Q3 2023 Procaps Group SA Earnings Call
Please note that some statements made during this call may contain forward looking statements within the meaning of the private Securities Securities Litigation Reform Act of 1995.
And are subject to risks and uncertainties.
Any statement that refers to expectations projections and or future events.
Including financial projections or future market conditions is a forward looking statements.
The company's actual future results could differ materially from those expressed in such forward looking statements due to a variety of risks uncertainties and other factors, including but not limited to those set forth in pro cap groups S E SEC filings.
<unk> assumes no obligation to update any such forward looking statements.
Please also note that past performance or market information is not a guarantee of future results.
At this time I would like to turn the conference over to Melissa Engineering Investor Relations Director of <unk>. Please go ahead.
Thank you Hello, everyone. Thank you for standing by and welcome to the pro caps business update call. We appreciate everyone joining us today.
This conference call is also being webcast and a link to the webcast is available on the <unk> IR website. The questions received through the webcast platform will be answered by email.
Please note that we filed our earnings release today, which can also be found on the IR website. Please review the disclaimers included in the Investor presentation. During this call non-GAAP financial measures will be discussed and presented we believe non-GAAP disclosures enable investors to better understand <unk>.
Our operating performance. Please refer to the Investor presentation for a reconciliation of each of these non-GAAP measures to the most directly comparable GAAP financial measures.
Now I would like to turn the call over to <unk> CEO. Please will then go ahead.
Thank you Melissa.
Thank you all for joining us today for our second quarter on six months 2023 results <unk> School.
I wanted to give you an update on how we agree on where we are heavier.
While we face a tough first half of the year and it is true that we did not do as well as we hoped.
Sure. So we have started implementing later this year are already bearing the results of our full recovery.
We're continuing to work on our value creation and market growth initiatives on the speeding up of our plans to make the company better in the medium and long term.
The toughest issue, we have had to deal with easier.
The macroeconomic environment and challenge the challenge the entire industry in our region.
We are affected by multiple factors, such as rising costs and expenses from inflation.
High interest rates and cost of financing reduced orders from pharma companies in our <unk> business due to working capital concerns.
We believe these impacts are temporary and we are taking decisive steps to tackle adapting our strategies to protect profitability despite being unable to fulfill fully passed all cost to customers on a timely manner relief should come later in the year.
The steps that we're taking are related to our already announced value creation initiatives.
Additional operational efficiency airports, which will really strengthen and streamline our operations by the end of this year absolutely fully in 2024.
In our path to full recovery, we believe third quarters, we'll have a better performance in the second quarter of 2023 very much in line with last year's third quarter, and we strongly believe that the fourth quarter fully through three would be a very strong quarter.
When we look at the growth for business lines, we have Rx growing approximately 15% in the first half of the year outgrowing the market by a credit good percentage, especially in countries like Colombia, Ecuador, or daughters, Dominican Republic and Panama.
Clinical specialties grew approximately 6% in the same periods in a constant currency basis.
In <unk> region, we have found exiting growth of approximately 26% in the first quarter of 2023 with a new important launches for the second half of the year.
We believe our growth plan, including these new product launches and Rollouts combined with a value creator and initiatives will result in a strong demand of our aggressive plan to reduce expenses and generate the efficiencies will position us for continued growth.
We are focused in the medium to long term committed to refining.
Plans for grid resilient organization beyond short term hurdles.
Moving on to slide four.
Another important driver for our future growth is new products.
Our new product launches have been a key driver for our growth $66 million in revenues for new products in the first half of 2023.
Renewal rate that is a percentage of our revenues coming from products launched in the last 36 months was a record of 34% in the first half.
We will continue to prioritize investments in our pipeline and business to realize the value of the near and long term opportunities in front of us.
Ramp up for <unk>.
<unk> launched in the last 36 months is performing quite well highlighted several products such as outerwear, which doesn't oncological prostate cancer product on Vodafone extra which is the first ever Uli, Joe Triple combo for migraine.
This is just one example, where you can see our own patented technology is playing an important role in on delivery a depreciated product to the marketplace.
Now I will pass it over to Melissa who will share a little about our ESG progress.
Thank you prevent on this slide we are going to share a little bit about our ESG initiatives and accomplishments in 2023, we celebrated 10 year anniversary of pro cut foundation that promotes quality of life improvement of several communities to educate.
<unk> nutritional emotional houses to developments, we have conducted house any parliament. We are also increasing our product portfolio for prioritize conditions. According to the sustainable development goals by United Nations and access to Medicine Foundation for lepton, such as cardiovascular and oncology.
Another important aspect is that we are also advancing on our packaging innovation initiatives Uni gel for example, <unk> been just mentioned besides plastic demand reduction deploy different environment benefits across the whole supply chain.
You said the demand for other packaging materials as well as contributes to deliver treatments with last <unk> emissions fuel and energy consumption.
Lastly, we are working on our Cat book cargo neutrality strategy and we will keep you posted on the progress I will now pass it over to Patricia who will comment on our operating results.
Thank you Melissa.
Moving to slide six you can see our top line evolution.
Although the Colombian peso us having broken appreciation since April.
Currency has been a negative for us in the second quarter compared to last year and because of that and it's important to look at constant currency to evaluate the health of the business.
So excluding this impact on a constant currency basis, we ended with an increase of four 2% in women's for second quarter to increase and 7% for the first half.
Which was negatively impacted by CMO or replacing especially for your clients.
Such sales will hit balloon called cease operation on a diesel sales and the OTC marketing are solvable.
In addition to lease I think it's worth mentioning that in 2000.
The second quarter, there was a recognition of social bonds in the amount of approximately $2 $5 million, leading to a higher comparison base.
Loan growth was broad based across several therapeutic areas with increased demand for both our Rx on clinical specialties products, which grew 16 was 16%, reflecting first half from fee versus.
Please.
The adjustments in the materials business segment has been negatively impacted by challenges, but also the partners, resulting in lower inventory levels from their site delaying orders on our site.
We anticipate a few more months of pressure before improving towards the end of the year, where we already have important commitments for new orders.
Thus, Colombia was impacted by overall macro conditions in the country of Hep translated in customers, reducing their purchase orders to improve their working capital exchange rates are now starting to health in the first part of the third quarter bolstering our recovery of the rest of the year.
And was positively impacted by the rollout of new products and portfolio expansion in several therapeutic areas such as best intestinal on feminine care and strong performance in Nicaragua allude us, but this positive impact was offset by the OTC segment in the suburbs.
Negatively impacting the year over year comparison, we can see that the second quarter 2022 at a higher comparison base as we sold brands last year.
<unk> was positively impacted by the higher demand and the rollout of new products in the region and increased market share with existing brands.
Finally at diabetic speaking segment Ethernet transition year, we are working on several synergies and focusing on portfolio renewal on internationalization.
Moving to slide seven I would like to give a bit more color on our gross profit which was down from last year.
In the quarter and in the first half 'twenty three we saw higher costs.
Less favorable sales mix and lower sales of high margin product development services. In addition, we had the recognition of sales of brands in the second quarter from two which positively impacted gross bookings for the prior period.
Additionally, we were unable to fully pass on higher cost to customer, but we are quickly adopting strategies to protect profitability.
Consolidated contribution margin is impacted by the same reasons above partially offset by lower sales and marketing expenses.
On slide eight we have the breakdown of our operating expenses and adjusted EBITDA.
Looking only at SG&A expenses, there was a decrease of 15, 4% in the quarter from 10, 4% in the first up from three versus the same periods of last year, reflecting already the measures we have taken to improve our financial results.
We continue working on the execution of our value creation initiatives with price increases contract adjustments improvement of our product mix with new launches on containing costs.
Our adjusted EBITDA has been negatively impacted by the effects, we have seen in gross margin on a higher comparison base in the second quarter.
Despite these hurdles we are optimistic about our ability to deliver growth in the medium to long term for the time being we are not blind to the challenges. We will continue to work from a discipline of creative ways to improve our results quarter over quarter.
Turning to slide nine we can take a look at the main items of our balance sheet.
Cash balance for the first half of the year has decreased mainly due to the lowest <unk> had in the fourth quarter of 2022, which traditionally is the strongest quarter in the year on the one that provides the cash to induce the lowest months of the year.
In addition, working capital increase on debt service impacted on the overall cash generation.
Our leverage had only a slight increase but the lower adjusted EBITDA combined with a decrease in cash impacted our net leverage targets.
Despite these we are in compliance with our debt agreements as we secured the necessary waivers to continuously tougher quarters.
We forecast our cash flow for the next few months will continue to work on several initiatives.
Our business strategy and operations as well as our capital allocation priorities in order to increase the cash generation and maximize our long term budget.
So if we look at the guidance for the year, we see some risks that we are working to mitigate the political macro environment in Colombia could affect our business if the economic conditions deteriorate or if there are changes in the healthcare regulations.
The continued cost pressures for some of our CMO clients could pressure them into further the tightening of the working capital therefore, reducing their purchase orders for the second half.
How these risks on our plans for global in the year will be key to fulfilling our estimate of a year ago. We will keep you abreast of our estimates for the year.
With that I will pass it back to <unk>.
Thank you all for participating.
If you won.
Please remember only four things from this call I will ask you to keep in mind that number one we are conscious very conscious of the temporary hurdles and we're working on them all of them or most importantly, the fundamentals on the demand for the traditional products are as strong as ever.
We are executing a full speed, our previously announced company wide value creation initiatives extended to the right size of our business to current levels with market demand.
And deliver value for our shareholders.
In 2023 in a much stronger operational and financial position.
We are advancing in our CEO search process and I believe we will be able to be ready.
Year end as we anticipated finally, we're always mindful over a low stock liquidity and continue with our buyback program and other measures to enhance liquidity as well as shareholder value.
Thanks for listening and we welcome any questions that you may have.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If you are using speaker phone please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question today comes from Kent, Oliver with Brookline Capital markets. Please go ahead.
Alright, Thank you and good morning.
Can I have a couple of questions.
Yes.
Which I guess I can ask one or two and then go back into queue, but.
The first question relates to the working capital accounts.
Most notably accounts receivable that certainly inventories.
Have you made any progress with either loans.
Since the end of June.
That still.
To come.
Hi, Tim.
Thank you for your questions.
<unk>.
We will.
We have made advancements, but there have been delays as we mentioned in the press release and knowing the suites.
The pressure that some of our customers have had to reduce their working capital both abroad in the U S. I'll also due to the economic conditions in Colombia have made it harder to.
<unk>.
Full amount that we had anticipated so that has put pressure on our efforts to improve working capital.
But we but we are on track I think I mentioned that we have.
We have.
Several initiatives for cash improvement.
And one of those or many of those are center on.
Accounts receivables and inventories and we and we intend to improve it.
I'm not sure if that's what you were trying to say.
Alright, thank you.
To the heart of the question.
So my second question relates to Alejandro <unk> resigned again.
Yes. Unfortunately.
This kind of board turnover it doesn't.
Cash things in a good light can you.
Talk about what you are.
The direction, you are trying to take and how to how to have some stability with the board.
Yes.
That's an excellent question.
This is reuben.
We were starting to see Alejandro resign again.
We were.
We feel that.
He was very ill patients of course.
Using agree 100% with all with the speed at which the board wanted to implement a few.
Ideas and.
And we were very.
March.
In line with many of these comments, but not in all of them and <unk> got very efficient, but nevertheless.
He has decided to leave heavy lift for us.
Representative in the board.
A few stories.
We will have.
Everyday discussions with us.
We feel very confident in the board.
The.
The agility and the way we are facing the future of the company.
It is in very good terms.
In very good shape and.
We are very great results along the way.
Alright, thank you.
Is there a time for me to ask another question before getting.
Getting back in the queue.
Yes go ahead.
So what progress have you made since Q1 with regard to the.
U S operation.
Florida.
Okay.
Thank you Kim.
We have made I think very significant.
We have advanced significantly.
Our operation in the medium or the one that he is the new facility for accretion for the guns has already started packing operations with third parties.
And we are finalizing the setting up of all the machinery and studying we should be starting in a couple of more months at most we should be starting like the testing the ramp up.
Yeah.
And hopefully we can start producing on.
Probably early next year, we think there's a possibility we can start by the end of this year, but we don't want to be overly optimistic.
But I think we're running on course for that.
The other one for <unk> you can remember one of the main.
Benefits that I was providing was to help us with RMB.
To start preparing sorry, RMB for the whole organization and that has been happening and it's been helping us streamline that process and in addition, we are registering products and we're advancing to start.
Sales during.
During the year total core wheelhouse answer, but probably meaningfully given us see an impact as we and what we told from the beginning in the year 24. So it's it's.
I think 24 is a year in which youre going to see the two operations starting to bring the benefits that we anticipated.
Alright, very good thank you I'll get back in the queue.
As a reminder, if you have a question. Please press star and then one can be joined into the question queue.
The next question comes from Dmitri Gino a private investor. Please go ahead.
Hi, guys congratulations on the completion of the quarter.
Just wanted to maybe.
Maybe it will get more sort of.
Backup or better understanding of the optimism you have off improvements.
Improvements in Q4, you highlight is going to be a strong quarter.
Maybe just give us indication that.
That's based on actual orders or.
Contract, maybe just kind of if you can help us understand.
The optimism that you guys expressed about the last quarter of the year.
Great. Thank you Dmitry.
We have.
As we mentioned.
The CVR more business had some.
Delays in orders because of their working capital.
Policies of some of our large pharma customers.
And but these are already in place.
We have a very strong portfolio of orders for the last quarter of the year. We also feel that we will be having all the detailed wins.
The reevaluation of the Colombian peso at that time.
<unk>.
Definitely we will there will be launches in September and October of this year, there will be significant.
For the four four reassuring the second half of the year ASP exited.
In the last quarter. These are some issue we mentioned the third quarter will be good but not.
Significantly higher than last year's but the fourth quarter is definitely going to hit.
Very very big differences, where we had last year.
Okay.
Also.
In terms of the two Florida.
Can you give us a sense of sort of what should we expect in terms of revenue and EBITDA once theyre fully around town.
Just something that you can kind of give us a sense.
And how much they will add incrementally to your business.
Hi, Dmitry.
Participant.
Currently we have not disclosed.
That information so we cannot tell you at this point.
I think once it's producing at both facilities are producing or selling that they're going to be part of the of the disclosure of both.
All of the businesses of the business segments and.
And therefore, we'll be able to talk more and said there are cyber right now we cannot we have not given that information. So I cannot give you that.
That estimate.
And if I can ask a last question just any update on M&A sort of how you guys thinking about potentially some accretive deals to do.
Kind of help you grow inorganically, what's the landscape what are you seeing are you active.
Can you tell us.
That's also a very good question Dmitry.
I would say that the vein.
The intent.
Our strategy has not changed from the moment, we became public. So we do want to grow Inorganically. It is it is a part of our strategy and we intend to do it.
I would say given given the setback that we had in the last part of last year.
But we are recovering and we have a tight cash.
I think the focus for this year is definitely executing the efficiency plans the value creation initiatives getting back getting back to our cash position.
Improving our EBITDA, so that we can regain our debt or leverage capacity. So.
We're still looking at the market, but right now at this very very moment, we could not be able to do it.
Only marginal.
So I think it's more reasonable to win until the EBIT 24, when we are back.
In full steam.
And my last question.
You had a comment about increasing liquidity of the shares are you thinking about that I was kind of in the last couple of presentation. Maybe if you can expand on that a little bit.
Yes.
We we have been executing since I think it was end of June I might be missing by a couple of big but I think by the end of June.
The program of the buyback.
It's been a slow moving program given that we have low liquidity, but I think it's been helpful. In the sense that without that program priority the liquidity would be even worse or even lower.
We think we need to continue doing it. Despite the fact that it's not so good or that despite the fact that it takes some of our cash we think we need to still be doing there in order to help our liquidity, albeit small.
The other measures that we want to take is that we have been discussing with other.
Let's say.
Let's say more boutique or smaller investment bank, so that they can help us bolster.
Our presence in the market try to get more coverage.
I tried to attend more confidence and more importantly, trying to get the story to a broader base of investors.
We have an investor base that was very hasnt changed that much since we did the IPO despite the disposal.
So therefore, I think we do need to take this story and convinced more shareholders and that sort of more potential investors and Doug will instead.
In its turn we will be able to enhance the trading and the liquidity of the company. So so we are optimistic that we'll get there. It's just is taking us longer than we anticipated.
Probably the last thing as we recover our results and we fulfill our promise to the market I think that will also help in a virtuous circle.
April also to get more liquidity and more emphasis.
Thank you.
The next question comes from Ken <unk> with Brookline capital markets. Please go ahead.
Thank you.
You recently signed a new debt agreement.
Could you highlight the significant changes.
In the agreement over a year prior agreements.
Yes.
We were we were.
Running close to ending the syndicated facility, we had before was roughly $40 million foreseeable.
We only have about a year left.
A year and a few more months left.
With Amortizations and we work as you know a constraining cash. So we were negotiated that syndicated loan into a club deal.
For a roughly $60 million the amount, we're negotiating and prolonged the vessels, but roughly $60 million. So we also tied other that's higher cost debt.
Put it altogether and so this is club deal so, but I would say the most important <unk>.
<unk> for US is that we were able to extend it.
The new maturity was pushed forward to six years with Amortizations after a break but it gives us it gave us.
First.
Put some order into our debt.
The extended terms.
Sure.
And I think the strategies at.
At this moment is we need to make sure we get back to our numbers get back to our profitability will reduce our net leverage.
And then with improved numbers then we can start to think about the next phase of our or financing right now or something but.
We needed to do in order to.
We continue with our plans.
Okay, and just to be clear so the short term debt.
Shown on the balance sheet.
The end of June.
It is going to decrease yes, because you will.
Yes, correct correct.
Short term debt, but the long term debt will increase correct.
In the short term.
What's a good estimate for the short term debt near term.
Near term probably.
I would say <unk>.
$100 million of short term debt.
Roughly $180 million of long term debt.
Okay. Thank you.
This concludes our question and answer session and concludes our conference call today.
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