Procaps Group S.A.

The company did not state consolidated revenue, EPS, or gross margin figures in this transcript, but it did say constant-currency revenues rose 4.3% in Q2 2023 and 7% in the first half of 2023. Gross profit was down year over year in both the quarter and first half due to higher costs, a less favorable sales mix, and lower high-margin product development services. SG&A declined 15.4% in the quarter and 10.4% in the first half, while new products generated $66 million of revenue in the first half and the renewal rate was 34%. Management said Q3 should be better than Q2 and Q4 should be a very strong quarter, with a strong portfolio of orders, September and October launches, and currency tailwinds; no formal full-year revenue or EPS guidance was given.

Ruben Minski framed the first half as difficult but temporary, saying the company’s recovery actions started late last year and are already beginning to show results. He emphasized value-creation initiatives, operational efficiency, and a medium- to long-term focus rather than short-term noise. He was upbeat on the product pipeline, pointing to strong performance from new launches and saying Q4 should be a very strong quarter.

Patricio Vargas focused on the financial pressure points: FX, inflation, high interest rates, financing costs, lower CDMO orders tied to customer working-capital issues, and a weaker gross profit mix. He said gross profit was down year over year in Q2 and H1, but SG&A fell 15.4% in the quarter and 10.4% in the first half as cost actions took hold. On the balance sheet, he said cash was pressured by weak late-2022 results, working-capital needs, and debt service, but the company remains in compliance with debt agreements after securing waivers; he also said the company refinanced a roughly $40 million syndicated facility into a roughly $60 million club deal with six-year maturity, and estimated near-term debt at about $100 million short term and about $180 million long term.

Analysts pressed on working capital, board turnover, the Florida facilities, Q4 optimism, M&A, liquidity, and the new debt deal. Management said receivables and inventory improvements are in progress but have been delayed by customers’ tighter working capital, while board instability was characterized as a disagreement over pace rather than a governance crisis. On Florida, management said the Miramar gummies site has started packing for third parties and should begin testing/ramp-up in a couple of months, with meaningful benefits more likely in 2024; on M&A, they said inorganic growth remains strategic but cash and leverage are the near-term constraint.