Atrium Innovations Announces 2012 Second Quarter Financial Results

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Aug 09, 2012, 04:00 ET

Solid Organic Growth Performance

QUEBEC CITY, Aug. 9, 2012 /PRNewswire/ - Atrium Innovations Inc. (TSX: ATB), a globally recognized leader in the development, manufacturing and commercialization of innovative, science-based dietary supplements endorsed by health professionals, today released its results for the quarter ended June 30, 2012.

Second Quarter 2012 Highlights:
(All amounts are in US dollars.)

Total revenue growth of 4.1% over last year, or 7.4% on a currency-neutral basis, all organic, to reach $109.5 million
Total branded revenue recorded solid organic growth of 12.2%
EBITDA of $21.3 million or 19.5% of revenue, reflecting investments in marketing
Adjusted diluted EPS of $0.38 for the quarter
Cash flows before working capital, interest and after restructuring costs remain strong at $17.8 million

"We posted solid organic growth on a global basis with a particularly strong performance from our branded products at 12.2%, reflecting solid momentum in the HCP and Retail channels in North America. While our European operations faced some headwinds from the weak general economy, we are pleased by the 3.7% growth rate (currency neutral) recorded for the quarter. Overall, revenues surpassed our expectations given the expected decrease in our Retail Private Label business," said Pierre Fitzgibbon, President and CEO.

"Lower EBITDA margin for the quarter reflects a growth rate at Garden of Life well above the industry. In addition, significant investments in mailers were made at Nutri-Health which caused a negative EBITDA. As a result, we are currently reviewing the traditional mailing business model.

"Aligned with our right-sizing initiatives, we have decided to close our manufacturing operations in Penticton, British Columbia by the end of September 2012. Production is in the process of being transferred to our other manufacturing facilities.

"As indicated over the past year, we face heightened pressure from a regulatory perspective. Associated expenses to elevate our cGMP standards have and will continue to impact margins. However, we are seeing evidence that the industry dynamic is changing which will allow overtime recovering part of these regulatory expenses," concluded Mr. Fitzgibbon.

For the quarter ended June 30, 2012, Atrium recorded revenues of $109.5 million representing an increase of 4.1% (7.4% on a currency-neutral basis) compared to revenues of $105.2 million in 2011. The increase, all organic, is mainly attributable to the solid performance of our branded products with organic growth of 12.2% including solid momentum of HCP and HFS brands partially offset by revenue decreases from the Private Label businesses, and also the unfavourable impact of exchange rates.

EBITDA for the quarter was $21.3 million or 19.5% of revenues compared to $23.8 million or 22.6% of revenues for the same period in 2011. The EBITDA margin decreased by 3.1% year over year and is largely explained by a decline in the gross margin related to product mix, additional investments in marketing in the retail branded segment and the euro/US dollar exchange rate with an unfavourable impact of $0.9 million.

Net earnings attributable to shareholders were $12.2 million for the second quarter in 2012 compared to $14.4 million in 2011, while net earnings per share ("EPS") on a diluted basis were $0.36 per share, as compared to $0.44 per share for the same period in 2011. The adjusted diluted EPS were $0.38 in 2012 compared to diluted EPS of $0.44 in 2011.

Cash flows from operating activities before changes in non-cash working capital items, interest expenses and restructuring costs were $17.8 million, compared to $18.9 million in 2011. As at June 30, 2012, the Company had a total debt of $281.4 million and a cash position of $11.6 million.

About Atrium

Atrium Innovations Inc. is a globally recognized leader in the development, manufacturing and commercialization of innovative, science-based dietary supplements endorsed by health professionals. The Company distributes its extensive portfolio of products mainly in the healthcare practitioner and health food and specialized store channels, with a primary focus in North America and Europe. Atrium is at the forefront of science, innovation and education in the dietary supplement industry. The Company has over 1,100 employees and operates eight manufacturing facilities. Additional information is available at www.atrium-innovations.com.

Conference Call and Webcast

Atrium will hold its quarterly conference call and webcast to discuss its 2012 second quarter results on August 10, 2012 at 8:30 a.m., Eastern Time. Participants may access the call by using the following numbers: 514-807-9895 (Montreal Area), 888-231-8191 (Toll Free) or 647-427-7450 (Toronto area and overseas). A live webcast is also available via the Company's website at www.atrium-innovations.com in the News Center section. A replay of the webcast will also be available on our website for a period of 30 days. A copy of Atrium's financial statements will also be available on the Company's website.

Caution Regarding Non-IFRS Financial Measures

The Company provides non-IFRS financial measures (Gross profit*, EBIT*, EBITDA*, and Adjusted EPS*) as supplemental information regarding its operational performance. These non-IFRS financial measures are directly derived from the Company's financial statements and are presented in a consistent manner. The Company uses these measures for the purposes of evaluating its historical and prospective financial performance, as well as its performance relative to competitors. These measures also help the Company to plan and forecast for future periods as well as to make operational and strategic decisions. The Company believes that providing this information to investors, in addition to IFRS measures, allows them to see the Company's results through the eyes of management, and to better understand its historical and future financial performance.

The presentation of this additional information is not prepared in accordance with IFRS. Therefore, the information may not necessarily be comparable to that of other companies and should be considered as a supplement to, not a substitute for, or superior to, the comparable measures calculated in accordance with IFRS.

*Gross profit means sales less cost of sales. EBIT means earnings before interest and tax. EBITDA means earnings before interest, tax, depreciation, amortization, restructuring and acquisition costs.

Cautionary Note and Forward-Looking Statements

This press release contains certain forward-looking statements with respect to the Company. These forward-looking statements, by their nature, require the Company to make certain assumptions and necessarily involve known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these forward-looking statements. Forward-looking statements are not guarantees of performance. These forward-looking statements, including financial outlooks, may involve, but are not limited to, comments with respect to the Company's business or financial objectives, its strategies or future actions, its targets, expectations for financial condition or outlook for operations and future contingent payments. Words such as "may", "will", "would", "could", "expect", believe", "plan", "anticipate", "intend", "estimate", "continue", or the negative or comparable terminology, as well as terms usually used in the future and the conditional, are intended to identify forward-looking statements. Information contained in forward-looking statements is based upon certain material assumptions that were applied in drawing a conclusion or making a forecast or projection, including management's perceptions of historical trends, current conditions and expected future developments, as well as other considerations that are believed to be appropriate in the circumstances. The Company considers theses assumptions to be reasonable based on information currently available to it, but cautions the reader that these assumptions regarding future events, many of which are beyond its control, may ultimately prove to be incorrect since they are subject to risks and uncertainties that affect the Company and its business.

For additional information with respect to these and other factors and assumptions underlying the forward-looking statements made in this press release, see the Company's quarterly and annual Management Discussion and Analysis for the fiscal year ended December 31, 2011 filed with the Canadian securities commissions. The forward-looking information set forth herein reflects the Company's expectations as at the date of this press release and is subject to change after such date. The Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than as required by law.

Attachments:

Financial Summary
Balance sheet, results and cash flow statement

Atrium Innovations Inc.
Financial Summary (unaudited)
(in millions of US dollars except per share amounts)

Consolidated results for the quarters ended June 30,
	2012 $	2011 $	Change

Revenues	109.5	105.2	4%

Gross profit ⁽¹⁾	55.8	54.9
	*51.0%*	52.2%

EBITDA ⁽²⁾	21.3	23.8	-11%
	*19.5%*	22.6%

Net earnings attributable to shareholders	12.2	14.4	-15%

Diluted net earnings per share	0.36	0.44	-18%
Reconciliation to non IFRS Financial Data
Net earnings attributable to shareholders	12.2	14.4
Interest expenses for acquisition-related contingent liabilities	-	0.1
Adjusted net earnings under non-IFRS	12.2	14.5	-16%

Adjusted diluted net earnings per share under non-IFRS ⁽³⁾	0.38	0.44	-14%


Consolidated results for the six-month period ended June 30,
	2012 $	2011 $	Change

Revenues	219.4	212.9	3%

Gross profit ⁽¹⁾	114.5	115.7
	*52.2%*	54.3%

EBITDA ⁽²⁾	44.1	47.2	-7%
	*20.1%*	22.2%

Net earnings attributable to shareholders	23.9	28.6	-16%

Diluted net earnings per share	0.68	0.86	-21%
Reconciliation to non IFRS Financial Data
Net earnings attributable to shareholders	23.9	28.6
Provision for restructuring costs, net of related taxes	2.9	-
Interest expenses for acquisition-related contingent liabilities	0.1	0.1
Adjusted net earnings under non-IFRS	26.9	28.7	-6%

Adjusted diluted net earnings per share under non-IFRS ⁽³⁾	0.84	0.86	-2%

(1)	Gross profit means sales less cost of sales.
(2)	EBITDA means earnings before interest, taxes, depreciation, amortization, restructuring and acquisition-related costs.
(3)	Without giving the dilutive effect of the convertible debentures.

Atrium Innovations Inc.
Consolidated Balance Sheets
(Expressed in thousands of US dollars)

	As at June 30,	As at December 31,
	2012 $	2011 $
Assets

Current assets
Cash	11,638	22,800
Accounts receivable	55,859	52,189
Income taxes recoverable	7,803	5,841
Inventory	97,611	93,250
Prepaid expenses	6,750	4,588
	179,661	178,668

Property, plant and equipment	24,374	23,296
Deferred charges and others	4,061	4,218
Intangible assets	258,285	257,853
Goodwill	353,286	356,275
Deferred tax assets	2,262	5,634
	821,929	825,944
Liabilities

Current liabilities
Accounts payable and accrued liabilities	42,669	44,122
Provision	2,869	-
Contingent considerations	951	15,234
Income taxes	914	1,263
Deferred revenues	287	157
Derivative financial instruments	-	704
Current portion of long-term debt	347	292
	48,037	61,772

Contingent considerations	-	479
Long-term debt	191,069	191,169
Convertible debentures	89,989	91,819
Deferred revenues	-	75
Derivative financial instruments	193	-
Deferred tax liabilities	65,132	67,056

	394,420	412,370
Equity
Share capital	89,132	91,658
Stock options reserve	2,705	2,394
Retained earnings	354,090	337,201
Accumulated other comprehensive loss	(18,403)	(17,706)
	427,524	413,547
Non-controlling interest	(15)	27
	427,509	413,574
	821,929	825,944

Atrium Innovations Inc.
Consolidated Statements of Earnings
(tabular amounts in thousands of US dollars, except share and per share data)

	Quarters ended June 30,		Six months ended June 30,

	2012 $	2011 $	2012 $	2011 $

Revenues	109,467	105,161	219,419	212,913

Operating expenses
Cost of sales	53,647	50,272	104,933	97,227
Selling and administrative expenses	36,404	32,185	74,117	70,780
Research and development costs	626	566	1,293	1,135
Restructuring costs	-	-	4,000	-

	90,677	83,023	184,343	169,142

Earnings from operations	18,790	22,138	35,076	43,771

Other revenues (expenses)
Financial revenues	134	69	199	115
Financial expenses	(3,621)	(2,744)	(7,253)	(4,743)
Foreign exchange gain (loss)	(22)	(45)	439	(242)
Change in fair value of embedded derivative	539	-	2,461	-

	(2,970)	(2,720)	(4,154)	(4,870)

Earnings before income taxes	15,820	19,418	30,922	38,901

Income tax expense	3,619	4,728	7,100	9,797

Net earnings for the period	12,201	14,690	23,822	29,104


Net earnings for the period attributable to
Shareholders	12,151	14,446	23,864	28,561
Non-controlling interest	50	244	(42)	543

Net earnings per share
Basic	0.39	0.44	0.75	0.87
Diluted	0.36	0.44	0.68	0.86

Weighted average number of shares outstanding (000's)
Basic	31,456	32,723	31,737	32,749
Diluted	35,719	33,107	36,001	33,157

Atrium Innovations Inc.
Consolidated Statements of Cash Flows
(expressed in thousands of US dollars)

		Quarters ended June 30,		Six months ended June 30,

		2012 $	2011 $	2012 $	2011 $
Cash flows from operating activities
Net earnings for the period		12,201	14,690	23,822	29,104

Adjustments for:
	Depreciation and amortization	2,501	1,647	5,032	3,385
	Deferred charges	285	212	498	259
	Deferred revenues	40	(379)	52	(698)
	Change in fair value of embedded derivative	(539)	-	(2,461)	-
	Stock-based compensation costs	131	199	311	288
	Interest expense	3,255	2,447	6,497	4,058
	Deferred income taxes	210	71	1,342	1,340
	Foreign exchange gain on long-term debt	835	-	749	-
Change in non-cash operating working capital items		(5,154)	1,748	(10,737)	(11,607)

Cash flows from operating activities		13,765	20,635	25,105	26,129

Cash flows from financing activities
Increase in long-term debt		-	187	12,090	232,898
Payments on long-term debt		(7,885)	(12,699)	(7,970)	(225,602)
Financing costs		(60)	(239)	(84)	(428)
Issuance of shares		-	159	-	347
Shares redeemed and cancelled under a normal course issuer bid		(456)	(1,661)	(9,501)	(3,250)
Interest paid		(1,613)	(2,011)	(6,349)	(3,218)

Cash flows from (used in) financing activities		(10,014)	(16,264)	(11,814)	747

Cash flows from investing activities
Business acquisitions, net of cash acquired		-	(3,642)	(14,809)	(16,265)
Purchase of property, plant and equipment		(2,047)	(1,238)	(3,665)	(1,697)
Proceeds from disposal of property, plant and equipment		225	-	225	-
Additions to intangible assets		(3,730)	(2,930)	(5,620)	(5,031)

Cash flows used in investing activities		(5,552)	(7,810)	(23,869)	(22,993)

		(1,801)	(3,439)	(10,578)	3,883

Effect of exchange rate changes on cash		(649)	184	(584)	(889)

Increase (decrease) in cash		(2,450)	(3,255)	(11,162)	2,994

Cash - Beginning of period		14,088	18,298	22,800	12,049

Cash - Ending of period		11,638	15,043	11,638	15,043