SHANGHAI, August 14, 2014 /PRNewswire/ -- WuXi PharmaTech (Cayman) Inc. (NYSE: WX), a leading research and development services company serving the pharmaceutical, biotechnology, and medical device industries, with operations in China and the United States, today announced its financial results for the second quarter of 2014.
Second-Quarter 2014 Highlights
Management Comment
"WuXi PharmaTech had another solid performance in the second quarter," said Dr. Ge Li, Chairman and CEO of WuXi PharmaTech. "We achieved record quarterly revenues, led by small-molecule manufacturing and biologics. Our revenue growth was broad-based, with 19.3%, 14.2%, and 9.6% year-over-year growth in Manufacturing Services, China Lab Services, and U.S. Lab Services, respectively, and we exceeded our second-quarter guidance in revenues.
"We also had a good quarter in profitability, exceeding our second-quarter guidance for non-GAAP diluted EPS and achieving the top of our guidance range for GAAP diluted EPS," Dr. Li continued. "Gross margin in the second quarter reflected year-over-year improvement of more than one full percentage point, driven by productivity initiatives, effective cost control, and the favorable impact of a depreciated RMB. We are using our free cash flow to reinvest in our business as we build new capabilities in manufacturing, biologics, genomics, cell therapy, sales and marketing, information technology, and other areas. We also purchased $66 million of our stock in the second quarter.
Our strong second-quarter performance gives us confidence about our performance for the remainder of the year. We expect to sustain strong revenue growth in the second half of 2014, as we capitalize on the growing late-stage and commercial product pipeline in small-molecule manufacturing, the ramp-up of our biologics manufacturing business, and investments in new businesses. We raise our full-year 2014 revenue guidance range from the previous $660-$670 million to $665-$670 million and increase our guidance for full-year 2014 GAAP and non-GAAP diluted EPS.
"We remain committed to building the premier open-access R&D platform that enables anyone and any company to discover and develop innovative medicines to benefit the world's patients," Dr. Li concluded.
Second-Quarter 2014 GAAP Results
Second-quarter 2014 net revenues increased 14.8% year over year to $163.4 million. Revenue growth in Laboratory Services of 13.2% was driven by our comprehensive and integrated drug discovery and development services. Revenue growth of 19.3% in Manufacturing Services was caused by strong demand in both research manufacturing and commercial manufacturing compared to the second quarter of 2013.
Second-quarter 2014 GAAP gross profit increased 18.9% year over year to $61.5 million due to 14.8% revenue growth and productivity improvement. Gross margin increased year over year to 37.7% from 36.4% mainly due to improved productivity, the ramp-up of biologics services, and the favorable impact of a depreciated RMB versus the U.S. dollar, partially offset by increased labor costs in China. Gross margin in Manufacturing Services increased year over year to 31.7% from 29.1%. Gross margin in Laboratory Services increased year over year to 39.8% from 38.9%.
Second-quarter 2014 GAAP operating income increased 9.0% year over year to $28.0 million due to the 18.9% increase in gross profit, partially offset by increased general and administrative expenses, including hiring of senior management, and R&D expenses in biologics, discovery biology, genomics, and other areas. Operating margin declined to 17.1% from 18.1% due to these increased general and administrative and R&D expenses, partially offset by the impact of a depreciated RMB versus the U.S. dollar, which is favorable because a large majority of our revenues are denominated in U.S. dollars and most of our expenses are denominated in RMB.
Second-quarter 2014 GAAP net income decreased 1.0% year over year to $29.3 million due to mark-to-market losses on foreign-exchange forward contracts of $2.5 million, compared to mark-to-market gains of $3.0 million in the second quarter of 2013, and a higher effective tax rate compared to the second quarter of 2013 due to the mix of taxable income and a $1.1 million one-time tax refund received in second-quarter 2013, partially offset by the 9.0% year-over-year increase in operating income, a $2.2 million gain on the sale of an investment by the corporate venture fund, smaller equity-method investment losses from our joint ventures with PRA and MedImmune and other equity-method investments, and higher interest income due to higher cash balances and higher interest rates. Realized gains on settled foreign-exchange forward contracts were $1.6 million in the second quarter of 2014.
Second-quarter 2014 GAAP diluted earnings per ADS remained unchanged at $0.41 due to the 1.0% decrease in net income, offset by a lower number of outstanding ADSs as a result of share purchases. Second-quarter 2014 GAAP comprehensive income decreased 35.4% year over year to $24.1 million due to the 1.0% decrease in GAAP net income and unfavorable currency translation adjustments, offset by unrealized gains on available-for-sale securities.
Second-Quarter 2014 Non-GAAP Results
Non-GAAP financial results exclude the impact of share-based compensation expenses and the amortization of acquired intangible assets and the associated deferred tax impact.
Second-quarter 2014 non-GAAP gross profit increased 19.3% year over year to $63.2 million due to the 14.8% revenue growth and productivity improvement. Non-GAAP gross margin increased year over year to 38.7% from 37.2% due to improved productivity, the ramp-up of biologics services, and the favorable impact of a depreciated RMB versus the U.S. dollar, offset by increased labor costs in China.
Second-quarter 2014 non-GAAP operating income increased 13.8% year over year to $33.9 million due to the 19.3% increase in non-GAAP gross profit, partially offset by increased general and administrative expenses, including hiring of senior management, and R&D expenses in biologics, discovery biology, genomics, and other areas. Non-GAAP operating margin decreased slightly to 20.8% from 20.9% due to increased general and administrative and R&D expenses, offset by the favorable impact of a depreciated RMB versus the U.S. dollar.
Second-quarter 2014 non-GAAP net income increased 4.5% year over year to $35.2 million due to the 13.8% year-over-year increase in non-GAAP operating income, a $2.2 million gain on the sale of an investment by the corporate venture fund, smaller equity-method investment losses from our joint ventures with PRA and MedImmune and other equity-method investments, and higher interest income due to higher cash balances and higher interest rates, partially offset by mark-to-market losses on foreign-exchange forward contracts of $2.5 million, compared to mark-to-market gains of $3.0 million in the second quarter of 2013, and a higher effective tax rate compared to the second quarter of 2013 due to the mix of taxable income and a $1.1 million one-time tax refund received in second-quarter 2013. Realized gains on settled foreign-exchange forward contracts were $1.6 million in the second quarter of 2014.
Second-quarter 2014 non-GAAP diluted earnings per ADS increased 5.2% year over year to $0.49 due to the 4.5% increase in non-GAAP net income and a lower number of outstanding ADSs as a result of share purchases.
Full-Year 2014 Financial Guidance
WuXi PharmaTech updates its full-year 2014 financial guidance:
Third-Quarter 2014 Financial Guidance
WuXi PharmaTech provides the following third-quarter 2014 financial guidance:
WUXI PHARMATECH (CAYMAN) INC. | ||
UNAUDITED CONSOLIDATED BALANCE SHEETS | ||
(in thousands of U.S. dollars, except ordinary share, ADS and par value data) | ||
June 30, | December 31, | |
2014 | 2013 | |
Assets: | ||
Current assets: | ||
Cash and cash equivalents | 156,071 | 88,871 |
Restricted cash | 869 | 3,145 |
Short-term investments | 217,688 | 302,267 |
Accounts receivable, net | 134,311 | 126,996 |
Amount due from related parties | 2,374 | 1,168 |
Inventories | 41,518 | 45,097 |
Prepaid expenses and other current assets | 33,478 | 31,436 |
Total current assets | 586,309 | 598,980 |
Non-current assets: | ||
Goodwill | 31,084 | 31,087 |
Property, plant and equipment, net | 280,329 | 279,254 |
Long-term investments | 26,984 | 21,781 |
Intangible assets, net | 7,221 | 7,128 |
Land use rights | 5,442 | 5,604 |
Deferred tax assets | 249 | 251 |
Other non-current assets | 4,286 | 4,782 |
Total non-current assets | 355,595 | 349,887 |
Total assets | 941,904 | 948,867 |
Liabilities and equity: | ||
Current liabilities: | ||
Short-term and current portion of long-term debt | 115,642 | 67,853 |
Accounts payable | 36,900 | 33,477 |
Amount due to related parties | 256 | 218 |
Accrued expenses | 25,052 | 34,605 |
Deferred revenue | 25,201 | 28,149 |
Advanced subsidies | 13,237 | 13,958 |
Other taxes payable | 1,860 | 107 |
Other current liabilities | 19,678 | 15,738 |
Total current liabilities | 237,826 | 194,105 |
Non-current liabilities: | ||
Long-term debt, excluding current portion | 11,011 | 11,124 |
Advanced subsidies | 2,159 | 2,295 |
Other non-current liabilities | 6,924 | 6,594 |
Total non-current liabilities | 20,094 | 20,013 |
Total liabilities | 257,920 | 214,118 |
Equity: | ||
Ordinary shares ($0.02 par value, 5,002,550,000 authorized, 572,270,834 and 556,025,594 issued and outstanding as of December 31, 2013 and June 30, 2014, respectively) | 11,121 | 11,445 |
Additional paid-in capital | 266,808 | 353,173 |
Retained earnings | 350,328 | 303,171 |
Accumulated other comprehensive income | 55,727 | 66,960 |
Total shareholders' equity | 683,984 | 734,749 |
Total liabilities and equity | 941,904 | 948,867 |
WUXI PHARMATECH (CAYMAN) INC. | |||||||
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | |||||||
(In thousands of U.S. dollars, except ADS data and per ADS data) | |||||||
Three Months Ended | Six Months Ended | ||||||
June 30, | June 30, | ||||||
% | % | ||||||
2014 | 2013 | Change | 2014 | 2013 | Change | ||
Net revenues: | |||||||
Laboratory Services | 119,915 | 105,903 | 13.2% | 225,467 | 203,384 | 10.9% | |
Manufacturing Services | 43,439 | 36,424 | 19.3% | 84,604 | 70,808 | 19.5% | |
Total net revenues | 163,354 | 142,327 | 14.8% | 310,071 | 274,192 | 13.1% | |
Cost of revenues: | |||||||
Laboratory Services | (72,137) | (64,753) | 11.4% | (136,486) | (125,629) | 8.6% | |
Manufacturing Services | (29,679) | (25,819) | 15.0% | (58,420) | (49,402) | 18.3% | |
Total cost of revenues | (101,816) | (90,572) | 12.4% | (194,906) | (175,031) | 11.4% | |
Gross profit: | |||||||
Laboratory Services | 47,778 | 41,150 | 16.1% | 88,981 | 77,755 | 14.4% | |
Manufacturing Services | 13,760 | 10,605 | 29.8% | 26,184 | 21,406 | 22.3% | |
Total gross profit | 61,538 | 51,755 | 18.9% | 115,165 | 99,161 | 16.1% | |
Operating expenses: | |||||||
Selling and marketing expenses | (5,042) | (4,443) | 13.5% | (9,542) | (8,374) | 13.9% | |
General and administrative expenses | (23,662) | (19,215) | 23.1% | (45,000) | (37,421) | 20.3% | |
Research and development expenses | (4,831) | (2,405) | 100.9% | (9,209) | (4,675) | 97.0% | |
Total operating expenses | (33,535) | (26,063) | 28.7% | (63,751) | (50,470) | 26.3% | |
Operating income | 28,003 | 25,692 | 9.0% | 51,414 | 48,691 | 5.6% | |
Other income (expenses), net: | |||||||
Loss from equity-method investments | (810) | (1,401) | (42.2%) | (1,643) | (1,619) | 1.5% | |
Other income (expenses), net | 4,620 | 7,203 | (35.9%) | (820) | 10,260 | (108.0%) | |
Interest income (expenses), net | 4,198 | 1,997 | 110.2% | 8,749 | 3,591 | 143.6% | |
Total other income (expenses), net | 8,008 | 7,799 | 2.7% | 6,286 | 12,232 | (48.6%) | |
Income before income taxes | 36,011 | 33,491 | 7.5% | 57,700 | 60,923 | (5.3%) | |
Income tax expense | (6,675) | (3,871) | 72.4% | (10,542) | (9,591) | 9.9% | |
Net income | 29,336 | 29,620 | (1.0%) | 47,158 | 51,332 | (8.1%) | |
Other comprehensive income: | |||||||
Currency translation adjustments | (5,324) | 7,733 | (168.8%) | (11,158) | 9,353 | (219.3%) | |
Unrealized gains on available-for-sale securities | 115 | - | NA | (75) | - | NA | |
Comprehensive income | 24,127 | 37,353 | (35.4%) | 35,925 | 60,685 | (40.8%) | |
Basic net earnings per ADS | 0.42 | 0.42 | (0.6%) | 0.66 | 0.73 | (8.9%) | |
Diluted net earnings per ADS | 0.41 | 0.41 | (0.4%) | 0.65 | 0.71 | (8.9%) | |
Weighted average ADS outstanding————basic | 70,671,831 | 70,892,623 | (0.3%) | 71,149,836 | 70,571,293 | 0.8% | |
Weighted average ADS outstanding————diluted | 72,073,199 | 72,506,783 | (0.6%) | 72,735,360 | 72,151,600 | 0.8% | |
WUXI PHARMATECH (CAYMAN) INC. | |||||||
RECONCILIATION OF GAAP TO NON-GAAP | |||||||
(in thousands of U.S. dollars, except ADS data and per ADS data) | |||||||
Three Months Ended | Six Months Ended | ||||||
June 30, | June 30, | ||||||
2014 | 2013 | % | 2014 | 2013 | % | ||
GAAP gross profit | 61,538 | 51,755 | 18.9% | 115,165 | 99,161 | 16.1% | |
GAAP gross margin | 37.7% | 36.4% | 37.1% | 36.2% | |||
Adjustments: | |||||||
Share-based compensation | 1,621 | 1,143 | 41.8% | 2,687 | 2,182 | 23.1% | |
Amortization of acquired intangible assets | 48 | 65 | (26.2%) | 97 | 163 | (40.5%) | |
Non-GAAP gross profit | 63,207 | 52,963 | 19.3% | 117,949 | 101,506 | 16.2% | |
Non-GAAP gross margin | 38.7% | 37.2% | 38.0% | 37.0% | |||
GAAP operating income | 28,003 | 25,692 | 9.0% | 51,414 | 48,691 | 5.6% | |
GAAP operating margin | 17.1% | 18.1% | 16.6% | 17.8% | |||
Adjustments: | |||||||
Share-based compensation | 5,873 | 4,049 | 45.0% | 10,286 | 7,649 | 34.5% | |
Amortization of acquired intangible assets | 48 | 65 | (26.2%) | 97 | 163 | (40.5%) | |
Non-GAAP operating income | 33,924 | 29,806 | 13.8% | 61,797 | 56,503 | 9.4% | |
Non-GAAP operating margin | 20.8% | 20.9% | 19.9% | 20.6% | |||
GAAP net income | 29,336 | 29,620 | (1.0%) | 47,158 | 51,332 | (8.1%) | |
GAAP net margin | 18.0% | 20.8% | 15.2% | 18.7% | |||
Adjustments: | |||||||
Share-based compensation | 5,873 | 4,049 | 45.0% | 10,286 | 7,649 | 34.5% | |
Amortization of acquired intangible assets | 48 | 65 | (26.2%) | 97 | 163 | (40.5%) | |
Deferred tax impact related to acquired intangible assets | (16) | (21) | (23.8%) | (33) | (50) | (34.0%) | |
Non-GAAP net income | 35,241 | 33,713 | 4.5% | 57,508 | 59,094 | (2.7%) | |
Non-GAAP net margin | 21.6% | 23.7% | 18.5% | 21.6% | |||
Income attributable to holders of ADS (Non-GAAP): | |||||||
Basic | 35,241 | 33,713 | 4.5% | 57,508 | 59,094 | (2.7%) | |
Diluted | 35,241 | 33,713 | 4.5% | 57,508 | 59,094 | (2.7%) | |
Basic earnings per ADS (Non-GAAP) | 0.50 | 0.48 | 4.9% | 0.81 | 0.84 | (3.5%) | |
Diluted earnings per ADS (Non-GAAP) | 0.49 | 0.46 | 5.2% | 0.79 | 0.82 | (3.5%) | |
Weighted average ADS outstanding | |||||||
- basic (Non-GAAP) | 70,671,831 | 70,892,623 | (0.3%) | 71,149,836 | 70,571,293 | 0.8% | |
Weighted average ADS outstanding | |||||||
- diluted (Non-GAAP) | 72,073,199 | 72,506,783 | (0.6%) | 72,735,360 | 72,151,600 | 0.8% | |
WUXI PHARMATECH (CAYMAN) INC. | |||||||
REVENUE BREAKDOWN | |||||||
(in thousands of U.S. dollars) | |||||||
Three Months Ended | Six Months Ended | ||||||
June 30, | June 30, | ||||||
2014 | 2013 | % Change | 2014 | 2013 | % Change | ||
Net revenues: | |||||||
China-based Laboratory Services | 95,243 | 83,399 | 14.2% | 177,359 | 157,844 | 12.4% | |
China-based Manufacturing Services | 43,439 | 36,424 | 19.3% | 84,604 | 70,808 | 19.5% | |
Subtotal | 138,682 | 119,823 | 15.7% | 261,963 | 228,652 | 14.6% | |
U.S.-based Laboratory Services | 24,672 | 22,504 | 9.6% | 48,108 | 45,540 | 5.6% | |
Total net revenues | 163,354 | 142,327 | 14.8% | 310,071 | 274,192 | 13.1% | |
Conference Call
WuXi PharmaTech senior management will host a conference call at 8:00 am (U.S. Eastern) / 5:00 am (U.S. Pacific) / 8:00 pm (Beijing/Shanghai/Hong Kong) on August 14, 2014, to discuss its second-quarter 2014 financial results and future prospects. The conference call may be accessed by calling:
China | 4001 200 539 |
Hong Kong | 800 905 927 |
Singapore | 800 616 3222 |
United Kingdom | 0800 015 9725 |
United States | 1855 298 3404 |
United States————New York (toll) | +1 631 5142 526 |
Other countries (toll) | +65 6823 2299 |
Conference ID | 7388753 |
A telephone replay will be available two hours after the call's completion at:
China | 4001 842 240 |
Hong Kong | 800 966 697 |
Singapore | 800 616 2127 |
United Kingdom | 0800 169 7301 |
United States | 1866 846 0868 |
Conference ID | 7388753 |
A live webcast of the conference call and replay will be available on the investor relations page of WuXi PharmaTech's website at http://www.wuxiapptec.com.
About WuXi PharmaTech
WuXi PharmaTech is a leading pharmaceutical, biotechnology, and medical device R&D outsourcing company, with operations in China and the United States. As a research-driven and customer-focused company, WuXi PharmaTech provides a broad and integrated portfolio of laboratory and manufacturing services throughout the drug and medical device R&D process. WuXi PharmaTech's services are designed to assist its global partners in shortening the cycle and lowering the cost of drug and medical device R&D. WuXi PharmaTech's operating subsidiaries are known as WuXi AppTec. For more information, please visit: http://www.wuxiapptec.com.
Forward-Looking Statements
This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts, but instead are predictions about future events. Examples of forward-looking statements in this press release include statements about our third-quarter and full-year 2014 guidance and our goal of building an open-access technology platform. Although we believe that our predictions are reasonable, future events are inherently uncertain, and our forward-looking statements may turn out to be incorrect. Our forward-looking statements are subject to risks relating to, among other things, our ability to control our costs and sustain revenue growth, to realize the anticipated benefits of our investments, to protect our clients' intellectual property, to compete effectively, and to complete the expansion of our manufacturing facilities in Changzhou. Additional information about these and other relevant risks can be found in our Annual Report on Form 20-F for the year ended December 31, 2013. The forward-looking statements in this press release speak only as of the date on which they are made, and we assume no obligation to update any forward-looking statements except as required by law.
Use of Non-GAAP Financial Measures
We have provided the second-quarter and six-month 2013 and 2014 gross profit, gross margin, operating income, operating margin, net income, net margin, and diluted earnings per ADS, and estimated third-quarter and full-year 2014 diluted earnings per ADS on a non-GAAP basis, which excludes share-based compensation expenses and the amortization and deferred tax impact of acquired intangible assets. The non-GAAP financial measures used in this press release are useful for understanding and assessing underlying business performance and operating trends, and we believe that management and investors benefit from referring to these non-GAAP financial measures in assessing our financial performance and liquidity and when planning and forecasting future periods. We expect to continue to provide such non-GAAP financial measures on a quarterly basis using a consistent method. You should not view non-GAAP results on a stand-alone basis or as a substitute for results under GAAP, or as being comparable to results reported or forecasted by other companies.
Statement Regarding Unaudited Financial Information
The financial information in this press release is unaudited and subject to adjustments. Adjustments to the financial statements may be identified when our annual financial statements are prepared and audit work is performed for the year-end audit, which could result in significant differences from this unaudited financial information.
For more information, please contact:
Ronald Aldridge (for investors)
Director of Investor Relations
Tel: +1-201-585-2048
Email: ron_aldridge@wuxiapptec.com
Aaron Shi (for the media)
Associate Director of Corporate Communications
Tel: +86-21-5046-4362
Email: aaron_shi@wuxiapptec.com
