0
First Quarter 2013
Earnings Presentation
Dr. Ge Li, Chairman and CEO
Edward Hu, COO/CFO
1
Cautionary Note Regarding Forward-Looking Statements
 This presentation contains "forward-looking statements” within th...
2
Use of Non-GAAP and Pro-Forma Financial Measures
 We have provided the first-quarter 2012 and 2013 gross profit, gross
...
3
Overview
 We are achieving double-digit, broad-based revenue growth, led by
China-based Laboratory Services and researc...
4
Overview
 We continue to invest in capabilities and capacity across our
business units to sustain strong revenue and ea...
5
First-Quarter 2013 Performance Versus Guidance
Actual Guidance
Total Revenues $131.9 million $129-131 million
GAAP Dilut...
6
First-Quarter 2013 Revenue Summary
(US$ in millions)
First Quarter
2013 2012 Δ
Total Net Revenue $131.9 $118.0 11.7%
Chi...
7
Total Net Revenues
(US$ in Millions)
1Q12 2Q12 3Q12 4Q12 1Q13
Manufacturing
Services
China-Based
Laboratory
Services
Rev...
8
First-Quarter 2013 GAAP Financial Summary
(US$ in millions)
First Quarter
2013 2012
%
Growth
Net Revenue $131.9 $118.0 1...
9
(US$ in Millions)
1Q12 2Q12 3Q12 4Q12 1Q13
Gross
Profit/
Margin
Revenues
Operating
Income/
Margin
GAAP Revenues/Gross Pr...
10
First-Quarter 2013 Non-GAAP* Financial Summary
*Excludes the impact of share-based compensation expenses and amortizati...
11
(US$ in Millions)
1Q12 2Q12 3Q12 4Q12 1Q13
Gross
Profit/
Margin
Revenues
Operating
Income/
Margin
Non-GAAP Revenues/Gro...
12
Factors Impacting First Quarter 2013 Diluted Earnings Per ADS
$0.28
$0.30
$.06
($.01)
($.02)
1Q12
Diluted EPS
1Q13
Dilu...
13
Capital Resources and Cash Flow
 Cash and short-term investments of $265.7 million at March
31, 2013
 Total debt of $...
14
(US$ in Millions)
Capital
Expend-
itures
Operating
Cash
Flow
Free
Cash
Flow
Cash Flow and Share Purchases
$101.1
$131.0...
15
We Reconfirm Full-Year 2013 Financial Guidance
 Total revenues of $565-$575 million, up 13-15% year
over year
 GAAP a...
16
Second-Quarter 2013 Preview
 Estimated total revenues of $138-$140 million
 Estimated GAAP and Non-GAAP diluted earni...
17
First-Quarter 2013 Revenue Distribution by Service Offering
1Q12 1Q13
Manufacturing
26.6%
Development**
9.0%
U.S. Lab
S...
18
Synthetic Chemistry
This business (17% of total company revenue now) is
becoming commoditized, with competition from m...
19
Medicinal Chemistry and
Other Drug Discovery Services
We expect mid-teen revenue growth and stable profitability in
20...
20
Toxicology
 Our toxicology business is growing well despite the
worldwide slump in this business
 We are the #1 toxic...
21
Biologics Services Overview
 WuXi is the partner of choice for biologics services in China, as few CROs or
pharmaceuti...
22
Strategic Partnerships in Drug Development
While WuXi will remain predominantly a CRO, we will help our
partners to de...
23
U.S.-Based Laboratory Services
First-half revenue growth is expected to be slower, due to lower
demand in biologics te...
24
Small Molecule Manufacturing Services
Overall small molecule manufacturing revenue to grow at mid-
teen rate in 2013, ...
25
Building Our Capabilities Will Drive Growth
 Continued revenue growth across China-based Laboratory
Services, driven b...
26
Appendix
GAAP to Non-GAAP Reconciliation
Share Count Information
ADS Shares for Earnings-per-ADS Calculation
27
1Q2013
(US$ in millions)
GAAP
Share-Based
Compensation
Expenses
Amortization of
Acquired Intangible
Assets and Deferred...
28
Share Count Information
(As of March 31, 2013)
ADS Shares
ADS issued and outstanding 70,961,529
Share options and equiv...
29
ADS Shares for Earnings-per-ADS Calculation
Date Activities
Weighted
Average ADS
Shares
January 1, 2013 Ordinary share ...
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WuXi Pharma Tech First Quarter 2013 Earnings Presentation

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WuXi Pharma Tech First Quarter 2013 Earnings Presentation

  1. 1. 0 First Quarter 2013 Earnings Presentation Dr. Ge Li, Chairman and CEO Edward Hu, COO/CFO
  2. 2. 1 Cautionary Note Regarding Forward-Looking Statements  This presentation 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 presentation include statements about our second-quarter and full-year 2013 guidance, the goals of our various service offerings and the prospects of our strategic partnerships. 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 increase volume for our chemistry service offerings, to meet timelines for the expansion of our biologics service offerings, to realize the anticipated benefits of our strategic partnerships, 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 presentation speak only on the date that they are made, and we assume no obligation to update any forward-looking statements except as required by law.
  3. 3. 2 Use of Non-GAAP and Pro-Forma Financial Measures  We have provided the first-quarter 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 should refer to the reconciliation of GAAP measures to non-GAAP measures for the indicated periods attached hereto.
  4. 4. 3 Overview  We are achieving double-digit, broad-based revenue growth, led by China-based Laboratory Services and research manufacturing  Commercial manufacturing is building a pipeline of products to reaccelerate growth in 2014 and beyond  We are effectively controlling our costs with strategies such as our Wuhan chemistry facility and our Lean Sigma programs  By continuing to control our costs, we expect to maintain flat year- over-year margins throughout 2013  As a result of our revenue growth and progress on margins, we are reconfirming our full-year 2013 revenue and EPS guidance
  5. 5. 4 Overview  We continue to invest in capabilities and capacity across our business units to sustain strong revenue and earnings growth  Our free cash flow is growing substantially, and we plan to return much of it to shareholders through share purchases  To leverage our partners’ knowledge and experience, we are entering into strategic partnerships to create more long-term value, such as our JVs with MedImmune for novel biologics development in China and with PRA for clinical trial services in China
  6. 6. 5 First-Quarter 2013 Performance Versus Guidance Actual Guidance Total Revenues $131.9 million $129-131 million GAAP Diluted EPS $0.30 $0.26-$0.27 NonGAAP Diluted EPS $0.35 $0.31-$0.32  We exceeded our revenue guidance for the quarter mainly due to better than expected performance by Manufacturing Services  We exceeded our EPS guidance for the quarter as a result of better revenues, improvements in operational efficiency, and a $1.2 million mark-to-market gain on foreign exchange forward contracts
  7. 7. 6 First-Quarter 2013 Revenue Summary (US$ in millions) First Quarter 2013 2012 Δ Total Net Revenue $131.9 $118.0 11.7% China-Based Laboratory Services $74.5 $64.4 15.5% U.S.-Based Laboratory Services $23.0 $22.2 3.8% Total Laboratory Services $97.5 $86.6 12.5% Manufacturing Services $34.4 $31.4 9.6%
  8. 8. 7 Total Net Revenues (US$ in Millions) 1Q12 2Q12 3Q12 4Q12 1Q13 Manufacturing Services China-Based Laboratory Services Revenue Performance by Service U.S.-Based Laboratory Services $118.0 22.2 64.4 31.4 $130.4 70.3 23.3 36.8 77.0 21.9 26.9 $125.8 81.5 22.3 21.9 $125.7 74.5 23.0 34.4 $131.9  Overall, the company achieved record revenues and double- digit year-over-year revenue growth in the first quarter  China-based Laboratory Services experienced its typical sequential decline in first- quarter revenues and strong year-over-year growth  U.S.-based Laboratory Services achieved steady, but modest growth in a more mature market  Manufacturing Services benefited from strong sequential growth in both research and commercial manufacturing
  9. 9. 8 First-Quarter 2013 GAAP Financial Summary (US$ in millions) First Quarter 2013 2012 % Growth Net Revenue $131.9 $118.0 11.7% Gross Profit 47.4 41.9 13.2% Gross Margin 36.0% 35.5% Operating Income 23.0 20.6 11.4% Operating Margin 17.4% 17.5% Net Income 21.7 21.0 3.4% Effective Tax Rate 20.8% 16.3% Weighted Average ADS Outstanding—Diluted 71,915,069 74,543,632 (3.5%) Diluted Net Earnings Per ADS 0.30 0.28 7.2%
  10. 10. 9 (US$ in Millions) 1Q12 2Q12 3Q12 4Q12 1Q13 Gross Profit/ Margin Revenues Operating Income/ Margin GAAP Revenues/Gross Profit/Operating Income $118.0 20.6 41.9 35.5% 17.5% $130.4 46.5 23.8 35.7% 18.2% $125.8 21.5 46.1 36.6% 17.0% $125.7 23.6 48.8 38.8% 18.7% 23.0 47.4 $131.9 36.0% 17.4%  Aside from one-time benefits in 4Q12, 1Q13 margins were generally in line with those of prior quarters  We expect flat year- over-year GAAP gross margin and operating margin in 2013
  11. 11. 10 First-Quarter 2013 Non-GAAP* Financial Summary *Excludes the impact of share-based compensation expenses and amortization and the deferred tax impact of acquired intangible assets in both periods (US$ in millions) First Quarter 2013 2012 % Growth Net Revenue $131.9 $118.0 11.7% Gross Profit 48.6 43.5 11.6% Gross Margin 36.8% 36.8% Operating Income 26.7 24.3 9.8% Operating Margin 20.2% 20.6% Net Income 25.4 24.5 3.7% Weighted Average ADS Outstanding—Diluted 71,915,069 74,543,632 (3.5%) Effective Tax Rate 18.5% 14.9% Diluted Net Earnings Per ADS 0.35 0.33 7.5%
  12. 12. 11 (US$ in Millions) 1Q12 2Q12 3Q12 4Q12 1Q13 Gross Profit/ Margin Revenues Operating Income/ Margin Non-GAAP Revenues/Gross Profit/Operating Income 24.3 43.5 $118.0 36.8% 20.6% $130.4 21.0% 36.8%48.0 27.4 $125.8 26.6 47.6 37.8% 21.2% $125.7 50.0 27.4 21.8% 39.8% $131.9 48.6 26.7 36.8% 20.2%  We also expect flat year-over-year non- GAAP gross margin and operating margin in 2013
  13. 13. 12 Factors Impacting First Quarter 2013 Diluted Earnings Per ADS $0.28 $0.30 $.06 ($.01) ($.02) 1Q12 Diluted EPS 1Q13 Diluted EPS Foreign Exchange Business Growth Investment* Share Purchases Labor Inflation $.01 * Investment includes losses from biologics R&D, biologics manufacturing facilities, JVs with MedImmune and risk sharing projects $0.33 $0.35 GAAP Non-GAAP Non-GAAP GAAP($.02)
  14. 14. 13 Capital Resources and Cash Flow  Cash and short-term investments of $265.7 million at March 31, 2013  Total debt of $67.9 million at March 31, 2013  Operating cash flow of $39.4 million for first-quarter 2013  Capital expenditures of $6.0 million for first-quarter 2013; we continue to expect full-year capital expenditures of about $60 million
  15. 15. 14 (US$ in Millions) Capital Expend- itures Operating Cash Flow Free Cash Flow Cash Flow and Share Purchases $101.1 $131.0 $63.9 $37.1 $67.8 $63.2 Cash Flow Share Purchases $67.0 $100.0 20122012 3/2013- 3/2015 Est. 2011  While making the investments necessary to sustain business growth, we are returning much of our free cash flow to investors
  16. 16. 15 We Reconfirm Full-Year 2013 Financial Guidance  Total revenues of $565-$575 million, up 13-15% year over year  GAAP and non-GAAP gross margin and operating margin comparable to those in 2012 (new guidance)  GAAP diluted earnings per ADS of $1.26-$1.30, up 6-9%  Non-GAAP diluted earnings per ADS of $1.49-$1.53, up 6-9%  Capital expenditures of about $60 million
  17. 17. 16 Second-Quarter 2013 Preview  Estimated total revenues of $138-$140 million  Estimated GAAP and Non-GAAP diluted earnings per ADS of $0.34-$0.35 and $0.39-$0.40, respectively  Accelerating year-over-year revenue growth in the second half of 2013 across several business units
  18. 18. 17 First-Quarter 2013 Revenue Distribution by Service Offering 1Q12 1Q13 Manufacturing 26.6% Development** 9.0% U.S. Lab Services 17.5% U.S. Lab Services 18.8% Medicinal Chemistry And Other Discovery* 27.3% Synthetic Chemistry 18.3% Manufacturing 26.1% Development** 13.2% Medicinal Chemistry And Other Discovery* 26.0% Synthetic Chemistry 17.2% *Includes Medicinal Chemistry, Biology, DMPK/ADME, Biological Reagents and others **Includes Formulation, Analytical Development, Toxicology, Bioanalytical Services, Biologics, Clinical, and Genomics China-Based Lab Services
  19. 19. 18 Synthetic Chemistry This business (17% of total company revenue now) is becoming commoditized, with competition from many Chinese CROs causing pricing pressure Our advantages of scale and experience will allow us to achieve single-digit revenue growth in this business in 2013 Our Lean Sigma programs have resulted in significant improvement in operating efficiency and cost savings Synthetic chemistry work is increasingly being done at our new Wuhan facility, which has relatively lower operating costs and offers customers another pricing option
  20. 20. 19 Medicinal Chemistry and Other Drug Discovery Services We expect mid-teen revenue growth and stable profitability in 2013, driven by volume growth and improving productivity New opportunities are available in medicinal chemistry programs serving Chinese pharmaceutical clients We expect substantial revenue and profit growth this year in biology, where WuXi is building a leading technology platform in oncology, infectious disease, CNS, and other areas
  21. 21. 20 Toxicology  Our toxicology business is growing well despite the worldwide slump in this business  We are the #1 toxicology CRO in China  We more than doubled annual revenues in 2012 and are targeting an increase of more than 40% in revenues in 2013; more than 30% of revenues are from domestic Chinese clients  This business is now profitable, and profitability will improve with increasing capacity utilization  Our Suzhou site is currently at about 60% capacity; we expect to reach optimum (~80-85%) capacity by year end and will consider building out the remaining shell space within the existing facility next year
  22. 22. 21 Biologics Services Overview  WuXi is the partner of choice for biologics services in China, as few CROs or pharmaceutical companies have biologics facilities here  Chinese regulations require that biologics used in clinical trials either be approved in other markets or manufactured in China  Our project portfolio is mostly novel molecules with some biosimilars from both multinational and Chinese customers  We have built a highly capable team of about 350 people, including about 30 returnees with US/EU industry experience  We made about $30 million in capital expenditures through the end of 2012, including construction of discovery and development laboratories in Shanghai and a cGMP drug substance manufacturing facility in WuXi in 2012, and we plan $16-$18 million more in capital expenditures in 2013 to build out a fill/finish facility and purchase lab equipment  We plan to install 2,000 L bioreactors in the second half of 2013 that will enable us to produce Phase 3 clinical trial materials  We continue to ramp up revenues with increasing numbers of projects; backlog totals about $40 million as of the end of March; we are serving about 50 customers worldwide
  23. 23. 22 Strategic Partnerships in Drug Development While WuXi will remain predominantly a CRO, we will help our partners to develop and commercialize innovative products in China Some current medicinal chemistry projects earn bonuses for success in return for lower FTE rates Joint venture with MedImmune will develop and commercialize MEDI5117 for treating rheumatoid arthritis and other autoimmune diseases in China Joint venture with PRA will offer a broad platform of Phase 1-4 clinical trial services in China, Hong Kong and Macau Some biologics contracts include milestone payments and/or single-digit royalties
  24. 24. 23 U.S.-Based Laboratory Services First-half revenue growth is expected to be slower, due to lower demand in biologics testing and difficult comparisons caused by strong growth in the first half of 2012 Second-half growth is expected to be stronger Profitability continues to improve We continue to expect broad-based, high-single-digit revenue growth, with stable margins, in this business in the long term
  25. 25. 24 Small Molecule Manufacturing Services Overall small molecule manufacturing revenue to grow at mid- teen rate in 2013, driven by strong growth in research manufacturing Commercial manufacturing revenue will be relatively flat year- over-year in 2013 as we continue to diversify our portfolio beyond one large product We currently manufacture advanced intermediates for six commercial products We also manufacture supplies (intermediates and APIs) of seven additional products currently in Phase 3, including some with large commercial revenue potential for WuXi
  26. 26. 25 Building Our Capabilities Will Drive Growth  Continued revenue growth across China-based Laboratory Services, driven by our ability to deliver high-quality services and drug candidates for our customers  Increasing utilization of our integrated drug development services for API manufacturing, IND-enabling toxicology studies and IND filings with the China SFDA and global regulatory authorities  Continuing growth in Manufacturing Services driven by research manufacturing and, beginning in 2014, a growing commercial- manufacturing pipeline  Ramp-up of biologics drug discovery, development, and manufacturing services  Expansion of our clinical development platform with the WuXi/PRA joint venture
  27. 27. 26 Appendix GAAP to Non-GAAP Reconciliation Share Count Information ADS Shares for Earnings-per-ADS Calculation
  28. 28. 27 1Q2013 (US$ in millions) GAAP Share-Based Compensation Expenses Amortization of Acquired Intangible Assets and Deferred Tax Impact Non-GAAP Net revenues 131.9 131.9 Cost of revenues (84.5) 1.0 0.1 (83.4) Selling & marketing expense (3.9) (3.9) General & administrative expense (18.2) 2.6 (15.6) Research & development expense (2.3) (2.3) Other income/(exp.), net 4.4 4.4 Income tax expense (5.7) (5.7) Net income 21.7 3.6 0.1 25.4 First-Quarter 2013 GAAP to Non-GAAP Reconciliation
  29. 29. 28 Share Count Information (As of March 31, 2013) ADS Shares ADS issued and outstanding 70,961,529 Share options and equivalents granted and outstanding 2,986,228 ADS available for future grants under employee incentive plan 3,806,752
  30. 30. 29 ADS Shares for Earnings-per-ADS Calculation Date Activities Weighted Average ADS Shares January 1, 2013 Ordinary share balance1 67,794,840 January 1, 2013 RSUs vested and not exercised 2,345,285 First Quarter 2013 Share options exercised and RSUs vested 229,413 First Quarter 2013 Share repurchase program (922) March 31, 2013 ADSs outstanding – basic 70,368,616 March 31, 2013 Share options and equivalents 1,546,453 March 31, 2013 ADSs outstanding – diluted 71,915,069 1 542,358,719 ordinary shares, with each ADS representing eight ordinary shares

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