately 51% consisted of long-term obligations. Net Debt-to-Adjusted EBITDA ratio as of March 31, 2021 was 2.1x.

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-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 net income/(loss) before finance income and expense, income tax expense, and depreciation and amortization. Adjusted EBITDA further adjusts EBITDA by excluding certain extraordinary expenses such as COVID-related and transaction-related expenses, severance, non-recurring non-operating expenses, certain provisions and FX changes. 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-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-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-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-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 net loss 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.

Procaps Group
Reconciliation of Adjusted EBITDA and Adjusted EBITDA Margin
(in thousands of U.S. dollars, unless otherwise stated)
		Quarterly Income Statement
		1Q20		1Q21		% Growth
Net revenues		59,121		80,475		36%
Cost of sales		(25,241)		(38,389)
Gross profit		33,879		42,087		24%
Selling expenses		(18,476)		(19,542)
Administrative expenses		(15,486)		(18,484)
Other income (expenses)		(4,299)		(496)
Net financial costs		(5,008)		(7,169)
Profit before tax		(9,390)		(3,605)
Taxes		(13)		30
Net income		(9,403)		(3,575)

FAQ

What were Procaps Group's revenue results for Q1 2021?

Procaps Group reported net revenues of $80.5 million for Q1 2021, a 36% increase from Q1 2020.

How much did Adjusted EBITDA increase in Q1 2021 for Procaps Group?

Adjusted EBITDA increased 103% to $10.1 million in Q1 2021 compared to the previous year.

What is the financial guidance for Procaps Group for 2021?

Procaps Group expects full-year net revenues of $436 million and Adjusted EBITDA of $105 million.

What strategic partnership did Procaps announce in March 2021?

Procaps Group announced a definitive business combination agreement with Union Acquisition Corp. II (NASDAQ: LATN).

What are the main growth drivers for Procaps Group in 2021?

Growth is driven by strong demand across all business units and over 600 planned product launches over the next three years.