Emergent BioSolutions Inc 10-Q for FY2023 Q1

Emergent BioSolutions Inc. (EBS)

10-Q 2023-05-10 For: 2023-03-31

Added on April 01, 2026

About this 10-Q

Emergent BioSolutions Inc filed this 10-Q on May 10, 2023, covering the quarter ended March 31, 2023 (FY2023 Q1).

Headline figures

Quarter ended March 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $165.1M; down 46.3% from $307.5M a year earlier
Net loss: $183M; compared with a net loss of $3.7M a year earlier
Diluted EPS: -$3.65; compared with -$0.07 a year earlier

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Delaware		14-1902018
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

400 Professional Drive Suite 400
Gaithersburg,	MD	20879
(Address and zip code of Principal Executive Offices)


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐


		Page
Part I. Financial Information
Item 1.	Financial Statements	5
	Condensed Consolidated Balance Sheets—March 3 1 , 202 3 and December 31, 2022	5
	Condensed Consolidated Statements of Operations—Three Months Ended March 31 , 202 3 and 2022	6
	Condensed Consolidated Statements of Comprehensive Income (Loss)—Three Months Ended March 3 1 , 202 3 and 2022	7
	Condensed Consolidated Statements of Cash Flow s —Three Months Ended March 31 , 202 3 and 2022	8
	Condensed Consolidated Statements of Changes in Stockholders' Equity—Three Months Ended March 31 , 202 3 and 2022	9
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4.	Controls and Procedures	41

Part II. Other Information
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	73
Item 3.	Defaults Upon Senior Securities	73
Item 4.	Mine Safety Disclosures	73
Item 5.	Other Information	73
Item 6.	Exhibits	73

	Signatures	75


	March 31, 2023		December 31, 2022
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	430.2	$	642.6

Accounts receivable, net	155.9		158.4
Inventories, net	367.9		351.8
Prepaid expenses and other current assets	41.7		57.9
Assets held for sale	225.6		—
Total current assets	1,221.3		1,210.7

Property, plant and equipment, net	716.8		817.6
Intangible assets, net	608.9		728.8
Goodwill	218.2		218.2
Other assets	184.6		191.3
Total assets	$	2,949.8	$	3,166.6

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	124.2	$	103.5
Accrued expenses	21.3		34.9
Accrued compensation	56.8		88.3
Debt, current portion	950.7		957.3
Other current liabilities	25.2		45.9
Liabilities held for sale	37.5		—
Total current liabilities	1,215.7		1,229.9

Debt, net of current portion	447.7		448.5
Deferred tax liability	59.7		71.8
Other liabilities	24.1		33.4
Total liabilities	1,747.2		1,783.6

Stockholders' equity:
Preferred stock, $0.001 par value; 15.0 shares authorized, no shares issued or outstanding	—		—
Common stock, $0.001 par value; 200.0 shares authorized, 56.0 and 55.7 shares issued; 50.4 and 50.1 shares outstanding, respectively	0.1		0.1
Treasury stock, at cost, 5.6 and 5.6 common shares, respectively	(227.7)		(227.7)
Additional paid-in capital	878.2		873.5
Accumulated other comprehensive income, net	1.0		3.1
Retained earnings	551.0		734.0
Total stockholders’ equity	1,202.6		1,383.0
Total liabilities and stockholders’ equity	$	2,949.8	$	3,166.6


	Three Months Ended March 31,
	2023		2022
Revenues:
Product sales, net	$	143.4	$	237.1
CDMO:
Services	13.4		51.8
Leases	1.8		9.0
Total CDMO revenues	15.2		60.8
Contracts and grants	6.5		9.6
Total revenues	165.1		307.5

Operating expenses:
Cost of product sales	102.9		80.3
Cost of CDMO	52.2		75.6
Research and development	40.6		46.4
Selling, general and administrative	100.5		84.8

Amortization of intangible assets	17.0		14.0

Total operating expenses	313.2		301.1

Income (loss) from operations	(148.1)		6.4

Other income (expense):
Interest expense	(17.9)		(8.2)
Other, net	4.9		(2.0)
Total other income (expense), net	(13.0)		(10.2)

Loss before income taxes	(161.1)		(3.8)
Income tax provision (benefit)	21.9		(0.1)
Net loss	$	(183.0)	$	(3.7)

Loss per common share
Basic	$	(3.65)	$	(0.07)
Diluted	$	(3.65)	$	(0.07)

Weighted average shares outstanding
Basic	50.2		50.7
Diluted	50.2		50.7


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	$0.001 Par Value Common Stock			Treasury Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income		Retained Earnings		Total Stockholders' Equity
	Shares	Amount		Shares	Amount
Balance at December 31, 2022	55.7	$	0.1	(5.6)	$	(227.7)	$	873.5	$	3.1	$	734.0	$	1,383.0
Net loss	—	—		—	—		—		—		(183.0)		(183.0)
Share-based compensation activity	0.3	—		—	—		4.7		—		—		4.7
Other comprehensive loss, net of tax	—	—		—	—		—		(2.1)		—		(2.1)
Balance at March 31, 2023	56.0	$	0.1	(5.6)	$	(227.7)	$	878.2	$	1.0	$	551.0	$	1,202.6


Level 1 —			Observable inputs for identical assets or liabilities such as quoted prices in active markets;
Level 2 —			Inputs other than quoted prices in active markets that are either directly or indirectly observable; and
Level 3 —			Unobservable inputs in which little or no market data exists, which are therefore developed by the Company using estimates and assumptions that reflect those that a market participant would use.


	March 31, 2023
Assets held for sale:
Cash and cash equivalents	$	2.6
Accounts receivable, net	1.7
Inventories, net	13.8
Prepaid expenses and other current assets	4.1
Property, plant and equipment, net	97.1
Intangible assets, net	102.9
Other assets	3.4
Total assets held for sale	$	225.6

Liabilities held for sale:
Accounts payable	$	9.7
Accrued expenses	5.9
Accrued compensation	6.9
Other current liabilities	2.4
Deferred tax liability	3.9
Other liabilities	8.7
Total liabilities held for sale	$	37.5


	Three Months Ended March 31, 2023
Products	$	2.0
Services	—
Total restructuring costs by segment	2.0
Corporate	5.0
R&D	2.7
Total restructuring costs	$	9.7


	Three Months Ended March 31, 2023
Employee transition	$	0.3
Severance payments	8.7
Employee benefits	0.7
Total restructuring costs	$	9.7


	March 31, 2023		December 31, 2022
Raw materials and supplies	$	148.9	$	143.4
Work-in-process	122.1		116.2
Finished goods	96.9		92.2
Total inventories, net	$	367.9	$	351.8


	March 31, 2023		December 31, 2022
Land and improvements	$	31.9	$	54.9
Buildings, building improvements and leasehold improvements	305.7		327.9
Furniture and equipment	515.5		567.5
Software	64.8		65.6
Construction-in-progress	174.1		185.5
Property, plant and equipment, gross	$	1,092.0	$	1,201.4
Less: Accumulated depreciation & amortization	(375.2)		(383.8)
Total property, plant and equipment, net	$	716.8	$	817.6


	Weighted Average Useful Life in Years	March 31, 2023						December 31, 2022
		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount (1)		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Products	13.6	$	849.1	$	240.2	$	608.9	$	982.1	$	253.3	$	728.8
Customer relationships	0.0	28.6		28.6		—		28.6		28.6		—
CDMO	0.0	5.5		5.5		—		5.5		5.5		—
Total intangible assets		$	883.2	$	274.3	$	608.9	$	1,016.2	$	287.4	$	728.8

(1) The net carrying value of intangible assets as of March 31, 2023 excluded $102.9 million of assets related to our travel health business, which were reclassified as assets held for sale in anticipation of the sale of the travel health business to Bavarian Nordic (see Note 3, "Assets and liabilities held for sale").


	Contingent Consideration
Balance at December 31, 2022	$	6.8
Change in fair value	1.5
Settlements	(0.7)
Balance at March 31, 2023	$	7.6


	Number of Instruments	Notional
Interest Rate Swaps	7	$350.0


	Cumulative Amount of Gain/(Loss) Recognized in OCI on Derivatives				Location of Gain (Loss) Reclassified from Accumulated OCI into Gain (Loss)	Amount of Gain (Loss) Reclassified from Accumulated OCI into Gain (Loss)
						Three Months Ended March 31,
	March 31, 2023		December 31, 2022			2023		2022
Interest Rate Swaps	$	5.9	$	8.5	Interest expense	$	2.4	$	1.4


	March 31, 2023		December 31, 2022
Senior secured credit agreement - Term loan due 2023	$	354.4	$	362.8
Senior secured credit agreement - Revolver loan due 2023	598.0		598.0
3.875% Senior Unsecured Notes due 2028	450.0		450.0
Other	3.0		3.0
Total debt	$	1,405.4	$	1,413.8

Unamortized debt issuance costs	(7.0)		(8.0)
Less: Current portion of long-term debt, net	(950.7)		(957.3)
Non-current portion of debt, net	$	447.7	$	448.5


	Products (1)		Services (2)		Total



Balance at December 31, 2022	$	218.2	$	—	$	218.2


Balance at March 31, 2023	$	218.2	$	—	$	218.2

(1) Amounts for the Company's Products segment include gross carrying values of $259.9 million as of March 31, 2023 and December 31, 2022 and accumulated impairment losses of $41.7 million.

(2) Amounts for the Company's Services segment include gross carrying values of $6.7 million as of March 31, 2023, December 31, 2022, and accumulated impairment losses of $6.7 million.


	Fair Value of Asset Derivatives
		March 31, 2023		December 31, 2022
Interest Rate Swaps	Other Current Assets	$	5.9	$	8.5


	Defined Benefit Pension Plan		Derivative Instruments		Foreign Currency Translation Adjustments		Total

Balance at December 31, 2022	$	3.5	$	6.2	$	(6.6)	$	3.1
Other comprehensive loss before reclassifications	—		(4.4)		(0.1)		(4.5)
Amounts reclassified from accumulated other comprehensive income (loss)	—		2.4		—		2.4
Net current period other comprehensive loss	—		(2.0)		(0.1)		(2.1)
Balance at March 31, 2023	$	3.5	$	4.2	$	(6.7)	$	1.0







Balance at December 31, 2021	$	(4.0)	$	(4.5)	$	(7.6)	$	(16.1)
Other comprehensive income before reclassifications	—		4.9		0.5		5.4
Amounts reclassified from accumulated other comprehensive income (loss)	—		1.4		—		1.4
Net current period other comprehensive income	—		6.3		0.5		6.8
Balance at March 31, 2022	$	(4.0)	$	1.8	$	(7.1)	$	(9.3)


	Three Months Ended March 31, 2023						Three Months Ended March 31, 2022
	USG		Non-USG		Total		USG		Non-USG		Total
Product sales, net	$	26.1	$	117.3	$	143.4	$	103.4	$	133.7	$	237.1
CDMO:
Services	—		13.4		13.4		—		51.8		51.8
Leases	—		1.8		1.8		—		9.0		9.0
Total CDMO	$	—	$	15.2	$	15.2	$	—	$	60.8	$	60.8
Contracts and grants	4.9		1.6		6.5		9.1		0.5		9.6
Total revenues	$	31.0	$	134.1	$	165.1	$	112.5	$	195.0	$	307.5


	Contract Liabilities
Balance at December 31, 2022	$	31.7
Deferral of revenue	5.0
Revenue recognized	(18.7)
Balance at March 31, 2023	$	18.0


	March 31, 2023		December 31, 2022
Accounts receivable:
Billed	$	106.5	$	102.7
Unbilled	49.8		56.4
Allowance for expected credit losses	(0.4)		(0.7)
Accounts receivable, net	$	155.9	$	158.4


Leases	Classification	March 31, 2023			December 31, 2022
Operating lease right-of-use assets	Other assets	$	15.5		$	19.4

Operating lease liabilities, current portion	Other current liabilities	$	3.4		$	5.8
Operating lease liabilities	Other liabilities	13.0			14.8
Total operating lease liabilities		$	16.4		$	20.6

Operating leases:
Weighted average remaining lease term (years)		6.6			5.9
Weighted average discount rate		4.1		%	4.1		%


	Three Months Ended March 31,
(in millions, except %)	2023		2022		$ Change		% Change
Revenues
Product sales, net:
Anthrax MCM	$	21.9	$	109.4	$	(87.5)	(80)	%
NARCAN	100.4		93.1		7.3		8	%
Smallpox MCM	7.2		23.3		(16.1)		(69)	%
Other Products sales	13.9		11.3		2.6		23	%
Total product sales, net	143.4		237.1		(93.7)		(40)	%
CDMO:
Services	13.4		51.8		(38.4)		(74)	%
Leases	1.8		9.0		(7.2)		(80)	%
Total CDMO revenues	15.2		60.8		(45.6)		(75)	%
Contracts and grants	6.5		9.6		(3.1)		(32)	%
Total revenues	165.1		307.5		(142.4)		(46)	%

Operating expenses:
Cost of product sales	102.9		80.3		22.6		28	%
Cost of CDMO	52.2		75.6		(23.4)		(31	%)
Research and development	40.6		46.4		(5.8)		(13	%)
Selling, general and administrative	100.5		84.8		15.7		19	%

Amortization of intangible assets	17.0		14.0		3.0		21	%
Total operating expenses	313.2		301.1		12.1		4	%

Income (loss) from operations	(148.1)		6.4		(154.5)		NM

Other income (expense):
Interest expense	(17.9)		(8.2)		(9.7)		118	%
Other, net	4.9		(2.0)		6.9		NM
Total other income (expense), net	(13.0)		(10.2)		(2.8)		27	%

Loss before income taxes	(161.1)		(3.8)		(157.3)		NM
Income tax provision (benefit)	21.9		(0.1)		22.0		NM
Net loss	$	(183.0)	$	(3.7)	$	(179.3)	NM

NM - Not meaningful


	Products Segment
	Three Months Ended March 31,
(dollars in millions)	2023			2022			% Change
Revenues
Product sales, net	$	143.4		$	237.1		(40	%)

Cost of sales	$	102.9		$	80.3		28	%
Less: Changes in fair value of contingent consideration	1.5			0.5			200	%
Less: Restructuring costs	2.0			—			NM

Adjusted cost of sales (1)	$	99.4		$	79.8		25	%

Gross margin (2)	$	40.5		$	156.8		(74	%)
Gross margin % (2)	28		%	66		%

Adjusted gross margin (3)	$	44.0		$	157.3		(72	%)
Adjusted gross margin % (3)	31		%	66		%

(1) Adjusted cost of sales, which is a non-GAAP financial measure, is calculated as cost of sales less restructuring costs and other special items and non-cash items related to changes in fair value of contingent consideration. The Company's management utilizes Adjusted cost of sales for purposes of evaluating our ongoing operations and for internal planning and forecasting purposes. We believe that this non-GAAP operating measure, when reviewed collectively with our GAAP financial information, provides useful supplementary information to investors in assessing our operating performance.
(2) Gross margin is calculated as revenues less cost of sales. Gross margin % is calculated as gross margin divided by revenues.
(3) Adjusted gross margin, which is a non-GAAP financial measure, is calculated as revenues less Adjusted cost of sales. Adjusted gross margin %, which is a non-GAAP financial measure, is calculated as Adjusted gross margin divided by revenues. The Company’s management utilizes Adjusted gross margin and Adjusted gross margin % for purposes of evaluating our ongoing operations and for internal planning and forecasting purposes. We believe that these non-GAAP operating measures, when reviewed collectively with our GAAP financial information, provide useful supplemental information to investors in assessing our operating performance.
NM - Not meaningful


	Services Segment
	Three Months Ended March 31,
(dollars in millions)	2023			2022			% Change
Revenues
CDMO revenues	$	15.2		$	60.8		(75	%)

Cost of services	$	52.2		$	75.6		(31	%)



Gross margin (1)	$	(37.0)		$	(14.8)		150	%
Gross margin % (1)	(243)		%	(24)		%





(1) Gross margin is calculated as revenues less cost of services. Gross margin % is calculated as gross margin divided by revenues.


	March 31,		December 31,
(dollars in millions)	2023		2022		Change %
Financial assets:
Cash and cash equivalents	$	430.2	$	642.6	(33)	%

Borrowings:
Debt, current portion	$	950.7	$	957.3	(1)	%
Debt, net of current portion	447.7		448.5		—	%
Total borrowings	$	1,398.4	$	1,405.8	(1)	%

Working capital:
Current assets	$	1,221.3	$	1,210.7	1	%
Current liabilities	1,215.7		1,229.9		(1)	%
Total working capital	$	5.6	$	(19.2)	(129)	%


	Three Months Ended March 31,
(in millions)	2023		2022
Net cash used in:
Operating activities	$	(184.0)	$	(37.3)
Investing activities	(15.1)		(32.2)
Financing activities	(10.5)		(70.5)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(0.2)		(0.3)
Net change in cash, cash equivalents and restricted cash	$	(209.8)	$	(140.3)


Exhibit Number			Description
10 †*			Form of 2023-20 2 5 Performance B a s e d S t o c k U n i t A w a r d Agreement .
31.1 #			Certification of the Chief Executive Officer, pursuant to Exchange Act Rule 13a-14(a).
31.2 #			Certification of the Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a).
32.1 #			Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 #			Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101 #			The following financial information related to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Cash Flows, (v) the Condensed Consolidated Statement of Changes in Stockholders' Equity; and (vi) the related Notes to the Condensed Consolidated Financial Statements.
104 #			Cover Page Interactive Data File, formatted in iXBRL and contained in Exhibit 101.
#			Filed herewith.
†			Certain confidential portions of this exhibit were omitted by means of marking such portions with asterisks because of the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.
*			Management or compensatory plan or arrangement.


EMERGENT BIOSOLUTIONS INC.

By: /s/ROBERT G. KRAMER Robert G. Kramer President, Chief Executive Officer and Director (Principal Executive Officer)

Date: May 9, 2023

By: /s/RICHARD S. LINDAHL Richard S. Lindahl Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

Date: May 9, 2023