Patheon N.V. (NYSE: PTHN), a leading global provider of pharmaceutical development and manufacturing services, today reported financial results for the quarter ended April 30, 2017.

Second quarter 2017 revenue was $483 million, compared to $469 million in the prior-year period, and second quarter 2017 adjusted EBITDA was $94 million, compared to $98 million in the prior-year period. Revenue for the first six months of fiscal 2017 was $941 million, compared to $875 million in the comparable fiscal 2016 period, representing 8% year-over-year growth. Adjusted EBITDA for the first six months of fiscal 2017 was $177 million, compared to $157 million in the comparable fiscal 2016 period, representing 13% year-over-year growth.

“During the second quarter we continued to build momentum with customers and make strategic investments to support our long-term growth outlook,” said Patheon CEO, Jim Mullen. “Looking forward, we believe the announced sale to Thermo Fisher is a logical next step in the evolution of our company and is in the best interests of all stakeholders. Together, both companies will be better positioned to add scale and new value chain capabilities, delivering even greater value to customers.”

Second quarter 2017 net income from continuing operations was $28 million. Second quarter 2017 net income from continuing operations per diluted share was $0.19.

Second quarter 2017 adjusted net income from continuing operations was $29 million. Second quarter 2017 adjusted net income from continuing operations per diluted share was $0.20.

Second Quarter and YTD 2017 Segment Highlights

   
(in millions)   Revenue   Adj. EBITDA
    Q2   YTD   Q2   YTD
DPS   $297   $572   $77   $139
PDS   $58   $110   $18   $35
DSS   $129   $259   $26   $58
   

Financial Position

As of April 30, 2017, cash and cash equivalents were $93 million and total debt was $2.1 billion, resulting in net debt of approximately $2.0 billion.

FY17 Financial Outlook and Second Quarter 2017 Conference Call

In light of the Company’s previously announced agreement to be acquired by Thermo Fisher Scientific Inc., Patheon does not plan to provide or update its fiscal year 2017 guidance.

Also as a result of the pending transaction, Patheon will not hold a conference call to discuss the Company’s second quarter 2017 financial results.

About Patheon

Patheon is a leading global provider of pharmaceutical development and manufacturing services. With approximately 9,100 employees and contractors worldwide, Patheon provides a comprehensive, integrated and highly customizable set of solutions to help customers of all sizes satisfy complex development and manufacturing needs at any stage of the pharmaceutical development cycle.

Forward-Looking Statements

This press release contains forward-looking statements which reflect the current beliefs and expectations of Patheon’s management regarding the company’s future growth, results of operations, performance (both operational and financial) and business prospects and opportunities. The statements in this press release that are not historical facts may be forward-looking statements. Readers can identify these forward-looking statements by the use of words such as ‘‘outlook,’’ ‘‘believes,’’ ‘‘expects,’’ ‘‘potential,’’ ‘‘continues,’’ ‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘seeks,’’ ‘‘approximately,’’ ‘‘predicts,’’ ‘‘intends,’’ ‘‘plans,’’ ‘‘estimates,’’ ‘‘anticipates’’ or the negative version of these words or other comparable words. Such forward looking statements are subject to various risks and uncertainties, which could cause actual results to differ from those indicated in these forward looking statements. For more information concerning factors that could cause actual results to differ materially from those conveyed in the forward-looking statements, please refer to the "Risk Factors" section included in the company’s fiscal 2016 Annual Report on Form 10-K filed with the SEC. The Company undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by applicable law. Accordingly, readers should not place undue reliance on forward-looking statements as a prediction of actual results.

Use of Non-GAAP Financial Measures

We define Adjusted EBITDA as income (loss) from continuing operations before repositioning expenses (including certain product returns and inventory write-offs recorded in gross profit), interest expense, foreign exchange losses reclassified from other comprehensive income (loss), refinancing expenses, acquisition and integration costs (including certain product returns and inventory write-offs recorded in gross profit), gains and losses on sale of capital assets, Biologics earnout income and expense, income taxes, impairment charges, remediation costs, depreciation and amortization, stock-based compensation expense, consulting costs related to our operational initiatives, purchase accounting adjustments, acquisition-related litigation expenses and other income and expenses. Adjusted EBITDA margin is Adjusted EBITDA divided by revenues.

We define Adjusted net income as Adjusted EBITDA minus depreciation expense (excluding amortization from intangibles acquired in acquisitions), interest expense (excluding amortization of the deferred financing costs), and tax expense. In addition, we exclude discrete tax items and apply an estimated tax effect on adjustments within the calculation. The estimated tax effect is calculated using statutory tax rates on each expense item, except in the case where a jurisdiction is under a full valuation allowance at the time of the expense, in which we apply a tax rate of 0%. We define Adjusted EPS as Adjusted net income divided by the average number of shares outstanding on a diluted basis for the related period.

Our management uses Adjusted EBITDA as one of several metrics to measure the Company’s operating performance. Adjusted EBITDA is also a component of the performance objectives used to determine the short and long-term incentive portions of executive compensation. We present Adjusted net income and Adjusted EPS because we believe they are useful supplemental measures in evaluating the performance of our operations and provide greater transparency into our results. We believe that providing these non-GAAP financial measures to investors as a supplement to the comparable U.S. GAAP measures in evaluating the performance of our operations provides greater transparency to the information used by the Company’s management in its financial and operational decision-making. These non-GAAP financial measures do not have standard meanings, so they may not be comparable to similarly-titled measures presented by other companies and should not be considered in isolation or as a substitute for U.S. GAAP financial measures of performance. Reconciliations of these non-GAAP measures to their most comparable U.S. GAAP financial measures are included with the financial statements in this press release.

The Company does not provide a reconciliation of forward-looking non-GAAP financial measures to their comparable GAAP financial measures because it could not do so without unreasonable effort due to the unavailability of the information needed to calculate reconciling items and the variability, complexity and limited visibility of the adjusting items that would be excluded from the non-GAAP financial measures in future periods. When planning, forecasting and analyzing future periods, the Company does so primarily on a non-GAAP basis without preparing a GAAP analysis as that would require estimates for various cash and non-cash reconciling items that would be difficult to predict with reasonable accuracy. For example, equity compensation expense would be difficult to estimate because it depends on the Company’s future hiring and retention needs, as well as the future fair market value of the Company’s common stock, all of which are difficult to predict and subject to constant change. It is equally difficult to anticipate the need for or magnitude of a presently unforeseen one-time restructuring expense or the values of end-of-period foreign currency exchange rates. As a result, the Company does not believe that a GAAP reconciliation to forward-looking on-GAAP financial measures would provide meaningful supplemental information about the Company’s outlook.

   

Patheon N.V.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

Three months ended April 30,

Six months ended April 30,

2017   2016 2017   2016
(in millions of U.S. dollars, except share data) $ $ $ $
Revenues 483.4 468.6 940.8 874.5
Cost of goods sold 342.7   330.3   670.4   637.3  
Gross profit 140.7 138.3 270.4 237.2
Selling, general and administrative expenses 92.1 74.8 173.2 148.5
Research and development 0.4 0.6 1.1 1.3
Repositioning expenses 1.8 1.3 2.4 2.5
Acquisition and integration costs 8.1 7.6 11.6 10.2
Other operating expense (income) 0.5   1.2   4.1   (3.7 )
Operating income 37.8 52.8 78.0 78.4
Interest expense, net 30.8 42.6 59.0 86.4
Foreign exchange loss, net 0.7 7.1 5.5 11.4
Refinancing expenses 6.3 — 6.3 —
Bargain purchase gain (26.4 ) — (26.4 ) —
Other loss (income), net 0.3   0.5   0.5   (1.3 )
Income (loss) before income taxes 26.1 2.6 33.1 (18.1 )
(Benefit from) provision for income taxes (1.5 ) 0.7   (22.8 ) —  
Net income (loss) from continuing operations 27.6   1.9   55.9   (18.1 )
Net loss from discontinued operations —   (1.0 ) —   (3.1 )
Net income (loss) 27.6   0.9   55.9   (21.2 )
 
Basic earnings (loss) per ordinary share
From continuing operations $ 0.19 $ 0.02 $ 0.39 $ (0.16 )
From discontinued operations $ — $ (0.01 ) $ — $ (0.03 )
 
Diluted earnings (loss) per ordinary share
From continuing operations $ 0.19 $ 0.02 $ 0.38 $ (0.16 )
From discontinued operations $ — $ (0.01 ) $ — $ (0.03 )
 
Average number of ordinary shares outstanding (in thousands)
Basic 145,136 115,610 145,132 115,610
Diluted 146,267 115,610 146,276 115,610
   

Patheon N.V.

CONSOLIDATED BALANCE SHEETS

(unaudited)

 
As of April 30, 2017 As of October 31, 2016
(in millions of U.S. dollars, except share data) $ $
Assets
Current
Cash and cash equivalents 92.7 165.0
Accounts receivable, net 420.9 401.0
Inventories, net 451.6 395.2
Income taxes receivable 14.3 8.7
Prepaid expenses and other 24.1   21.5  
Total current assets 1,003.6   991.4  
Capital assets 1,169.3 983.6
Intangible assets 235.2 247.6
Deferred tax assets 30.2 29.8
Goodwill 281.4 281.6
Investments 11.2 11.5
Other long-term assets 39.2   44.1  
Total assets 2,770.1   2,589.6  
Liabilities and shareholders' deficit
Current
Accounts payable and accrued liabilities 382.2 393.6
Income taxes payable 9.3 6.6
Deferred revenues - current 195.5 154.2
Current portion of long-term debt 19.4   19.5  
Total current liabilities 606.4   573.9  
Long-term debt 2,069.4 2,049.2
Deferred revenues 132.4 102.3
Deferred tax liabilities 96.7 67.1
Other long-term liabilities 147.7   145.5  
Total liabilities 3,052.6   2,938.0  
Commitments and contingencies
Shareholders' deficit:
Ordinary shares (par value of €0.01 per share, 500,000,000 shares authorized, 145,144,742 and 145,074,042 shares issued as of April 30, 2017 and October 31, 2016, respectively) 1.6 1.6
Additional paid in capital 602.4 591.4
Treasury shares (at cost, 8,528 ordinary shares as of April 30, 2017) (0.2 ) —
Accumulated deficit (786.2 ) (842.1 )
Accumulated other comprehensive loss (100.1 ) (99.3 )
Total shareholders' deficit (282.5 ) (348.4 )
Total liabilities and shareholders' deficit 2,770.1   2,589.6  
 
 

Patheon N.V.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 
Six months ended April 30,
2017   2016
(in millions of U.S. dollars) $ $
Operating activities
Net income (loss) from continuing operations 55.9 (18.1 )
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 61.9 53.5
Increase in deferred revenues 141.1 172.9
Amortization of deferred revenues (137.2 ) (101.3 )
Non-cash interest 9.5 7.6
Change in other long-term assets and liabilities 4.0 2.9
Deferred income taxes (29.7 ) (0.9 )
Stock based compensation expense 11.0 3.0
Gain on bargain purchase (26.4 ) —
Payment of original issue discount (4.1 ) —
Return on capital from equity investment — 1.3
Foreign exchange loss on debt — 2.2
Other 4.4 (5.1 )
Net change in non-cash working capital balances (69.5 ) (161.0 )
Cash provided by (used in) operating activities of continuing operations 20.9 (43.0 )
Cash used in operating activities of discontinued operations —   (2.9 )
Cash provided by (used in) operating activities 20.9   (45.9 )
Investing activities
Additions to capital assets (99.2 ) (95.1 )
Acquisitions (10.3 ) —
Proceeds from sale of capital assets — 0.1
Return of capital from equity investment —   2.3  
Cash used in investing activities of continuing operations (109.5 ) (92.7 )
Cash used in investing activities of discontinued operations —   (3.3 )
Cash used in investing activities (109.5 ) (96.0 )
Financing activities
Proceeds from borrowings 30.0 0.7
Repayment of debt (9.6 ) (9.9 )
Increase in deferred financing costs (2.7 ) —
Treasury share purchases to satisfy certain tax withholdings (0.1 ) —  
Cash provided by (used in) financing activities of continuing operations 17.6 (9.2 )
Cash provided by (used in) financing activities of discontinued operations —   —  
Cash provided by (used in) financing activities 17.6   (9.2 )
Effect of exchange rate changes on cash and cash equivalents (1.3 ) 7.1  
Net change in cash and cash equivalents during the period (72.3 ) (144.0 )
Cash and cash equivalents, beginning of period 165.0   328.7  
Cash and cash equivalents, end of period 92.7   184.7  
 
   

Patheon N.V.

ADJUSTED EBITDA AND ADJUSTED NET INCOME

(unaudited)

 
Three months ended April 30, Six months ended April 30,
2017   2016 2017   2016
(in millions of U.S. dollars) $ $ $ $
Net income from continuing operations 27.6 1.9 55.9 (18.1 )
Depreciation and amortization 34.3 27.0 61.9 53.5
Repositioning expenses 2.2 1.3 3.5 2.5
Acquisition and integration costs 8.1 7.6 11.6 10.2
Interest expense, net 30.8 42.6 59.0 86.4
Benefit from (provision for) income taxes (1.5 ) 0.7 (22.8 ) —
Refinancing expenses 6.3 — 6.3 —
Operational initiatives related consulting costs 1.4 1.9 2.5 3.3
IPO costs — 0.4 — 0.8
Acquisition related litigation expenses 3.7 0.9 6.0 1.9
Stock based compensation expense 7.0 2.0 11.0 3.0
FDA remediation costs — 10.1 — 18.5
Environmental remediation costs — — 3.7 —
Bargain purchase gain (26.4 ) — (26.4 ) —
Other 0.7   1.6   4.5   (5.0 )
Total Adjusted EBITDA 94.2 98.0 176.7 157.0
Depreciation (28.2 ) (20.9 ) (49.7 ) (41.3 )
Interest expense (28.6 ) (39.3 ) (54.1 ) (79.8 )
Tax expense 1.5 (0.7 ) 22.8 —
Discrete tax items (3.2 ) (3.1 ) (31.3 ) (4.2 )
Estimated tax effect on adjustments (7.1 ) (6.5 ) (14.6 ) (13.2 )
Adjusted net income 28.6 27.5 49.8 18.5
 
Weighted Average Shares - Diluted 146.3 115.6 146.3 115.6
 
Adjusted Net Income per Share - Diluted 0.20 0.24 0.34 0.16
 
 

Patheon N.V.

CONSOLIDATED SEGMENT OPERATIONS

(unaudited)

 
Three months ended April 30, 2017
Revenues   Adjusted EBITDA
(in millions of U.S. dollars) $ $
DPS 297.2 77.4
PDS 57.8 18.4
DSS 129.2 26.1
Other — (27.5 )
Intersegment Eliminations (0.8 ) (0.2 )
Total 483.4 94.2
 
 
Three months ended April 30, 2016
Revenues   Adjusted EBITDA
(in millions of U.S. dollars) $ $
DPS 287.4 72.7
PDS 53.4 16.7
DSS 127.9 30.8
Other — (22.2 )
Intersegment Eliminations (0.1 ) —  
Total 468.6 98.0
 
  Six months ended April 30, 2017
Revenues   Adjusted EBITDA
(in millions of U.S. dollars) $ $
DPS 572.4 138.8
PDS 110.1 34.7
DSS 259.1 58.1
Other — (54.7 )
Intersegment Eliminations (0.8 ) (0.2 )
Total 940.8 176.7
 
  Six months ended April 30, 2016
Revenues   Adjusted EBITDA
(in millions of U.S. dollars) $ $
DPS 545.9 127.8
PDS 101.9 30.5
DSS 226.8 45.6
Other — (46.9 )
Intersegment Eliminations (0.1 ) —  
Total 874.5 157.0