Full Press Release Details
Reports Fourth Quarter and Full Year 2022 Results
Constant Currency Net
Revenues Increased 7% Year-over-Year in 2022, With Strong Demand of RX and Softgel Portfolios, Offset by Clinical Specialty Covid Portfolio
for 1Q23 Results Show a Significant Rebound from 4Q22 Performance, as We Expect to Reach at Least High Single-Digit Growth in Adj. EBITDA
Management Reaffirms
Preliminary FY2023 Net Revenue and Adjusted EBITDA Guidance
Multiple Value-Creation
Initiatives Implemented and On Track to Achieve Up to $15 million of Targeted Recurring Savings
MIAMI, USA - BARRANQUILLA, COL -
May 12, 2023 - Procaps Group S.A. (NASDAQ: PROC) ("Procaps"), a leading integrated international healthcare and
pharmaceutical services company, today announced its financial results for the three months ended December 31, 2022 ("4Q22")
and full fiscal year ended December 31, 2022 ("2022").
"Demand remains robust for RX and consumer health products
as well as for all our CDMO products and services. We are executing our value creation initiatives as we build a solid foundation and
transition toward new paths for growth," said Rub n Minski, CEO of Procaps.
Highlights 2022 & 4Q22
Product Development & Market
| 4Q22 | 4Q21 | % | 2022 | 2021 | % | |||||||||||||||||||
| Net Revenues | 101.5 | 126.5 | -19.8 | % | 409.9 | 409.7 | 0.0 | % | ||||||||||||||||
| COGS | (49.2 | ) | (50.9 | ) | -3.3 | % | (170.4 | ) | (174.0 | ) | -2.1 | % | ||||||||||||
| Gross Profit | 52.3 | 75.7 | -30.9 | % | 239.6 | 235.7 | 1.6 | % | ||||||||||||||||
| Gross Margin | 51.5 | % | 59.8 | % | -829.3 | bps | 58.4 | % | 57.5 | % | 91.6 | bps | ||||||||||||
| Average FX USD/COP | 4,808.0 | 3,879.0 | 23.9 | % | 4,255 | 3,743 | 13.7 | % |
FY 2023 Net Revenue and Adjusted EBITDA
| 2023 Constant Currency | 2022 | |||||
| Net Revenues | ~+10% | $ | 410 | M | ||
| Adjusted EBITDA | $90- $100M | $ | 70 | M |
1Q23 Preliminary Results Highlights
| 1Q23 | 1Q22 | |||||
| Net Revenues | $82M - $85M | $ | 86 | M | ||
| FX Impact on Net Revenues | $7M | - | ||||
| Constant Net Revenues | $89M - $92M | - | ||||
| Constant Adj. EBITDA | ~$10M |
Procaps Chief Executive Officer, Ruben Minski,
"Looking to the remainder of 2023, we continue
to expect the impact of many of these recent issues to subside. We believe momentum will expand as we benefit significantly from the investments
in capabilities, products and geographies we have made over the last few years. Combined with our cost reduction plans to optimize our
business in the near term, without compromising our long-term objectives, we continue to expect to grow net revenues at approximately
10%+ in 2023 on a constant currency basis and are forecasting our Adjusted EBITDA range to be approximately $90-100 million."
Management Commentary
Procaps Chief Executive Officer, Ruben Minski,
"2022 was underlined by strong demand for
our existing product line including RX and consumer health products that helped overcome challenges in several areas. RX products grew
approximately 21% year over year. We also maintained our rapid pace with innovative new products launches and expansion into new regions.
We have continued to grow on a constant currency basis, supporting our strategic investments in capabilities, products and geographies
over the last few years.
"2022 was also affected by multiple macroeconomic
headwinds including significant currency devaluation in the markets where we operate, supply chain disruptions, rapid cost inflation and
post pandemic demand price adjustments. As the currency headwinds and macro issues impacting us subside, we believe we have put in place
a long-term strategy with the competitive advantages that will position us for ongoing success. This strategy is complemented by an aggressive
plan to reduce expenses and generate the efficiencies that we implemented at the beginning of 2023.
"The strong cadence of new product launches
and product rollouts to new regions combined to deliver 7% revenue growth on a constant currency basis for the full year 2022, despite
the previously mentioned headwinds, and is positioning us to build a strong foundation for 2023. With our strong focus on continuous innovation
and internationalization, we continue to expand our portfolio within selected therapy areas and geographies, with approximately $111 million
net sales coming from new products in 2022. In addition, we have over 170 products pending approval to be launched in the next few years.
"As I mentioned before, we have implemented
multiple value-creation initiatives to reduce costs, improve margins and near-term profitability, as well as to expand our global reach
with our roll-up strategy and to fund our growth objectives. The goal is to achieve up to $15 million of recurring savings to be realized
over the next 18 months. Since the beginning of this year, we have been focused on these initiatives, including headcount right-sizing,
SG&A efficiency, R&D optimization, and corporate expenses efficiency. As of March 2023, total execution of our savings capture
rate was approximately 20%, and preliminary accumulated savings results from these efforts were $3.0 million,
"Looking ahead in 2023, we expect to see
continuing challenges and uncertainties, such as a possible recession in the United States and Europe, supply chain disruptions, significant
volatility of the currencies in the markets where we operate, as well as high interest rates and tight financial markets in general. However,
with our focus on our strengths for growth and the substantial efforts we're putting in our strategic improvement initiatives, I'm
confident that we are well positioned to achieve our near and long-term goals. We expect 2023 to be a year to stabilize and improve our
results so we can continue with our expansion plans, concluded Minski.
Procaps Chief Financial Officer, Patricio Vargas,
"We ended the fourth quarter of 2022 with
revenue decrease of 11% over the same period of the previous year, and an increase of 7% for the full year, both on a constant currency
basis. Significant currency devaluation in the markets where we operate, supply chain disruptions and rapid cost inflation disproportionately
and negatively impacted our usually strong fourth quarter. We also saw distributors reducing Covid-19 related inventories, which negatively
impacted our sales in the last months of the year. As we move into 2023, we believe our strong demand growth and value creation initiatives
will position us to recover from the negative impacts we suffered in 2022.
"The strong currency devaluation during
the last few months in some of our markets, and especially in the last quarter, negatively impacted our net revenues by $12 million compared
to the fourth quarter of 2021 and by $28 million in the full year compared to the same period in the prior year.
"Despite these negative impacts our gross
margin remained robust at 58% for 2022, slightly higher than 2021.
"We want to take this opportunity to apologize
to our shareholders for being delayed in our 2022 filing. We recognize it is bad news and we're working hard to solve our issues.
We expected our new consolidation system to be in place by now but we were delayed and are now expecting it to be operational with respect
to our second quarter filing. At the same time, we continue working on remediating our material weaknesses, which we expect should be
mostly addressed within the next 18 months." concluded Vargas.
Innovation & Launches
Total R&D expenses, including the amount capitalized
as intangible assets, totaled $6.5 million in 4Q22, or 6% of total net revenues in the period. For 2022, total R&D expenses totaled
$26.8 million, or 7% of net revenues.
Our renewal rate (% of net revenues from new products
launched in the last 36 months) was 27% during 2022, delivering approximately $111 million in net revenues. Launches depend on registration
approval from regulatory agencies, and we could have phasing from quarter to quarter, depending on the time of these approvals.
We have registered over 200 products in the regions
where we operate, and we have 170 products in the registration process.
Ramp up for products launched during 2022 is strong,
highlighted by Aludel (oncology - prostate cancer), Dolofen Flu (OTC), Mentsi and PapiloCare in Colombia. Geo expansion launches
including women's health, cardiovascular, and gastro products are also performing well according to the ramp up trajectory.
Fourth Quarter 2022 & Full Year 2022
Net revenues totaled $101.5 million in 4Q22, compared
to net revenues of $126.5 million for 4Q21, with a decrease of 19.8% year-over-year. On a constant currency basis, net revenues decreased
10.5% from 4Q21 to 4Q22.
The decrease is mainly driven by the impact of
the devaluation of some local currencies, particularly in Colombia of approximately $11.7 million, as well as increased prices in raw
materials, supplier delivery delays which have led to backorders and a decrease in sales of the anesthetic's portfolio. Excluding
Clinical Specialties, our RX portfolio grew approximately 21.5% in the quarter in constant currency.
Net revenues totaled $409.9 million in 2022, compared
to net revenues of $409.7 million for 2021. On a constant currency basis, net revenues increased by 6.8% from 2021. The increase was primarily
due to (i) an increase in demand for our products and services across three business segments, including an increase of approximately
$4.2 million from Nextgel, an increase of approximately $12.4 million from CASAND, and an increase of approximately $4.5 million from
CAN; combined with (ii) an increase in sales for new products of approximately $12.0 million across all business segments, offset by (iii)
currency devaluation in the period of approximately $28 million and (iv) a decrease in sales of the anesthetics portfolio of approximately