Q3 2017

Quarter Ended Sep 30, 2017 Financials

SUCAMPO PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income (Unaudited)

(In thousands, except per share data)

 

    Three Months Ended September 30,   Nine Months Ended September 30,
    2017   2016   2017   2016
Revenues:                
Product royalty revenue   $ 23,024     $ 20,771     $ 62,021     $ 56,222  
Product sales revenue     35,815       31,554       104,206       86,538  
Research and development revenue     2,381       3,172       10,880       9,971  
Contract and collaboration revenue     46       2,376       338       4,301  
Total revenues     61,266       57,873       177,445       157,032  
                                 
Costs and expenses:                                
Costs of goods sold     17,436       15,586       51,354       59,278  
Research and development     10,133       9,976       39,564       35,580  
Acquired in-process research and development     -       -       186,603       -  
Impairment of in-process research and development     -       7,286       -       7,286  
General and administrative     9,972       11,061       39,246       32,411  
Selling and marketing     2,525       696       4,452       2,094  
Total costs and expenses     40,066       44,605       321,219       136,649  
                                 
Income (loss) from operations     21,200       13,268       (143,774 )     20,383  
Non-operating income (expense):                                
Interest income     10       31       38       67  
Interest expense     (2,956 )     (5,899 )     (8,762 )     (18,141 )
Other income (expense), net     (683 )     8,102       (948 )     5,216  
Total non-operating income (expense), net     (3,629 )     2,234       (9,672 )     (12,858 )
                                 
Income (loss) before income taxes     17,571       15,502       (153,446 )     7,525  
Income tax provision     (7,204 )     (7,410 )     (12,729 )     (4,321 )
Net income (loss)   $ 10,367     $ 8,092     $ (166,175 )   $ 3,204  
                                 
Net income (loss) per share:                                
Basic   $ 0.22     $ 0.19     $ (3.67 )   $ 0.08  
Diluted   $ 0.19     $ 0.19     $ (3.67 )   $ 0.07  
Weighted average common shares outstanding:                                
Basic     46,344       42,813       45,338       42,704  
Diluted     65,083       43,443       45,338       43,334  
                                 
Comprehensive income (loss) :                                
Net income (loss)   $ 10,367     $ 8,092     $ (166,175 )   $ 3,204  
Other comprehensive income (expense):                                
Unrealized gain on pension benefit obligation, net of tax     23       12       7       37  
Foreign currency translation gain (loss), net of tax     -       4,635       (77 )     40,890  
Comprehensive income (loss)   $ 10,390     $ 12,739     $ (166,245 )   $ 44,131  

SUCAMPO PHARMACEUTICALS, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

 

    September 30,
2017
(unaudited)
 

December 31,
2016

 

ASSETS                
Current assets:                
Cash and cash equivalents   $ 75,041     $ 198,308  
Product royalties receivable     23,015       26,261  
Accounts receivable, net     33,098       42,998  
Restricted cash     -       213  
Inventories, net     24,176       23,468  
Prepaid expenses and other current assets     34,731       15,984  
Total current assets     190,061       307,232  
Investments, non-current     10,698       5,495  
Property and equipment, net     5,690       6,216  
Intangible assets, net     107,875       128,134  
Goodwill     73,022       73,022  
Other assets     798       752  
Total assets   $ 388,144     $ 520,851  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
Current liabilities:                
Accounts payable   $ 6,245     $ 9,190  
Accrued expenses     12,239       12,389  
Accrued interest     2,888       129  
Deferred revenue, current     319       1,315  
Income tax payable     9,666       7,153  
Other current liabilities     5,821       2,175  
Total current liabilities     37,178       32,351  
Notes payable, non-current     291,945       290,516  
Deferred revenue, non-current     2,625       805  
Deferred tax liability, net     7,345       21,289  
Other liabilities     9,417       8,791  
Total liabilities     348,510       353,752  
                 
Commitments and contingencies (note 13)                
                 
Stockholders' equity:                
Preferred stock, $0.01 par value; 5,000,000 shares authorized at September 30, 2017 and December 31, 2016; no shares issued and outstanding at September 30, 2017 and December 31, 2016     -       -  
Class A common stock, $0.01 par value; 270,000,000 shares authorized at September 30, 2017 and December 31, 2016; 46,636,924 and 46,415,749 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively     466       464  
Class B common stock, $0.01 par value; 75,000,000 shares authorized at September 30, 2017 and December 31, 2016; no shares issued and outstanding at September 30, 2017 and December 31, 2016     -       -  
Additional paid-in capital     130,101       120,251  
Accumulated other comprehensive income     54,457       54,527  
Treasury stock, at cost; 227,266 and 3,009,942 shares at September 30, 2017 and December 31, 2016, respectively     (4,018 )     (46,269 )
(Accumulated deficit) retained earnings     (141,372 )     38,126  
Total stockholders' equity     39,634       167,099  
Total liabilities and stockholders' equity   $ 388,144     $ 520,851  

SUCAMPO PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

    Nine Months Ended September 30,
    2017   2016
Cash flows from operating activities:                
Net (loss) income   $ (166,175 )   $ 3,204  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:                
Depreciation and amortization     22,354       37,873  
Loss on disposal of property and equipment     -       535  
Deferred tax (benefit) provision     (331 )     (16,571 )
Stock-based compensation     8,067       5,444  
Acquired in-process research and development     186,603       -  
Impairment of in-process research and development     -       7,286  
Unrealized currency translations     206       9,811  
Forgiveness of AMED deferred grant     -       (9,258 )
Shortfall from stock-based compensation     -       (25 )
Windfall benefit from stock-based compensation     (384 )     (460 )
Changes in operating assets and liabilities:                
Product royalties receivable     3,247       2,021  
Accounts receivable     10,154       3,526  
Inventory     (708 )     (2,000 )
Prepaid and income taxes receivable and payable, net     (14,512 )     (607 )
Accounts payable     (4,468 )     (4,094 )
Accrued expenses     12       (2,414 )
Accrued interest payable     2,760       (55 )
Deferred revenue     824       (38 )
Collaboration obligation     -       (4,185 )
Other assets and liabilities, net     3,292       755  
Net cash provided by operating activities     50,941       30,748  
Cash flows from investing activities:                
Convertible note receivable     (5,000 )     (5,000 )
Changes in restricted cash     -       12,302  
Payment of squeeze-out liability for non-tendering R-Tech shareholders     -       (7,668 )
Purchase of in-process research and development, net of cash acquired     (169,665 )     -  
Purchases of property and equipment     (403 )     (1,219 )
Purchase of investment     -       (250 )
Net cash used in investing activities     (175,068 )     (1,835 )
Cash flows from financing activities:                
Payments of notes payable     -       (36,332 )
Changes in restricted cash     213       17,676  
Proceeds from exercise of stock options     598       1,662  
Proceeds from employee stock purchase plan     229       174  
Tax payment upon settlement of stock awards     (114 )     -  
Net cash provided by (used in) financing activities     926       (16,820 )
Effect of exchange rates on cash and cash equivalents     (66 )     8,088  
Net (decrease) increase in cash and cash equivalents     (123,267 )     20,181  
Cash and cash equivalents at beginning of period     198,308       108,284  
Cash and cash equivalents at end of period   $ 75,041     $ 128,465  

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
   September 30, 2017  September 30, 2016
Adjusted Net Income:    
GAAP net income 10,367   8,092  
Amortization of acquired intangibles 6,753   6,677  
Intangible Impairment  -   7,286  
Legal settlement  -   (9,260 )
Restructuring costs  -   208  
Acquisition and integration related expenses 54   605  
Amortization of debt financing costs 489   875  
Foreign currency effect 797   1,199  
Tax effect on adjustments (2,627 ) (2,794 )
  Total Non-GAAP Adjustments 5,466   4,796  
  Adjusted Net Income 15,833   12,888  
     
  GAAP Weighted Average Shares - Dilutive 65,083   43,443  
  Adjusted Weighted Average Shares - Diluted 65,083   43,443  
    GAAP Net Income per Share – Diluted 0.19   0.19  
    Adjusted Net Income per Share - Diluted 0.27   0.30  



  RECONCILIATION OF GAAP NET INCOME TO ADJUSTED EBITDA
  (in thousands)
     
  Three Months Ended Three Months Ended
   September 30, 2017  September 30, 2016
GAAP net income 10,367   8,092  
Adjustments:    
Income taxes 7,204   7,410  
Interest expense 2,956   5,899  
Interest income (10 ) (31 )
Depreciation 204   223  
Amortization of acquired intangibles 6,753   6,677  
Intangible Impairment -   7,286  
EBITDA 27,474   35,556  
Non-GAAP Adjustments:    
Share Based Compensation 2,502   1,722  
Restructuring costs -   208  
Acquisition and integration related expenses 54   605  
Legal Settlement -   (9,260 )
Foreign currency effect 797   1,199  
   Total Non-GAAP Adjustments 3,353   (5,526 )
Adjusted EBITDA 30,827   30,030  

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.