01—Abstract
Summary
Summary of the 10-Q filed July 31, 2024. Cited figures are marked; the original filing is the authoritative source.
Teva Pharmaceutical Industries Limited reported a second-quarter 2024 net loss attributable to Teva of $846 milliona, compared to a net loss of $872 million in the second quarter of 2023 (as revised).
Net revenues rose to $4,164 millionb from $3,878 million, and operating loss narrowed to $5 million from $654 million. The result was driven by a $400 million goodwill impairment related to the Teva API reporting unit, $280 million of other asset impairments, restructuring and other items, and a $630 million income tax expense that includes $506 million from an agreement with the Israeli Tax Authorities settling taxes for 2008 through 2020. Gross profit margin improved to 48.6% from 46.3%, mainly due to a favorable product mix, primarily AUSTEDO.
Cash flow from operating activities was $103 millionc in the second quarter of 2024, down from $324 million a year earlier, reflecting working capital changes and higher tax payments. Cash and cash equivalents were $2,258 million at June 30, 2024, and total debt was $18,640 million, down from $19,833 million at year-end 2023, after repayment of $956 million of 6% senior notes at maturity. Total equity fell to $6,563 million from $8,126 million, largely due to the net loss and currency translation effects.
The company has not paid dividends since December 2017 and states it currently cannot conduct share repurchases or pay dividends due to its accumulated deficit. The filing also discloses a material weakness in internal control over financial reporting related to the contingent consideration liability and related expenses, which the company states is not yet remediated as of June 30, 2024, and concludes that disclosure controls were not effective. The company also reports that Teva's Japan business venture is classified as held for sale, and that it intends to divest its API business, with completion expected in the first half of 2025.
02—Key points
Key Highlights
- Revenue of $4,164 million in Q2 2024, up 7% in U.S. dollars and 11% in local currency versus Q2 2023, led by generics in all segments and AUSTEDO.
- United States segment revenue of $2,110 million and segment profit of $629 million, up 12% and 23%, respectively.
- Operating loss narrowed to $5 million from $654 million, but included a $400 million goodwill impairment on the Teva API reporting unit and $280 million in other asset impairments, restructuring and other items.
- Income tax expense of $630 million on a pre-tax loss of $246 million, including a $506 million increase from the Israeli Tax Authorities settlement covering taxable years 2008 through 2020.
- Net loss attributable to Teva of $846 million, or $0.75 per diluted share, compared to a net loss of $872 million in Q2 2023.
- Operating cash flow fell to $103 million from $324 million, and total debt decreased to $18,640 million after repaying $956 million of senior notes in April 2024.
- Material weakness in internal control over financial reporting related to the contingent consideration liability remains unremediated as of June 30, 2024, and disclosure controls were concluded not effective.
03—One dollar
Follow one dollar
For each $1.00 of revenue in Q2 FY2024, Teva Pharmaceutical Industries lost $0.20.
- Revenue$4.16B100.0%
- Cost of revenue−$2.14B51.4%
- Gross profit$2.02B48.6%
- Operating costs−$2.03B48.7%
- Operating income−$5.0M0.1%
- Interest, other & tax−$841.0M20.2%
- Net income−$846.0M20.3%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2024filed July 31, 2024Financial Statements
Q2 FY2024 against Q2 FY2023
| Line item | Q2 FY2024Q2 FY2023 | Change |
|---|---|---|
| Revenue | $4.16B$3.88B | +7.4% |
| Cost of Revenue | $2.14B$2.08B | +2.8% |
| Gross Profit | $2.02B$1.80B | +12.7% |
| Operating Income | -$5.00M-$654.00M | +99.2% |
| Net Income | -$846.00M-$872.00M | +3.0% |
| EPS (Basic) | $-0.75$-0.78 | +3.8% |
| EPS (Diluted) | $-0.75$-0.78 | +3.8% |
| Shares Outstanding (Basic) | 1.13B1.12B | +1.2% |
| Shares Outstanding (Diluted) | 1.13B1.12B | +1.2% |
05—Questions
Frequently Asked Questions
Why did Teva report a large tax expense despite a pre-tax loss in the second quarter of 2024?
Teva recognized a $630 million tax expense on a pre-tax loss of $246 million. The filing states that the rate was mainly affected by an agreement with the Israeli Tax Authorities settling litigation over taxes for 2008 through 2020, which increased total income taxes by $506 million in the quarter, as well as by impairments. The agreement requires Teva to pay about $750 million over six years.
What drove the goodwill impairment charge in the second quarter of 2024?
Teva recorded a $400 million goodwill impairment related to its Teva API reporting unit. The impairment followed a quantitative analysis based on the long-range planning process and Pivot to Growth strategy assumptions. After the charge, the carrying value of the API reporting unit equaled its fair value, so further impairments may be necessary if business conditions change.
How much debt does Teva have and how is it structured?
Total debt was $18,640 million as of June 30, 2024, compared to $19,833 million at December 31, 2023. Of this, $2,094 million was short-term debt. The debt was effectively 59% in U.S. dollars, 39% in euros and 2% in Swiss francs. Teva's $1.8 billion revolving credit facility had no amounts outstanding as of June 30, 2024, and its maturity was extended to April 2027.
Are there any restrictions on Teva's ability to return capital to shareholders?
Yes. The filing states that Teva did not repurchase any shares in the second quarter of 2024 and currently cannot conduct share repurchases or pay dividends due to its accumulated deficit. Teva has not paid dividends on its ordinary shares or ADSs since December 2017. Accumulated deficit was $14,519 million as of June 30, 2024.
What is the status of the material weakness disclosed in the filing?
Management identified a material weakness in internal control over financial reporting related to the contingent consideration liability and related expenses for future royalty payments. The company has designed and implemented new controls, but they have not operated for a sufficient period to be tested as effective. As a result, the material weakness was not remediated as of June 30, 2024, and the CEO and CFO concluded that disclosure controls and procedures were not effective.
06—Continue