WuXi PharmaTech Announces Second-Quarter 2013 Results

SHANGHAI -- WuXi PharmaTech (Cayman) Inc. (NYSE: WX), a leading research and development outsourcing company serving the pharmaceutical, biotechnology, and medical device industries, with operations in China and the United States, today announced its unaudited financial results for the second quarter of 2013.

Highlights

  • Net Revenues Increased 9.2% Year Over Year to $142.3 Million
  • Laboratory Services Net Revenues Grew 13.2% Year Over Year to $105.9 Million
  • China-Based Laboratory Services Net Revenues Increased 18.6% Year Over Year to $83.4 Million
  • U.S.-Based Laboratory Services Net Revenues Decreased 3.2% Year Over Year to $22.5 Million
  • Manufacturing Services Net Revenues Decreased 1.1% Year Over Year to $36.4 Million
  • GAAP Diluted Earnings Per ADS Grew 45.5% Year Over Year to $0.41
  • Non-GAAP Diluted Earnings Per ADS Increased 41.9% Year Over Year to $0.46
  • Full-Year 2013 Revenue Guidance Increased to $572-$578 Million, Full-Year 2013 Diluted EPS Guidance Increased to$1.38-$1.44 GAAP and $1.61-$1.67 Non-GAAP

Management Comment

"WuXi continues to make progress in building a broad, integrated platform of R&D services that will enable anyone and any company to discover and develop medicines more efficiently and cost effectively," said Dr. Ge Li, Chairman and Chief Executive Officer. "This integrated platform does more than simply provide convenience to clients; it helps them realize their dream of being a drug discoverer and developer.

"By serving our customers well, we are achieving solid, broad-based revenue growth," Dr. Li continued. "We exceeded our second-quarter 2013 revenue guidance, driven by excellent performances by China-based Laboratory Services and Manufacturing Services. We also exceeded our second-quarter 2013 EPS guidance. Year-over-year GAAP diluted EPS growth of 45.5% benefited from this revenue performance, gross margin improvement, large mark-to-market gains from foreign-exchange forward contracts, and lower tax expense.

"We are also building businesses to sustain growth in 2014 and beyond. Revenues from biologics services grew strongly in the second quarter and will be one of the key drivers of revenue and earnings growth for the next several years. Commercial manufacturing has a growing pipeline of products, several of which have received breakthrough designation by the U.S. FDA. And our joint venture WuXiPRA has named an experienced executive, Dr. James Pusey, as President and General Manager to lead it to the forefront of China's clinical research services business.

"WuXi is also effectively controlling its costs through continuous operational improvements, increased productivity, and implementation of a company-wide Lean Sigma program. We continue to expect to achieve gross margin and operating margin in 2013 comparable to 2012, as businesses like small-molecule drug development and biologics services ramp up their revenues, achieve scale, and provide solid returns on investment.

"Our strong second-quarter performance gives us confidence to increase full-year 2013 revenue guidance to $572-$578 millionand full-year 2013 diluted EPS guidance to $1.38-$1.44 GAAP and $1.61-$1.67 non-GAAP," Dr. Li concluded. "We are investing in capabilities and capacity to sustain long-term revenue and earnings growth. Capital expenditures will increase in the second half of the year as planned and total about $60 million for the full year. Our free cash flow has been quite strong in recent quarters, and we will continue to seek opportunities to buy back shares."

Second-Quarter 2013 GAAP Results

Second-quarter 2013 net revenues increased 9.2% year over year to $142.3 million. Revenue growth in Laboratory Services of 13.2% was driven by our comprehensive and integrated discovery and development services, primarily in China. A revenue decline of 1.1% in Manufacturing Services was caused by slightly lower demand compared to the record level achieved in the second quarter of 2012.

Second-quarter 2013 GAAP gross profit increased 11.3% year over year to $51.8 million due to 9.2% revenue growth, improved operating efficiency, and effective cost control. Gross margin increased year over year to 36.4% from 35.7%. Gross margin in Laboratory Services increased year over year to 38.9% from 36.7% mainly due to improved productivity and the ramp-up of biologics and preclinical services, partially offset by the effects of increasing labor costs in China and appreciation of the RMB versus the U.S. dollar. Gross margin in Manufacturing Services decreased year over year to 29.1% from 33.1% due to business mix.

Second-quarter 2013 GAAP operating income increased 8.1% year over year to $25.7 million due to the 11.3% increase in gross profit, partially offset by a 14.7% increase in operating expenses. Operating margin declined slightly to 18.1% from 18.2%, primarily due to the increase in operating expenses.

Second-quarter 2013 GAAP net income increased 44.6% year over year to $29.6 million due to the 8.1% year-over-year increase in operating income, higher other income primarily due to $1.6 million of realized gains and $3.0 million of mark-to-market gains on foreign-exchange forward contracts, and a 6.2% decrease in income tax expense due to the mix of taxable income and $2.3 million of one-time tax benefits received this quarter, partially offset by $1.4 million of equity-method investment losses associated with our joint ventures with PRA and MedImmune.

Second-quarter 2013 GAAP diluted earnings per ADS increased 45.5% to $0.41 due to the 44.6% increase in net income and a lower number of outstanding ADSs as a result of last year's share buybacks. Second-quarter 2013 GAAP comprehensive income increased 102.6% year over year to $37.4 million due to the increase in currency translation adjustments and the 44.6% increase in GAAP net income.

Second-Quarter 2013 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 2013 non-GAAP gross profit increased 10.2% year over year to $53.0 million, due to the revenue growth, improved operating efficiency, and effective cost control discussed above. Non-GAAP gross margin increased year-over-year to 37.2% from 36.8%, mainly due to improved productivity and the ramp-up of biologics and preclinical services, partially offset by the effects of increasing labor costs in China and appreciation of the RMB versus the U.S. dollar.

Second-quarter 2013 non-GAAP operating income increased 8.8% year over year to $29.8 million, primarily due to the 10.2% increase in non-GAAP gross profit. Operating margin declined slightly to 20.9% from 21.0%, primarily due to higher operating expenses.

Second-quarter 2013 non-GAAP net income grew 41.0% year over year to $33.7 million due to the 8.8% increase in non-GAAP operating income, higher other income primarily due to $1.6 million of realized gains and $3.0 million of mark-to-market gains on foreign-exchange forward contracts, and a decrease in income tax expense due to the mix of taxable income and $2.3 million of one-time tax benefits received this quarter, partially offset by $1.4 million of equity-method investment losses associated with our joint ventures with PRA and MedImmune.

Second-quarter 2013 non-GAAP diluted earnings per ADS grew 41.9% year over year to $0.46 due to the 41.0% increase in net income and a lower number of outstanding ADSs as a result of last year's share buybacks.

Full-Year 2013 Financial Guidance

WuXi PharmaTech updates its full-year 2013 financial guidance as follows:

  • Total net revenues of $572-578 million, or 14-16% year-over-year growth, compared to previous guidance of $565-575 million, or 13-15% growth
  • GAAP and non-GAAP gross margin and operating margin comparable to those in 2012, the same as previous guidance
  • GAAP diluted earnings per ADS of $1.38-$1.44, compared to previous guidance of $1.26-$1.30
  • Non-GAAP diluted earnings per ADS of $1.61-$1.67, compared to previous guidance of $1.49-$1.53
  • Capital expenditures of about $60 million, the same as previous guidance

Third-Quarter 2013 Financial Guidance

WuXi PharmaTech provides the following third-quarter 2013 financial guidance:

  • Total net revenues of $143-145 million
  • GAAP diluted earnings per ADS of $0.32-$0.34
  • Non-GAAP diluted earnings per ADS of $0.38-$0.40

 

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,

Assets:

 

2013

2012

Current assets:

     

        Cash and cash equivalents

 

100,267

54,133

        Restricted cash

 

2,119

423

        Short-term investments

 

199,367

175,245

        Accounts receivable, net

 

115,013

99,578

        Inventories

 

41,104

47,774

        Prepaid expenses and other current assets

 

28,377

18,807

                    Total current assets

 

486,247

395,960

Non-current assets:

     

        Goodwill

 

31,085

32,561

        Property, plant and equipment, net

 

261,849

264,381

        Long-term investments

 

18,377

14,015

        Intangible assets, net

 

5,992

7,268

        Land use rights

 

5,596

5,564

        Deferred tax assets

 

2,533

3,037

        Other non-current assets

 

14,694

19,749

                    Total non-current assets

 

340,126

346,575

                    Total assets

 

826,373

742,535

       

Liabilities and equity:

     

Current liabilities:

     

        Short-term and current portion of long-term debt

 

59,204

59,089

        Accounts payable

 

28,989

21,808

        Accrued expenses

 

21,442

27,411

        Deferred revenue

 

21,917

17,052

        Advanced subsidies

 

12,129

9,265

        Other taxes payable

 

5,695

1,581

        Other current liabilities

 

13,645

11,215

                    Total current liabilities

 

163,021

147,421

Non-current liabilities:

     

        Long-term debt, excluding current portion

 

5,589

5,697

        Advanced subsidies

 

1,886

2,663

        Long-term payables

 

-

732

        Other non-current liabilities

 

7,056

7,799

                    Total non-current liabilities

 

14,531

16,891

                    Total liabilities

 

177,552

164,312

Equity:

     

       Ordinary shares ($0.02 par value, 5,002,550,000 authorized, 561,121,002 and 568,513,338 issued and outstanding as of December 31, 2012, and June 30, 2013, respectively) 

11,370

11,222

        Additional paid-in capital

 

341,481

331,714

        Retained earnings

 

239,935

188,604

        Accumulated other comprehensive income

 

56,035

46,683

                    Total equity

 

648,821

578,223

                    Total liabilities and equity

 

826,373

742,535

 

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,

 

2013

2012

% Change

 

2013

2012

% Change

Net revenues:

             

      Laboratory Services

105,903

93,544

13.2%

 

203,384

180,194

12.9%

      Manufacturing Services

36,424

36,837

(1.1%)

 

70,808

68,215

3.8%

Total net revenues

142,327

130,381

9.2%

 

274,192

248,409

10.4%

               

Cost of revenues:

             

      Laboratory Services

(64,753)

(59,255)

9.3%

 

(125,629)

(113,743)

10.4%

      Manufacturing Services

(25,819)

(24,632)

4.8%

 

(49,402)

(46,280)

6.7%

Total cost of revenues

(90,572)

(83,887)

8.0%

 

(175,031)

(160,023)

9.4%

               

Gross profit:

             

      Laboratory Services

41,150

34,289

20.0%

 

77,755

66,451

17.0%

      Manufacturing Services

10,605

12,205

(13.1%)

 

21,406

21,935

(2.4%)

Total gross profit

51,755

46,494

11.3%

 

99,161

88,386

12.2%

               

Operating expenses:

             

      Selling and marketing expenses

(4,443)

(3,729)

19.1%

 

(8,374)

(7,007)

19.5%

      General and administrative expenses

(19,215)

(16,911)

13.6%

 

(37,421)

(33,073)

13.1%

      Research and development expenses

(2,405)

(2,080)

15.6%

 

(4,675)

(3,892)

20.1%

Total operating expenses

(26,063)

(22,720)

14.7%

 

(50,470)

(43,972)

14.8%

Operating income

25,692

23,774

8.1%

 

48,691

44,414

9.6%

               

Other income (expenses), net:

             

      Loss from equity-method investments

(1,401)

-

-

 

(1,619)

-

-

      Other income (expenses), net

7,203

(580)

-

 

10,260

2,160

375.0%

      Interest income (expenses), net

1,997

1,425

40.1%

 

3,591

3,124

14.9%

Total other income (expenses), net

7,799

845

823.0%

 

12,232

5,284

131.5%

               

Income before income taxes

33,491

24,619

36.0%

 

60,923

49,698

22.6%

Income tax expense

(3,871)

(4,128)

(6.2%)

 

(9,591)

(8,216)

16.7%

Net income

29,620

20,491

44.6%

 

51,332

41,482

23.7%

               

Other comprehensive income:

             

Currency translation adjustments

7,733

(2,056)

-

 

9,353

(1,602)

-

Comprehensive income

37,353

18,435

102.6%

 

60,685

39,880

52.2%

               

Basic net earnings per ADS

0.42

0.29

46.1%

 

0.73

0.58

25.9%

Diluted net earnings per ADS

0.41

0.28

45.5%

 

0.71

0.56

26.5%

               

Weighted average ADS outstanding - basic

70,892,623

71,660,086

(1.1%)

 

70,571,293

71,816,806

(1.7%)

Weighted average ADS outstanding - diluted

72,506,783

72,984,759

(0.7%)

 

72,151,600

73,761,502

(2.2%)

 

 

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,

 

2013

2012

% Change

 

2013

2012

% Change

               

GAAP gross profit

51,755

46,494

11.3%

 

99,161

88,386

12.2%

GAAP gross margin

36.4%

35.7%

   

36.2%

35.6%

 

Adjustments:

             

        Share-based compensation

1,143

1,023

11.7%

 

2,182

2,089

4.5%

        Amortization of acquired intangible assets

65

525

(87.6%)

 

163

1,050

(84.5%)

Non-GAAP gross profit

52,963

48,042

10.2%

 

101,506

91,525

10.9%

Non-GAAP gross margin

37.2%

36.8%

   

37.0%

36.8%

 
               

GAAP operating income

25,692

23,774

8.1%

 

48,691

44,414

9.6%

GAAP operating margin

18.1%

18.2%

   

17.8%

17.9%

 

Adjustments:

             

        Share-based compensation

4,049

3,090

31.0%

 

7,649

6,245

22.5%

        Amortization of acquired intangible assets

65

525

(87.6%)

 

163

1,050

(84.5%)

Non-GAAP operating income

29,806

27,389

8.8%

 

56,503

51,709

9.3%

Non-GAAP operating margin

20.9%

21.0%

   

20.6%

20.8%

 
               

GAAP net income

29,620

20,491

44.6%

 

51,332

41,482

23.7%

GAAP net margin

20.8%

15.7%

   

18.7%

16.7%

 

Adjustments:

             

        Share-based compensation

4,049

3,090

31.0%

 

7,649

6,245

22.5%

        Amortization of acquired intangible assets

65

525

(87.6%)

 

163

1,050

(84.5%)

        Deferred tax impact related to acquired intangible assets

(21)

(195)

(89.2%)

 

(50)

(390)

(87.2%)

Non-GAAP net income

33,713

23,911

41.0%

 

59,094

48,387

22.1%

Non-GAAP net margin

23.7%

18.3%

   

21.6%

19.5%

 
               

Income attributable to holders of ADS (Non-GAAP):

             

Basic

33,713

23,911

41.0%

 

59,094

48,387

22.1%

Diluted

33,713

23,911

41.0%

 

59,094

48,387

22.1%

               

Basic earnings per ADS (Non-GAAP)

0.48

0.33

42.5%

 

0.84

0.67

24.3%

Diluted earnings per ADS (Non-GAAP)

0.46

0.33

41.9%

 

0.82

0.66

24.9%

               

Weighted average ADS outstanding

             

   – basic (Non-GAAP)

70,892,623

71,660,086

(1.1%)

 

70,571,293

71,816,806

(1.7%)

Weighted average ADS outstanding

             

  – diluted (Non-GAAP)

72,506,783

72,984,759

(0.7%)

 

72,151,600

73,761,502

(2.2%)

 

WUXI PHARMATECH (CAYMAN) INC.

REVENUE BREAKDOWN

(in thousands of U.S. dollars)

               
 

Three Months Ended

 

Six Months Ended

 

June 30,

 

June 30,

 

2013

2012

% Change

 

2013

2012

% Change

Net revenues:

             

    China-Based Laboratory Services

83,399

70,294

18.6%

 

157,844

134,746

17.1%

    China-Based Manufacturing Services

36,424

36,837

(1.1%)

 

70,808

68,215

3.8%

        Subtotal

119,823

107,131

11.8%

 

228,652

202,961

12.7%

    U.S.-Based Laboratory Services

22,504

23,250

(3.2%)

 

45,540

45,448

0.2%

Total net revenues

142,327

130,381

9.2%

 

274,192

248,409

10.4%

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 Tuesday, August 13, 2013, to discuss its second-quarter 2013 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

1007691

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

1007691

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 2013 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, and to compete effectively. 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, 2012. 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 and Pro-Forma Financial Measures

We have provided the second-quarter and first-half 2012 and 2013 gross profit, gross margin, operating income, operating margin, net income, net margin, and 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. We believe both 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. These non-GAAP operating measures are useful for understanding and assessing underlying business performance and operating trends. We expect to continue to provide net income and earnings per ADS on a non-GAAP basis using a consistent method on a quarterly basis. 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, and you should refer to the reconciliation of GAAP measures to non-GAAP measures for the indicated periods in this press release.

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.

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