Procaps Group Reports Third Quarter 2023 Results
- 5% increase in net revenues for 9M23 year-over-year on a constant currency basis
- 13% RX growth driving the revenue increase
- Gross margin of 56% for 9M23
- Adjusted EBITDA of $51 million
- Appointment of a new CEO
- Gross margin decline from 61% to 56% year-over-year
- Adjusted EBITDA decline from $60 million to $51 million year-over-year
- Revised full-year 2023 guidance due to market slowdown
Insights
The reported increase in net revenues by 5% on a constant currency basis for Procaps Group, S.A. for the 9M23 period, driven by a 13% growth in prescription (RX) sales, is a positive indicator of the company's underlying business strength. However, the decrease in gross profit and Adjusted EBITDA year-over-year, with gross margin compression of -454 basis points, suggests rising costs or a change in product mix that is affecting profitability. The foreign exchange impact is also notable, with a negative effect on both net revenues and EBITDA, highlighting the importance of currency risk management for companies with significant international exposure.
The revised guidance for the full year, with net revenue growth expectations tempered to 6% on a constant currency basis and an adjusted EBITDA range of $77M - $82M, reflects management's cautious outlook in light of macroeconomic challenges. This revision may influence investor sentiment and stock performance in the short term, as market participants recalibrate expectations.
Investors should also consider the long-term growth prospects in the Latin American healthcare market, driven by demographic trends and increased health coverage, as mentioned by the company's CEO. While current headwinds are causing a slowdown, the underlying market dynamics could support future growth for well-positioned companies like Procaps.
The strategic expansion into the oncology sector with the agreement for 27 molecules, including 20 Tyrosine Kinase Inhibitors (TKIs), is a significant move for Procaps. TKIs are a class of medications that block chemical signals that lead to cell growth, commonly used in cancer treatment. The oncology market in Latin America presents a growth opportunity, given the high burden of cancer in the region and the need for effective treatments. Procaps' ability to navigate the regulatory landscape for drug registration and its marketing capabilities will be critical in realizing the potential of this agreement.
The construction of a new gummy manufacturing facility in Florida to meet U.S. demand signifies Procaps' expansion in the nutraceutical industry and its commitment to invest in advanced manufacturing technologies. The company's exploration of high potency compounds at the West Palm Beach facility aligns with industry trends towards specialized and high-margin pharmaceutical products.
The partnership with BDR Pharmaceuticals to commercialize oncology treatments in Latin America is a strategic move that could address a critical healthcare gap. The inclusion of Tyrosine Kinase Inhibitors (TKIs) is noteworthy, as these are pivotal in the treatment of various cancers, including lung, breast and pancreatic cancers. The success of this venture will largely depend on the efficiency of the registration process, the effectiveness of the branding and marketing strategies and the ability to gain market share against established competitors.
Procaps' investment in expanding its nutraceutical capabilities with a new gummy manufacturing facility in the U.S. taps into the growing consumer demand for alternative dosage forms and wellness products. The focus on high potency compounds could leverage the growing interest in targeted therapies and personalized medicine, areas with significant potential for innovation and growth.
Net Revenues Increased
Financial Highlights 3Q23 & 9M23
-
Net revenues totaled
$118 million 2% in 3Q23. For 9M23, net revenues totaled$313 million 5% on a constant currency basis. -
Gross profit for 3Q23 totaled
$68 million 58% gross margin and totaled$176 million 56% gross margin, mainly impacted by higher costs and mix of products sold. -
Adjusted EBITDA was
$22 million 19% . For 9M23, Adjusted EBITDA was$51 million
U$ million |
3Q23 |
3Q22 |
Δ% |
9M23 |
9M22 |
Δ% |
||||||
Net Revenues |
118 |
110 |
|
313 |
308 |
|
||||||
FX Impact on Net Revenues |
6 |
- |
|
(12) |
- |
|
||||||
Constant Currency Net Revenues |
112.9 |
110 |
|
325 |
308 |
|
||||||
Gross profit |
68 |
68 |
|
176 |
187 |
- |
||||||
Gross margin |
|
|
-343 bps |
|
|
-454 bps |
||||||
Adjusted EBITDA |
22 |
23 |
- |
51 |
60 |
- |
||||||
FX Impact on Adjusted EBITDA |
1 |
- |
|
(2) |
- |
|
||||||
Constant Currency Adjusted EBITDA |
21 |
23 |
- |
53 |
60 |
- |
||||||
Adj. EBITDA margin |
|
|
-212 bps |
|
|
-291 bps |
Management Commentary
Procaps Chief Executive Officer, Ruben Minski, commented:
“The third quarter of 2023 showed signs of improvement after a challenging first half of the year. We are encouraged by our strong operational execution and refinement of our strategic plan to ensure a stronger, more resilient organization that thrives beyond short-term hurdles.
“Multiple macroeconomic factors continued to challenge the industry in our region, impacting our revenues. We continue to adapt our strategies to navigate this dynamic landscape and protect our profitability and are seeing positive trends materializing in 4Q23 which we expect will lead to improved results over 4Q22.
“During the quarter we announced an agreement with BDR Pharmaceuticals for 27 oncology molecules for
“To support increased
“During the quarter we participated as one of the five sustainable sponsors at CPHI Barcelona 2023 and welcomed over 300 business partners, current and new, at our booth. We were very pleased with the level of interest across the global pharma community of attendees.
“As we continue to focus on growth, and after months of considering how to best serve the Company, earlier this year I announced that leading the Company on important strategic initiatives rather than on day-to-day matters would be of better value to the Company. We have in place the necessary capabilities to position the Company for long-term success and as announced, I will transition to Executive Chairman of the Company on January 15, with the announcement of Jose Antonio Vieira as the new CEO,” concluded Minski.
Guidance Update
Given the slowdown in growth in some markets, especially during the month of September and October and the current macroeconomic environment, we are revising our guidance for the full year.
The impact of the macroeconomic conditions that the industry has experienced through the year, followed the same pattern in the third and fourth quarter - order phasing from CDMO partners, OTC taking longer to recover, launches delays due to delay in registration approvals, and sales of brands that were postponed.
The Company now expects full year 2023 net revenues growth of approximately
This short-term scenario does not change our medium and long-term expectations for the Latin American market. We believe this market slowdown is only temporary and in the next years the market will continue to benefit from the aging of the population, greater market access and increase in health coverage.
Please check Procaps investor relations website for full Earning Release details, at: https://investor.procapsgroup.com/financials/quarterly-reports
Conference Call Information:
The Company will host a conference call and webcast in late January 2024, after the arrival of the new CEO. The Company will inform the market about the date and time during the month of January.
Forward-Looking Statements
This press release includes "forward-looking statements." Forward-looking statements may be identified by the use of words such as "forecast," "intend," "seek," "target," "anticipate," "believe," "expect," "estimate," "plan," "outlook," and "project" and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. Such forward-looking statements include projected financial information. Such forward-looking statements with respect to revenues, earnings, performance, strategies, synergies, prospects, and other aspects of the businesses of Procaps are based on current expectations that are subject to risks and uncertainties. A number of factors could cause actual results or outcomes to differ materially from those indicated by such forward-looking statements. These factors include, but are not limited to: (1) the inability to successfully retain or recruits officers, key employees, or directors; (2) effects on Procaps' public securities' liquidity and trading; (3) the lack of a market for Procaps' securities; (4) changes in applicable laws or regulations; (5) the possibility that Procaps may be adversely affected by other economic, business, and/or competitive factors; (6) the Company’s inability to achieve its cost saving goals and value creating initiatives, (7) our ability to remediate our disclosed material weaknesses within certain time frames, if at all and (8) other risks and uncertainties indicated from time to time in documents filed or to be filed with the Securities and Exchange Commission ("SEC") by Procaps. Accordingly, forward-looking statements, including any projections or analysis, should not be viewed as factual and should not be relied upon as an accurate prediction of future results. The forward-looking statements contained in this press release are based on our current expectations and beliefs concerning future developments and their potential effects on Procaps. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control), or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, the ability to recognize the anticipated benefits of any acquisitions contemplated or pursued by the Company, the impact of COVID-19 on Procaps' business, changes in applicable laws or regulations, the possibility that Procaps may be adversely affected by other economic, business, and/or competitive factors, and other risks and uncertainties, including those included under the header "Risk Factors" in Procaps' annual report on Form 20-F filed with the SEC, as well as Procaps' other filings with the SEC. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. Accordingly, you should not put undue reliance on these statements.
Important Note Regarding Unaudited Estimates and Non-IFRS Measures
The Company is not able to reconcile its forward-looking non-IFRS estimates of Adjusted EBITDA presented in this press release for the year ending December 31, 2023 without unreasonable effort because of the inherent difficulty of accurately forecasting the occurrence and financial impact of the various adjusting items necessary for such reconciliation that have not yet occurred, are out of our control, or cannot be reasonably predicted, which could have a material impact on its future IFRS financial results.
View source version on businesswire.com: https://www.businesswire.com/news/home/20231226910930/en/
Investor Contact:
Melissa Angelini
IR Director - Procaps Group
ir@procapsgroup.com
investor.procapsgroup.com
Source: Procaps Group, S.A.
FAQ
What is the net revenue increase for Procaps Group, S.A. (NASDAQ: PROC) in 9M23?
What drove the net revenue increase for Procaps Group, S.A. (NASDAQ: PROC) in 9M23?
What was the gross margin for Procaps Group, S.A. (NASDAQ: PROC) in 9M23?
What was the adjusted EBITDA for Procaps Group, S.A. (NASDAQ: PROC) in 9M23?
What are the negative aspects of the financial results for Procaps Group, S.A. (NASDAQ: PROC)?
