Full Press Release Details
Procaps Group Reports Second Quarter 2023 Results
Net Revenues Increased
7% in 1H23 year-over-year on a constant currency basis, signaling positive performance of Rx products
MIAMI, USA - BARRANQUILLA, COL -
September 5, 2023 - Procaps Group, S.A. (NASDAQ: PROC) ("Procaps" or the "Company"), a leading integrated
international healthcare and pharmaceutical services company, today announced its financial results for the three months ended June 30,
2023 ("2Q23") and the six months ended June 30, 2023 ("1H23").
"Amidst a challenging 2Q23, we're accelerating our strategic
plan, bolstered by operational agility. While short-term impacts were expected, we believe our proactive approach to cost-cutting positions
us for a more resilient 4Q23. We're addressing cash flow concerns, adapting pricing strategies, and taking a long-term view.", said
Rub n Minski, CEO of Procaps.
Highlights 2Q23 & 1H23
| U$ million | 2Q23 | 2Q22 | % | 1H23 | 1H22 | % | ||||||||||||||||||
| Net Revenues | 110 | 112 | -2 | % | 194 | 198 | -2 | % | ||||||||||||||||
| FX Impact on Net Revenues | (7 | ) | - | -7 | % | (18 | ) | - | -9 | % | ||||||||||||||
| Constant Currency Net Revenues | 117 | 112 | 4 | % | 212 | 198 | 7 | % | ||||||||||||||||
| Gross profit | 61 | 73 | -16 | % | 107 | 120 | -10 | % | ||||||||||||||||
| Gross margin | 56 | % | 65 | % | -901 bps | 55 | % | 60 | % | -525 bps | ||||||||||||||
| Adjusted EBITDA | 20 | 28 | -28 | % | 29 | 37 | -20 | % | ||||||||||||||||
| FX Impact on Adjusted EBITDA | (1.4 | ) | - | (3.3 | ) | - | ||||||||||||||||||
| Constant Currency Adjusted EBITDA | 21 | 28 | -23 | % | 33 | 37 | -11 | % | ||||||||||||||||
| Adj. EBITDA margin | 18 | % | 24 | % | -645 bps | 15 | % | 19 | % | -349 bps |
Management Commentary
Procaps Chief Executive Officer, Ruben Minski,
"In the midst of a challenging 2Q23, we
remained steadfast in executing our strategic plan. We are accelerating our efforts to streamline operations, enhance cash generation,
and position for sustainable growth.
"There was a combination of factors related
to the macroeconomic environment that challenged the entire industry in our region. Rising costs from inflation and high interest rates,
along with working capital requirements, and several pharma companies delaying ordering of our products to reduce inventory and their
working capital needs.
"It is important to acknowledge that we
believe the impacts we've faced, while significant, are temporary. The challenges in the quarter were anticipated, and we are taking proactive
steps to address them.
"While we couldn t fully pass on increased
costs to our customers, we are adapting our strategies to navigate this dynamic landscape and protect our profitability.
"Customer behavior resulted in
inventory fluctuations and exchange rate shifts affected our performance. However, we are seeing some favorable exchange rate
shifts, benefitting our customers, and bolstering our recovery.
"Our partners have navigated similar challenges,
resulting in lower inventory levels. We anticipate a few more months of pressure before experiencing relief towards the end of the year.
"We have several product launches
expected for the second half of this year and we also have orders from our CDMO partners scheduled that were postponed for the same
"We're encouraged by the ramp up
of new products launched in the last 36 months and growth in demand for our Rx products (15% growth in 1H23), Clinical Specialties
(6% growth in 1H23), and our B2B business which is receiving new orders indicating a potentially stronger 4Q23 after a potentially
"While the road ahead may seem challenging,
our approach is rooted in a long-term perspective. We acknowledge the need for a more strategic direction and are committed to refining
our plans to ensure a stronger, more resilient organization that thrives beyond short-term hurdles," concluded Minski.
Innovation & Launches
Total R&D expenses, including the amount
capitalized as intangible assets, totaled $7.5 million in 2Q23, or 6.8% of total net revenues in the period, including CAPEX expenses
in the amount of $2.2 million, representing 2.0% of total net revenues.
Our renewal rate (% of net revenues from new
products launched in the last 36 months) was 34.2% during 1H23, delivering approximately $66.4 million in net revenues, including $39.6
million in 2Q23. Launches depend on registration approval from regulatory agencies and we could have phasing from quarter to quarter
depending on the time of these approvals.
Ramp up for products launched in the last 36
months is performing well, highlighted by Aludel (oncology - prostate cancer), Dolofen Xtra (first ever Unigel triple combo for
migraines), Glaritus (injectable insulin), DOL B-VIT (injectable B Complex with lidocaine, using dual chamber technology), and Dexkedol
(oral and injectable options for chronic pain management). Geo expansion launches including women's health, cardiovascular, and
gastro products are also performing well according to the ramp up trajectory.
Products launched during 2Q23 represented $13.0
million in net revenues, totaling net revenues of $17.1 million in 1H23 for products launched in the period, highlighted by Dolofen Xtra,
DOL B-VIT, Dexkedol, and Kinex (specialty supplement for men during hair loss treatment).
Second Quarter 2023 Financial Results
Net revenues totaled $110.1 million in 2Q23,
compared to net revenues of $112.4 million for 2Q22, a decrease of 2.1% year-over-year. On a constant currency basis, net revenues increased
4.3% from 2Q22 to 2Q23, totaling $117.3 million. In 2Q22 there was a recognition of sales of brands in the amount of approximately
$3.5 million, leading to a higher comparison base.
The YoY decrease was mainly driven by the
impact of the devaluation of some local currencies totaling $7.2 million (particularly in Colombia) as well as CDMO order phasing,
especially for U.S. clients, a decrease in sales related to Rymco ceased operations, and a decrease of sales in the OTC market in El
Net revenues from 2Q23 increased by 30.8% when
compared with 1Q23, positively impacted by an increase in sales of (i) $8.5 million in Procaps Colombia, (ii) $7.0 million in Nextgel;
(iii) $5.0 million in CASAND; (iv) $4.2 million in CAN, and (v) $1.1 million in Diabetrics. This reflects an uptake of sales in all regions
and business segments.
In terms of business lines, Rx (approximately
46% of total net revenues) presented the highest growth for 1H23, followed by Clinical Specialties (approximately 7% of total net revenues)
and OTC (approximately 18% of total net revenues).
Net revenues totaled $194.2 million in 1H23 and
$211.9 million on a constant currency basis, an increase of 7.0% from 1H22.
Net revenues by strategic business segment are shown below:
| U$ million | 2Q23 | % NR | 2Q23* | 2Q22 | % NR | % | %* | |||||||||||||||||||||
| CAN | 13.8 | 12.6 | % | 13.9 | 16.8 | 15.0 | % | -18.0 | % | -17.6 | % | |||||||||||||||||
| CASAND | 21.0 | 19.1 | % | 20.9 | 17.1 | 15.2 | % | 22.9 | % | 22.4 | % | |||||||||||||||||
| Diabetrics | 5.2 | 4.7 | % | 5.9 | 6.0 | 5.3 | % | -12.8 | % | -1.6 | % | |||||||||||||||||
| Nextgel | 32.0 | 29.1 | % | 33.5 | 32.9 | 29.3 | % | -2.9 | % | 1.9 | % | |||||||||||||||||
| Procaps Colombia | 38.0 | 34.6 | % | 43.1 | 39.6 | 35.2 | % | -3.9 | % | 8.8 | % | |||||||||||||||||
| Total Net Revenues | 110.1 | 100.0 | % | 117.3 | 112.4 | 100.0 | % | -2.1 | % | 4.3 | % |
| U$ million | 1H23 | %NR | 6M23* | 1H22 | %NR | % | %* | |||||||||||||||||||||
| CAN | 23.4 | 12.0 | % | 23.5 | 28.1 | 14.2 | % | -16.8 | % | -16.3 | % | |||||||||||||||||
| CASAND | 37.0 | 19.1 | % | 37.3 | 29.7 | 15.0 | % | 24.9 | % | 25.7 | % | |||||||||||||||||
| Diabetrics | 9.3 | 4.8 | % | 10.8 | 10.6 | 5.3 | % | -12.4 | % | 1.8 | % | |||||||||||||||||
| Nextgel | 56.9 | 29.3 | % | 61.3 | 58.3 | 29.4 | % | -2.3 | % | 5.2 | % | |||||||||||||||||
| Procaps Colombia | 67.6 | 34.8 | % | 79.0 | 71.5 | 36.1 | % | -5.4 | % | 10.6 | % | |||||||||||||||||
| Total Net Revenues | 194.2 | 100.0 | % | 211.9 | 198.0 | 100.0 | % | -1.9 | % | 7.0 | % |
Central America North (CAN)
Net revenues for the CAN business segment were
$13.8 million in 2Q23, an increase of 44.4% versus 1Q23, and a decrease of 18.0% versus 2Q22. 2Q23 followed the same trend as 1Q23, which
was impacted mainly by a decrease in the OTC VitalCare segment in El Salvador. Also, 2Q22 was positively impacted by the sales of brand
in the amount of approximately $3.5 million.
Net revenues for 1H23 were impacted by the effects
mentioned above, reaching $$23.4 million in 1H23, a decrease of 16.8% in the period.
We reinforced our sales force in El Salvador,
focusing on opening new distributors for the OTC market and we can see the improvement from 1Q23 to 2Q23.
The Rx portfolio grew approximately 5.7% in 2Q23,
and Clinical Specialties more than doubled. Nicaragua and Honduras have shown significant improvement from 2Q22, growing approximately
25.6% and 69.8%, respectively, in the period.
Central America South and Andean Region
Net revenues for the CASAND business segment
totaled $ 21.0 million in 2Q23, an increase of 31.2% versus 1Q23 and an increase of 22.9% when compared to 2Q22, mainly due to the positive
performance of new products launched in the region, such as Dol B-vit, Fortzink and Dexkedol; and a sales increase in the existing product
portfolio, such as Merobac, Dayflu, Alercet D, Albisec, among others. On a constant currency basis, net revenues increased by 22.4% in
Net revenues for 1H23 reached $37.0 million,
an increase of 24.9%. On a constant currency basis net revenues increased by 25.7%.
Panama and Dominican Republic performed well,
with net revenues growth of approximately 40.0% and 65.1%, from 2Q22 to 2Q23, respectively.
Diabetrics net revenues totaled $5.2 million,
an increase of 28.3% from 1Q23, and a decrease of 12.8% when compared with 2Q22, mainly impacted by currency devaluation of approximately
$0.7 million. On a constant currency basis, net revenues decreased 1.6% from 2Q22 to 2Q23.