Q2 2017

Quarter Ended Jun 30, 2017 Financials

Sucampo Pharmaceuticals, Inc.              
Consolidated Statements of Operations and Comprehensive Income (unaudited)      
(in thousands, except per share data)              
      Three Months Ended June 30,   Six Months Ended June 30,
        2017       2016       2017       2016  
Revenues:                 
  Product royalty revenue $ 20,562     $ 18,735     $ 38,997     $ 35,451  
  Product sales revenue   34,237       28,389       68,391       54,984  
  Research and development revenue   5,051       3,369       8,499       6,799  
  Contract and collaboration revenue   46       1,458       292       1,925  
    Total revenues   59,896       51,951       116,179       99,159  
                   
Costs and expenses:              
  Costs of goods sold   17,035       20,354       33,918       43,692  
  Research and development   19,099       10,933       29,432       25,604  
  Acquired in-process research and development   186,603       -       186,603       -  
  General and administrative   11,583       12,423       29,274       21,350  
  Selling and marketing   1,411       623       1,927       1,398  
    Total costs and expenses   235,731       44,333       281,154       92,044  
                   
(Loss) income  from operations   (175,835 )     7,618       (164,975 )     7,115  
Non-operating income (expense):              
  Interest income   -       10       28       35  
  Interest expense   (2,916 )     (5,972 )     (5,806 )     (12,242 )
  Other expense, net   (476 )     (2,539 )     (265 )     (2,886 )
    Total non-operating expense, net   (3,392 )     (8,501 )     (6,043 )     (15,093 )
                   
Loss before income taxes   (179,227 )     (883 )     (171,018 )     (7,978 )
Income tax (provision) benefit   (1,940 )     51       (5,525 )     3,089  
Net loss     $ (181,167 )   $ (832 )   $ (176,543 )   $ (4,889 )
                   
Net loss per share:                
  Basic and diluted $ (3.92 )   $ (0.02 )   $ (3.94 )   $ (0.11 )
Weighted average common shares outstanding:              
  Basic and diluted   46,195       42,759       44,826       42,649  
                   
Comprehensive (loss) income:              
Net loss     $ (181,167 )   $ (832 )   $ (176,543 )   $ (4,889 )
Other comprehensive income (expense):              
  Unrealized (loss) gain on pension benefit obligation, net of tax   (16 )     33           25  
  Foreign currency translation gain (loss), net of tax   -       20,700       (77 )     36,255  
    Comprehensive (loss) income $ (181,183 )   $ 19,901     $ (176,620 )   $ 31,391  
                   
Sucampo Pharmaceuticals, Inc.      
Consolidated Balance Sheets (unaudited)      
(in thousands, except share and per share data)      
      June 30,    December 31, 
        2017       2016  
ASSETS        
Current assets:       
  Cash and cash equivalents $ 84,734     $ 198,308  
  Product royalties receivable   20,552       26,261  
  Accounts receivable, net   19,812       42,998  
  Restricted cash   213       213  
  Inventories, net   23,098       23,468  
  Prepaid expenses and other current assets   16,726       15,984  
    Total current assets   165,135       307,232  
Investments, non-current   5,619       5,495  
Property and equipment, net   5,880       6,216  
Intangible assets, net   114,629       128,134  
Goodwill     73,022       73,022  
Other assets     798       752  
    Total assets $ 365,083     $ 520,851  
           
LIABILITIES AND STOCKHOLDERS' EQUITY      
Current liabilities:      
  Accounts payable $ 11,171     $ 9,190  
  Accrued expenses   12,265       12,389  
  Accrued interest   425       129  
  Deferred revenue, current   177       1,315  
  Income tax payable   4,381       7,153  
  Other current liabilities   3,692       2,175  
    Total current liabilities   32,111       32,351  
           
Notes payable, non-current   291,456       290,516  
Deferred revenue, non-current   2,783       805  
Deferred tax liability, net   2,995       21,289  
Other liabilities     9,390       8,791  
    Total liabilities   338,735       353,752  
           
           
           
Preferred stock, $0.01 par value; 5,000,000 shares authorized at June 30, 2017  and December 31,    
  2016; no shares issued and outstanding at June 30, 2017 and December 31, 2016   -       -  
Class A common stock, $0.01 par value; 270,000,000 shares authorized at June 30, 2017      
  and December 31, 2016; 46,552,462 and 46,415,749 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively   464       464  
Class B common stock, $0.01 par value; 75,000,000 shares authorized at June 30, 2017 and      
  December 31, 2016; no shares issued and outstanding at June 30, 2017 and December 31, 2016   -       -  
Additional paid-in capital   127,208       120,251  
Accumulated other comprehensive income   54,434       54,527  
Treasury stock, at cost; 227,266 and 3,009,942 shares at June 30, 2017   (4,018 )     (46,269 )
(Accumulated deficit) retained earnings   (151,740 )     38,126  
    Total stockholders' equity   26,348       167,099  
    Total liabilities and stockholders' equity $ 365,083     $ 520,851  
 

Certain prior year non-GAAP amounts have been reclassified for consistency with the current period- adjusted presentation. These reclassifications had no effect on the reported results of operations. A reconciliation of GAAP Net Income to Adjusted Net Income and GAAP Net Income to Adjusted EBITDA, the most directly comparable GAAP financial measure, is included in the tables below.

  RECONCILIATION OF GAAP NET INCOME TO ADJUSTED NET INCOME
  (in thousands, except per share amounts)
     
  Three Months Ended Three Months Ended
   June 30, 2017  June 30, 2016
Adjusted Net Income:    
GAAP net loss (181,167 ) (832 )
Amortization intangibles 6,753   6,334  
Inventory step-up adjustment -   6,303  
R&D License Option Expense 4,500   -  
Restructuring costs 189   1,504  
One-time severance payments 984   -  
Acquisition and integration related expenses 1,111   1,105  
Acquired in-process research and development 186,603   -  
Amortization of debt financing costs 477   889  
Foreign currency effect 511   2,658  
Tax effect on adjustments (3,500 ) (7,641 )
          Total Non-GAAP Adjustments 197,628   11,152  
  Adjusted Net Income 16,461   10,320  
     
  GAAP Weighted Average Shares - Dilutive 46,195   42,759  
  Adjusted Weighted Average Shares - Diluted 64,697   42,759  
        GAAP Net Income per Share - Diluted (3.92 ) (0.02 )
        Adjusted Net Income per Share - Diluted 0.28   0.24  


  RECONCILIATION OF GAAP NET INCOME TO ADJUSTED EBITDA
  (in thousands, except per share amounts)
     
  Three Months Ended Three Months Ended
   June 30, 2017  June 30, 2016
GAAP net loss (181,167 ) (832 )
Adjustments:    
Taxes 1,940   (51 )
Interest expense 2,916   5,972  
Interest income -   (10 )
Depreciation 222   205  
Amortization intangibles 6,753   6,334  
Inventory step-up adjustment -   6,303  
EBITDA (169,336 ) 17,921  
  Non-GAAP Adjustments:    
Share Based Compensation 2,849   1,783  
Restructuring costs 189   1,504  
One-time severance payments 984   -  
Acquired in-process research and development 186,603   -  
Acquisition and integration related expenses 1,111   1,105  
R&D License Option Expense 4,500   -  
Foreign currency effect 511   2,658  
         Total Non-GAAP Adjustments 196,747   7,050  
Adjusted EBITDA 27,411   24,971  

This page contains non-GAAP earnings and adjusted EBITDA as listed in the first table above, which is GAAP net income before interest, tax, depreciation, amortization, stock option expense and intangible impairment. Sucampo believes that this non-GAAP measure of financial results provides useful information to management and investors relating to its results of operations. Sucampo's management uses this non-GAAP measure to compare Sucampo's performance to that of prior periods for trend analyses, and for budgeting and planning purposes, as management believes this provides a more comparable measure of our continuing business, as it adjusts for special items that are not reflective of the normal earnings of our business. Sucampo believes that the use of non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing the Sucampo's financial measures with other companies in its industry, many of which present similar non-GAAP financial measures to investors, and that it allows for greater transparency with respect to key metrics used by management in its financial and operational decision-making.

Adjusted EBITDA provides us with an understanding of one aspect of earnings before the impact of investing and financing charges, income taxes and special items.  Adjusted EBITDA may be useful to an investor in evaluating our operating performance and liquidity because this measure is widely used by investors to measure a company’s operating performance without regard to items excluded from the calculation of such measure, which can vary substantially from company to company.  In addition, this is a financial measure that is used by rating agencies, lenders and other parties to evaluate credit worthiness.  Finally, this measure is used by management for various purposes, including as a measure of performance of our operating entities and as a basis for strategic planning and forecasting.

Management of the company does not consider non-GAAP measures in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of non-GAAP financial measures is that they exclude significant expenses that are required by GAAP to be recorded in the Sucampo's financial statements. In order to compensate for these limitations, management presents non-GAAP financial measures together with GAAP results. Non-GAAP measures should be considered in addition to results and guidance prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results. Reconciliation tables of the most comparable GAAP financial measure to the non-GAAP financial measure used in this press release are included with the financial tables at the end of this release. Sucampo urges investors to review the reconciliation and not to rely on any single financial measure to evaluate the Sucampo's business. In addition, other companies, including companies in our industry, may calculate similarly named non-GAAP measures differently than we do, which limits their usefulness in comparing our financial results with theirs.