Emergent BioSolutions(EBS) - 2024 Q3 - Quarterly Report

Part I. Financial Information Financial Statements Presents the company's financial position and performance, showing a shift to net income in Q3 2024 and improved cash flow Condensed Consolidated Balance Sheets Total assets decreased to $1.48 billion, liabilities to $969.4 million, and equity to $508.4 million as of September 30, 2024 Condensed Consolidated Balance Sheet Highlights (in millions) | Account | Sep 30, 2024 (Unaudited) | Dec 31, 2023 | | :--- | :--- | :--- | | Total Assets | $1,477.8 | $1,823.2 | | Cash and cash equivalents | $149.9 | $111.7 | | Property, plant and equipment, net | $278.1 | $382.8 | | Total Liabilities | $969.4 | $1,173.9 | | Debt, current portion | $0.8 | $413.7 | | Debt, net of current portion | $661.8 | $446.5 | | Total Stockholders' Equity | $508.4 | $649.3 | Condensed Consolidated Statements of Operations Q3 2024 net income of $114.8 million marks a significant turnaround from a $263.4 million loss in Q3 2023 Statement of Operations Summary (in millions, except EPS) | Metric | Q3 2024 | Q3 2023 | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $293.8 | $270.5 | $848.9 | $772.7 | | Commercial Product Sales | $95.3 | $142.1 | $333.8 | $386.2 | | MCM Product Sales | $174.2 | $107.7 | $393.0 | $309.2 | | Income (Loss) from Operations | $64.5 | ($242.1) | ($99.2) | ($682.6) | | Goodwill Impairment | $0.0 | $218.2 | $0.0 | $218.2 | | Gain (Loss) on Sale of Business | $64.3 | ($0.7) | $24.3 | $74.2 | | Net Income (Loss) | $114.8 | ($263.4) | ($159.3) | ($711.0) | | Diluted EPS | $2.06 | ($5.08) | ($3.03) | ($13.97) | Condensed Consolidated Statements of Cash Flows Net cash from operations turned positive at $138.6 million for YTD 2024, a significant improvement from prior year Cash Flow Summary (in millions) | Activity | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $138.6 | ($238.4) | | Net cash provided by investing activities | $96.6 | $223.7 | | Net cash used in financing activities | ($190.5) | ($540.4) | | Net change in cash, cash equivalents and restricted cash | $44.7 | ($554.8) | Notes to Condensed Consolidated Financial Statements Details business segments, accounting policies, and key events including divestitures, debt refinancing, and litigation settlements - The company operates through three reportable segments: Commercial Products (NARCAN®), MCM Products (Anthrax, Smallpox, etc.), and Services (CDMO)[24][149] - The company has alleviated substantial doubt about its ability to continue as a going concern, citing progress on strategic plans[33][35][257] - Completed the sale of its RSDL® business for $75.0 million cash, recognizing a pre-tax gain of $60.8 million[46] - Completed the sale of its Baltimore-Camden drug product facility for approximately $35.0 million cash, recognizing a pre-tax loss of $36.5 million[48][49] - Recognized a non-cash impairment charge of $27.2 million in Q2 2024 related to planned facility closures[51][52] - Entered into a new $250.0 million Term Loan and $100.0 million Revolving Credit Agreement, repaying prior facilities[34][93][99] - Agreed to settle a shareholder class action lawsuit for $40.0 million, with $30.0 million from insurance proceeds[139] - Settled arbitration with Janssen, receiving $50.0 million and recognizing it as services revenue[146][147] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses improved Q3 2024 performance driven by MCM sales, strategic divestitures, and debt refinancing, alleviating going concern doubts Results of Operations Q3 2024 total revenues rose 9% to $293.8 million, driven by MCM sales, leading to operating income turnaround Q3 2024 vs Q3 2023 Revenue Performance (in millions) | Revenue Category | Q3 2024 | Q3 2023 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Commercial Product Sales | $95.3 | $142.1 | ($46.8) | (33)% | | MCM Product Sales | $174.2 | $107.7 | $66.5 | 62% | | Services | $14.3 | $14.2 | $0.1 | 1% | | Total Revenues | $293.8 | $270.5 | $23.3 | 9% | YTD 2024 vs YTD 2023 Revenue Performance (in millions) | Revenue Category | YTD 2024 | YTD 2023 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Commercial Product Sales | $333.8 | $386.2 | ($52.4) | (14)% | | MCM Product Sales | $393.0 | $309.2 | $83.8 | 27% | | Services | $97.5 | $57.7 | $39.8 | 69% | | Total Revenues | $848.9 | $772.7 | $76.2 | 10% | - The increase in Services revenue for the nine months ended Sep 30, 2024, was primarily due to the $50.0 million arbitration settlement with Janssen[250] - SG&A expenses decreased 11% in Q3 2024 due to restructuring initiatives and lower legal fees, partially offset by a settlement charge for stockholder litigation[200] Financial Condition, Liquidity and Capital Resources Financial condition improved with increased cash and working capital, successful debt refinancing, and positive operating cash flow - As of September 30, 2024, the company had $149.9 million in unrestricted cash and equivalents and $100.0 million available under its new Revolving Credit Agreement[256][259] - Management believes that its sources of liquidity are adequate to fund operations for at least the next twelve months, alleviating prior going concern doubts[257][259] - Cash flow from operating activities improved by $377.0 million year-over-year for the nine-month period, driven by better operational results and working capital changes[262] - Investing activities provided $96.6 million in cash, primarily from the sales of the RSDL® business and the Baltimore-Camden facility[263] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks, primarily from interest rate fluctuations and foreign currency exchange rates - The company has exposure to interest rate risk on its floating-rate debt; a hypothetical 1% increase in the eurocurrency rate would increase annual interest expense by approximately $2.5 million[277] - The company is exposed to foreign currency exchange rate fluctuations, primarily related to the Euro, Canadian dollar, Swiss franc, and British pound[278] Controls and Procedures Management concluded disclosure controls and procedures were effective as of September 30, 2024, with no material changes - Based on an evaluation as of September 30, 2024, the CEO and CFO concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level[279] - No material changes to the internal control over financial reporting occurred during the third quarter of 2024[280] Part II. Other Information Legal Proceedings The company is involved in various legal proceedings, including a $40.0 million securities class action settlement - The company refers to Note 15, "Litigation," for information on legal proceedings[281] - Key legal matters include the settlement of a securities class action lawsuit and ongoing shareholder derivative lawsuits[137][139][140] Risk Factors Key risks include significant indebtedness of $700.8 million, restrictive debt covenants, and potential inability to realize divestiture benefits - The company's significant indebtedness of approximately $700.8 million could limit its ability to obtain additional financing and place it at a competitive disadvantage[283] - Debt agreements contain restrictive covenants that limit actions such as incurring more debt, making capital expenditures, and pursuing acquisitions[287][289] - The company may not realize the full expected benefits from the sales of its travel health business, RSDL®, and the Baltimore-Camden facility[297][299] - The company is ineligible to file a new Registration Statement on Form S-3 until 2025, which may inhibit its ability to access capital markets[294] Unregistered Sales of Equity Securities and Use of Proceeds The company issued unregistered warrants and common stock to lenders in connection with its new Term Loan Agreement - On August 30, 2024, the company sold Warrants to purchase 2.5 million shares of common stock to its term loan lenders[301] - On September 17, 2024, the company issued 1,113,338 shares of common stock to its term loan lenders at approximately $8.98 per share[302] Other Information No directors or Section 16 officers adopted or terminated Rule 10b5-1 trading arrangements in Q3 2024 - No directors or Section 16 officers adopted or terminated a Rule 10b5-1 trading plan in Q3 2024[304]